81 FR 10693 - Self-Regulatory Organizations; NASDAQ PHLX LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Amend Section II of the Exchange's Pricing Schedule

SECURITIES AND EXCHANGE COMMISSION

Federal Register Volume 81, Issue 40 (March 1, 2016)

Page Range10693-10698
FR Document2016-04357

Federal Register, Volume 81 Issue 40 (Tuesday, March 1, 2016)
[Federal Register Volume 81, Number 40 (Tuesday, March 1, 2016)]
[Notices]
[Pages 10693-10698]
From the Federal Register Online  [www.thefederalregister.org]
[FR Doc No: 2016-04357]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-77221; File No. SR-Phlx-2016-26]


Self-Regulatory Organizations; NASDAQ PHLX LLC; Notice of Filing 
and Immediate Effectiveness of Proposed Rule Change To Amend Section II 
of the Exchange's Pricing Schedule

February 24, 2016.
    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 February 10, 2016, NASDAQ PHLX LLC (``Phlx'' or the ``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 amend the Exchange's Pricing Schedule 
(``Pricing Schedule'') at section II, entitled ``Multiply Listed 
Options Fees,'' \3\ to: (1) Exclude floor volume from the Monthly 
Market Maker Cap; (2) increase the assessment for select Firm 
electronic simple orders; and (3) state that Phlx members that have 
executed MARS Eligible Contracts may receive the MARS Payment.\4\
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    \3\ Multiply Listed Options Fees include options overlying 
equities, exchange traded funds (``ETFs''), exchange traded notes 
(``ETNs'') and indexes which are Multiply Listed.
    \4\ Monthly Market Maker Cap and MARS are discussed below.
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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 the 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The purpose of this filing is to amend the Exchange's Pricing 
Schedule at section II to: (1) Exclude floor volume from the Monthly 
Market Maker Cap; (2) increase the assessment for select Firm 
electronic simple orders; and (3) state

[[Page 10694]]

