81 FR 23023 - Self-Regulatory Organizations; NASDAQ PHLX LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change to Proposed Rule Change To Modify Chapter VII Section B of the Exchange's Pricing Schedule
SECURITIES AND EXCHANGE COMMISSION Federal Register Volume 81, Issue 75 (April 19, 2016)
Federal Register Volume 81, Issue 75 (April 19, 2016)
| Page Range | 23023-23026 | |
| FR Document | 2016-08948 |
[Federal Register Volume 81, Number 75 (Tuesday, April 19, 2016)] [Notices] [Pages 23023-23026] From the Federal Register Online [www.thefederalregister.org] [FR Doc No: 2016-08948] ----------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION [Release No. 34-77613; File No. SR-Phlx-2016-45] Self-Regulatory Organizations; NASDAQ PHLX LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change to Proposed Rule Change To Modify Chapter VII Section B of the Exchange's Pricing Schedule April 13, 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 April 1, 2016, NASDAQ PHLX LLC (``Phlx'' or ``Exchange'') filed with the Securities and Exchange Commission (``SEC'' or ``Commission'') the proposed rule change as described in Items I, 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. --------------------------------------------------------------------------- \1\ 15 U.S.C. 78s(b)(1). \2\ 17 CFR 240.19b-4. --------------------------------------------------------------------------- I. Self-Regulatory Organization's Statement of the Terms of Substance of the Proposed Rule Change The Exchange proposes to modify Section B of the NASDAQ PHLX LLC Pricing Schedule (``Pricing Schedule'') in Chapter VII separately to identify streaming quote interface (``SQF'') Purge Ports and to set the fees applicable to SQF Purge Ports. The Exchange also is making technical, non-substantive modifications to the certain existing provisions in Chapter VII, Section B. 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 proposal is to modify Chapter VII, Section B of the Exchange's Pricing Schedule separately to identify SQF Purge Ports and to set the fees applicable to SQF Purge Ports. Active SQF Ports today allow purging, however the Exchange does not separately identify such ports or assess a fee for SQF Purge Ports. The SQF Port (known as ``Active SQF Port'') \3\ is an interface that enables Specialists,\4\ Streaming Quote Traders (``SQTs'') \5\ and Remote Streaming Quote Traders (``RSQTs'') \6\ (together known as ``Market Makers'') to connect and send quotes into the Exchange's trading system and receive certain information.\7\ Market Makers rely on data available through Active SQF Ports to provide them the necessary information for risk control and risk management so that they can perform market making activities in a swift and meaningful way. Active SQF Ports allow Market Makers to access information such as execution reports, execution report messages, auction notifications, and administrative data through a single feed. Other data that is available includes: (1) Options Auction Notifications (e.g., opening imbalance, market exhaust, PIXL or other information); (2) Options Symbol Directory Messages; (3) System Event Messages (e.g., start of messages, start of system hours, start of quoting, start of opening); (4) Complex Order Strategy Auction Notifications (COLA); (5) Complex Order Strategy messages; (6) Option Trading Action Messages (e.g., [[Page 23024]] trading halts, resumption of trading); and (7) Complex Strategy Trading Action Messages (e.g., trading halts, resumption of trading). In addition to Active SQF Ports being used to send quotes and to receive information needed for market making activities, Active SQF Ports now can be also used for purging quotes. Such Active SQF Ports enable Market Makers to seamlessly manage their ability to remove their quotes in a swift manner. --------------------------------------------------------------------------- \3\ Current SQF Ports are known as ``Active SQF Ports'' in the Pricing Schedule to signify that such ports are fee liable when they receive inbound quotes at any time within that month ($1,250 per port per month up to a maximum of $42,000 per month). \4\ A Specialist is an Exchange member who is registered as an options specialist. See Phlx Rule 1020(a). \5\ 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. \6\ 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. \7\ See Securities Exchange Act Release No. 63034 (October 4, 2010), 75 FR 62441 (October 8, 2010) (SR-Phlx-2010-124). --------------------------------------------------------------------------- An Active Purge Port currently can be configured as a ``Purge- only'' port utilized for the sole purpose of purging option interest from the Exchange's system and allowing entry of underlying-level purges for a specified range of options.\8\ Such dedicated ports reduce the amount of data flowing through Active SQF Ports. A purge of options quoted on the SQF interface is reported via a ``Purge Notification'' message that identifies who submitted the purge and the underlying symbols.