81 FR 25457 - Self-Regulatory Organizations; NASDAQ PHLX LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change to Qualified Contingent Cross Pricing

SECURITIES AND EXCHANGE COMMISSION

Federal Register Volume 81, Issue 82 (April 28, 2016)

Page Range		25457-25460
FR Document		2016-09898
Federal Register, Volume 81 Issue 82 (Thursday, April 28, 2016)
[Federal Register Volume 81, Number 82 (Thursday, April 28, 2016)]
[Notices]
[Pages 25457-25460]
From the Federal Register Online  [www.thefederalregister.org]
[FR Doc No: 2016-09898]



[[Page 25457]]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-77690; File No. SR-Phlx-2016-52]


Self-Regulatory Organizations; NASDAQ PHLX LLC; Notice of Filing 
and Immediate Effectiveness of Proposed Rule Change to Qualified 
Contingent Cross Pricing

April 22, 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 15, 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.
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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 at 
Section II, entitled ``Multiply Listed Options Fees.'' Specifically, 
the Exchange is proposing to amend the Qualified Contingent Cross 
(``QCC'') pricing.
    While changes to the Pricing Schedule pursuant to this proposal are 
effective upon filing, the Exchange has designated these changes to be 
operative on May 2, 2016.
    The text of the proposed rule change is available on the Exchange's 
Web site at http://nasdaqomxphlx.cchwallstreet.com/, at the principal 
office of the Exchange, and at the Commission's Public Reference Room.

II. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    In its filing with the Commission, the Exchange included statements 
concerning the purpose of and basis for the proposed rule change and 
discussed any comments it received on the proposed rule change. The 
text of these statements may be examined at the places specified in 
Item IV below. The Exchange has prepared summaries, set forth in 
sections A, B, and C below, of the most significant aspects of such 
statements.

A. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The purpose of the proposed rule change is to amend the Exchange's 
Pricing Schedule at Section II, entitled ``Multiply Listed Options 
Fees.'' Specifically, the Exchange is proposing to amend QCC pricing.
    Today, the Exchange assesses a QCC Transaction Fee of $0.20 per 
contract to a Specialist,\3\ Market Maker,\4\ Firm \5\ and Broker-
Dealer.\6\ Customers \7\ and Professionals \8\ are not assessed a QCC 
Transaction Fee. The Exchange also pays rebates on QCC Orders as 
follows:
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    \3\ A ``Specialist'' is an Exchange member who is registered as 
an options specialist pursuant to Rule 1020(a).
    \4\ The term ``Market Maker'' includes Registered Options 
Traders (``ROT''). See Exchange Rule 1014(b)(i) and (ii). A ROT 
includes a Streaming Quote Trader or ``SQT,'' a Remote Streaming 
Quote Trader or ``RSQT'' and a Non-SQT, which by definition is 
neither a SQT nor a RSQT. A ROT is defined in Exchange Rule 1014(b) 
as a regular member or a foreign currency options participant of the 
Exchange located on the trading floor who has received permission 
from the Exchange to trade in options for his own account. An SQT is 
an ROT who has received permission from the Exchange to generate and 
submit option quotations electronically in options to which such SQT 
is assigned. See Rule 1014(b)(ii)(A). An RSQT is an ROT that is a 
member affiliated with and Remote Streaming Quote 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. See Rule 
1014(b)(ii)(B).
    \5\ The term ``Firm'' applies to any transaction that is 
identified by a member or member organization for clearing in the 
Firm range at The Options Clearing Corporation.
    \6\ The term ``Broker-Dealer'' applies to any transaction which 
is not subject to any of the other transaction fees applicable 
within a particular category.
    \7\ 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 which is not for 
the account of a broker or dealer or for the account of a 
``Professional'' (as that term is defined in Rule 1000(b)(14)).
    \8\ 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).

