81 FR 71556 - Self-Regulatory Organizations; NASDAQ PHLX LLC; Notice of Filing of Proposed Rule Change To Amend the Pricing Schedule at Section IV, Part B titled “Flex Transaction Fees”
SECURITIES AND EXCHANGE COMMISSION Federal Register Volume 81, Issue 200 (October 17, 2016)
Federal Register Volume 81, Issue 200 (October 17, 2016)
| Page Range | 71556-71558 | |
| FR Document | 2016-24980 |
[Federal Register Volume 81, Number 200 (Monday, October 17, 2016)] [Notices] [Pages 71556-71558] From the Federal Register Online [www.thefederalregister.org] [FR Doc No: 2016-24980] ----------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION [Release No. 34-79080; File No. SR-Phlx-2016-100] Self-Regulatory Organizations; NASDAQ PHLX LLC; Notice of Filing of Proposed Rule Change To Amend the Pricing Schedule at Section IV, Part B titled ``Flex Transaction Fees'' October 11, 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 October 3, 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 Pricing Schedule at Section IV, Part B titled ``Flex Transaction Fees'' to permit FLEX \3\ options to trade as strategies for purposes Section II Strategy Cap pricing. --------------------------------------------------------------------------- \3\ FLEX options are flexible exchange-traded index, equity, or currency option contracts that provide investors the ability to customize basic option features including size, expiration date, exercise style, and certain exercise prices. FLEX options may have expiration dates within five years. See Rule 1079. FLEX currency option contracts traded on the Exchange are also known as FLEX WCO or FLEX FCO contracts. --------------------------------------------------------------------------- The text of the proposed rule change is available on the Exchange's Web site at http://nasdaqphlx.cchwallstreet.com/, at the principal office of the Exchange, and at the Commission's Public Reference Room. II. Self-Regulatory Organization's Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change In its filing with the Commission, the Exchange included statements concerning the purpose of and basis for the proposed rule change and discussed any comments it received on the proposed rule change. The text of these statements may be examined at the places specified in Item IV below. The Exchange has prepared summaries, set forth in sections A, B, and C below, of the most significant aspects of such statements. A. Self-Regulatory Organization's Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change 1. Purpose The Exchange proposes to amend Section IV, Part B, related to FLEX pricing, to permit Multiply Listed FLEX options to be eligible for the Section II Strategy Caps.\4\ The Section II Strategy Fee cap generally applies to all strategy executions executed in standard option contracts (as opposed to Mini Option contracts) on the same trading day in the same option class.\5\ Today, Multiply Listed FLEX options are excluded from Strategy Caps. The proposal is designed to compete with other markets that apply similar fee caps but that do not exclude Multiply Listed FLEX option transactions from Strategy Fee Caps.\6\ FLEX options are only executed on the Exchange's trading floor and are not executed electronically on the Exchange. --------------------------------------------------------------------------- \4\ Section II includes pricing for Multiply Listed Options Fees which includes options overlying equities, ETFs, ETNs and indexes which are Multiply Listed. \5\ Dividend, merger and short stock interest strategies are the same trading day in the same options class when such members are trading in their own proprietary accounts. \6\ See NYSE AMEX OPTIONS Fee Schedule. See also Securities Exchange Act Release No. 71015 (December 6, 2013), 78 FR 75642 (December 12, 2013). --------------------------------------------------------------------------- Today, Customers are not assessed a fee for Multiply Listed FLEX options and Non-Customers are assessed a $0.25 per contract fee for Multiply Listed FLEX options. Further, the Monthly Firm Fee Cap, Monthly Market Maker Cap, and the Options Surcharge in BKX, MNX and NDX described in Section II apply to Multiply Listed FLEX options. No other fees described in Section II apply to Multiply Listed FLEX options. The FLEX transaction fees for a Firm are waived for members executing facilitation orders pursuant to Exchange Rule 1064 when such members are trading in their own proprietary account. In addition, FLEX transaction fees for a Broker-Dealer are waived for members executing facilitation orders pursuant to Exchange Rule 1064 when such members would otherwise incur this charge for trading in their own proprietary account contra to a Customer (``BD-Customer Facilitation''), if the member's BD-Customer Facilitation average daily volume (including both FLEX and non-FLEX transactions) exceeds 10,000 contracts per day in a given month. Finally, Multiply Listed FLEX options are not eligible for Section II strategy caps. The Exchange proposes to permit Multiply Listed FLEX options to be subject to strategy cap pricing.