81 FR 49293 - Self-Regulatory Organizations; NASDAQ PHLX LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change Related to Affiliated Entities
SECURITIES AND EXCHANGE COMMISSION Federal Register Volume 81, Issue 144 (July 27, 2016)
Federal Register Volume 81, Issue 144 (July 27, 2016)
| Page Range | 49293-49299 | |
| FR Document | 2016-17668 |
[Federal Register Volume 81, Number 144 (Wednesday, July 27, 2016)] [Notices] [Pages 49293-49299] From the Federal Register Online [www.thefederalregister.org] [FR Doc No: 2016-17668] ----------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION [Release No. 34-78382; File No. SR-Phlx-2016-62] Self-Regulatory Organizations; NASDAQ PHLX LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change Related to Affiliated Entities July 21, 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 July 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. --------------------------------------------------------------------------- \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 amend the Preface, Section B and Section II of the Exchange's Pricing Schedule to permit certain affiliated market participants to aggregate volume and qualify for various pricing incentives in the Pricing Schedule. The text of the proposed rule change is available on the Exchange's Web site at http://nasdaqphlx.cchwallstreet.com/ 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 permit certain affiliated market participants to aggregate volume and qualify for various pricing incentives in the Pricing Schedule. Specifically, the Exchange proposes to amend the Pricing Schedule at Section B, Customer \3\ Rebates and at Section II, Multiply-Listed Options Fees,\4\ to offer [[Page 49294]] Affiliated Entities certain rebate and fee incentives. --------------------------------------------------------------------------- \3\ 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)). \4\ These fees include options overlying equities, ETFs, ETNs and indexes which are Multiply Listed. --------------------------------------------------------------------------- Affiliated Entity The Exchange proposes to add three definitions to the Preface of the Pricing Schedule. The Exchange proposes to define the terms ``Appointed MM,'' ``Appointed OFP,'' and ``Affiliated Entity.'' The Exchange proposes to define the term ``Appointed MM'' as a Phlx Market Maker \5\ or Specialist \6\ who has been appointed by an Order Flow Provider (``OFP'') for purposes of qualifying as an Affiliated Entity. An OFP is a member or member organization that submits orders, as agent or principal, to the Exchange.\7\ The Exchange proposes to define the term ``Appointed OFP'' as an OFP who has been appointed by a Phlx Market Maker or Specialist for purposes of qualifying as an Affiliated Entity. The Exchange proposes to define the term ``Affiliated Entity'' as a relationship between an Appointed MM and an Appointed OFP for purposes of qualifying for certain pricing as specified in the Pricing Schedule. In order to become an Affiliated Entity, Market Makers or Specialists, and OFPs will be required to send an email to the Exchange to appoint their counterpart, at least 3 business days prior to the last day of the month to qualify for the next month.\8\ For example, with this proposal, market participants may submit emails to the Exchange to become Affiliated Entities eligible to qualify for discounted pricing starting August 1, 2016, provided the emails are sent at least 3 business days prior to the first business day of August 2016. The Exchange will acknowledge receipt of the emails and specify the date the Affiliated Entity would be eligible to qualify for applicable pricing, as specified in the Pricing Schedule. Each Affiliated Entity relationship will commence on the 1st of a month and may not be terminated prior to the end of any month. An Affiliated Entity relationship will terminate after a one (1) year period, unless either party terminates earlier in writing by sending an email to the Exchange at least 3 business days prior to the last day of the month to terminate for the next month. Affiliated Entity relationships must be renewed annually. For example, if the start date of the Affiliated Entity relationship is August 1, 2016, the counterparties may determine to commence a new relationship as of August 1, 2017 by sending two new emails by July 27, 2017 (3 business days prior to the end of the month). Members and member organizations under Common Ownership \9\ may not qualify as a counterparty comprising an Affiliated Entity. Each member or member organization may qualify for only one (1) Affiliated Entity relationship at any given time. --------------------------------------------------------------------------- \5\ The term ``Market Maker'' will be utilized to describe fees and rebates applicable to Registered Options Traders (``ROTs''), Streaming Quote Traders (``SQTs''), Remote Streaming Quote Traders (``RSQTs''). An ROT is defined in Exchange Rule 1014(b) is 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. A ROT includes SQTs and RSQTs as well as on and off-floor ROTS. An SQT is defined in Exchange Rule 1014(b)(ii)(A) as an ROT who has received permission from the Exchange to generate and submit option quotations electronically in options to which such SQT is assigned. An RSQT is defined in Exchange Rule in 1014(b)(ii)(B) as an ROT that is a member affiliated with an RSQTO 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. A Remote Streaming Quote Trader Organization or ``RSQTO,'' which may also be referred to as a Remote Market Making Organization (``RMO''), is a member organization in good standing that satisfies the RSQTO readiness requirements in Rule 507(a). RSQTs may also be referred to as Remote Market Markers (``RMMs''). \6\ The term ``Specialist'' shall apply to the account of a Specialist (as defined in Exchange Rule 1020(a)). A Specialist is an Exchange member who is registered as an options specialist pursuant to Rule 501(a). An options Specialist includes a Remote Specialist which is defined as an options specialist in one or more classes that does not have a physical presence on an Exchange floor and is approved by the Exchange pursuant to Rule 501. \7\ Specialist and Market Makers submitting quotes to the Exchange shall not be considered Appointed OFPs for the purpose of becoming an Affiliated Entity. \8\ The Exchange shall issue an Options Trader Alert specifying the email address and details required to apply to become an Affiliated Entity. \9\ The term ``Common Ownership'' shall mean members or member organizations under 75% common ownership or control. Phlx members or member organizations that are under 75% common ownership or control shall be considered under Common Ownership for purposes of pricing. --------------------------------------------------------------------------- As proposed, an Affiliated Entity shall be eligible to aggregate their volume for purposes of qualifying for certain pricing specified in the Pricing Schedule, as described below. Section B--Customer Rebates The Exchange proposes to amend Section B, entitled ``Customer Rebate Program'' to permit Affiliated Entities to aggregate their Customer volume for purposes of calculating Customer Rebate Tiers and receiving rebates. Currently, the Exchange has a Customer Rebate Program consisting of the following five tiers that pay Customer rebates on three Categories, A, B and C, of transactions: ---------------------------------------------------------------------------------------------------------------- Percentage thresholds of national customer volume in multiply-listed equity and Customer rebate tiers ETF Options classes, Category A Category B Category C excluding SPY Options (monthly) ---------------------------------------------------------------------------------------------------------------- Tier 1............................. 0.00%-0.60%................ $0.00 $0.00 $0.00 Tier 2............................. Above 0.60%-1.10%.......... $0.10 $0.10 $0.17 Tier 3............................. Above 1.10%-1.60%.......... $0.15 $0.12 $0.17 Tier 4............................. Above 1.60%-2.50%.......... $0.20 $0.16 $0.22 Tier 5............................. Above 2.50%................ $0.21 $0.17 $0.22 ---------------------------------------------------------------------------------------------------------------- A Phlx member qualifies for a certain rebate tier based on the percentage of total national customer volume in multiply-listed options that it transacts monthly on Phlx. The Exchange calculates Customer volume in Multiply Listed Options by totaling electronically-delivered and executed volume, excluding volume associated with electronic Qualified Contingent Cross (``QCC'') Orders, as defined in Exchange Rule 1080(o).