                           QCC Rebate Schedule
------------------------------------------------------------------------
                                                            Rebate per
           Tier                      Threshold               contract
------------------------------------------------------------------------
Tier 1...................  0 to 99,999 contracts in a              $0.00
                            month.
Tier 2...................  100,000 to 299,999 contracts             0.05
                            in a month.
Tier 3...................  300,000 to 499,999 contracts             0.07
                            in a month.
Tier 4...................  500,000 to 699,999 contracts             0.08
                            in a month.
Tier 5...................  700,000 to 999,999 contracts             0.09
                            in a month.
Tier 6...................  Over 1,000,000 contracts in a            0.11
                            month.
------------------------------------------------------------------------

    Rebates are paid for all qualifying executed QCC Orders, as defined 
in Rule 1080(o) \9\ and Floor QCC Orders, as defined in Rule 
1064(e),\10\ except where the transaction is either: (i) Customer-to-
Customer; (ii) Customer-to-Professional or (iii) a dividend, merger, 
short stock interest or reversal or conversion strategy execution.\11\ 
The maximum QCC Rebate to be paid in a given month will not exceed 
$450,000.\12\ The Exchange pays QCC Rebates to market participants 
acting as agent on qualifying QCC Orders per the QCC Rebate Schedule. 
The Exchange proposes to no longer pay QCC Rebates on Professional-to-
Professional orders.
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    \9\ A QCC Order is comprised of an originating order to buy or 
sell at least 1,000 contracts, or 10,000 contracts in the case of 
Mini Options, 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 or orders totaling an equal number 
of contracts. See Rule 1080(o).
    \10\ 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 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. In order to satisfy the 1,000-contract requirement, a 
Floor QCC Order must be for 1,000 contracts and could not be, for 
example, two 500-contract orders or two 500-contract legs.
    \11\ See Section II of the Pricing Schedule.
    \12\ Id.
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    QCC Orders are an order to buy or sell at least 1,000 contracts, or 
10,000 contracts in the case of Mini Options.\13\ These large-sized 
contingent orders are

[[Page 25458]]