\7\ Currently, to qualify for a strategy cap, [[Page 71557]] the buy and sell side of a transaction must originate from the Exchange floor. The following are the strategy fee caps in Section II: --------------------------------------------------------------------------- \7\ The Exchange noted in a prior rule change that there is no mechanism to mark FLEX Option transactions for strategy caps, and therefore excluded Multiply Listed FLEX options for strategy treatment. See Securities Exchange Act Release No. 69548 (May 9, 2013), 78 FR 28681 (May 15, 2013) (SR-Phlx-2013-29). With this proposal the Exchange will implement a manual process to record the FLEX strategy with staff intervention thereby documenting the strategy for billing purposes. ---------------------------------------------------------------------------------------------------------------- Floor options transactions--multiply listed options Strategy Qualification Cap ---------------------------------------------------------------------------------------------------------------- Specialist, Market Maker, Professional, Dividend, merger and short Executed on the same $1,500 Firm, and Broker-Dealer. stock interest strategies. trading day in the same options class when such members are trading in their own proprietary accounts. Reversal and conversion Executed on the same 700 strategies. trading day in the same options class. Jelly rolls............... Executed on the same 700 trading day in the same options class. Box spreads............... Executed on the same 700 trading day in the same options class. Per member organization................. Dividend, merger, short Combined executions in a 65,000 stock interest, reversal month when trading in own and conversion, jelly proprietary accounts. roll, and box spread strategies (``Monthly Strategy Cap''). ---------------------------------------------------------------------------------------------------------------- The following types of strategies are eligible for the pricing in Section II: dividend strategy,\8\ merger strategy,\9\ short stock interest strategy,\10\ reversal and conversion strategies,\11\ jelly roll strategy \12\ and a box spread strategy.\13\ Reversal and conversion, jelly roll and box spread strategy executions are not included in the Monthly Strategy Cap for a Firm. Reversal and conversion, jelly roll and box spread strategy executions (as defined in this Section II) are included in the Monthly Firm Fee Cap. All dividend, merger, short stock interest, reversal and conversion, jelly roll and box spread strategy executions (as defined in Section II) are excluded from the Monthly Market Maker Cap. --------------------------------------------------------------------------- \8\ A dividend strategy is defined as transactions done to achieve a dividend arbitrage involving the purchase, sale and exercise of in-the-money options of the same class, executed the first business day prior to the date on which the underlying stock goes ex-dividend. \9\ A merger strategy is defined as transactions done to achieve a merger arbitrage involving the purchase, sale and exercise of options of the same class and expiration date, executed the first business day prior to the date on which shareholders of record are required to elect their respective form of consideration, i.e., cash or stock. \10\ A short stock interest strategy is defined as transactions done to achieve a short stock interest arbitrage involving the purchase, sale and exercise of in-the-money options of the same class. \11\ Reversal and conversion strategies are transactions that employ calls and puts of the same strike price and the underlying stock. Reversals are established by combining a short stock position with a short put and a long call position that shares the same strike and expiration. Conversions employ long positions in the underlying stock that accompany long puts and short calls sharing the same strike and expiration. \12\ A jelly roll strategy is defined as transactions created by entering into two separate positions simultaneously. One position involves buying a put and selling a call with the same strike price and expiration. The second position involves selling a put and buying a call, with the same strike price, but with a different expiration from the first position. \13\ A box spread strategy is a strategy that synthesizes long and short stock positions to create a profit. Specifically, a long call and short put at one strike is combined with a short call and long put at a different