\10\ The Exchange proposes to incentivize certain members and member organizations, who are not under Common Ownership, to enter into an Affiliated Entity relationship for the purpose of aggregating Customer volume to qualify for Section B Customer Rebates. By aggregating volume, the counterparties comprising the Affiliated Entity are offered an opportunity to qualify for higher rebates, thereby lowering costs and encouraging members to send more order flow. Customer liquidity benefits all market participants by providing [[Page 49295]] more order flow to the marketplace and more trading opportunities. --------------------------------------------------------------------------- \10\ In calculating electronically-delivered and executed Customer volume in Multiply Listed Options, the numerator of the equation includes all electronically-delivered and executed Customer volume in Multiply Listed Options. The denominator of that equation includes national customer volume in multiply-listed equity and ETF options volume, excluding SPY. See Section B of the Pricing Schedule. --------------------------------------------------------------------------- Affiliated Entities may aggregate Customer volume as between the Appointed MM and Appointed OFP to qualify for any of the five tiers of Customer Rebates that pay Category, A, B or C rebates on transactions. An Appointed OFP would be eligible to receive the additional $0.02 per contract Category A and B rebate and the additional $0.03 per contract Category C rebate, paid in addition to the applicable Tier 2 and 3 rebate, currently available to a Specialist or Market Maker or its member or member organization affiliate under Common Ownership, provided the Appointed MM has reached the Monthly Market Maker Cap, as defined in Section II. The Exchange proposes to amend the language in Section B to clarify the applicability of the $0.02 per contract rebate in addition to Categories A and B and the $0.03 per contract rebate in addition to Category C, applicable to Tiers 2 and 3. The Exchange proposes to relocate certain language and add language to amend the sentence as follows: ``The Exchange will pay a $0.02 per contract Category A and B rebate and a $0.03 per contract Category C rebate in addition to the applicable Tier 2 and 3 rebate, provided the Specialist, Market Maker or Appointed MM has reached the Monthly Market Maker Cap as defined in Section II, to: (1) A Specialist or Market Maker who is not under Common Ownership or is not a party of an Affiliated Entity; or (2) an OFP member or member organization affiliate under Common Ownership; or (3) an Appointed OFP of an Affiliated Entity.'' The Exchange's proposal would incentivize certain members and member organizations, which are not under Common Ownership, to enter into an Affiliated Entity relationship for the purpose of aggregating Customer volume to qualify the Appointed OFP for Customer Rebates in Section B of the Pricing Schedule. Phlx members and member organizations that are under 75% common ownership or control will be considered under Common Ownership and therefore by definition are not eligible to enter an Affiliated Entity relationship. Section II--Options Transaction Charge The Exchange proposes to amend Section II of the Pricing Schedule to offer members and member organizations that are Appointed OFPs of Affiliated Entities transacting non-Customer orders an opportunity to reduce non-Penny Pilot electronic Options Transaction Charges. Today, the Exchange assesses a Professional,\11\ Broker-Dealer \12\ and Firm \13\ a non-Penny Pilot electronic Options Transaction Charge of $0.75 per contract and a Specialist and Market Maker a $0.25 per contract non-Penny Pilot electronic Options Transaction Charge. The Exchange proposes to provide an Appointed OFP of an Affiliated Entity with an opportunity to lower the Professional, Broker-Dealer and Firm non-Penny Pilot electronic Options Transaction Charge from $0.75 to $0.60 per contract provided the Affiliated Entity qualifies for Customer Rebate Tiers 4 \14\ or 5 \15\ in Section B of the Pricing Schedule. The Exchange proposes to provide an Appointed MM of an Affiliated Entity with an opportunity to lower the Specialist and Market Maker non-Penny Pilot electronic Options Transaction Charge from $0.25 to $0.23 per contract provided the Affiliated Entity qualifies for Customer Rebate Tiers 4 or 5 in Section B of the Pricing Schedule.\16\ --------------------------------------------------------------------------- \11\ 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). \12\ The term ``Broker-Dealer'' applies to any transaction which is not subject to any of the other transaction fees applicable within a particular category. \13\ 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. \14\ The Tier 4 Customer Rebate in Section B of the Pricing Schedule requires Customer volume above 1.60% to 2.50% of National Customer Volume in Multiply Listed Equity and ETF Options, excluding SPY. This rebate tier pays a Category A $0.20 rebate, a Category B $0.16 rebate and a Category C $0.22 rebate. \15\ The Tier 5 Customer Rebate in Section B of the Pricing Schedule requires Customer volume above 2.50% of National Customer Volume in Multiply Listed Equity and ETF Options, excluding SPY. This rebate tier pays a Category A $0.21 rebate, a Category B $0.17 rebate and a Category C $0.22 rebate. \16\ Today, any member or member organization under Common Ownership with another member or member organization that qualifies for Customer Rebate Tiers 4 or 5 in Section B of the Pricing Schedule is assessed either a $0.23 or $0.60 per contract non-Penny Pilot electronic Options Transaction Charge. --------------------------------------------------------------------------- The Exchange's proposal would incentivize certain members and member organizations, who are not under Common Ownership, to enter into an Affiliated Entity relationship for the purpose of aggregating Customer volume to qualify for reduced non-Penny Pilot Options Transaction Charges. 2. Statutory Basis The Exchange believes that its proposal to amend its Pricing Schedule is consistent with Section 6(b) of the Act,\17\ in general, and furthers the objectives of Section 6(b)(4) and (b)(5) of the Act,\18\ 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 its facilities, and is not designed to permit unfair discrimination between customers, issuers, brokers, or dealers. --------------------------------------------------------------------------- \17\ 15 U.S.C. 78f(b). \18\ 15 U.S.C. 78f(b)(4), (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, 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.'' \19\ --------------------------------------------------------------------------- \19\ Securities Exchange Act Release No. 51808 (June 29, 2005), 70 FR 37496 at 37499 (File No. S7-10-04) (``Regulation NMS Adopting Release''). --------------------------------------------------------------------------- Likewise, in NetCoalition v. Securities and Exchange Commission \20\ (``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.\21\ 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.'' \22\ --------------------------------------------------------------------------- \20\ NetCoalition v. SEC, 615 F.3d 525 (D.C. Cir. 2010). \21\ See id. at 534-535. \22\ 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' . . . .'' \23\ Although the court and the SEC were discussing the cash equities markets, the Exchange believes [[Page 49296]] that these views apply with equal force to the options markets. --------------------------------------------------------------------------- \23\ See id. at 539 (quoting Securities Exchange Act Commission at Release No. 59039 (December 2, 2008), 73 FR 74770 at 74782-74783 (December 9, 2008) (SR-NYSEArca-2006-21)). --------------------------------------------------------------------------- The Exchange's proposal to amend the Preface of the Pricing Schedule to add the definitions of ``Appointed MM,'' ``Appointed OFP'' and ``Affiliated Entity'' is reasonable because the Exchange is proposing to identify the applicable market participants that may qualify to aggregate volume as an Affiliated Entity. Further the Exchange seeks to make clear the manner in which members and member organizations may participate on the Exchange as Affiliated Entities by setting timeframes for communicating agreements among market participants and terms of early termination. The Exchange also clearly states that no member or member organization under Common Ownership may become a counterparty to an Affiliated Entity. Any Phlx member or member organization who meets the definition of Common Ownership shall not be eligible to become an Affiliated Entity. The Exchange believes that these terms are reasonable because they would allow members or member organizations to elect to become