complex in nature and have a stock-tied component, which requires the 
option leg to be executed at the NBBO or better. The parties to a 
contingent trade are focused on the spread or ratio between the 
transaction prices for each of the component instruments (i.e., the net 
price of the entire contingent trade), rather than on the absolute 
price of any single component. Today, Professional orders are treated 
similar to Customer orders with respect to QCC pricing because of the 
characteristics of the QCC Order which are described above. Today, 
Professional orders are not assessed a QCC Transaction Fee and no 
rebate is paid for Customer-to-Professional orders. The Exchange 
reasoned in a prior rule change \14\ that ``The differentiation between 
a Customer and Professional is not necessary with respect to QCC Orders 
because these orders are exempt from requirements regarding order 
exposure.\15\ Further, QCC Orders are not executed pursuant to a 
priority scheme.\16\ Also, as explained above, because of the size of 
the order, sophistication of the investor and complexity of the 
transaction, it is difficult to distinguish as between a Customer and 
Professional with respect to QCC Orders.'' \17\
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    \13\ See notes 9 and 10 above.
    \14\ See SR-Phlx-2016-51 (not yet published).
    \15\ See Rule 1080(c)(ii)(C).
    \16\ By way of comparison, Customers receive priority over other 
market participants with respect to the execution of their order 
within the Exchange's order book or on the Floor.
    \17\ A Professional QCC Order would count toward the 390 orders 
in listed options per day. See note 8 above.
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    The Exchange believes that treating Customer orders and 
Professional orders in a similar manner by also excluding Professional-
to-Professional orders as eligible to receive a QCC Rebate will further 
remove any differentiation as between Professionals and Customers with 
respect to QCC pricing when transacting QCC Orders.
2. Statutory Basis
    The proposal is consistent with Section 6(b) of the Act,\18\ in 
general, and furthers the objectives of Sections 6(b)(4) and 6(b)(5) of 
the Act,\19\ 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, and is not designed to permit unfair 
discrimination between customers, issuers, brokers, or dealers.
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    \18\ 15 U.S.C. 78f(b).
    \19\ 15 U.S.C. 78f(b)(4) and (5).
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    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, 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.'' \20\
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    \20\ See Securities Exchange Act Release No. 51808 (June 9, 
2005), 70 FR 37497, 37499 (June 29, 2005) (``Regulation NMS Adopting 
Release'') [sic].
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    Likewise, in NetCoalition v. Securities and Exchange Commission 
\21\ 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.\22\ 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.'' \23\
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    \21\ See Securities Exchange Act Release No. 51808 (June 9, 
2005) [sic] at 534-535.
    \22\ See Securities Exchange Act Release No. 51808 (June 9, 
2005) [sic] at 534.
    \23\ See Securities Exchange Act Release No. 51808 (June 9, 
2005) [sic] 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' . . . .'' \24\ 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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    \24\ See Securities Exchange Act Release No. 51808 (June 9, 
2005) [sic] at 539 (quoting Securities Exchange Act Release No. 
59039 (December 2, 2008), 73 FR 74770, 74782-83 (December 9, 2008) 
(SR-NYSEArca-2006-21).
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    It is reasonable to no longer pay a QCC Rebate on Professional-to-
Professional orders because the distinction that necessitated the 
differentiation as between Customer and Professional orders is not 
meaningful with respect to QCC Orders. QCC Orders are orders to buy or 
sell at least 1,000 contracts, or 10,000 contracts in the case of Mini 
Options.\25\ These large-sized contingent orders are complex in nature 
and have a stock-tied component, which requires the option leg to be 
executed at the NBBO or better. The parties to a contingent trade are 
focused on the spread or ratio between the transaction prices for each 
of the component instruments (i.e., the net price of the entire 
contingent trade), rather than on the absolute price of any single 
component. Also, no Customer priority exists with respect to QCC Orders 
as with orders transacted within the order book or on the Floor. Today, 
Professional orders are not assessed a QCC Transaction Fee and are not 
eligible to receive a QCC Rebate for Customer-to-Professional orders. 
The Exchange believes that also excluding Professional-to-Professional 
orders from receiving a QCC Rebate will align Customer orders and 
Professional orders \26\ with respect to QCC Pricing.
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    \25\ See notes 9 and 10 above.
    \26\ Professional-to-Customer orders are currently excluded from 
the QCC Rebate.
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    With respect to QCC transactions, the Commission noted in an order 
approving a qualified contingent cross order type on International 
Securities Exchange, LLC (``ISE'') that ``The Commission believes that 
those customers participating in QCC Orders will likely be 
sophisticated investors who should understand that, without a 
requirement of exposure for QCC Orders, their order would not be given 
an opportunity for price improvement on the Exchange. These customers 
should be able to assess whether the net prices they are receiving for 
their QCC Order are competitive, and who will have the ability to 
choose among broker-dealers if they believe the net price one broker-
dealer provides is not competitive. Further, broker-dealers are subject 
to a duty of best execution for their customers' orders, and that duty 
does not change for QCC Orders.'' \27\ The intent behind the 
Professional designation does not apply in the context of transacting 
QCC Orders, because of the size of the order, sophistication of the 
investor and complexity of the transaction, and therefore the pricing 
differentiation is not necessary. For these reasons, the Exchange 
believes that also excepting Professional-to-Professional orders from 
receiving a QCC Rebate will further remove any differentiation as 
between Professionals and Customers with respect to QCC pricing when 
transacting QCC Orders.
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    \27\ See Securities and Exchange Act Release No. 63955 (February 
24, 2011), 76 FR 11533 (March 2, 2011) (SR-ISE-2010-73).