\9\ --------------------------------------------------------------------------- \8\ If a Market Maker wants to re-enter an option contract after it was purged, the Market Maker is required to specify a re-entry indicator on the first quote following a purge. \9\ For additional information regarding SQF Purge Ports, as well as SQF generally, see http://www.nasdaqtrader.com/content/technicalsupport/specifications/TradingProducts/sqfnom2.0.pdf. This document applies to the Exchange, to the Nasdaq Options Market, and to the BX Options Market, all of which are options exchanges of Nasdaq, Inc. --------------------------------------------------------------------------- The proposed SQF Purge Ports are, similar to the Active SQF Ports, designed to assist Market Makers in the management of, and risk control over, their quotes, particularly if the Market Makers are dealing with large numbers of options. For example, if a Market Maker detects market indications that may influence the direction or bias of his quotes the Market Maker may use the proposed SQF Purge Port(s) to reduce uncertainty and to manage risk by purging all quotes in a number of options seamlessly to avoid unintended executions, while continuing to evaluate the direction of the market. The Exchange proposes to amend Chapter VII, Section B of the Exchange's Pricing Schedule to distinguish SQF Purge Ports from Active SQF Ports and to add a new monthly SQF Purge Port fee. The Exchange is also making technical, non-substantive changes to Chapter VII, Section B to enhance clarity and readability. These changes are described in detail below. Change 1--SQF Purge Port Fees The Exchange proposes new subsection 4 of Chapter VII, Section B to institute an SQF Purge Port Fee. The proposed fee will be $500 per port per month for each of the first five SQF Purge Ports, and will be $100 per port per month for each port thereafter. The SQF Purge Port Fee will be applicable to all Market Makers who elect to use SQF Purge Ports on the Exchange. The structure of the proposed SQF Purge Port Fee is similar to that of the current CTI \10\ Port Fee, except that the SQF Purge Port Fee is lower for the first five ports.\11\ The following is an example of the proposed new SQF Purge Port Fee: A Participant that has three SQF Purge Ports would, on a monthly basis, be fee liable for $1,500 ($500 x 3). And a Participant that has seven SQF Purge Ports would, on a monthly basis, be fee liable for $2,700 ($500 x 5 and $100 x 2). --------------------------------------------------------------------------- \10\ CTI offers real-time clearing trade updates. A real-time clearing trade update is a message that is sent to a member after an execution has occurred and contains trade details. The message containing the trade details is also simultaneously sent to The Options Clearing Corporation. \11\ Whereas the proposed SQF Purge Port Fee is $500 per port, per month for each of the first five ports and $100 per port per month for each port thereafter, the CTI Port Fee is $650 per port, per month for the first five ports and $100 per port per month thereafter. See Phlx Pricing Schedule at Chapter VII, Section B. --------------------------------------------------------------------------- Change 2--Technical Modifications The Exchange is also taking the opportunity to enhance the clarity and readability of Chapter VII, Section B of the Pricing Schedule. First, the Exchange is numbering each port fee in a separate subsection. Second, the Exchange is moving text from a footnote to the body of the current Active SQF Port Fee provision. Third, the Exchange is adding missing words to clarify that the current CTI Port Fee is per month. Fourth, the Exchange is deleting extraneous trademark language from the Pricing Schedule. None of these changes modifies the application of any existing fee. 2. Statutory Basis The Exchange believes that the proposed rule change is consistent with the provisions of Section 6 of the Act,\12\ in general, and with Section 6(b)(4) and 6(b)(5) of the Act,\13\ in particular, in that it 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 facilitating transactions in securities, and to remove impediments to and perfect the mechanism of a free and open market and a national market system. The Exchange also believes that the proposed rule change provides for the equitable allocation of reasonable dues, fees and other charges among members and issuers and other persons using its facilities which the Exchange operates or controls, and is not designed to permit unfair discrimination between customers, issuers, brokers, or dealers. --------------------------------------------------------------------------- \12\ 15 U.S.C. 78f. \13\ 15 U.S.C. 78f(b)(4) and (5). --------------------------------------------------------------------------- The Commission and the courts have repeatedly expressed their preference for competition over regulatory intervention in determining prices, products, and services in the securities markets. In Regulation NMS, for example, the Commission indicated that market forces should generally determine pricing because national market system regulation ``has been remarkably successful in promoting market competition in its broader forms that are most important to investors and listed companies.'' \14\ Likewise, in NetCoalition v. Securities and Exchange Commission \15\ (``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.\16\ 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.'' \17\ --------------------------------------------------------------------------- \14\ Securities Exchange Act Release No. 51808 at 37499 (``Regulation NMS Adopting Release'' at Securities Exchange Release No. 34-51808 (June 29, 2005), 70 FR 37496 (File No. S7-10-04)). \15\ NetCoalition v. Securities and Exchange Commission, No. 09- 1042 (D.C. Cir. 2010). \16\ See id. at 534-535. \17\ See id. at 537. --------------------------------------------------------------------------- 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.' . . . .'' \18\ 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. --------------------------------------------------------------------------- \18\ See 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). --------------------------------------------------------------------------- The Exchange believes that the proposed rule change would promote just and equitable principles of trade and remove impediments to and perfect the mechanism of a free and open market because offering Market Makers [[Page 23025]] designated SQF Purge Ports would enhance Market Makers' ability to manage quotes, quote traffic, and their quoting obligations,\19\ which would, in turn, improve their risk controls to the benefit of all market participants. The Exchange believes that the SQF Purge