a counterparty to an Affiliated Entity, provided they are not under Common Ownership. The Exchange's proposal to amend the Preface of the Pricing Schedule to add the definitions of ``Appointed MM,'' ``Appointed OFP'' and ``Affiliated Entity'' is equitable and not unfairly discriminatory because all member or members that are not under Common Ownership by definition may choose to enter into an Affiliated Entity relationship. Section B Customer Rebates The Exchange's proposal to permit Affiliated Entities to aggregate Customer volume for purposes of qualifying Appointed OFPs for Section B Customer Rebates is reasonable because it will attract additional Customer order flow to the Exchange. Customer liquidity benefits all market participants by providing more trading opportunities, which attracts Market Makers and Specialists. An increase in the activity of these market participants in turn facilitates tighter spreads, which may cause an additional corresponding increase in order flow from other market participants. Appointed OFPs directing order flow to the Exchange may be eligible to qualify for a Customer Rebate or a higher Customer Rebate tier, with this proposal, as a result of aggregating volume with an Appointed MM and thereby qualifying for higher Customer Rebates. Permitting members and member organizations to affiliate for purposes of qualifying for Section B Customer Rebates may also encourage the counterparties that comprise the Affiliated Entities to incentivize each other to attract and seek to execute more Customer volume on Phlx. In turn, market participants would benefit from the increased liquidity with which to interact and potentially tighter spreads on orders. Overall, incentivizing market participants with increased opportunities to earn higher Customer rebates may increase the quality of the liquidity available on Phlx. The Exchange's proposal to permit Affiliated Entities to aggregate Customer volume for purposes of qualifying Appointed OFPs for Section B Customer rebates is equitable and not unfairly discriminatory because all Phlx members and member organizations, other than those that meet the definition of Common Ownership, may elect to become an Affiliated Entity as either an Appointed MM or an Appointed OFP.\24\ Also, each member or member organization may participate in only one Affiliated Entity relationship at a given time, which imposes a measure of exclusivity among market participants, allowing each party to rely on the other's executed Customer volume on Phlx to receive a corresponding benefit in terms of a higher rebate. Any market participant that by definition is not under Common Ownership may elect to become a counterparty of an Affiliated Entity. --------------------------------------------------------------------------- \24\ Both members must elect each other to become an Affiliated Entity for one year. Participation is effected by an agreement of both parties that have provided proper notification to the Exchange. A party may elect to terminate the agreement at any time prior to one year. --------------------------------------------------------------------------- The Exchange's proposal to exclude members and member organizations that are under Common Ownership from qualifying as an Affiliated Entity is reasonable because members and member organizations under Common Ownership may aggregate volume today for purposes of Section B Customer Rebates.\25\ The Exchange's proposal to exclude members and member organizations that by definition are under Common Ownership from qualifying as an Affiliated Entity is equitable and not unfairly discriminatory because the Exchange will apply all qualifications in a uniform manner when approving Affiliated Entities. Excluding members and member organizations that by definition are under Common Ownership from also qualifying as an Affiliated Entity is equitable and not unfairly discriminatory because they are able to aggregate volume today and qualify for Customer Rebates in Section B. --------------------------------------------------------------------------- \25\ See Section B of the Pricing Schedule. --------------------------------------------------------------------------- Section II--Options Transaction Charges The Exchange's proposal to amend note 3 of Section II of the Pricing Schedule to offer members and member organizations that are Affiliated Entities an opportunity to reduce non-Customer non-Penny Pilot electronic Options Transaction Charges is reasonable because the Exchange believes it will encourage these market participants to transact a greater amount of Customer volume on Phlx. The Exchange's proposal to permit Appointed OFPs of Affiliated Entities to qualify for the reduced non-Penny Pilot electronic Options Transaction Charges by qualifying for Customer Rebate Tiers 4 or 5 in Section B of the Pricing Schedule will attract additional Customer order flow to the Exchange. Customer liquidity benefits all market participants by providing more trading opportunities, which attracts Market Makers and Specialists. An increase in the activity of these market participants in turn facilitates tighter spreads, which may cause a corresponding increase in order flow from other market participants. Appointed OFPs directing order flow to the Exchange may be eligible to qualify for these Customer rebate tiers as a result of aggregating volume with another appointed member and benefit from reduced non-Penny Pilot electronic Options Transaction Charges. Permitting members and member organizations to affiliate for purposes of qualifying for Section B Customer rebates may also encourage the counterparties of an Affiliated Entity to incentivize each other to attract and seek to execute more Customer volume on Phlx. The Affiliated Entity relationship would permit the Appointed OFP to benefit from reduced non-Penny Pilot electronic Options Transaction Charges. In turn, market participants would benefit from the increased liquidity with which to interact and potentially tighter spreads on orders. The Exchange believes that lowering these fees for electronic non-Penny Pilot Options Transaction Charges, as compared to Penny Pilot Options Transaction Charges, is reasonable because today, Penny Pilot Options are the most traded and more liquid than Non-Penny Pilot Options. Electronic Penny Pilot Options Transaction Charges are lower for Professionals, Broker-Dealers and Firms because of the demand in the marketplace. The Exchange is offering Appointed OFPs the opportunity to reduce the higher electronic non-Penny Pilot Options Transaction Charges for [[Page 49297]] Professionals, Broker-Dealers and Firms with this incentive, provided they qualify for the reduced non-Penny Pilot electronic Options Transaction Charges by qualifying for Customer Rebate Tiers 4 or 5 in Section B of the Pricing Schedule. The Exchange's proposal to amend note 3 of Section II of the Pricing Schedule to offer members and member organizations that are Affiliated Entities an opportunity to reduce non-Customer non-Penny Pilot electronic Options Transaction Charges is equitable and not unfairly discriminatory because the Exchange will assess Appointed OFPs a reduced Professional, Broker-Dealer and Firm electronic Options Transaction Charge in Non-Penny Pilot Options. The Exchange does not assess Customers an electronic Options Transaction Charge in Non-Penny Pilot Options because Customer order flow enhances liquidity on the Exchange for the benefit of all market participants. Customer liquidity benefits all market participants by providing more trading opportunities, which attracts Specialists and Market Makers. An increase in the activity of these market participants in turn facilitates tighter spreads, which may cause an additional corresponding increase in order flow from other market participants. Specialists and Market Makers are assessed lower electronic Options Transaction Charges in Non-Penny Pilot Options as compared to Professionals, Broker-Dealers and Firms because they have obligations to the market and regulatory requirements, which normally do not apply to other market participants.