strike to create synthetic long and synthetic short stock positions, respectively. --------------------------------------------------------------------------- The Exchange is amending the rule text to include Strategy Caps in the list of Section II pricing which is applicable to Multiply Listed FLEX options. As a result, a Multiply Listed FLEX option transaction that is part of a strategy execution would be included in the Strategy Fee cap. The proposal is designed to encourage members and member organizations to engage in both additional Multiply Listed FLEX option transactions and strategy executions on the Exchange. The Exchange also proposes to correct a typographical error in Section IV to add a hyphen in the term BD-Customer. 2. Statutory Basis The Exchange believes that its proposal is consistent with Section 6(b) of the Act,\14\ in general, and furthers the objectives of Sections 6(b)(4) and 6(b)(5) of the Act,\15\ in particular, in that it provides for the equitable allocation of reasonable dues, fees and other charges among members and issuers and other persons using any facility, and is not designed to permit unfair discrimination between customers, issuers, brokers, or dealers. --------------------------------------------------------------------------- \14\ 15 U.S.C. 78f(b). \15\ 15 U.S.C. 78f(b)(4) and (5). --------------------------------------------------------------------------- The Commission and the courts have repeatedly expressed their preference for competition over regulatory intervention in determining prices, products, and services in the securities markets. In Regulation NMS, 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.'' \16\ --------------------------------------------------------------------------- \16\ Securities Exchange Act Release No. 51808 (June 9, 2005), 70 FR 37496, 37499 (June 29, 2005) (``Regulation NMS Adopting Release''). --------------------------------------------------------------------------- Likewise, in NetCoalition v. Securities and Exchange Commission \17\ (``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.\18\ 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.'' \19\ --------------------------------------------------------------------------- \17\ NetCoalition v. SEC, 615 F.3d 525 (D.C. Cir. 2010). \18\ See NetCoalition, at 534-535. \19\ 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.' . . .'' \20\ 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. --------------------------------------------------------------------------- \20\ Id. at 539 (quoting Securities Exchange Act Release No. 59039 (December 2, 2008), 73 FR 74770, 74782-83 (December 9, 2008) (SR-NYSEArca-2006-21)). --------------------------------------------------------------------------- The Exchange's proposal to permit Multiply-Listed FLEX options to be eligible for the Section II Strategy Caps is reasonable because including [[Page 71558]] Multiply-Listed FLEX option transactions in the Strategy Fee Cap may encourage members and member organizations to execute additional Multiply-Listed FLEX options and strategy executions on the Exchange. The proposed change would therefore result in greater amounts of liquidity on the Exchange, which should benefit the quality of the Exchange's market and investors, generally. This proposed change is further reasonable because the Exchange understands that other option markets similarly include Multiply Listed FLEX option transactions in certain fee caps applicable to strategy executions on such other markets.\21\ --------------------------------------------------------------------------- \21\ See note 6 above. --------------------------------------------------------------------------- The Exchange believes that the proposed change is equitable and not unfairly discriminatory because all members and member organizations are eligible to transact Multiply Listed FLEX options and are eligible for the Strategy Fee Cap. 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, the Exchange believes that the degree to which fee changes in this market may impose any burden on competition is extremely limited. The pricing proposed herein are intended to continue to incentivize market participants to execute additional Multiply Listed FLEX options and strategy executions on the Exchange and for this reason imposes no inter-market burden on competition. The proposal could increase competition on the Exchange by including Multiply Listed FLEX option transactions in the Strategy Fee Cap. This could result in members and member organizations engaging in both additional Multiply Listed FLEX option transactions and strategy executions in order to reach the fee cap levels. The proposed change could also increase competition between the Exchange and other option markets by making the Exchange a more desirable market with respect to pricing for Multiply Listed FLEX option transactions and strategy executions. 