that Phlx members that have executed MARS Eligible Contracts may 
receive the MARS Payment.
Change 1--Multiply Listed Options Fees--Monthly Market Maker Cap
    In Change 1 the Exchange proposes to exclude floor volume from the 
calculation of the Monthly Market Maker Cap. Offering the Monthly 
Market Maker Cap as proposed, and as discussed below, will continue to 
incentivize market participants to bring liquidity and order flow to 
the Exchange for the benefit of all market participants. 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.
    Currently, the Monthly Market Maker Cap in section II in the 
Pricing Schedule states:
     Specialists and Market Makers are subject to a ``Monthly 
Market Maker Cap'' of $500,000 for: (i) Electronic and floor Option 
Transaction Charges; and (ii) QCC Transaction Fees (as defined in 
Exchange Rule 1080(o) and Floor QCC Orders, as defined in 1064(e)). The 
trading activity of separate Specialist and Market Maker member 
organizations will be aggregated in calculating the Monthly Market 
Maker Cap if there is Common Ownership between the member 
organizations. All dividend, merger, short stock interest, reversal and 
conversion, jelly roll and box spread strategy executions (as defined 
in this section II) will be excluded from the Monthly Market Maker Cap. 
Specialists or Market Makers that (i) are on the contra-side of an 
electronically-delivered and executed Customer order, excluding 
responses to a PIXL auction; and (ii) have reached the Monthly Market 
Maker Cap will be assessed fees as follows:
Fee per contract
    $0.05 per contract Fee for Adding Liquidity in Penny Pilot Options.
    $0.18 per contract Fee for Removing Liquidity in Penny Pilot 
Options.
    $0.18 per contract in Non-Penny Pilot Options.
    $0.18 per contract in a non-Complex electronic auction, including 
the Quote Exhaust auction and, for purposes of this fee, the opening 
process. A Complex electronic auction includes, but is not limited to, 
the Complex Order Live Auction (``COLA''). Transactions which execute 
against an order for which the Exchange broadcast an order exposure 
alert in an electronic auction will be subject to this fee.
    Today, the Exchange applies certain caps \5\ on Multiply Listed 
Option Fees assessed to Customer,\6\ Professional,\7\ Specialist,\8\ 
Market Maker,\9\ Broker-Dealer,\10\ and Firm.\11\ Today, Specialists 
and Market Makers are subject to a ``Monthly Market Maker Cap'' of 
$500,000 for: (i) electronic and floor Option Transaction Charges; and 
(ii) qualified contingent cross (``QCC'') Transaction Fees (as defined 
in Exchange Rule 1080(o) and Floor QCC Orders,\12\ as defined in 
1064(e)).\13\ The trading activity of separate Specialist and Market 
Maker member organizations is aggregated in calculating the Monthly 
Market Maker Cap if there is Common Ownership \14\ between the member 
organizations. All dividend, merger, short stock interest, reversal and 
conversion, jelly roll,\15\ and box spread strategy executions (as 
defined in Section II in the Pricing Schedule) are excluded from the 
Monthly Market Maker Cap (together the ``excluded strategies'').\16\ 
The Exchange proposes to exclude floor volume from the Monthly Market 
Maker Cap.
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    \5\ These caps reflect different levels for different 
strategies. For example, there is a $1,500 cap for certain dividend, 
merger and short stock interest strategies; and there is a $700 cap 
for certain reversal and conversion, jelly roll and box spread floor 
option transaction strategies. The Exchange further separately caps 
each member organization for dividend, merger, short stock interest, 
reversal and conversion, jelly roll and box spread strategy 
executions in Multiply Listed Options, combined in a month when 
trading in their own proprietary accounts (``Monthly Strategy Cap'') 
at $65,000 per member organization, per month.
    \6\ 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).
    \7\ 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).
    \8\ A ``Specialist'' is an Exchange member who is registered as 