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[[Page 25459]]

    It is equitable and not unfairly discriminatory to no longer pay a 
QCC Rebate on Professional-to-Professional orders because, today, 
Professionals are not assessed a QCC Transaction Fee and Customer-to-
Professional orders are not eligible to receive a QCC Rebate. Excluding 
Professional-to-Professional orders from receiving a QCC Rebate aligns 
the treatment of Professional orders with Customer orders. As explained 
above, QCC Orders are distinctive as compared to transactions executed 
within the order book or on the Floor, which orders are subject to 
exposure and grant Customers priority over other market participants. 
The original purpose for the distinction between a Customer and a 
Professional was to prevent market professionals \28\ with access to 
sophisticated trading systems that contain functionality not available 
to retail Customers, from taking advantage of Customer priority, where 
Customer orders are given execution priority over non-Customer orders. 
The Exchange noted at the time that it adopted the Professional 
designation that basing the Professional designation upon the average 
number of orders entered for a beneficial account was an appropriate 
objective approach that would reasonably distinguish such persons and 
entities from retail investors.\29\
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    \28\ The Exchange noted in its filing that market professionals 
have access to functionality, including things such as continuously 
updated pricing models based upon real-time streaming data, access 
to multiple markets simultaneously and order and risk management 
tools. See Securities and Exchange Act Release No. 61426 (January 
26, 2010), 75 FR 5360 (February 2, 2010) (SR-Phlx-2010-05).
    \29\ See Securities and Exchange Act Release No. 61426 (January 
26, 2010), 75 FR 5360 (February 2, 2010) (SR-Phlx-2010-05).
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    With respect to distinguishing Professional orders from other Non-
Customer participant orders, the Exchange notes that these other market 
participants, Specialists, Market Makers, Firms and Broker-Dealers, are 
distinct from a Professional for purposes of assessing QCC Transaction 
fees for the below reasons. With respect to Firms, these market 
participants are eligible for the Monthly Firm Fee Cap of $75,000 per 
month.\30\ Firms are not subject to QCC Transaction Fees once the 
Monthly Firm Fee Cap is met in a given month. Specialists and Market 
Makers are eligible for the Monthly Market Maker Cap of $500,000 per 
month.\31\ Specialists and Market Makers are not subject to QCC 
Transaction Fees once the Monthly Market Maker Cap is met in a given 
month. Professionals are not subject to similar caps. With respect to 
Broker-Dealers, the Exchange notes that members may choose to register 
as a Broker-Dealer. Market participants acting as agent, compared to 
market participants trading for their own account, are eligible to 
receive QCC Rebates. The Exchange pays market participants acting as 
agent for QCC Orders the QCC Rebates per the QCC Rebate Schedule.\32\
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    \30\ Firms are subject to a maximum fee of $75,000 (``Monthly 
Firm Fee Cap''). Firm Floor Option Transaction Charges and QCC 
Transaction Fees, in the aggregate, for one billing month will not 
exceed the Monthly Firm Fee Cap per member organization when such 
members are trading in their own proprietary account. See Section II 
of the Pricing Schedule.
    \31\ Specialists and Market Makers are subject to a ``Monthly 
Market Maker Cap'' of $500,000 for: (i) Electronic 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. See Section II of the Pricing Schedule.
    \32\ QCC Rebates are paid by volume. There are currently six 
tiers which pay a QCR Rebate between $0.00 and $0.11 per contract. 
See Section II of the Pricing Schedule. Of note, Firms may transact 
QCC Orders on an agency basis and be eligible for a QCC Rebate.
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    Further, the Exchange believes that distinguishing Professional 
orders from other Non-Customer orders is equitable and not unfairly 
discriminatory because QCC Orders are an exception to the general 
distinctions drawn as between Customer orders and Professional orders. 
Aside from the lack of priority for QCC Orders, the size of the order, 
sophistication of the investor and complexity of the transaction make 
it difficult to distinguish a Customer order from a Professional order. 
For purposes of the QCC Order, the Exchange believes that such 
distinction is not necessary.