\26\ They have obligations to make continuous markets, engage in a course of dealings reasonably calculated to contribute to the maintenance of a fair and orderly market, and not make bids or offers or enter into transactions that are inconsistent with a course of dealings. The proposed differentiation as between Customers, Specialists and Market Makers and other market participants recognizes the differing contributions made to the liquidity and trading environment on the Exchange by these market participants. The Exchange believes that offering Appointed OFPs an opportunity to lower fees for electronic non-Penny Pilot Options Transaction Charges as compared to Penny Pilot Options Transaction Charges is equitable and not unfairly discriminatory because the Exchange seeks to offer lower fees to those market participants paying the highest electronic non-Penny Pilot Options Transaction Charges. --------------------------------------------------------------------------- \26\ See Rule 1014 titled ``Obligations and Restrictions Applicable to Specialists and Registered Options Traders.'' --------------------------------------------------------------------------- The Exchange's proposal to amend note 4 of Section II of the Pricing Schedule to offer Appointed MMs of an Affiliated Entity an opportunity to reduce the Specialist and Marker Maker electronic non- Penny Pilot electronic Options Transaction Charges is reasonable because today the Exchange offers all market participants, excluding Customers who are not assessed a non-Penny Pilot electronic Options Transaction Charges, a means to reduce electronic Options Transaction Charges by qualifying for a Customer Rebate in Section B of the Pricing Schedule. Even with the reduced rate for Professionals, Broker-Dealers and Firms of $0.60 per contract, Specialists and Market Makers will continue to be assessed the lowest electronic Options Transaction Charge in Non-Penny Pilot Options because they have obligations to the market and regulatory requirements, which normally do not apply to other market participants.\27\ The Exchange believes that offering Appointed MMs an opportunity to benefit from lower fees for electronic non-Penny Pilot Options Transaction Charges is reasonable because the reduced electronic non-Penny Pilot will be consistent with the current lower reduced Penny Pilot Options Transaction charges ($0.25 vs. $0.22 per contract). --------------------------------------------------------------------------- \27\ Id. --------------------------------------------------------------------------- The Exchange's proposal to amend note 4 of Section II of the Pricing Schedule to offer Appointed MMs of an Affiliated Entity an opportunity to reduce the Specialist and Marker Maker electronic non- Penny Pilot electronic Options Transaction Charges is equitable and not unfairly discriminatory because the Exchange seeks to incentivize Specialists and Market Makers to increase their activity on Phlx and in turn facilitate tighter spreads, which may cause an additional corresponding increase in order flow from other market participants. Specialists and Market Makers have obligations to the market and regulatory requirements, which normally do not apply to other market participants.\28\ They have obligations to make continuous markets, engage in a course of dealings reasonably calculated to contribute to the maintenance of a fair and orderly market, and not make bids or offers or enter into transactions that are inconsistent with a course of dealings. The Exchange believes that offering Appointed MMs the opportunity to receive this additional benefit will continue to benefit the marketplace as described herein. The Exchange believes that lowering electronic non-Penny Pilot Options Transaction Charges as compared to electronic Penny Pilot Options Transaction Charges is equitable and not unfairly discriminatory because the Exchange is offering market participants the opportunity to reduce the higher electronic non-Penny Pilot Options Transaction Charges for Specialists and Market Makers with this incentive and permitting Appointed MMs to also receive this discount, provided they qualify. --------------------------------------------------------------------------- \28\ Id. --------------------------------------------------------------------------- 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 permitting counterparties to an Affiliated Entity to aggregate volume to qualify for certain rebates and reduced 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 readily and do send order flow to competing exchanges if they deem fee levels or rebate incentives at a particular exchange to be excessive or inadequate. 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 and rebates remain competitive with the fee structures at other trading platforms. 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, the Exchange believes that the degree to which fee [[Page 49298]] changes in this market may impose any burden on competition is extremely limited. In sum, if the changes proposed herein are unattractive to market participants, it is likely that the Exchange will lose market share as a result. 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. In terms of inter-market competition, the Exchange notes that other options markets have similar incentives in place to attract volume to their markets.\29\ --------------------------------------------------------------------------- \29\ See NYSE MKT LLC's (``NYSE Amex'') pricing at NYSE Amex Options Fee Schedule). NYSE Amex permits aggregation of volume to qualify for the Amex Customer Engagement or ACE Program. See Bats BZX Exchange, Inc.'s (``BZX'') fee schedule. BZX permits aggregation of volume to qualify for tiered pricing. See the Chicago Board Options Exchange Incorporated (``CBOE'') Fees Schedule. CBOE permits aggregation of volume to qualify for credits available under an Affiliated Volume Plan or ``AVP.'' --------------------------------------------------------------------------- The Exchange's proposal to amend the Preface of the Pricing Schedule to add the definitions of ``Appointed MM,'' ``Appointed OFP'' and ``Affiliated Entity'' does not impose an undue burden on competition because these definitions apply to all members and member organizations uniformly. Section B Customer Rebates In terms of intra-market competition, the Exchange does not believe that its proposal to permit counterparties of an Affiliated Entity to aggregate Customer volume for purposes of qualifying for Section B Customer Rebates imposes an undue burden on intra-market competition because all Phlx members and member organizations, other than those under Common Ownership, may become an Affiliated Entity as either an Appointed MM or an Appointed OFP. Also, each Phlx member or member organization may participate in only one Affiliated Entity relationship at a given time, which imposes a measure of exclusivity among market participants, allowing each party to rely on the other's executed Customer volume on Phlx to receive a corresponding benefit in terms of a higher rebate. The Exchange will apply all qualifications in a uniform manner to all market participants that elect to become counterparties of an Affiliated Entity. Any market participant that is by definition a member or member organization under Common Ownership may not become a counterparty of an Affiliated Entity. Market Makers and Specialists are valuable market participants that provide liquidity in the marketplace and incur costs that other market participants do not incur. Market Makers and Specialists are subject to burdensome quoting obligations \30\ to the market that do not apply to other market participants. Incentivizing these market participants to execute Customer volume on Phlx may result in tighter spreads. An increase in the activity of these market participants in turn facilitates tighter spreads, which may cause an additional corresponding increase in order flow from other market participants. Appointed OFPs directing order flow to the Exchange may be eligible to qualify for a Customer Rebate or a higher Customer Rebate tier, with this proposal, as a result of aggregating volume with an Appointed MM and thereby qualifying for higher Customer Rebates. Permitting members and member organizations to affiliate for purposes of qualifying for Section B Customer Rebates may also encourage the counterparties that comprise the Affiliated Entities to incentivize each other to attract and seek to execute more Customer volume on Phlx. --------------------------------------------------------------------------- \30\ See note 26 above. --------------------------------------------------------------------------- The Exchange's proposal to exclude members and member organizations that are under Common Ownership from becoming an Affiliated Entity does not impose and [sic] undue burden on intra-market competition because member and member organizations under Common Ownership may aggregate volume today for purposes of qualifying for Customer Rebates. Section II--Options Transaction Charges The Exchange's proposal to amend note 3 of Section II of the Pricing Schedule to offer Appointed OFPs of Affiliated Entities an opportunity to reduce non-Customer non-Penny Pilot electronic Options Transaction Charges does not impose an undue burden on intra-market competition because the Exchange will assess Appointed OFPs a reduced Professional, Broker-Dealer and Firm electronic Options Transaction Charge in Non-Penny Pilot Options. The Exchange does not assess Customers an electronic Options Transaction Charge in Non-Penny Pilot Options because Customer order flow enhances liquidity on the Exchange for the benefit of all market participants. Customer liquidity benefits all market participants by providing more trading opportunities, which attracts Specialists and Market Makers. An increase in the activity of these market participants in turn facilitates tighter spreads, which may cause an additional corresponding increase in order flow from other market participants. Specialists and Market Makers are assessed lower electronic Options Transaction Charges in Non-Penny Pilot Options as compared to Professionals, Broker-Dealers and Firms because they have obligations to the market and regulatory requirements, which normally do not apply to other market participants.