an options specialist pursuant to Rule 1020(a).
    \9\ 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.
    \10\ The term ``Broker-Dealer'' applies to any transaction which 
is not subject to any of the other transaction fees applicable 
within a particular category.
    \11\ The term ``Firm'' applies to any transaction that is 
identified by a member or member organization for clearing in the 
Firm range at OCC.
    \12\ A QCC Order is comprised of an order to buy or sell at 
least 1000 contracts that is identified as being part of a qualified 
contingent trade, as that term is defined in Rule 1080(o)(3), 
coupled with a contra-side order to buy or sell an equal number of 
contracts. A Floor QCC Order must: (i) Be for at least 1,000 
contracts, (ii) meet the six requirements of Rule 1080(o)(3) which 
are modeled on the Qualified Contingent Trade (``QCT'') Exemption, 
(iii) be executed at a price at or between the National Best Bid and 
Offer (``NBBO''); and (iv) be rejected if a Customer order is 
resting on the Exchange book at the same price. See Rule 1064(e). 
See also Securities Exchange Act Release No. 64688 (June 16, 2011), 
76 FR 36606 (June 22, 2011) (SR-Phlx-2011-56).
    \13\ Certain strategy executions, discussed below, will be 
excluded from the Monthly Market Maker Cap.
    \14\ The term ``Common Ownership'' means members or member 
organizations under 75% common ownership or control.
    \15\ A dividend strategy is defined as transactions done to 
achieve a dividend arbitrage involving the purchase, sale and 
exercise of in-the-money options of the same class, executed the 
first business day prior to the date on which the underlying stock 
goes ex-dividend. A merger strategy is defined as transactions done 
to achieve a merger arbitrage involving the purchase, sale and 
exercise of options of the same class and expiration date, executed 
the first business day prior to the date on which shareholders of 
record are required to elect their respective form of consideration, 
i.e., cash or stock. A short stock interest strategy is defined as 
transactions done to achieve a short stock interest arbitrage 
involving the purchase, sale and exercise of in-the-money options of 
the same class. A reversal or conversion strategies is a transaction 
that employ calls and puts of the same strike price and the 
underlying stock.
    \16\ Specialists or Market Makers that (i) are on the contra-
side of an electronically-delivered and executed Customer order, 
excluding responses to a PIXL auction; and (ii) have reached the 
Monthly Market Maker Cap will be assessed separately. A member may 
electronically submit for execution an order it represents as agent 
on behalf of a public customer, broker-dealer, or any other entity 
(``PIXL Order'') against principal interest or against any other 
order (except as provided in Rule 1080(n)(i)(F)) it represents as 
agent (``Initiating Order'') provided it submits the PIXL order for 
electronic execution into the PIXL Auction (``Auction'') pursuant to 
Rule 1080. See Exchange Rule 1080(n). Non-Initiating Order interest 
could be a PIXL Auction Responder or a resting order or quote that 
was on the Phlx book prior to the auction. PIXL is the Exchange's 
price improvement mechanism known as Price Improvement XL or PIXL. 
See Rule 1080(n).
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    The Exchange's proposal to exclude floor volume from the 
calculation of the Monthly Market Maker Cap is reasonable and proper 
because, despite the change, the Exchange will, through the Monthly 
Market Maker Cap, continue to offer members an opportunity to pay lower 
fees. The trading activity of separate Specialist and Market Maker 
member organizations will continue to be aggregated in calculating the 
Monthly Market Maker Cap if there is Common Ownership between the 
member organizations. Specialists and Market Makers will continue to be 
subject to the Monthly Market Maker Cap, and once the Monthly Market 
Maker Cap of $500,000 is reached, the members to whom the cap applies 
will not have to pay for additional strategy executions