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. The Exchange's proposal to permit Multiply Listed FLEX options to be eligible for the Section II Strategy Caps does not impose an undue burden on intra-market competition because all members and member organizations are eligible to transact Multiply Listed FLEX options and are eligible for the Strategy Fee Cap. C. Self-Regulatory Organization's Statement on Comments on the Proposed Rule Change Received From Members, Participants, or Others No written comments were either solicited or received. III. Date of Effectiveness of the Proposed Rule Change and Timing for Commission Action Within 45 days of the date of publication of this notice in the Federal Register or within such longer period (i) as the Commission may designate up to 90 days of such date if it finds such longer period to be appropriate and publishes its reasons for so finding or (ii) as to which the Exchange consents, the Commission shall: (a) By order approve or disapprove such proposed rule change, or (b) institute proceedings to determine whether the proposed rule change should be disapproved. IV. Solicitation of Comments Interested persons are invited to submit written data, views, and arguments concerning the foregoing, including whether the proposed rule change is consistent with the Act. Comments may be submitted by any of the following methods: Electronic 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-2016-100 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-2016-100. 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-2016-100 and should be submitted on or before November 7, 2016. --------------------------------------------------------------------------- \22\ 17 CFR 200.30-3(a)(12). For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.\22\ Robert W. Errett, Deputy Secretary. [FR Doc. 2016-24980 Filed 10-14-16; 8:45 am] BILLING CODE 8011-01-P
![71556 Federal Register / Vol. 81, No. 200 / Monday, October 17, 2016 / Notices
and Exchange Commission, 100 F Street (‘‘Act’’) 1, and Rule 19b–4 thereunder,2 Fee cap generally applies to all strategy
NE., Washington, DC 20549–1090. notice is hereby given that on October executions executed in standard option
All submissions should refer to File 3, 2016, NASDAQ PHLX LLC (‘‘Phlx’’ or contracts (as opposed to Mini Option
Number SR–NASDAQ–2016–134. This ‘‘Exchange’’) filed with the Securities contracts) on the same trading day in
file number should be included on the and Exchange Commission (‘‘SEC’’ or the same option class.5 Today, Multiply
subject line if email is used. To help the ‘‘Commission’’) the proposed rule Listed FLEX options are excluded from
Commission process and review your change as described in Items I, II, and Strategy Caps. The proposal is designed
comments more efficiently, please use III, below, which Items have been to compete with other markets that
only one method. The Commission will prepared by the Exchange. The apply similar fee caps but that do not
post all comments on the Commission’s Commission is publishing this notice to exclude Multiply Listed FLEX option
Internet Web site (http://www.sec.gov/ solicit comments on the proposed rule transactions from Strategy Fee Caps.6
rules/sro.shtml). Copies of the change from interested persons. FLEX options are only executed on the
submission, all subsequent Exchange’s trading floor and are not
I. Self-Regulatory Organization’s
amendments, all written statements executed electronically on the
Statement of the Terms of Substance of
with respect to the proposed rule Exchange.
the Proposed Rule Change
change that are filed with the Today, Customers are not assessed a
Commission, and all written The Exchange proposes to amend the fee for Multiply Listed FLEX options
communications relating to the Pricing Schedule at Section IV, Part B and Non-Customers are assessed a $0.25
proposed rule change between the titled ‘‘Flex Transaction Fees’’ to permit per contract fee for Multiply Listed
Commission and any person, other than FLEX 3 options to trade as strategies for FLEX options. Further, the Monthly
those that may be withheld from the purposes Section II Strategy Cap Firm Fee Cap, Monthly Market Maker
public in accordance with the pricing. Cap, and the Options Surcharge in BKX,
provisions of 5 U.S.C. 552, will be The text of the proposed rule change MNX and NDX described in Section II
available for Web site viewing and is available on the Exchange’s Web site apply to Multiply Listed FLEX options.
printing in the Commission’s Public at http://nasdaqphlx.cchwallstreet No other fees described in Section II
Reference Room, 100 F Street NE., .com/, at the principal office of the apply to Multiply Listed FLEX options.