\31\ They have obligations to make continuous markets, engage in a course of dealings reasonably calculated to contribute to the maintenance of a fair and orderly market, and not make bids or offers or enter into transactions that are inconsistent with a course of dealings. The proposed differentiation as between Customers, Specialists and Market Makers and other market participants recognizes the differing contributions made to the liquidity and trading environment on the Exchange by these market participants. The Exchange will apply all qualifications for the reduced rate in a uniform manner. The Exchange believes that lowering these fees for electronic non-Penny Pilot Options Transaction Charges as compared to electronic Penny Pilot Options Transaction Charges does not impose an undue burden on intra-market competition because the Exchange seeks to offer lower fees to those market participants paying the highest electronic non-Penny Pilot Options Transaction Charges. --------------------------------------------------------------------------- \31\ See note 26 above. --------------------------------------------------------------------------- The Exchange's proposal to amend note 4 of Section II of the Pricing Schedule to offer Appointed MMs of Affiliated Entities an opportunity to reduce non-Customer electronic non-Penny Pilot electronic Options Transaction Charges does not impose an undue burden on intra-market competition because the Exchange seeks to incentivize Specialists and Market Makers to increase their activity on Phlx and in turn facilitate tighter spreads, which may cause an additional corresponding increase in order flow from other market participants. Specialists and Market have obligations to the market and regulatory requirements, which normally do not apply to other market participants.\32\ They have obligations to make continuous markets, engage in a course of dealings reasonably calculated to contribute to the maintenance of a fair and orderly market, and not make bids or offers or enter into transactions that are inconsistent with a course of dealings. The Exchange believes that permitting Affiliated [sic] MMs to receive this additional benefit will continue to benefit the market place as [[Page 49299]] described herein. The Exchange believes that lowering these fees for electronic non-Penny Pilot Options Transaction Charges as compared to Penny Pilot Options Transaction Charges does not impose an undue burden on intra-market competition because the electronic non-Penny Pilot Options Transaction Charges is higher ($0.25 vs. $0.22 per contract). --------------------------------------------------------------------------- \32\ See note 26 above. --------------------------------------------------------------------------- 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.\33\ --------------------------------------------------------------------------- \33\ 15 U.S.C. 78s(b)(3)(A)(ii). --------------------------------------------------------------------------- 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-2016-62 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-2016-62. 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-2016-62 and should be submitted on or before August 17, 2016. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.\34\ --------------------------------------------------------------------------- \34\ 17 CFR 200.30-3(a)(12). --------------------------------------------------------------------------- Robert W. Errett, Deputy Secretary. [FR Doc. 2016-17668 Filed 7-26-16; 8:45 am] BILLING CODE 8011-01-P
![Federal Register / Vol. 81, No. 144 / Wednesday, July 27, 2016 / Notices 49293
Appointed MM or an Appointed OFP. All submissions should refer to File ‘‘Exchange’’) filed with the Securities
Also, all NOM Participants may qualify Number SR–NASDAQ–2016–090. This and Exchange Commission (‘‘SEC’’ or
for a MARS Payment provided they file number should be included on the ‘‘Commission’’) the proposed rule
meet applicable System Eligibility subject line if email is used. To help the change as described in Items I, II, and
requirements. NOM Participants may Commission process and review your III, below, which Items have been
participate in only one Affiliated Entity comments more efficiently, please use prepared by the Exchange. The
relationship at a given time, which only one method. The Commission will Commission is publishing this notice to
imposes a measure of exclusivity among post all comments on the Commission’s solicit comments on the proposed rule
market participants, allowing each party Internet Web site (http://www.sec.gov/ change from interested persons.
to rely on the other’s executed volume rules/sro.shtml). Copies of the
submission, all subsequent I. Self-Regulatory Organization’s
on NOM to receive a corresponding
amendments, all written statements Statement of the Terms of Substance of
benefit in terms of a rebate. The
with respect to the proposed rule the Proposed Rule Change
Exchange will apply all qualifications in
a uniform manner to all market change that are filed with the The Exchange proposes to amend the
participants that elect to become Commission, and all written Preface, Section B and Section II of the
counterparties of an Affiliated Entity. communications relating to the Exchange’s Pricing Schedule to permit
proposed rule change between the certain affiliated market participants to
C. Self-Regulatory Organization’s Commission and any person, other than
Statement on Comments on the aggregate volume and qualify for various
those that may be withheld from the pricing incentives in the Pricing
Proposed Rule Change Received From public in accordance with the
Members, Participants, or Others Schedule.
provisions of 5 U.S.C. 552, will be
No written comments were either available for Web site viewing and The text of the proposed rule change
solicited or received. printing in the Commission’s Public is available on the Exchange’s Web site
Reference Room, 100 F Street NE., at http://nasdaqphlx.cchwallstreet.
III. Date of Effectiveness of the Washington, DC 20549, on official com/, at the principal office of the
Proposed Rule Change and Timing for business days between the hours of Exchange, and at the Commission’s
Commission Action 10:00 a.m. and 3:00 p.m. Copies of the Public Reference Room.
The foregoing rule change has become filing also will be available for II. Self-Regulatory Organization’s
effective pursuant to Section inspection and copying at the principal Statement of the Purpose of, and
19(b)(3)(A)(ii) of the Act.31 office of the Exchange. All comments Statutory Basis for, the Proposed Rule
At any time within 60 days of the received will be posted without change; Change
filing of the proposed rule change, the the Commission does not edit personal
Commission summarily may identifying information from In its filing with the Commission, the
temporarily suspend such rule change if submissions. You should submit only Exchange included statements
it appears to the Commission that such information that you wish to make concerning the purpose of and basis for
action is: (i) Necessary or appropriate in available publicly. All submissions the proposed rule change and discussed
the public interest; (ii) for the protection should refer to File Number SR– any comments it received on the
of investors; or (iii) otherwise in NASDAQ–2016–090 and should be proposed rule change. The text of these
submitted on or before August 17, 2016. statements may be examined at the
furtherance of the purposes of the Act.
If the Commission takes such action, the For the Commission, by the Division of places specified in Item IV below. The
Commission shall institute proceedings Trading and Markets, pursuant to delegated Exchange has prepared summaries, set
authority.32 forth in sections A, B, and C below, of
to determine whether the proposed rule
should be approved or disapproved. Robert W. Errett, the most significant aspects of such
Deputy Secretary. statements.