[[Page 10695]]

(sans excluded strategies) for the remainder of that month as a result 
of the fee cap.
    The Exchange is making the proposal to exclude floor volume from 
the calculation of the Monthly Market Maker Cap because the Exchange 
floor incurs additional costs (e.g., personnel, equipment, 
surveillance) related to a business model that includes floor-based 
trading. This proposal helps the Exchange to recover such costs while 
continuing to offer the Monthly Market Cap, which incentivizes market 
participants to bring liquidity and order flow to the Exchange.
Change 2--Multiply Listed Options Fees--Firm Electronic Simple Orders
    In Change 2 the Exchange proposes to increase the assessment for 
select Firm electronic simple (non-complex) \17\ orders because the 
Exchange is trying to keep up with rising expenses and this modest fee 
increase will help the Exchange to defray them.
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    \17\ A complex order is any order involving the simultaneous 
purchase and/or sale of two or more different options series in the 
same underlying security, priced at a net debit or credit based on 
the relative prices of the individual components, for the same 
account, for the purpose of executing a particular investment 
strategy. A complex order can also be a stock-option order. See 
Exchange Rule 1080, Commentary .07(a)(i).
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    The select symbols AAPL, BAC, EEM, FB, FXI, IWM, QQQ, TWTR, VXX and 
XLF are high volume Penny Pilot \18\ Options listed on the Exchange. 
The Exchange is proposing a modest increase in the assessment from 
$0.34 to $0.37, so that as proposed Note 12 will read as follows:
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    \18\ The Penny Pilot was established in January 2007 and was 
last extended in 2015. See Securities Exchange Act Release Nos. 
55153 (January 23, 2007), 72 FR 4553 (January 31, 2007) (SR-Phlx-
2006-74) (notice of filing and approval order establishing Penny 
Pilot); and 75286 (June 24, 2015), 80 FR 37333 (June 30, 2015) (SR-
Phlx-2015-54) (notice of filing and immediate effectiveness 
extending the Penny Pilot through June 30, 2016). Penny Pilot 
Options listed on the Exchange can be found at http://www.nasdaqtrader.com/Micro.aspx?id=phlx.

    ``\12\Firm electronic simple orders in AAPL, BAC, EEM, FB, FXI, 
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IWM, QQQ, TWTR, VXX and XLF will be assessed $0.37.''