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. 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 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, 
that the degree to which fee changes in this market may impose any 
burden on competition is extremely limited.
    The initial purpose of the distinction between a Customer and a 
Professional was to prevent market professionals with access to 
sophisticated trading systems that contain functionality not available 
to retail customers, from taking advantage of Customer priority, where 
Customer orders are given execution priority over Non-Customer orders. 
Professional orders are identified based upon the average number of 
orders entered for a beneficial account.\33\
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    \33\ See note 8.
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    QCC Orders are by definition large-sized contingent orders which 
have a stock-tied component. The parties to a contingent trade are 
focused on the spread or ratio between the transaction prices for each 
of the component instruments (i.e., the net price of the entire 
contingent trade), rather than on the absolute price of any single 
component. Treating Customer orders and Professional orders in the same 
manner in terms of pricing with respect to QCC Orders does not provide 
any advantage to a Professional. The distinction does not create an 
opportunity to burden competition, for the reasons stated herein with 
respect to priority as well as the reasons below.
    With respect to distinguishing Professional orders from other Non-
Customer orders, the Exchange notes that Non-Customer orders are 
distinct from Professional orders for purposes of assessing QCC 
Transaction Fees. Firms are eligible for the Monthly Firm Fee Cap and 
not subject to QCC Transaction Fees once the Monthly Firm Fee Cap is 
met in a given month.\34\ Specialists and Market Makers are eligible 
for the Monthly Market Maker Cap and not subject to QCC Transaction 
Fees once the Monthly Market Maker Cap is met in a given month.\35\ 
Professionals are not subject to similar caps. With respect to Broker-
Dealers, the Exchange notes that members may choose to register as a 
Broker-Dealer. These categories of market participants transact QCC 
Orders on an agency basis and are eligible to receive QCC Rebates. 
Excluding Professional-to-Professional orders does not impose an undue 
burden on intra-market competition because excluding

[[Page 25460]]

these types of orders would further align the exclusion of 
Professional-to-Professional orders with the exclusion of Customer-to-
Customer and Customer-to-Professional orders from receiving a QCC 
Rebate.
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    \34\ Firms acting as agents would be eligible to receive a QCC 
Rebate.
    \35\ Specialists and Market Makers trade only for their own 
account.
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    The Exchange's proposal does not place on undue burden on inter-
market competition because the QCC order type is similar on other 
options exchanges \36\ and these exchanges may also file to eliminate 
the distinction between Customers and Professionals for the QCC order 
type.
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    \36\ See Chicago Board Options Exchange, Incorporated's Fees 
Schedule and Miami International Securities Exchange LLC's Pricing 
Schedule.
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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.\37\
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    \37\ 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-2016-52 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-2016-52. 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-2016-52 and 
should be submitted on or before May 19, 2016.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\38\
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    \38\ 17 CFR 200.30-3(a)(12).
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Brent J. Fields,
Secretary.
[FR Doc. 2016-09898 Filed 4-27-16; 8:45 am]
 BILLING CODE 8011-01-P
Federal Register / Vol. 81, No. 82 / Thursday, April 28, 2016 / Notices 25459