IV. Solicitation of Comments [FR Doc. 2016–17666 Filed 7–26–16; 8:45 am]
A. Self-Regulatory Organization’s
Interested persons are invited to BILLING CODE 8011–01–P
Statement of the Purpose of, and
submit written data, views, and Statutory Basis for, the Proposed Rule
arguments concerning the foregoing, Change
including whether the proposed rule SECURITIES AND EXCHANGE
change is consistent with the Act. COMMISSION 1. Purpose
Comments may be submitted by any of [Release No. 34–78382; File No. SR–Phlx– The purpose of the proposed rule
the following methods: 2016–62]
change is to permit certain affiliated
Electronic Comments Self-Regulatory Organizations; market participants to aggregate volume
• Use the Commission’s Internet NASDAQ PHLX LLC; Notice of Filing and qualify for various pricing
comment form (http://www.sec.gov/ and Immediate Effectiveness of incentives in the Pricing Schedule.
rules/sro.shtml); or Proposed Rule Change Related to Specifically, the Exchange proposes to
amend the Pricing Schedule at Section
• Send an email to rule-comments@ Affiliated Entities
B, Customer 3 Rebates and at Section II,
sec.gov. Please include File Number SR– July 21, 2016. Multiply-Listed Options Fees,4 to offer
NASDAQ–2016–090 on the subject line. Pursuant to Section 19(b)(1) of the
sradovich on DSK3GMQ082PROD with NOTICES
Paper Comments Securities Exchange Act of 1934 3 The term ‘‘Customer’’ applies to any transaction
(‘‘Act’’),1 and Rule 19b–4 thereunder,2 that is identified by a member or member
• Send paper comments in triplicate notice is hereby given that on July 15, organization for clearing in the Customer range at
to Secretary, Securities and Exchange 2016, NASDAQ PHLX LLC (‘‘Phlx’’ or The Options Clearing Corporation which is not for
Commission, 100 F Street NE., the account of a broker or dealer or for the account
of a ‘‘Professional’’ (as that term is defined in Rule
Washington, DC 20549–1090. 32 17 CFR 200.30–3(a)(12). 1000(b)(14)).
1 15 U.S.C. 78s(b)(1). 4 These fees include options overlying equities,
31 15 U.S.C. 78s(b)(3)(A)(ii). 2 17 CFR 240.19b–4. ETFs, ETNs and indexes which are Multiply Listed.
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![Federal Register / Vol. 81, No. 144 / Wednesday, July 27, 2016 / Notices 49295
more order flow to the marketplace and the Exchange assesses a Professional,11 is consistent with Section 6(b) of the
more trading opportunities. Broker-Dealer 12 and Firm 13 a non- Act,17 in general, and furthers the
Affiliated Entities may aggregate Penny Pilot electronic Options objectives of Section 6(b)(4) and (b)(5) of
Customer volume as between the Transaction Charge of $0.75 per contract the Act,18 in particular, in that it
Appointed MM and Appointed OFP to and a Specialist and Market Maker a provides for the equitable allocation of
qualify for any of the five tiers of $0.25 per contract non-Penny Pilot reasonable dues, fees and other charges
Customer Rebates that pay Category, A, electronic Options Transaction Charge. among members and issuers and other
B or C rebates on transactions. An The Exchange proposes to provide an persons using its facilities, and is not
Appointed OFP would be eligible to Appointed OFP of an Affiliated Entity designed to permit unfair
receive the additional $0.02 per contract with an opportunity to lower the discrimination between customers,
Category A and B rebate and the Professional, Broker-Dealer and Firm issuers, brokers, or dealers.
additional $0.03 per contract Category C non-Penny Pilot electronic Options The Commission and the courts have
rebate, paid in addition to the Transaction Charge from $0.75 to $0.60 repeatedly expressed their preference
applicable Tier 2 and 3 rebate, currently per contract provided the Affiliated for competition over regulatory
available to a Specialist or Market Entity qualifies for Customer Rebate intervention in determining prices,
Maker or its member or member Tiers 4 14 or 5 15 in Section B of the products, and services in the securities
organization affiliate under Common Pricing Schedule. The Exchange markets. In Regulation NMS, while
Ownership, provided the Appointed proposes to provide an Appointed MM adopting a series of steps to improve the
MM has reached the Monthly Market of an Affiliated Entity with an current market model, the Commission
Maker Cap, as defined in Section II. opportunity to lower the Specialist and highlighted the importance of market
The Exchange proposes to amend the Market Maker non-Penny Pilot forces in determining prices and SRO
language in Section B to clarify the electronic Options Transaction Charge revenues and, also, recognized that
applicability of the $0.02 per contract from $0.25 to $0.23 per contract current regulation of the market system
rebate in addition to Categories A and provided the Affiliated Entity qualifies ‘‘has been remarkably successful in
B and the $0.03 per contract rebate in for Customer Rebate Tiers 4 or 5 in promoting market competition in its
addition to Category C, applicable to Section B of the Pricing Schedule.16 broader forms that are most important to
Tiers 2 and 3. The Exchange proposes The Exchange’s proposal would investors and listed companies.’’ 19
to relocate certain language and add incentivize certain members and Likewise, in NetCoalition v. Securities
language to amend the sentence as member organizations, who are not and Exchange Commission 20
follows: ‘‘The Exchange will pay a $0.02 under Common Ownership, to enter (‘‘NetCoalition’’) the D.C. Circuit upheld
per contract Category A and B rebate into an Affiliated Entity relationship for the Commission’s use of a market-based
and a $0.03 per contract Category C the purpose of aggregating Customer approach in evaluating the fairness of
rebate in addition to the applicable Tier volume to qualify for reduced non- market data fees against a challenge
2 and 3 rebate, provided the Specialist, Penny Pilot Options Transaction claiming that Congress mandated a cost-
Market Maker or Appointed MM has Charges. based approach.21 As the court
reached the Monthly Market Maker Cap emphasized, the Commission ‘‘intended
as defined in Section II, to: (1) A 2. Statutory Basis in Regulation NMS that ‘market forces,
Specialist or Market Maker who is not The Exchange believes that its rather than regulatory requirements’
under Common Ownership or is not a proposal to amend its Pricing Schedule play a role in determining the market
party of an Affiliated Entity; or (2) an data . . . to be made available to
OFP member or member organization 11 The term ‘‘Professional’’ means any person or investors and at what cost.’’ 22
affiliate under Common Ownership; or entity that (i) is not a broker or dealer in securities, Further, ‘‘[n]o one disputes that
and (ii) places more than 390 orders in listed competition for order flow is ‘fierce.’
(3) an Appointed OFP of an Affiliated options per day on average during a calendar month
Entity.’’ for its own beneficial account(s). See Rule . . . As the SEC explained, ‘[i]n the U.S.
The Exchange’s proposal would 1000(b)(14). national market system, buyers and
incentivize certain members and 12 The term ‘‘Broker-Dealer’’ applies to any sellers of securities, and the broker-
member organizations, which are not transaction which is not subject to any of the other dealers that act as their order-routing
transaction fees applicable within a particular agents, have a wide range of choices of
under Common Ownership, to enter category.
into an Affiliated Entity relationship for 13 The term ‘‘Firm’’ applies to any transaction that where to route orders for execution’;
the purpose of aggregating Customer is identified by a member or member organization [and] ‘no exchange can afford to take its
volume to qualify the Appointed OFP for clearing in the Firm range at The Options market share percentages for granted’
for Customer Rebates in Section B of the Clearing Corporation. because ‘no exchange possesses a
14 The Tier 4 Customer Rebate in Section B of the
Pricing Schedule. Phlx members and monopoly, regulatory or otherwise, in
Pricing Schedule requires Customer volume above
member organizations that are under 1.60% to 2.50% of National Customer Volume in the execution of order flow from broker
75% common ownership or control will Multiply Listed Equity and ETF Options, excluding dealers’ . . . .’’ 23 Although the court
be considered under Common SPY. This rebate tier pays a Category A $0.20 and the SEC were discussing the cash
rebate, a Category B $0.16 rebate and a Category C equities markets, the Exchange believes
Ownership and therefore by definition $0.22 rebate.
are not eligible to enter an Affiliated 15 The Tier 5 Customer Rebate in Section B of the
17 15 U.S.C. 78f(b).