    The proposed increase for the Firm electronic simple orders in the 
noted options is not an outlier; rather, it is similar to and 
competitive with what is offered by other options markets.\19\ The 
Exchange believes that the Multiply Listed Options Fees schedule 
continues as constructed to be competitive and encourage market 
participants to bring liquidity to the Exchange.
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    \19\ See, e.g., the pricing schedule of NYSE AMEX OPTIONS (AMEX) 
at https://www.nyse.com/publicdocs/nyse/markets/amex-options/NYSE_Amex_Options_Fee_Schedule.pdf, and of MIAX OPTIONS (MIAX) at 
http://www.miaxoptions.com/content/fees. See also, e.g., the pricing 
schedule of NASDAQ PHLX LLC (``Phlx'') and NASDAQ Options Market 
(``NOM'').
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Change 3--Other Transaction Fees--MARS Payment
    The Exchange proposes to state that Phlx members that have executed 
the required MARS Eligible Contracts may receive the Market Access and 
Routing Subsidy (``MARS'') Payment on all their MARS Eligible 
Contracts. The Exchange believes that, as discussed below, expanding 
who is eligible to receive MARS Payment will incentivize market 
participants to bring liquidity and order flow to the Exchange for the 
benefit of all market participants. Liquidity benefits all market 
participants by providing more trading opportunities.
    Currently, section IV E. in the Pricing Schedule states:

MARS Payment

    Phlx members that have System Eligibility and have executed the 
Eligible Contracts in a month may receive the MARS Payment of $0.10 
per contract. This MARS Payment will be paid only on executed Firm 
orders routed to Phlx through a participating Phlx member's System. 
No payment will be made with respect to orders that are routed to 
Phlx, but not executed.

    Currently, a MARS Payment will be paid only on executed Firm orders 
routed to Phlx through a participating Phlx member's System.
    Today, to qualify for MARS, a Phlx member's routing system 
(``System'') would be required to: (1) enable the electronic routing of 
orders to all of the U.S. options exchanges, including Phlx; (2) 
provide current consolidated market data from the U.S. options 
exchanges; and (3) be capable of interfacing with Phlx's application 
program interface (``API'') to access current Phlx match engine 
functionality. Further, the member's System would also need to cause 
Phlx to be the one of the top three default destination exchanges for 
individually executed marketable orders if Phlx is at the NBBO, 
regardless of size or time, but allow any user to manually override 
Phlx as a default destination on an order-by-order basis.\20\ Today, 
MARS Payment is only on Firm orders routed to Phlx through a 
participating Phlx member's System. The Exchange proposes to expand the 
participant types besides Firm (BD, JBO, Professional) that are 
eligible for MARS Payment.\21\
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    \20\ Notwithstanding the above, complex orders would not be 
required to enable the electronic routing of orders to all of the 
U.S. options exchanges or provide current consolidated market data 
from the U.S. options exchanges. Any Phlx member would be permitted 
to avail itself of this arrangement, provided that its order routing 
functionality incorporates the features described above and 
satisfies Phlx that it appears to be robust and reliable. The member 
remains solely responsible for implementing and operating its 
system. Section IV E. in the Pricing Schedule.
    \21\ To be eligible, as discussed, Eligible Contracts must be 
routed through a participating Phlx member's System.
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    The Exchange proposes to indicate what qualifying volume will be 
eligible for MARS Payment (no longer only Firm) and to state that Phlx 
members that have executed the prerequisite MARS Eligible Contracts may 
receive the MARS Payment of $0.10 per contract. For the purpose of 
qualifying for the MARS Payment, Eligible Contracts include the 
following: Firm, Broker-Dealer, Joint Back Office or ``JBO'' or 
Professional equity option orders that are electronically delivered and 
executed.\22\ A MARS Payment will be made to Phlx members that have 
System Eligibility and have routed at least 30,000 Eligible Contracts 
daily in a month, which were executed on Phlx.
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    \22\ The Exchange is removing the word ``may'' to tighten up the 
language regarding what Eligible Contracts qualify for MARS Payment. 
Eligible Contracts do not include floor-based orders, qualified 
contingent cross or ``QCC'' orders, price improvement or ``PIXL'' 
orders, Mini Option orders or Singly Listed Orders.
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    As proposed Section IV E. in the Pricing Schedule will read as 
follows:

MARS Payment

    Phlx members that have System Eligibility and have executed the 
Eligible Contracts in a month may receive the MARS Payment of $0.10 
per contract for all Eligible Contracts routed to Phlx through a 
participating Phlx member's System. No payment will be made with 
respect to orders that are routed to Phlx, but not executed.