Ports would foster cooperation and coordination with persons engaged in facilitating transactions in securities because designating SQF Purge Ports for purges only, and making it clear in the Pricing Schedule that such ports are available,\20\ may encourage better use of such dedicated ports. This may, concurrent with the Active SQF Ports that carry quote and other information necessary for market making activities, enable more efficient, as well as fair and reasonable, use of Market Makers' resources. Because SQF Purge Ports, as the name suggests, are only available for purging and not for activities such as order or quote entry, the SQF Purge Ports are not designed to permit unfair discrimination but rather are designed to enable Market Makers to manage their quoting risk and meet their heightened quoting obligations that other market participants are not subject to, which, in turn, benefits all market participants. --------------------------------------------------------------------------- \19\ See Rule 1014 titled ``Obligations and Restrictions Applicable to Specialists and Registered Options Traders.'' \20\ As discussed, SQF Purge Ports will be fee liable on a monthly basis (and not only when such ports are active), which will help the Exchange to recoup the cost of these ports. --------------------------------------------------------------------------- The Exchange believes that its proposal should facilitate the ability of the Exchange to recoup some costs associated with SQF Purge Ports as well as provide, maintain, and improve SQF Purge Ports. The Exchange believes the proposed change is reasonable, equitable and not unfairly discriminatory for the following reasons. Change 1--SQF Purge Port Fees The Exchange believes that its proposal to institute a $500 per port per month fee for each of the first 5 SQF Purge Ports and $100 per port per month for each port thereafter is reasonable because it would allow the Exchange to recoup technology costs. The proposed SQF Purge Port Fee reflects the desire of the Exchange to recoup the costs of maintaining ports. The SQF Purge Port Fee is reasonable because it enables the Exchange to offset, in part, its costs associated with making such ports available, including costs based on software and hardware enhancements and resources dedicated to development, quality assurance, and support. The structure of the Exchange's SQF Purge Port Fee is similar to that of the current CTI Port Fee, except that the SQF Purge Port Fee is lower for the first five ports.\21\ In addition, the SQF Purge Port Fee is in line with costs for ports at other options exchanges.\22\ The SQF Purge Port Fee is also reasonable because it reflects a structure that is not novel in the options markets but rather, as a gradated fee, is similar to that of other options exchanges and competitive with what is offered by other exchanges. --------------------------------------------------------------------------- \21\ Whereas the proposed SQF Purge Port Fee is $500 per port per month for each of the first five ports and $100 per port per month for each port thereafter, the Phlx CTI Port Fee is $650 per port per month for the first five ports and $100 per port per month thereafter. NOM and BX Options CTI Port Fees are simply $650 and $200, respectively. See NOM Chapter XV, Section 3(b) and BX Chapter XV, Section 3(b). \22\ See NOM Pricing Schedule (port fees $650 or $750 per port). See also C2 Options Exchange, Incorporated (``C2'') (generally assesses port fees $500 to $1,000 depending on connectivity levels); and NYSE AMEX Options (``AMEX'') fees (assesses a Quote Takedown Port of $450 per port per month in excess of the number of order/ quote entry ports utilized.) --------------------------------------------------------------------------- Moreover, SQF Purge Ports allow Market Makers to better rely on data available through Active SQF Ports to provide them the necessary information for risk control and risk management so that they can perform market making activities in a swift and meaningful way. The Exchange believes that the progressive nature of the proposed new SQF Purge Port Fees for Market Makers is reasonable. While the proposed SQF Purge Port Fees will be assessed at $500 for the first five SQF Purge Ports, for more than five ports the fees will be assessed at only $100 per SQF Purge Port per month.\23\ Market Makers on the Exchange are valuable market participants that provide liquidity in the marketplace and incur costs unlike other market participants because Market Makers add value through continuous quoting \24\ and the commitment of capital. Market Makers provide a critical liquidity function across thousands of individual option put and call series, a function no other market participants are obligated to perform. --------------------------------------------------------------------------- \23\ Upon effectiveness of this proposal, a Market Maker that has three SQF Purge Ports would, on a monthly basis, be fee liable for $1,500 ($500 x 3). And a Participant that has seven SQF Purge Ports would, on a monthly basis, be fee liable for $2,700 ($500 x 5 plus $100 x 2). \24\ See Rule 1014 titled ``Obligations and Restrictions Applicable to Specialists and Registered Options Traders.'' --------------------------------------------------------------------------- The Exchange believes that establishing the proposed SQF Purge Port Fee is equitable and not unfairly discriminatory in that it will apply uniformly to all similarly situated market participants. All Market Makers that use SQF Purge Ports will be assessed the SQF Purge Port Fee in the same way. Market Makers who do not wish to acquire a dedicated SQF Purge Port can continue to use their Active SQF Port for purging their quotes without requiring a new SQF Purge Port. Having the SQF Purge Port to purge gives Market Makers choices in their preferred technical configuration with the exchange. Change 2--Technical Modifications The Exchange believes that the proposed technical modifications are fair and reasonable in that they do not impact the application of existing fees but simply enhance clarity and readability. Nor are the proposed technical modifications discriminatory in any respect. 