It is equitable and not unfairly Cap of $500,000 per month.31 free to modify their own fees in
discriminatory to no longer pay a QCC Specialists and Market Makers are not response, and because market
Rebate on Professional-to-Professional subject to QCC Transaction Fees once participants may readily adjust their
orders because, today, Professionals are the Monthly Market Maker Cap is met order routing practices, that the degree
not assessed a QCC Transaction Fee and in a given month. Professionals are not to which fee changes in this market may
Customer-to-Professional orders are not subject to similar caps. With respect to impose any burden on competition is
eligible to receive a QCC Rebate. Broker-Dealers, the Exchange notes that extremely limited.
Excluding Professional-to-Professional members may choose to register as a The initial purpose of the distinction
orders from receiving a QCC Rebate Broker-Dealer. Market participants between a Customer and a Professional
aligns the treatment of Professional acting as agent, compared to market was to prevent market professionals
orders with Customer orders. As participants trading for their own with access to sophisticated trading
explained above, QCC Orders are account, are eligible to receive QCC systems that contain functionality not
distinctive as compared to transactions Rebates. The Exchange pays market available to retail customers, from
executed within the order book or on participants acting as agent for QCC taking advantage of Customer priority,
the Floor, which orders are subject to Orders the QCC Rebates per the QCC where Customer orders are given
exposure and grant Customers priority Rebate Schedule.32 execution priority over Non-Customer
over other market participants. The Further, the Exchange believes that orders. Professional orders are identified
original purpose for the distinction distinguishing Professional orders from based upon the average number of
between a Customer and a Professional other Non-Customer orders is equitable orders entered for a beneficial
was to prevent market professionals 28 and not unfairly discriminatory because account.33
with access to sophisticated trading QCC Orders are an exception to the QCC Orders are by definition large-
systems that contain functionality not general distinctions drawn as between sized contingent orders which have a
available to retail Customers, from Customer orders and Professional stock-tied component. The parties to a
taking advantage of Customer priority, orders. Aside from the lack of priority contingent trade are focused on the
where Customer orders are given for QCC Orders, the size of the order, spread or ratio between the transaction
execution priority over non-Customer sophistication of the investor and prices for each of the component
orders. The Exchange noted at the time complexity of the transaction make it instruments (i.e., the net price of the
that it adopted the Professional difficult to distinguish a Customer order entire contingent trade), rather than on
designation that basing the Professional from a Professional order. For purposes the absolute price of any single
designation upon the average number of of the QCC Order, the Exchange believes component. Treating Customer orders
orders entered for a beneficial account that such distinction is not necessary. and Professional orders in the same
was an appropriate objective approach B. Self-Regulatory Organization’s manner in terms of pricing with respect
that would reasonably distinguish such Statement on Burden on Competition to QCC Orders does not provide any
persons and entities from retail advantage to a Professional. The
The Exchange does not believe that
investors.29 distinction does not create an
With respect to distinguishing the proposed rule change will impose
opportunity to burden competition, for
Professional orders from other Non- any burden on competition not
the reasons stated herein with respect to
necessary or appropriate in furtherance
Customer participant orders, the priority as well as the reasons below.
of the purposes of the Act. In terms of
Exchange notes that these other market With respect to distinguishing
inter-market competition, the Exchange
participants, Specialists, Market Makers, Professional orders from other Non-
notes that it operates in a highly
Firms and Broker-Dealers, are distinct Customer orders, the Exchange notes
competitive market in which market
from a Professional for purposes of that Non-Customer orders are distinct
participants can readily favor competing
assessing QCC Transaction fees for the from Professional orders for purposes of
venues if they deem fee levels at a
below reasons. With respect to Firms, assessing QCC Transaction Fees. Firms
particular venue to be excessive, or
these market participants are eligible for are eligible for the Monthly Firm Fee
rebate opportunities available at other
the Monthly Firm Fee Cap of $75,000 Cap and not subject to QCC Transaction
venues to be more favorable. In such an
per month.30 Firms are not subject to Fees once the Monthly Firm Fee Cap is
environment, the Exchange must
QCC Transaction Fees once the Monthly met in a given month.34 Specialists and
continually adjust its fees to remain
Firm Fee Cap is met in a given month. Market Makers are eligible for the
competitive with other exchanges and
Specialists and Market Makers are Monthly Market Maker Cap and not
with alternative trading systems that
eligible for the Monthly Market Maker subject to QCC Transaction Fees once
have been exempted from compliance
the Monthly Market Maker Cap is met
with the statutory standards applicable
28 The Exchange noted in its filing that market
in a given month.35 Professionals are not
professionals have access to functionality, to exchanges. Because competitors are
subject to similar caps. With respect to
including things such as continuously updated
pricing models based upon real-time streaming 31 Specialists and Market Makers are subject to a
Broker-Dealers, the Exchange notes that
data, access to multiple markets simultaneously and ‘‘Monthly Market Maker Cap’’ of $500,000 for: (i) members may choose to register as a
order and risk management tools. See Securities Electronic Option Transaction Charges; and (ii) Broker-Dealer. These categories of
and Exchange Act Release No. 61426 (January 26, QCC Transaction Fees (as defined in Exchange Rule market participants transact QCC Orders
2010), 75 FR 5360 (February 2, 2010) (SR–Phlx– 1080(o) and Floor QCC Orders, as defined in
2010–05). 1064(e)). The trading activity of separate Specialist
on an agency basis and are eligible to
29 See Securities and Exchange Act Release No. and Market Maker member organizations will be receive QCC Rebates. Excluding
61426 (January 26, 2010), 75 FR 5360 (February 2, aggregated in calculating the Monthly Market Maker Professional-to-Professional orders does
mstockstill on DSK3G9T082PROD with NOTICES