    The Exchange believes that the fees and rebates in its Pricing 
Schedule are structured to attract liquidity. Despite the proposed 
changes, Phlx members and the Phlx market will continue to be 
encouraged to transact greater liquidity on the Exchange.
2. Statutory Basis
    The Exchange believes that its proposal to amend its Pricing 
Schedule is consistent with section 6(b) of the Act \23\ in general, 
and furthers the objectives of section 6(b)(4) and (b)(5) of the Act 
\24\ 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 
customers, issuers, brokers, or dealers.
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    \23\ 15 U.S.C. 78f(b).
    \24\ 15 U.S.C. 78f(b)(4), (5).
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    The Commission and the courts have repeatedly expressed their 
preference

[[Page 10696]]

for competition over regulatory intervention in determining prices, 
products, and services in the securities markets. In Regulation NMS, 
while adopting a series of steps to improve the current market model, 
the Commission highlighted the importance of market forces in 
determining prices and SRO revenues and, also, recognized that current 
regulation of the market system ``has been remarkably successful in 
promoting market competition in its broader forms that are most 
important to investors and listed companies.'' \25\ Likewise, in 
NetCoalition v. Securities and Exchange Commission \26\ 
(``NetCoalition'') the D.C. Circuit upheld the Commission's use of a 
market-based approach in evaluating the fairness of market data fees 
against a challenge claiming that Congress mandated a cost-based 
approach. \27\ As the court emphasized, the Commission ``intended in 
Regulation NMS that `market forces, rather than regulatory 
requirements' play a role in determining the market data . . . to be 
made available to investors and at what cost.'' \28\
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    \25\ Securities Exchange Act Release No. 51808 at 37499 (June 9, 
2005) (``Regulation NMS Adopting Release'').
    \26\ NetCoalition v. SEC, 615 F.3d 525 (D.C. Cir. 2010).
    \27\ See id. at 534-535.
    \28\ See id. at 537.
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    Further, ``[n]o one disputes that competition for order flow is 
`fierce.' . . . As the SEC explained, `[i]n the U.S. national market 
system, buyers and sellers of securities, and the broker-dealers that 
act as their order-routing agents, have a wide range of choices of 
where to route orders for execution'; [and] `no exchange can afford to 
take its market share percentages for granted' because `no exchange 
possesses a monopoly, regulatory or otherwise, in the execution of 
order flow from broker dealers'. . . .'' \29\ Although the court and 
the SEC were discussing the cash equities markets, the Exchange 
believes that these views apply with equal force to the options 
markets.
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    \29\ Id. at 539 (quoting Securities Exchange Release No. 59039 
(December 2, 2008), 73 FR 74770 (December 9, 2008) (SR-NYSEArca-
2006-21) at 73 FR at 74782-74783).
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Change 1--Multiply Listed Options Fees--Monthly Market Maker Cap
    In Change 1 the Exchange proposes to exclude floor volume from the 
calculation of the Monthly Market Maker Cap that applies to Specialists 
and Market Makers when calculating the Monthly Market Maker Cap.
    The Exchange believes that the proposed change is reasonable, 
equitable and not unfairly discriminatory for the following reasons.
    The Exchange's proposal to exclude floor volume from the 
calculation of the Monthly Market Maker Cap is reasonable because, 
despite the change, the Exchange will continue to offer members an 
opportunity to pay lower fees. The trading activity of separate 
Specialist and Market Maker member organizations will continue to be 
aggregated in calculating the Monthly Market Maker Cap if there is 
Common Ownership between the member organizations. Specialists and 
Market Makers \30\ will continue to be subject to the Monthly Market 
Maker Cap, and once the Monthly Market Maker Cap of $500,000 is 
reached, the members to whom the cap applies will not have to pay for 
additional strategy executions for the remainder of that month as a 
result of the fee cap.
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    \30\ Specialists and Market Makers on the Exchange are valuable 
market participants that provide liquidity in the marketplace. They 
also have obligations to the market and regulatory requirements, 
which normally do not apply to other market participants. These 
obligations include: to make continuous markets, engage in a course 
of dealings reasonably calculated to contribute to the maintenance 
of a fair and orderly market, and not make bids or offers or enter 
into transactions that are inconsistent with a course of dealings. 
See Rule 1014 titled ``Obligations and Restrictions Applicable to 
Specialists and Registered Options Traders.''
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    Excluding floor Options Transaction Charges from the Monthly Market 
Maker Cap is reasonable, equitable and not unfairly discriminatory 
because electronic Options Transaction Charges would continue to be 
capped as part of the Monthly Market Maker Cap, which applies only to 
Specialists and Market Makers. The Exchange would include floor option 
transaction charges related to reversal and conversion, jelly roll and 
box spread strategies in the Monthly Strategy Cap for Professionals, 
and Broker Dealers, when such members are trading in their own 
proprietary accounts, because these market participants are not subject 
to the Monthly Firm Fee Cap or other similar cap. While Specialists and 
Market Makers are subject to a Monthly Market Maker Cap on electronic 
options transaction charges, reversal and conversion, jelly roll and 
box spread transactions, which are included in the Monthly Strategy 
Cap, are excluded from the Monthly Market Maker Cap. The Exchange 
believes also that its proposal to exclude floor transactions from the 
Monthly Market Maker Cap is reasonable because the Exchange floor 
incurs additional costs (e.g., personnel, equipment, surveillance) 
related to a business model that includes floor-based trading.
    For the reasons described above, the Exchange believes that 
continuing to offer the Monthly Market Maker Cap as proposed will 
continue to incentivize market participants to bring liquidity and 
order flow to the Exchange for the benefit of all market participants. 
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. 
Specialists and Market Makers have obligations to make continuous 
markets, engage in a course of dealings reasonably calculated to 
contribute to the maintenance of a fair and orderly market, and not 
make bids or offers or enter into transactions that are inconsistent 
with a course of dealings. Moreover, the proposed change to the fee 
structure and rebate structure will be applied uniformly to all.
Change 2--Multiply Listed Options Fees--Firm Electronic Simple Orders
    In Change 2 the Exchange proposes to increase the assessment from 
$0.34 to $0.37 per contract for select Firm electronic simple orders in 
AAPL, BAC, EEM, FB, FXI, IWM, QQQ, TWTR, VXX, and XLF. The assessment 
for the noted simple orders is in the Multiply Listed Options Fees 
schedule for options overlying equities, ETFs, ETNs, and certain 
indexes.
    The Exchange believes that the proposed change for the Firm 
electronic simple orders in the noted options, which are high volume 
Penny Pilot Options listed on the Exchange,\31\ is reasonable. This is 
because the proposed change is very modest and is not an outlier; 
rather, it is similar to and competitive with what is offered by other 
options markets.\32\ The the [sic] Multiply Listed Options Fees 
schedule continues as constructed to be competitive and encourage 
market participants to bring liquidity to the Exchange. The Exchange 
believes that despite the proposed increase, which will help the 
Exchange to recover costs, Firms will continue to be incentivized