Entity relationship. Pricing Schedule requires Customer volume above
18 15 U.S.C. 78f(b)(4), (5).
2.50% of National Customer Volume in Multiply
Section II—Options Transaction Charge Listed Equity and ETF Options, excluding SPY. 19 Securities Exchange Act Release No. 51808
This rebate tier pays a Category A $0.21 rebate, a (June 29, 2005), 70 FR 37496 at 37499 (File No. S7–
The Exchange proposes to amend
sradovich on DSK3GMQ082PROD with NOTICES
Category B $0.17 rebate and a Category C $0.22 10–04) (‘‘Regulation NMS Adopting Release’’).
Section II of the Pricing Schedule to rebate. 20 NetCoalition v. SEC, 615 F.3d 525 (D.C. Cir.
offer members and member 16 Today, any member or member organization 2010).
21 See id. at 534–535.
organizations that are Appointed OFPs under Common Ownership with another member or
22 See id. at 537.
of Affiliated Entities transacting non- member organization that qualifies for Customer
Rebate Tiers 4 or 5 in Section B of the Pricing 23 See id. at 539 (quoting Securities Exchange Act
Customer orders an opportunity to Schedule is assessed either a $0.23 or $0.60 per Commission at Release No. 59039 (December 2,
reduce non-Penny Pilot electronic contract non-Penny Pilot electronic Options 2008), 73 FR 74770 at 74782–74783 (December 9,
Options Transaction Charges. Today, Transaction Charge. 2008) (SR–NYSEArca–2006–21)).
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![49298 Federal Register / Vol. 81, No. 144 / Wednesday, July 27, 2016 / Notices
changes in this market may impose any provide liquidity in the marketplace and participants. Specialists and Market
burden on competition is extremely incur costs that other market Makers are assessed lower electronic
limited. participants do not incur. Market Options Transaction Charges in Non-
In sum, if the changes proposed Makers and Specialists are subject to Penny Pilot Options as compared to
herein are unattractive to market burdensome quoting obligations 30 to Professionals, Broker-Dealers and Firms
participants, it is likely that the the market that do not apply to other because they have obligations to the
Exchange will lose market share as a market participants. Incentivizing these market and regulatory requirements,
result. Accordingly, the Exchange does market participants to execute Customer which normally do not apply to other
not believe that the proposed changes volume on Phlx may result in tighter market participants.31 They have
will impair the ability of members or spreads. An increase in the activity of obligations to make continuous markets,
competing order execution venues to these market participants in turn engage in a course of dealings
maintain their competitive standing in facilitates tighter spreads, which may reasonably calculated to contribute to
the financial markets. In terms of inter- cause an additional corresponding the maintenance of a fair and orderly
market competition, the Exchange notes increase in order flow from other market market, and not make bids or offers or
that other options markets have similar participants. Appointed OFPs directing enter into transactions that are
incentives in place to attract volume to order flow to the Exchange may be inconsistent with a course of dealings.
their markets.29 eligible to qualify for a Customer Rebate The proposed differentiation as between
The Exchange’s proposal to amend or a higher Customer Rebate tier, with Customers, Specialists and Market
the Preface of the Pricing Schedule to this proposal, as a result of aggregating Makers and other market participants
add the definitions of ‘‘Appointed MM,’’ volume with an Appointed MM and recognizes the differing contributions
‘‘Appointed OFP’’ and ‘‘Affiliated thereby qualifying for higher Customer made to the liquidity and trading
Entity’’ does not impose an undue Rebates. Permitting members and environment on the Exchange by these
burden on competition because these member organizations to affiliate for market participants. The Exchange will
definitions apply to all members and purposes of qualifying for Section B apply all qualifications for the reduced
member organizations uniformly. Customer Rebates may also encourage rate in a uniform manner. The Exchange
Section B Customer Rebates the counterparties that comprise the believes that lowering these fees for
Affiliated Entities to incentivize each electronic non-Penny Pilot Options
In terms of intra-market competition, other to attract and seek to execute more Transaction Charges as compared to
the Exchange does not believe that its Customer volume on Phlx. electronic Penny Pilot Options
proposal to permit counterparties of an The Exchange’s proposal to exclude Transaction Charges does not impose an
Affiliated Entity to aggregate Customer members and member organizations that undue burden on intra-market
volume for purposes of qualifying for are under Common Ownership from competition because the Exchange seeks
Section B Customer Rebates imposes an becoming an Affiliated Entity does not to offer lower fees to those market
undue burden on intra-market impose and [sic] undue burden on intra- participants paying the highest
competition because all Phlx members market competition because member electronic non-Penny Pilot Options
and member organizations, other than and member organizations under Transaction Charges.
those under Common Ownership, may Common Ownership may aggregate The Exchange’s proposal to amend
become an Affiliated Entity as either an volume today for purposes of qualifying note 4 of Section II of the Pricing
Appointed MM or an Appointed OFP. for Customer Rebates. Schedule to offer Appointed MMs of
Also, each Phlx member or member Affiliated Entities an opportunity to
organization may participate in only one Section II—Options Transaction Charges
reduce non-Customer electronic non-
Affiliated Entity relationship at a given The Exchange’s proposal to amend Penny Pilot electronic Options
time, which imposes a measure of note 3 of Section II of the Pricing Transaction Charges does not impose an
exclusivity among market participants, Schedule to offer Appointed OFPs of undue burden on intra-market
allowing each party to rely on the Affiliated Entities an opportunity to competition because the Exchange seeks
other’s executed Customer volume on reduce non-Customer non-Penny Pilot to incentivize Specialists and Market
Phlx to receive a corresponding benefit electronic Options Transaction Charges Makers to increase their activity on Phlx
in terms of a higher rebate. The does not impose an undue burden on and in turn facilitate tighter spreads,
Exchange will apply all qualifications in intra-market competition because the which may cause an additional
a uniform manner to all market Exchange will assess Appointed OFPs a corresponding increase in order flow
participants that elect to become reduced Professional, Broker-Dealer and from other market participants.
counterparties of an Affiliated Entity. Firm electronic Options Transaction Specialists and Market have obligations
Any market participant that is by Charge in Non-Penny Pilot Options. The to the market and regulatory
definition a member or member Exchange does not assess Customers an requirements, which normally do not
organization under Common Ownership electronic Options Transaction Charge apply to other market participants.32
may not become a counterparty of an in Non-Penny Pilot Options because They have obligations to make
Affiliated Entity. Customer order flow enhances liquidity continuous markets, engage in a course
Market Makers and Specialists are on the Exchange for the benefit of all of dealings reasonably calculated to
valuable market participants that market participants. Customer liquidity contribute to the maintenance of a fair
benefits all market participants by and orderly market, and not make bids
29 See NYSE MKT LLC’s (‘‘NYSE Amex’’) pricing
providing more trading opportunities, or offers or enter into transactions that
at NYSE Amex Options Fee Schedule). NYSE Amex
sradovich on DSK3GMQ082PROD with NOTICES
which attracts Specialists and Market are inconsistent with a course of
permits aggregation of volume to qualify for the
Amex Customer Engagement or ACE Program. See Makers. An increase in the activity of dealings. The Exchange believes that
Bats BZX Exchange, Inc.’s (‘‘BZX’’) fee schedule. these market participants in turn permitting Affiliated [sic] MMs to
BZX permits aggregation of volume to qualify for facilitates tighter spreads, which may receive this additional benefit will
tiered pricing. See the Chicago Board Options cause an additional corresponding
Exchange Incorporated (‘‘CBOE’’) Fees Schedule.
continue to benefit the market place as
CBOE permits aggregation of volume to qualify for increase in order flow from other market
31 See note 26 above.
credits available under an Affiliated Volume Plan
or ‘‘AVP.’’ 30 See note 26 above. 32 See note 26 above.