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. Specifically, the Exchange does not believe that its proposal to make changes to Chapter VII, Section B to add new SQF Purge Port Fees will impose any undue burden on competition, as discussed below. The Exchange operates in a highly competitive market in which many sophisticated and knowledgeable market participants can and do send order flow to competing exchanges if they deem fee levels at a particular exchange to be excessive. Additionally, new competitors have entered the market and still others are reportedly entering the market shortly. These market forces ensure that the Exchange's fees remain competitive with the fee structures at other trading platforms. In that sense, the Exchange's proposal is actually pro-competitive because it enables the Exchange to propose offering dedicated purge ports, SQF Purge Ports, to the benefit of Market Makers. The Exchange does not believe that the proposed rule change will impose any undue burden on competition not necessary or appropriate in furtherance of the purposes of the Act. In terms of inter-market competition, the Exchange notes that it operates in a highly competitive market in which market participants can readily favor competing venues if they deem fee levels at a particular venue to be excessive, or rebate opportunities available at other venues to be more favorable. In such an environment, the Exchange must continually adjust its fees to remain competitive with other exchanges and [[Page 23026]] with alternative trading systems that have been exempted from compliance with the statutory standards applicable to exchanges. Because competitors are free to modify their own fees in response, and because market participants may readily adjust their order routing practices, the Exchange believes that the degree to which fee changes in this market may impose any burden on competition is extremely limited. Moreover, in terms of intra-market competition, the Exchange notes that the proposed assessment of an SQF Purge Port Fee will be applied uniformly to all Market Makers that use such ports but should have no undue burden on any particular group of users. The proposal is designed to ensure a fair and reasonable use of Exchange resources by allowing the Exchange to recoup for certain of its connectivity costs, while continuing to offer competitive rates to participants. Furthermore, in this instance the proposed SQF Purge Port Fee does not impose a burden on competition because the Exchange's execution and routing services are completely voluntary and subject to extensive competition both from other exchanges and from off-exchange venues. If the changes proposed herein are unattractive to market participants, it is likely that the Exchange will lose market share and revenue as participants choose to abandon ports. Accordingly, the Exchange does not believe that the proposed changes will impair the ability of members or competing order execution venues to maintain their competitive standing in the financial markets. Additionally, the changes proposed herein are pro-competitive to the extent that they continue to allow the Exchange to promote and maintain order executions. 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 Because the foregoing proposed rule change does not: (i) Significantly affect the protection of investors or the public interest; (ii) impose any significant burden on competition; and (iii) become operative for 30 days from the date on which it was filed, or such shorter time as the Commission may designate, it has become effective pursuant to Section 19(b)(3)(A)(iii) of the Act \25\ and Rule 19b-4(f)(6) thereunder.\26\ The Exchange believes the rule change qualifies for immediate effectiveness as a ``non-controversial'' rule change under Rule 19b-4(f)(6) of the Act. --------------------------------------------------------------------------- \25\ 15 U.S.C. 78s(b)(3)(a)(iii). \26\ 17 CFR 240.19b-4(f)(6). --------------------------------------------------------------------------- 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 CommentsUse 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-2016-45 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-2016-45. 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-2016-45 and should be submitted on or before May 10, 2016. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.\27\ --------------------------------------------------------------------------- \27\ 17 CFR 200.30-3(a)(12). --------------------------------------------------------------------------- Robert W. Errett, Deputy Secretary. [FR Doc. 2016-08948 Filed 4-18-16; 8:45 am] BILLING CODE 8011-01-P
![Federal Register / Vol. 81, No. 75 / Tuesday, April 19, 2016 / Notices 23023
Paper Comments SECURITIES AND EXCHANGE A. Self-Regulatory Organization’s
COMMISSION Statement of the Purpose of, and
• Send paper comments in triplicate Statutory Basis for, the Proposed Rule
to Secretary, Securities and Exchange [Release No. 34–77613; File No. SR–Phlx– Change
Commission, 100 F Street NE., 2016–45]
Washington, DC 20549–1090. 1. Purpose
Self-Regulatory Organizations; The purpose of the proposal is to
All submissions should refer to File NASDAQ PHLX LLC; Notice of Filing modify Chapter VII, Section B of the
Number SR–BatsBYX–2016–04. This and Immediate Effectiveness of Exchange’s Pricing Schedule separately
file number should be included on the Proposed Rule Change to Proposed to identify SQF Purge Ports and to set
subject line if email is used. To help the Rule Change To Modify Chapter VII the fees applicable to SQF Purge Ports.