Washington, DC 20549, on official Exchange, and at the Commission’s The FLEX transaction fees for a Firm are
business days between the hours of Public Reference Room. waived for members executing
10:00 a.m. and 3:00 p.m. Copies of the facilitation orders pursuant to Exchange
II. Self-Regulatory Organization’s
filing also will be available for Rule 1064 when such members are
Statement of the Purpose of, and
inspection and copying at the principal trading in their own proprietary
Statutory Basis for, the Proposed Rule
office of the Exchange. All comments account. In addition, FLEX transaction
Change
received will be posted without change; fees for a Broker-Dealer are waived for
the Commission does not edit personal In its filing with the Commission, the members executing facilitation orders
identifying information from Exchange included statements pursuant to Exchange Rule 1064 when
submissions. You should submit only concerning the purpose of and basis for such members would otherwise incur
information that you wish to make the proposed rule change and discussed this charge for trading in their own
available publicly. All submissions any comments it received on the proprietary account contra to a
should refer to File Number SR– proposed rule change. The text of these Customer (‘‘BD-Customer Facilitation’’),
NASDAQ–2016–134 and should be statements may be examined at the if the member’s BD-Customer
submitted on or before November 7, places specified in Item IV below. The Facilitation average daily volume
2016. Exchange has prepared summaries, set (including both FLEX and non-FLEX
forth in sections A, B, and C below, of transactions) exceeds 10,000 contracts
For the Commission, by the Division of
the most significant aspects of such per day in a given month. Finally,
Trading and Markets, pursuant to delegated
authority.29 statements. Multiply Listed FLEX options are not
eligible for Section II strategy caps.
Robert W. Errett, A. Self-Regulatory Organization’s
The Exchange proposes to permit
Deputy Secretary. Statement of the Purpose of, and
Multiply Listed FLEX options to be
[FR Doc. 2016–24978 Filed 10–14–16; 8:45 am] Statutory Basis for, the Proposed Rule
subject to strategy cap pricing.7
BILLING CODE 8011–01–P Change
Currently, to qualify for a strategy cap,
1. Purpose
equities, ETFs, ETNs and indexes which are
SECURITIES AND EXCHANGE The Exchange proposes to amend Multiply Listed.
COMMISSION Section IV, Part B, related to FLEX 5 Dividend, merger and short stock interest
pricing, to permit Multiply Listed FLEX strategies are the same trading day in the same
options to be eligible for the Section II options class when such members are trading in
[Release No. 34–79080; File No. SR–Phlx– their own proprietary accounts.
2016–100] Strategy Caps.4 The Section II Strategy 6 See NYSE AMEX OPTIONS Fee Schedule. See
also Securities Exchange Act Release No. 71015
Self-Regulatory Organizations; 1 15 U.S.C. 78s(b)(1). (December 6, 2013), 78 FR 75642 (December 12,
2 17 CFR 240.19b–4.
NASDAQ PHLX LLC; Notice of Filing of 2013).
3 FLEX options are flexible exchange-traded 7 The Exchange noted in a prior rule change that
Proposed Rule Change To Amend the
index, equity, or currency option contracts that there is no mechanism to mark FLEX Option
jstallworth on DSK7TPTVN1PROD with NOTICES
Pricing Schedule at Section IV, Part B provide investors the ability to customize basic transactions for strategy caps, and therefore
titled ‘‘Flex Transaction Fees’’ option features including size, expiration date, excluded Multiply Listed FLEX options for strategy
exercise style, and certain exercise prices. FLEX treatment. See Securities Exchange Act Release No.
October 11, 2016. options may have expiration dates within five 69548 (May 9, 2013), 78 FR 28681 (May 15, 2013)
Pursuant to Section 19(b)(1) of the years. See Rule 1079. FLEX currency option (SR-Phlx-2013–29). With this proposal the
contracts traded on the Exchange are also known as Exchange will implement a manual process to
Securities Exchange Act of 1934 FLEX WCO or FLEX FCO contracts. record the FLEX strategy with staff intervention
4 Section II includes pricing for Multiply Listed thereby documenting the strategy for billing
29 17 CFR 200.30–3(a)(12). Options Fees which includes options overlying purposes.
VerDate Sep<11>2014 18:32 Oct 14, 2016 Jkt 241001 PO 00000 Frm 00082 Fmt 4703 Sfmt 4703 E:\FR\FM\17OCN1.SGM 17OCN1](https://thefederalregister.org/doc/81_FR_71756/page/1.svg)
![Federal Register / Vol. 81, No. 200 / Monday, October 17, 2016 / Notices 71557
the buy and sell side of a transaction The following are the strategy fee caps
must originate from the Exchange floor. in Section II:
Floor options transactions—multiply listed options Strategy Qualification Cap
Specialist, Market Maker, Professional, Firm, and Dividend, merger and short stock Executed on the same trading day $1,500
Broker–Dealer. interest strategies. in the same options class when
such members are trading in
their own proprietary accounts.