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![Federal Register / Vol. 81, No. 144 / Wednesday, July 27, 2016 / Notices 49299
described herein. The Exchange believes post all comments on the Commission’s was published for comment in the
that lowering these fees for electronic Internet Web site (http://www.sec.gov/ Federal Register on June 9, 2016.3 On
non-Penny Pilot Options Transaction rules/sro.shtml). Copies of the June 20, 2016, the Exchange filed
Charges as compared to Penny Pilot submission, all subsequent Amendment No. 1 to the proposed rule
Options Transaction Charges does not amendments, all written statements change. The Commission received no
impose an undue burden on intra- with respect to the proposed rule comments on the proposed rule change.
market competition because the change that are filed with the
Commission, and all written Section 19(b)(2) of the Act 4 provides
electronic non-Penny Pilot Options
Transaction Charges is higher ($0.25 vs. communications relating to the that within 45 days of the publication of
$0.22 per contract). proposed rule change between the notice of the filing of a proposed rule
Commission and any person, other than change, or within such longer period up
C. Self-Regulatory Organization’s those that may be withheld from the to 90 days as the Commission may
Statement on Comments on the public in accordance with the designate if it finds such longer period
Proposed Rule Change Received From provisions of 5 U.S.C. 552, will be to be appropriate and publishes its
Members, Participants, or Others available for Web site viewing and reasons for so finding, or as to which the
No written comments were either printing in the Commission’s Public self-regulatory organization consents,
solicited or received. Reference Room, 100 F Street NE., the Commission shall either approve the
Washington, DC 20549, on official proposed rule change, disapprove the
III. Date of Effectiveness of the
business days between the hours of proposed rule change, or institute
Proposed Rule Change and Timing for
10:00 a.m. and 3:00 p.m. Copies of the proceedings to determine whether the
Commission Action
filing also will be available for proposed rule change should be
The foregoing rule change has become inspection and copying at the principal disapproved. The 45th day after
effective pursuant to Section office of the Exchange. All comments publication of the notice for this
19(b)(3)(A)(ii) of the Act.33 received will be posted without change; proposed rule change is July 24, 2016.
At any time within 60 days of the the Commission does not edit personal
filing of the proposed rule change, the The Commission is extending this 45-
identifying information from
Commission summarily may day time period.
submissions. You should submit only
temporarily suspend such rule change if information that you wish to make The Commission finds it appropriate
it appears to the Commission that such available publicly. All submissions to designate a longer period within
action is: (i) Necessary or appropriate in should refer to File Number SR–Phlx– which to take action on the proposed
the public interest; (ii) for the protection 2016–62 and should be submitted on or rule change so that it has sufficient time
of investors; or (iii) otherwise in before August 17, 2016. to consider this proposed rule change.
furtherance of the purposes of the Act. For the Commission, by the Division of Accordingly, the Commission, pursuant
If the Commission takes such action, the Trading and Markets, pursuant to delegated to Section 19(b)(2) of the Act,5
Commission shall institute proceedings authority.34 designates September 7, 2016, as the
to determine whether the proposed rule Robert W. Errett, date by which the Commission shall
should be approved or disapproved. Deputy Secretary. either approve or disapprove, or
IV. Solicitation of Comments [FR Doc. 2016–17668 Filed 7–26–16; 8:45 am] institute proceedings to determine
BILLING CODE 8011–01–P whether to disapprove, the proposed
Interested persons are invited to
submit written data, views, and rule change (File No. SR–NYSEArca–
arguments concerning the foregoing, 2016–79).
SECURITIES AND EXCHANGE
including whether the proposed rule COMMISSION For the Commission, by the Division of
change is consistent with the Act. Trading and Markets, pursuant to delegated
Comments may be submitted by any of [Release No. 34–78386; File No. SR– authority.6
the following methods: NYSEArca–2016–79)]
Robert W. Errett,
Electronic Comments Self-Regulatory Organizations; NYSE Deputy Secretary.
• Use the Commission’s Internet Arca, Inc.; Notice of Designation of a [FR Doc. 2016–17672 Filed 7–26–16; 8:45 am]
comment form (http://www.sec.gov/ Longer Period for Commission Action BILLING CODE 8011–01–P
rules/sro.shtml); or on a Proposed Rule Change Relating
• Send an email to rule-comments@ to the Listing and Trading of Shares of
sec.gov. Please include File Number SR– the Virtus Japan Alpha ETF Under
Phlx–2016–62 on the subject line. NYSE Arca Equities Rule 8.600
Paper Comments July 21, 2016.
On May 24, 2016, NYSE Arca, Inc.
• Send paper comments in triplicate (‘‘Exchange’’) filed with the Securities
to Secretary, Securities and Exchange and Exchange Commission
Commission, 100 F Street NE., (‘‘Commission’’), pursuant to Section
Washington, DC 20549–1090. 19(b)(1) of the Securities Exchange Act
All submissions should refer to File of 1934 (‘‘Act’’) 1 and Rule 19b–4
sradovich on DSK3GMQ082PROD with NOTICES
Number SR–Phlx–2016–62. This file thereunder,2 a proposed rule change to
number should be included on the list and trade shares of the Virtus Japan
subject line if email is used. To help the Alpha ETF under NYSE Arca Equities
Commission process and review your Rule 8.600. The proposed rule change 3 See Securities Exchange Act Release No. 77992
comments more efficiently, please use (Jun. 3, 2016) 81 FR 37222.
only one method. The Commission will 34 17 CFR 200.30–3(a)(12). 4 15 U.S.C. 78s(b)(2).
1 15 5 15 U.S.C. 78s(b)(2).
U.S.C. 78s(b)(1).
33 15 U.S.C. 78s(b)(3)(A)(ii). 2 17 CFR 240.19b–4. 6 17 CFR 200.30–3(a)(31).
VerDate Sep<11>2014 17:01 Jul 26, 2016 Jkt 238001 PO 00000 Frm 00092 Fmt 4703 Sfmt 9990 E:\FR\FM\27JYN1.SGM 27JYN1](https://thefederalregister.org/doc/81_FR_49437/page/7.svg)
Document Created: 2018-02-08 08:02:51
Document Modified: 2018-02-08 08:02:51
| 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 49293 |
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