Commission process and review your Section B of the Exchange’s Pricing Active SQF Ports today allow purging,
comments more efficiently, please use Schedule however the Exchange does not
only one method. The Commission will separately identify such ports or assess
post all comments on the Commission’s April 13, 2016. a fee for SQF Purge Ports.
Internet Web site (http://www.sec.gov/ Pursuant to Section 19(b)(1) of the The SQF Port (known as ‘‘Active SQF
rules/sro.shtml). Copies of the Securities Exchange Act of 1934 Port’’) 3 is an interface that enables
submission, all subsequent (‘‘Act’’),1 and Rule 19b–4 thereunder,2 Specialists,4 Streaming Quote Traders
amendments, all written statements notice is hereby given that on April 1, (‘‘SQTs’’) 5 and Remote Streaming Quote
with respect to the proposed rule 2016, NASDAQ PHLX LLC (‘‘Phlx’’ or Traders (‘‘RSQTs’’) 6 (together known as
‘‘Exchange’’) filed with the Securities ‘‘Market Makers’’) to connect and send
change that are filed with the
and Exchange Commission (‘‘SEC’’ or quotes into the Exchange’s trading
Commission, and all written
‘‘Commission’’) the proposed rule system and receive certain information.7
communications relating to the change as described in Items I, II, and Market Makers rely on data available
proposed rule change between the III, below, which Items have been through Active SQF Ports to provide
Commission and any person, other than prepared by the Exchange. The them the necessary information for risk
those that may be withheld from the Commission is publishing this notice to control and risk management so that
public in accordance with the solicit comments on the proposed rule they can perform market making
provisions of 5 U.S.C. 552, will be change from interested persons. activities in a swift and meaningful way.
available for Web site viewing and Active SQF Ports allow Market Makers
printing in the Commission’s Public I. Self-Regulatory Organization’s
Statement of the Terms of Substance of to access information such as execution
Reference Room, 100 F Street NE., reports, execution report messages,
Washington, DC 20549, on official the Proposed Rule Change
auction notifications, and
business days between the hours of The Exchange proposes to modify administrative data through a single
10:00 a.m. and 3:00 p.m. Copies of the Section B of the NASDAQ PHLX LLC feed. Other data that is available
filing also will be available for Pricing Schedule (‘‘Pricing Schedule’’) includes: (1) Options Auction
inspection and copying at the principal in Chapter VII separately to identify Notifications (e.g., opening imbalance,
office of the Exchange. All comments streaming quote interface (‘‘SQF’’) Purge market exhaust, PIXL or other
received will be posted without change; Ports and to set the fees applicable to information); (2) Options Symbol
the Commission does not edit personal SQF Purge Ports. The Exchange also is Directory Messages; (3) System Event
identifying information from making technical, non-substantive Messages (e.g., start of messages, start of
submissions. You should submit only modifications to the certain existing system hours, start of quoting, start of
information that you wish to make provisions in Chapter VII, Section B. opening); (4) Complex Order Strategy
The text of the proposed rule change Auction Notifications (COLA); (5)
available publicly. All submissions
is available on the Exchange’s Web site Complex Order Strategy messages; (6)
should refer to File Number SR–
at http://nasdaqomxphlx Option Trading Action Messages (e.g.,
BatsBYX–2016–04 and should be .cchwallstreet.com/, at the principal
submitted on or before May 10, 2016. office of the Exchange, and at the 3 Current SQF Ports are known as ‘‘Active SQF
For the Commission, by the Division of Commission’s Public Reference Room. Ports’’ in the Pricing Schedule to signify that such
ports are fee liable when they receive inbound
Trading and Markets, pursuant to delegated quotes at any time within that month ($1,250 per
authority.15
II. Self-Regulatory Organization’s
port per month up to a maximum of $42,000 per
Statement of the Purpose of, and month).
Robert W. Errett, Statutory Basis for, the Proposed Rule 4 A Specialist is an Exchange member who is
Deputy Secretary. Change registered as an options specialist. See Phlx Rule
[FR Doc. 2016–08938 Filed 4–18–16; 8:45 am] 1020(a).