[[Page 10697]]

to transact electronic simple orders in AAPL, BAC, EEM, FB, FXI, IWM, 
QQQ, TWTR, VXX, and XLF on the Exchange.
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    \31\ The high volume in the noted options is present across 
other options exchanges.
    \32\ See, e.g., the pricing schedule of NYSE AMEX OPTIONS (AMEX) 
at https://www.nyse.com/publicdocs/nyse/markets/amex-options/NYSE_Amex_Options_Fee_Schedule.pdf, and of MIAX OPTIONS (MIAX) at 
http://www.miaxoptions.com/content/fees. See also, e.g., the pricing 
schedule of NASDAQ PHLX LLC (``Phlx'') and NASDAQ Options Market 
(``NOM'').
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    The Exchange believes that the modest change from $0.34 to $0.37 in 
Note 12 is equitable and not unfairly discriminatory because the 
assessment is modest and will be applied uniformly to all Firms that 
send in electronic simple orders in AAPL, BAC, EEM, FB, FXI, IWM, QQQ, 
TWTR, VXX, and XLF.\33\
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    \33\ The Exchange notes that, as discussed, Note 12 continues to 
apply only to certain Firm orders. Note 12 does not apply to other 
fee liable members (e.g., Broker Dealer, Specialist and Market 
Maker, Professional, Customer), and as such the proposed change does 
not effectively change the fee relationship between Firms and such 
members.
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Change 3--Other Transaction Fees--MARS Payment
    In Change 3 the Exchange proposes to state that Phlx members that 
have executed MARS Eligible Contracts may receive the MARS Payment.
    The Exchange believes that the proposed change is reasonable, 
equitable and not unfairly discriminatory.
    Where currently a MARS Payment will be paid only on executed Firm 
orders, the proposed change would allow all qualifying MARS volume to 
receive a MARS Payment. With the proposed change, all Phlx members that 
have executed MARS Eligible Contracts may receive the MARS Payment of 
$0.10 per contract. The Exchange believes that this is reasonable 
because it incentivizes more Phlx members to rout Eligible Contracts 
for execution on the Exchange.
    The Exchange believes that the proposed change is equitable and not 
unfairly discriminatory because the increased ability to receive MARS 
Payment will be applied uniformly to all. Thus, a MARS Payment will be 
made to Phlx members that have System Eligibility and have routed at 
least 30,000 Eligible Contracts daily in a month, which were executed 
on Phlx.\34\
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    \34\ For the purpose of qualifying for the MARS Payment, 
Eligible Contracts include the following: Firm, Broker-Dealer, Joint 
Back Office or ``JBO'' or Professional equity option orders that are 
electronically delivered and executed. Eligible Contracts must be 
routed through a participating Phlx member's System and do not 
include floor-based orders, qualified contingent cross or ``QCC'' 
orders, price improvement or ``PIXL'' orders, Mini Option orders or 
Singly Listed Orders.
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    The Exchange desires to continue to incentivize members and member 
organizations, through the Exchange's rebate and fee structure, 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.

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 that its 
proposal to exclude floor volume from the Monthly Market Maker Cap, 
increase the assessment for select Firm electronic simple orders, and 
state that all Phlx members that have executed MARS Eligible Contracts 
may receive the MARS Payment does not impose a burden on competition. 
The Exchange's proposal will continue to encourage eligible market 
participants to transact orders on the Exchange in order to obtain the 
Monthly Market Maker Cap and MARS Payments.
    The Exchange operates in a highly competitive market, comprised of 
at least 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 described in the above 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.\35\
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    \35\ 15 U.S.C. 78s(b)(3)(A)(ii).
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    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 [email protected]. Please include 
File Number SR-Phlx-2016-26 on the subject line.

Paper comments

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

All submissions should refer to File Number SR-Phlx-2016-26. 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 such 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-

[[Page 10698]]

2016-26, and should be submitted on or before March 22, 2016.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\36\
Robert W. Errett,
Deputy Secretary.
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    \36\ 17 CFR 200.30-3(a)(12).
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[FR Doc. 2016-04357 Filed 2-29-16; 8:45 am]
 BILLING CODE 8011-01-P


Current View
CategoryRegulatory Information
CollectionFederal Register
sudoc ClassAE 2.7:
GS 4.107:
AE 2.106:
PublisherOffice of the Federal Register, National Archives and Records Administration
SectionNotices
FR Citation81 FR 10693 

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