Reversal and conversion strategies Executed on the same trading day 700
in the same options class.
Jelly rolls ........................................ Executed on the same trading day 700
in the same options class.
Box spreads ................................... Executed on the same trading day 700
in the same options class.
Per member organization ........................................... Dividend, merger, short stock inter- Combined executions in a month 65,000
est, reversal and conversion, when trading in own proprietary
jelly roll, and box spread strate- accounts.
gies (‘‘Monthly Strategy Cap’’).
The following types of strategies are roll and box spread strategy executions promoting market competition in its
eligible for the pricing in Section II: (as defined in Section II) are excluded broader forms that are most important to
dividend strategy,8 merger strategy,9 from the Monthly Market Maker Cap. investors and listed companies.’’ 16
short stock interest strategy,10 reversal The Exchange is amending the rule Likewise, in NetCoalition v. Securities
and conversion strategies,11 jelly roll text to include Strategy Caps in the list and Exchange Commission 17
strategy 12 and a box spread strategy.13 of Section II pricing which is applicable (‘‘NetCoalition’’) the D.C. Circuit upheld
Reversal and conversion, jelly roll and to Multiply Listed FLEX options. As a the Commission’s use of a market-based
box spread strategy executions are not result, a Multiply Listed FLEX option approach in evaluating the fairness of
included in the Monthly Strategy Cap transaction that is part of a strategy market data fees against a challenge
for a Firm. Reversal and conversion, execution would be included in the claiming that Congress mandated a cost-
jelly roll and box spread strategy Strategy Fee cap. The proposal is based approach.18 As the court
executions (as defined in this Section II) designed to encourage members and emphasized, the Commission ‘‘intended
are included in the Monthly Firm Fee member organizations to engage in both in Regulation NMS that ‘market forces,
Cap. All dividend, merger, short stock additional Multiply Listed FLEX option rather than regulatory requirements’
interest, reversal and conversion, jelly transactions and strategy executions on play a role in determining the market
the Exchange. data . . . to be made available to
8 A dividend strategy is defined as transactions The Exchange also proposes to correct investors and at what cost.’’ 19
done to achieve a dividend arbitrage involving the a typographical error in Section IV to Further, ‘‘[n]o one disputes that
purchase, sale and exercise of in-the-money options competition for order flow is ‘fierce.’
of the same class, executed the first business day
add a hyphen in the term BD-Customer.
prior to the date on which the underlying stock goes
. . . As the SEC explained, ‘[i]n the U.S.
2. Statutory Basis national market system, buyers and
ex-dividend.
9 A merger strategy is defined as transactions The Exchange believes that its sellers of securities, and the broker-
done to achieve a merger arbitrage involving the proposal is consistent with Section 6(b) dealers that act as their order-routing
purchase, sale and exercise of options of the same agents, have a wide range of choices of
class and expiration date, executed the first
of the Act,14 in general, and furthers the
business day prior to the date on which objectives of Sections 6(b)(4) and 6(b)(5) where to route orders for execution;’
shareholders of record are required to elect their of the Act,15 in particular, in that it [and] ‘no exchange can afford to take its
respective form of consideration, i.e., cash or stock. provides for the equitable allocation of market share percentages for granted’
10 A short stock interest strategy is defined as
reasonable dues, fees and other charges because ‘no exchange possesses a
transactions done to achieve a short stock interest monopoly, regulatory or otherwise, in
arbitrage involving the purchase, sale and exercise among members and issuers and other
of in-the-money options of the same class. persons using any facility, and is not the execution of order flow from broker
11 Reversal and conversion strategies are designed to permit unfair dealers.’ . . .’’ 20 Although the court and
transactions that employ calls and puts of the same discrimination between customers, the SEC were discussing the cash
strike price and the underlying stock. Reversals are equities markets, the Exchange believes
established by combining a short stock position
issuers, brokers, or dealers.