In its filing with the Commission, the 5 An SQT is defined in Exchange Rule
BILLING CODE 8011–01–P
Exchange included statements 1014(b)(ii)(A) as a Registered Options Trader
concerning the purpose of and basis for (‘‘ROT’’) who has received permission from the
the proposed rule change and discussed Exchange to generate and submit option quotations
electronically in options to which such SQT is
any comments it received on the assigned.
proposed rule change. The text of these 6 An RSQT is defined in Exchange Rule in
statements may be examined at the 1014(b)(ii)(B) as an ROT that is a member or
member organization with no physical trading floor
mstockstill on DSK4VPTVN1PROD with NOTICES
places specified in Item IV below. The
presence who has received permission from the
Exchange has prepared summaries, set Exchange to generate and submit option quotations
forth in sections A, B, and C below, of electronically in options to which such RSQT has
the most significant aspects of such been assigned. An RSQT may only submit such
statements. quotations electronically from off the floor of the
Exchange.
7 See Securities Exchange Act Release No. 63034
1 15 U.S.C. 78s(b)(1). (October 4, 2010), 75 FR 62441 (October 8, 2010)
15 17 CFR 200.30–3(a)(12). 2 17 CFR 240.19b–4. (SR–Phlx–2010–124).
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trading halts, resumption of trading); Purge Ports, and will be $100 per port dues, fees and other charges among
and (7) Complex Strategy Trading per month for each port thereafter. The members and issuers and other persons
Action Messages (e.g., trading halts, SQF Purge Port Fee will be applicable using its facilities which the Exchange
resumption of trading). In addition to to all Market Makers who elect to use operates or controls, and is not designed
Active SQF Ports being used to send SQF Purge Ports on the Exchange. The to permit unfair discrimination between
quotes and to receive information structure of the proposed SQF Purge customers, issuers, brokers, or dealers.
needed for market making activities, Port Fee is similar to that of the current The Commission and the courts have
Active SQF Ports now can be also used CTI 10 Port Fee, except that the SQF repeatedly expressed their preference
for purging quotes. Such Active SQF Purge Port Fee is lower for the first five for competition over regulatory
Ports enable Market Makers to ports.11 The following is an example of intervention in determining prices,
seamlessly manage their ability to the proposed new SQF Purge Port Fee: products, and services in the securities
remove their quotes in a swift manner. A Participant that has three SQF Purge markets. In Regulation NMS, for
An Active Purge Port currently can be Ports would, on a monthly basis, be fee example, the Commission indicated that
configured as a ‘‘Purge-only’’ port liable for $1,500 ($500 × 3). And a market forces should generally
utilized for the sole purpose of purging Participant that has seven SQF Purge determine pricing because national
option interest from the Exchange’s Ports would, on a monthly basis, be fee market system regulation ‘‘has been
system and allowing entry of liable for $2,700 ($500 × 5 and $100 × remarkably successful in promoting
underlying-level purges for a specified 2). market competition in its broader forms
range of options.8 Such dedicated ports that are most important to investors and
reduce the amount of data flowing Change 2—Technical Modifications listed companies.’’ 14 Likewise, in
through Active SQF Ports. A purge of The Exchange is also taking the NetCoalition v. Securities and Exchange
options quoted on the SQF interface is opportunity to enhance the clarity and Commission 15 (‘‘NetCoalition’’) the D.C.
reported via a ‘‘Purge Notification’’ readability of Chapter VII, Section B of Circuit upheld the Commission’s use of
message that identifies who submitted the Pricing Schedule. First, the a market-based approach in evaluating
the purge and the underlying symbols.9 Exchange is numbering each port fee in the fairness of market data fees against
The proposed SQF Purge Ports are, a separate subsection. Second, the a challenge claiming that Congress
similar to the Active SQF Ports, Exchange is moving text from a footnote mandated a cost-based approach.16 As
designed to assist Market Makers in the to the body of the current Active SQF the court emphasized, the Commission
management of, and risk control over, Port Fee provision. Third, the Exchange ‘‘intended in Regulation NMS that
their quotes, particularly if the Market is adding missing words to clarify that ‘market forces, rather than regulatory
Makers are dealing with large numbers the current CTI Port Fee is per month. requirements’ play a role in determining
of options. For example, if a Market Fourth, the Exchange is deleting the market data . . . to be made
Maker detects market indications that extraneous trademark language from the available to investors and at what
may influence the direction or bias of Pricing Schedule. None of these changes cost.’’ 17
his quotes the Market Maker may use modifies the application of any existing Further, ‘‘[n]o one disputes that
the proposed SQF Purge Port(s) to fee. competition for order flow is ‘fierce.’
reduce uncertainty and to manage risk . . . As the SEC explained, ‘[i]n the U.S.