2010) (SR–Phlx–2010–05). Cap if there is Common Ownership between the not impose an undue burden on intra-
30 Firms are subject to a maximum fee of $75,000 member organizations. See Section II of the Pricing
Schedule.
market competition because excluding
(‘‘Monthly Firm Fee Cap’’). Firm Floor Option
Transaction Charges and QCC Transaction Fees, in 32 QCC Rebates are paid by volume. There are
33 See note 8.
the aggregate, for one billing month will not exceed currently six tiers which pay a QCR Rebate between
34 Firms acting as agents would be eligible to
the Monthly Firm Fee Cap per member organization $0.00 and $0.11 per contract. See Section II of the
when such members are trading in their own Pricing Schedule. Of note, Firms may transact QCC receive a QCC Rebate.
proprietary account. See Section II of the Pricing Orders on an agency basis and be eligible for a QCC 35 Specialists and Market Makers trade only for

Schedule. Rebate. their own account.

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25460 Federal Register / Vol. 81, No. 82 / Thursday, April 28, 2016 / Notices

these types of orders would further align All submissions should refer to File 2016, BOX Options Exchange LLC (the
the exclusion of Professional-to- Number SR–Phlx–2016–52. This file ‘‘Exchange’’) filed with the Securities
Professional orders with the exclusion number should be included on the and Exchange Commission
of Customer-to-Customer and Customer- subject line if email is used. To help the (‘‘Commission’’) the proposed rule
to-Professional orders from receiving a Commission process and review your change as described in Items I, II, and
QCC Rebate. comments more efficiently, please use III below, which Items have been
The Exchange’s proposal does not only one method. The Commission will prepared by the Exchange. The
place on undue burden on inter-market post all comments on the Commission’s Exchange filed the proposed rule change
competition because the QCC order type Internet Web site (http://www.sec.gov/ pursuant to Section 19(b)(3)(A)(ii) of the
is similar on other options exchanges 36 rules/sro.shtml). Act,3 and Rule 19b–4(f)(2) thereunder,4
and these exchanges may also file to Copies of the submission, all which renders the proposal effective
eliminate the distinction between subsequent amendments, all written upon filing with the Commission. The
Customers and Professionals for the statements with respect to the proposed Commission is publishing this notice to
QCC order type. rule change that are filed with the solicit comments on the proposed rule
Commission, and all written change from interested persons.
C. Self-Regulatory Organization’s communications relating to the
Statement on Comments on the proposed rule change between the I. Self-Regulatory Organization’s
Proposed Rule Change Received From Commission and any person, other than Statement of the Terms of the Substance
Members, Participants, or Others those that may be withheld from the of the Proposed Rule Change
No written comments were either public in accordance with the The Exchange is filing with the
solicited or received. provisions of 5 U.S.C. 552, will be Securities and Exchange Commission
available for Web site viewing and (‘‘Commission’’) a proposed rule change
III. Date of Effectiveness of the printing in the Commission’s Public to amend the Fee Schedule to amend
Proposed Rule Change and Timing for Reference Room, 100 F Street NE., the BOX Volume Rebate (‘‘BVR’’) in
Commission Action Washington, DC 20549, on official Section I.B.2 of the Fee Schedule on the
The foregoing rule change has become business days between the hours of BOX Market LLC (‘‘BOX’’) options
effective pursuant to Section 10:00 a.m. and 3:00 p.m. Copies of the facility. While changes to the fee
19(b)(3)(A)(ii) of the Act.37 filing also will be available for schedule pursuant to this proposal will