with a short put and a long call position that shares The Commission and the courts have that these views apply with equal force
the same strike and expiration. Conversions employ repeatedly expressed their preference to the options markets.
long positions in the underlying stock that for competition over regulatory The Exchange’s proposal to permit
accompany long puts and short calls sharing the
intervention in determining prices, Multiply-Listed FLEX options to be
same strike and expiration. eligible for the Section II Strategy Caps
12 A jelly roll strategy is defined as transactions products, and services in the securities
markets. In Regulation NMS, while is reasonable because including
created by entering into two separate positions
simultaneously. One position involves buying a put adopting a series of steps to improve the 16 Securities Exchange Act Release No. 51808
and selling a call with the same strike price and current market model, the Commission
expiration. The second position involves selling a (June 9, 2005), 70 FR 37496, 37499 (June 29, 2005)
jstallworth on DSK7TPTVN1PROD with NOTICES
put and buying a call, with the same strike price, highlighted the importance of market (‘‘Regulation NMS Adopting Release’’).
but with a different expiration from the first forces in determining prices and SRO 17 NetCoalition v. SEC, 615 F.3d 525 (D.C. Cir.
position. revenues and, also, recognized that 2010).
13 A box spread strategy is a strategy that 18 See NetCoalition, at 534–535.
current regulation of the market system 19 Id. at 537.
synthesizes long and short stock positions to create
a profit. Specifically, a long call and short put at
‘‘has been remarkably successful in 20 Id. at 539 (quoting Securities Exchange Act
one strike is combined with a short call and long Release No. 59039 (December 2, 2008), 73 FR
14 15 U.S.C. 78f(b).
put at a different strike to create synthetic long and 74770, 74782–83 (December 9, 2008) (SR–
synthetic short stock positions, respectively. 15 15 U.S.C. 78f(b)(4) and (5). NYSEArca–2006–21)).
VerDate Sep<11>2014 14:22 Oct 14, 2016 Jkt 241001 PO 00000 Frm 00083 Fmt 4703 Sfmt 4703 E:\FR\FM\17OCN1.SGM 17OCN1](https://thefederalregister.org/doc/81_FR_71756/page/2.svg)
![71558 Federal Register / Vol. 81, No. 200 / Monday, October 17, 2016 / Notices
Multiply-Listed FLEX option member organizations engaging in both • Send an email to rule-comments@
transactions in the Strategy Fee Cap may additional Multiply Listed FLEX option sec.gov. Please include File Number SR–
encourage members and member transactions and strategy executions in Phlx–2016–100 on the subject line.
organizations to execute additional order to reach the fee cap levels. The
Paper comments
Multiply-Listed FLEX options and proposed change could also increase
strategy executions on the Exchange. competition between the Exchange and • Send paper comments in triplicate
The proposed change would therefore other option markets by making the to Secretary, Securities and Exchange
result in greater amounts of liquidity on Exchange a more desirable market with Commission, 100 F Street NE.,
the Exchange, which should benefit the respect to pricing for Multiply Listed Washington, DC 20549–1090.
quality of the Exchange’s market and FLEX option transactions and strategy All submissions should refer to File
investors, generally. This proposed executions. Number SR–Phlx–2016–100. This file
change is further reasonable because the If the changes proposed herein are number should be included on the
Exchange understands that other option unattractive to market participants, it is subject line if email is used. To help the
markets similarly include Multiply likely that the Exchange will lose Commission process and review your
Listed FLEX option transactions in market share as a result. Accordingly, comments more efficiently, please use
certain fee caps applicable to strategy the Exchange does not believe that the only one method. The Commission will
executions on such other markets.21 proposed changes will impair the ability post all comments on the Commission’s
The Exchange believes that the of members or competing order Internet Web site (http://www.sec.gov/
proposed change is equitable and not execution venues to maintain their rules/sro.shtml). Copies of the
unfairly discriminatory because all competitive standing in the financial submission, all subsequent
members and member organizations are markets. amendments, all written statements
eligible to transact Multiply Listed with respect to the proposed rule
The Exchange’s proposal to permit
FLEX options and are eligible for the change that are filed with the
Multiply Listed FLEX options to be
Strategy Fee Cap. Commission, and all written
eligible for the Section II Strategy Caps
B. Self-Regulatory Organization’s does not impose an undue burden on communications relating to the
Statement on Burden on Competition intra-market competition because all proposed rule change between the
members and member organizations are Commission and any person, other than
The Exchange does not believe that those that may be withheld from the
the proposed rule change will impose eligible to transact Multiply Listed
FLEX options and are eligible for the public in accordance with the
any burden on competition not provisions of 5 U.S.C. 552, will be
necessary or appropriate in furtherance Strategy Fee Cap.