by purging all quotes in a number of 2. Statutory Basis national market system, buyers and
options seamlessly to avoid unintended The Exchange believes that the sellers of securities, and the broker-
executions, while continuing to evaluate proposed rule change is consistent with dealers that act as their order-routing
the direction of the market. the provisions of Section 6 of the Act,12 agents, have a wide range of choices of
The Exchange proposes to amend in general, and with Section 6(b)(4) and where to route orders for execution’;
Chapter VII, Section B of the Exchange’s 6(b)(5) of the Act,13 in particular, in that [and] ‘no exchange can afford to take its
Pricing Schedule to distinguish SQF it is designed to prevent fraudulent and market share percentages for granted’
Purge Ports from Active SQF Ports and manipulative acts and practices, to because ‘no exchange possesses a
to add a new monthly SQF Purge Port promote just and equitable principles of monopoly, regulatory or otherwise, in
fee. The Exchange is also making trade, to foster cooperation and the execution of order flow from broker
technical, non-substantive changes to coordination with persons engaged in dealers.’ . . . .’’ 18 Although the court
Chapter VII, Section B to enhance facilitating transactions in securities, and the SEC were discussing the cash
clarity and readability. These changes and to remove impediments to and equities markets, the Exchange believes
are described in detail below. perfect the mechanism of a free and that these views apply with equal force
open market and a national market to the options markets.
Change 1—SQF Purge Port Fees The Exchange believes that the
system. The Exchange also believes that
The Exchange proposes new proposed rule change would promote
the proposed rule change provides for
subsection 4 of Chapter VII, Section B just and equitable principles of trade
the equitable allocation of reasonable and remove impediments to and perfect
to institute an SQF Purge Port Fee. The
proposed fee will be $500 per port per 10 CTI offers real-time clearing trade updates. A
the mechanism of a free and open
month for each of the first five SQF real-time clearing trade update is a message that is market because offering Market Makers
sent to a member after an execution has occurred
8 If a Market Maker wants to re-enter an option and contains trade details. The message containing 14 Securities Exchange Act Release No. 51808 at
contract after it was purged, the Market Maker is the trade details is also simultaneously sent to The 37499 (‘‘Regulation NMS Adopting Release’’ at
required to specify a re-entry indicator on the first Options Clearing Corporation. Securities Exchange Release No. 34–51808 (June 29,
mstockstill on DSK4VPTVN1PROD with NOTICES
quote following a purge. 11 Whereas the proposed SQF Purge Port Fee is 2005), 70 FR 37496 (File No. S7–10–04)).
9 For additional information regarding SQF Purge $500 per port, per month for each of the first five 15 NetCoalition v. Securities and Exchange
Ports, as well as SQF generally, see http:// ports and $100 per port per month for each port Commission, No. 09–1042 (D.C. Cir. 2010).
www.nasdaqtrader.com/content/technicalsupport/ thereafter, the CTI Port Fee is $650 per port, per 16 See id. at 534–535.
specifications/TradingProducts/sqfnom2.0.pdf. month for the first five ports and $100 per port per 17 See id. at 537.
This document applies to the Exchange, to the month thereafter. See Phlx Pricing Schedule at 18 See id. at 539 (quoting Securities Exchange
Nasdaq Options Market, and to the BX Options Chapter VII, Section B. Release No. 59039 (December 2, 2008), 73 FR 74770
12 15 U.S.C. 78f.
Market, all of which are options exchanges of (December 9, 2008) (SR–NYSEArca–2006–21) at 73
Nasdaq, Inc. 13 15 U.S.C. 78f(b)(4) and (5). FR at 74782–74783).
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![23026 Federal Register / Vol. 81, No. 75 / Tuesday, April 19, 2016 / Notices
with alternative trading systems that 19(b)(3)(A)(iii) of the Act 25 and Rule Washington, DC 20549, on official
have been exempted from compliance 19b–4(f)(6) thereunder.26 The Exchange business days between the hours of
with the statutory standards applicable believes the rule change qualifies for 10:00 a.m. and 3:00 p.m. Copies of the
to exchanges. Because competitors are immediate effectiveness as a ‘‘non- filing also will be available for
free to modify their own fees in controversial’’ rule change under Rule inspection and copying at the principal
response, and because market 19b–4(f)(6) of the Act. office of the Exchange. All comments
participants may readily adjust their At any time within 60 days of the received will be posted without change;
order routing practices, the Exchange filing of the proposed rule change, the the Commission does not edit personal
believes that the degree to which fee Commission summarily may identifying information from
changes in this market may impose any temporarily suspend such rule change if submissions. You should submit only
burden on competition is extremely it appears to the Commission that such information that you wish to make
limited. Moreover, in terms of intra- action is: (i) Necessary or appropriate in available publicly. All submissions
market competition, the Exchange notes the public interest; (ii) for the protection should refer to File Number SR–Phlx–
that the proposed assessment of an SQF of investors; or (iii) otherwise in 2016–45 and should be submitted on or
Purge Port Fee will be applied furtherance of the purposes of the Act. before May 10, 2016.