At any time within 60 days of the inspection and copying at the principal be effective upon filing, the changes will
filing of the proposed rule change, the office of the Exchange. All comments become operative on April 13, 2016.
Commission summarily may received will be posted without change; The text of the proposed rule change is
temporarily suspend such rule change if the Commission does not edit personal available from the principal office of the
it appears to the Commission that such identifying information from Exchange, at the Commission’s Public
action is: (i) Necessary or appropriate in submissions. You should submit only Reference Room and also on the
the public interest; (ii) for the protection information that you wish to make Exchange’s Internet Web site at http://
of investors; or (iii) otherwise in available publicly. boxexchange.com.
furtherance of the purposes of the Act. All submissions should refer to File II. Self-Regulatory Organization’s
If the Commission takes such action, the Number SR–Phlx–2016–52 and should Statement of the Purpose of, and
Commission shall institute proceedings be submitted on or before May 19, 2016. Statutory Basis for, the Proposed Rule
to determine whether the proposed rule For the Commission, by the Division of Change
should be approved or disapproved. Trading and Markets, pursuant to delegated
authority.38 In its filing with the Commission, the
IV. Solicitation of Comments Exchange included statements
Brent J. Fields,
Interested persons are invited to concerning the purpose of and basis for
Secretary.
submit written data, views, and the proposed rule change and discussed
[FR Doc. 2016–09898 Filed 4–27–16; 8:45 am] any comments it received on the
arguments concerning the foregoing,
BILLING CODE 8011–01–P proposed rule change. The text of these
including whether the proposed rule
change is consistent with the Act. statements may be examined at the
Comments may be submitted by any of places specified in Item IV below. The
SECURITIES AND EXCHANGE Exchange has prepared summaries, set
the following methods: COMMISSION forth in Sections A, B, and C below, of
Electronic Comments [Release No. 34–77694; File No. SR–BOX– the most significant aspects of such
• Use the Commission’s Internet 2016–17] statements.
comment form (http://www.sec.gov/
Self-Regulatory Organizations; BOX A. Self-Regulatory Organization’s
rules/sro.shtml); or
Statement of the Purpose of, and
• Send an email to rule-comments@ Options Exchange LLC; Notice of
Filing and Immediate Effectiveness of Statutory Basis for, the Proposed Rule
sec.gov. Please include File Number SR–
a Proposed Rule Change To Amend Change
Phlx–2016–52 on the subject line.
the Fee Schedule on the BOX Market 1. Purpose
Paper Comments LLC (‘‘BOX’’) Options Facility
The Exchange proposes to amend the
• Send paper comments in triplicate
April 22, 2106. Fee Schedule for trading on BOX.
to Secretary, Securities and Exchange
mstockstill on DSK3G9T082PROD with NOTICES

Pursuant to Section 19(b)(1) of the Specifically, the Exchange proposes to
Commission, 100 F Street NE.,
Securities Exchange Act of 1934 (the amend the BOX Volume Rebate (‘‘BVR’’)
Washington, DC 20549–1090.
‘‘Act’’),1 and Rule 19b–4 thereunder,2 in Section I.B.2 of the Fee Schedule.
36 See Chicago Board Options Exchange,
notice is hereby given that on April 12, Under the current BVR, the Exchange
Incorporated’s Fees Schedule and Miami offers a tiered per contract rebate for all
38 17 CFR 200.30–3(a)(12).
International Securities Exchange LLC’s Pricing
Schedule. 1 15 U.S.C. 78s(b)(1). 3 15 U.S.C. 78s(b)(3)(A)(ii).
37 15 U.S.C. 78s(b)(3)(A)(ii). 2 17 CFR 240.19b–4. 4 17 CFR 240.19b–4(f)(2).

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Document Created: 2016-04-28 01:05:20
Document Modified: 2016-04-28 01:05:20
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 25457