available for Web site viewing and
of the purposes of the Act. In terms of C. Self-Regulatory Organization’s printing in the Commission’s Public
inter-market competition, the Exchange Statement on Comments on the Reference Room, 100 F Street NE.,
notes that it operates in a highly Proposed Rule Change Received From Washington, DC 20549, on official
competitive market in which market Members, Participants, or Others business days between the hours of
participants can readily favor competing 10:00 a.m. and 3:00 p.m. Copies of the
venues if they deem fee levels at a No written comments were either
solicited or received. filing also will be available for
particular venue to be excessive, or inspection and copying at the principal
rebate opportunities available at other III. Date of Effectiveness of the office of the Exchange. All comments
venues to be more favorable. In such an Proposed Rule Change and Timing for received will be posted without change;
environment, the Exchange must Commission Action the Commission does not edit personal
continually adjust its fees to remain
Within 45 days of the date of identifying information from
competitive with other exchanges and
publication of this notice in the Federal submissions. You should submit only
with alternative trading systems that
Register or within such longer period (i) information that you wish to make
have been exempted from compliance
as the Commission may designate up to available publicly.
with the statutory standards applicable All submissions should refer to File
to exchanges. Because competitors are 90 days of such date if it finds such
longer period to be appropriate and Number SR–Phlx–2016–100 and should
free to modify their own fees in be submitted on or before November 7,
response, and because market publishes its reasons for so finding or
(ii) as to which the Exchange consents, 2016.
participants may readily adjust their
order routing practices, the Exchange the Commission shall: (a) By order For the Commission, by the Division of
approve or disapprove such proposed Trading and Markets, pursuant to delegated
believes that the degree to which fee
rule change, or (b) institute proceedings authority.22
changes in this market may impose any
to determine whether the proposed rule Robert W. Errett,
burden on competition is extremely
limited. change should be disapproved. Deputy Secretary.
The pricing proposed herein are [FR Doc. 2016–24980 Filed 10–14–16; 8:45 am]
IV. Solicitation of Comments
intended to continue to incentivize BILLING CODE 8011–01–P
market participants to execute Interested persons are invited to
additional Multiply Listed FLEX submit written data, views, and
options and strategy executions on the arguments concerning the foregoing, SECURITIES AND EXCHANGE
Exchange and for this reason imposes including whether the proposed rule COMMISSION
no inter-market burden on competition. change is consistent with the Act.
jstallworth on DSK7TPTVN1PROD with NOTICES
Submission for OMB Review;
The proposal could increase Comments may be submitted by any of
Comment Request
competition on the Exchange by the following methods:
including Multiply Listed FLEX option Electronic comments Upon Written Request, Copies Available
transactions in the Strategy Fee Cap. From: Securities and Exchange
This could result in members and • Use the Commission’s Internet Commission, Office of FOIA Services,
comment form (http://www.sec.gov/
21 See note 6 above. rules/sro.shtml); or 22 17 CFR 200.30–3(a)(12).
VerDate Sep<11>2014 14:22 Oct 14, 2016 Jkt 241001 PO 00000 Frm 00084 Fmt 4703 Sfmt 4703 E:\FR\FM\17OCN1.SGM 17OCN1](https://thefederalregister.org/doc/81_FR_71756/page/3.svg)
Document Created: 2016-10-15 01:51:29
Document Modified: 2016-10-15 01:51:29
| 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 71556 |
2025 Federal Register | Disclaimer | Privacy Policy
USC | CFR | eCFR