uniformly to all Market Makers that use If the Commission takes such action, the For the Commission, by the Division of
such ports but should have no undue Commission shall institute proceedings Trading and Markets, pursuant to delegated
burden on any particular group of users. to determine whether the proposed rule authority.27
The proposal is designed to ensure a fair should be approved or disapproved. Robert W. Errett,
and reasonable use of Exchange IV. Solicitation of Comments Deputy Secretary.
resources by allowing the Exchange to [FR Doc. 2016–08948 Filed 4–18–16; 8:45 am]
recoup for certain of its connectivity Interested persons are invited to
costs, while continuing to offer submit written data, views, and BILLING CODE 8011–01–P
competitive rates to participants. arguments concerning the foregoing,
including whether the proposed rule
Furthermore, in this instance the change is consistent with the Act. SECURITIES AND EXCHANGE
proposed SQF Purge Port Fee does not Comments may be submitted by any of COMMISSION
impose a burden on competition the following methods:
because the Exchange’s execution and [Release No. 34–77606; File No. SR–
Electronic Comments BatsEDGA–2016–03]
routing services are completely
voluntary and subject to extensive • Use the Commission’s Internet Self-Regulatory Organizations; Bats
competition both from other exchanges comment form (http://www.sec.gov/ EDGA Exchange, Inc.; Notice of Filing
and from off-exchange venues. If the rules/sro.shtml); or and Immediate Effectiveness of a
changes proposed herein are • Send an email to rule-comments@ Proposed Rule Change To Adopt Rule
unattractive to market participants, it is sec.gov. Please include File Number 8.17 To Provide a Process for an
likely that the Exchange will lose SR–Phlx–2016–45 on the subject line. Expedited Suspension Proceeding and
market share and revenue as Rule 12.15 To Prohibit Layering and
Paper Comments
participants choose to abandon ports. Spoofing
Accordingly, the Exchange does not • Send paper comments in triplicate
believe that the proposed changes will to Secretary, Securities and Exchange April 13, 2016.
impair the ability of members or Commission, 100 F Street NE., Pursuant to section 19(b)(1) of the
competing order execution venues to Washington, DC 20549–1090. Securities Exchange Act of 1934
maintain their competitive standing in All submissions should refer to File (‘‘Act’’),1 and Rule 19b–4 thereunder,2
the financial markets. Additionally, the Number SR–Phlx–2016–45. This file notice is hereby given that on March 31,
changes proposed herein are pro- number should be included on the 2016, Bats EDGA Exchange, Inc. (the
competitive to the extent that they subject line if email is used. To help the ‘‘Exchange’’ or ‘‘EDGA’’) filed with the
continue to allow the Exchange to Commission process and review your Securities and Exchange Commission
promote and maintain order executions. comments more efficiently, please use (‘‘SEC’’ or ‘‘Commission’’) the proposed
only one method. The Commission will rule change as described in Items I and
C. Self-Regulatory Organization’s post all comments on the Commission’s II below, which Items have been
Statement on Comments on the Internet Web site (http://www.sec.gov/ prepared by the Exchange. The
Proposed Rule Change Received From rules/sro.shtml). Copies of the Commission is publishing this notice to
Members, Participants, or Others submission, all subsequent solicit comments on the proposed rule
No written comments were either amendments, all written statements change from interested persons.
solicited or received. with respect to the proposed rule
change that are filed with the I. Self-Regulatory Organization’s
III. Date of Effectiveness of the Commission, and all written Statement of the Terms of Substance of
Proposed Rule Change and Timing for communications relating to the the Proposed Rule Change
Commission Action proposed rule change between the The Exchange filed a proposal to
Commission and any person, other than adopt a new rule to clearly prohibit
Because the foregoing proposed rule those that may be withheld from the disruptive quoting and trading activity
change does not: (i) Significantly affect
mstockstill on DSK4VPTVN1PROD with NOTICES
public in accordance with the on the Exchange, as further described
the protection of investors or the public provisions of 5 U.S.C. 552, will be below. Further, the Exchange proposes
interest; (ii) impose any significant available for Web site viewing and to amend Exchange Rules to permit the
burden on competition; and (iii) become printing in the Commission’s Public Exchange to take prompt action to
operative for 30 days from the date on Reference Room, 100 F Street NE.,
which it was filed, or such shorter time 27 17 CFR 200.30–3(a)(12).
as the Commission may designate, it has 25 15 U.S.C. 78s(b)(3)(a)(iii). 1 15 U.S.C. 78s(b)(1).
become effective pursuant to Section 26 17 CFR 240.19b–4(f)(6). 2 17 CFR 240.19b–4.
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Document Created: 2016-04-19 00:15:31
Document Modified: 2016-04-19 00:15:31
| Category | Regulatory Information | |
| Collection | Federal Register | |
| sudoc Class | AE 2.7: GS 4.107: AE 2.106: | |
| Publisher | Office of the Federal Register, National Archives and Records Administration | |
| Section | Notices | |
| FR Citation | 81 FR 23023 |
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