82 FR 52084 - Self-Regulatory Organizations; Nasdaq PHLX LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Amend the Exchange's Pricing Schedule at Section IV, Entitled “Other Transaction Fees”
SECURITIES AND EXCHANGE COMMISSION Federal Register Volume 82, Issue 216 (November 9, 2017)
Federal Register Volume 82, Issue 216 (November 9, 2017)
| Page Range | 52084-52087 | |
| FR Document | 2017-24368 |
[Federal Register Volume 82, Number 216 (Thursday, November 9, 2017)] [Notices] [Pages 52084-52087] From the Federal Register Online [www.thefederalregister.org] [FR Doc No: 2017-24368] ----------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION [Release No. 34-82008; File No. SR-Phlx-2017-88] Self-Regulatory Organizations; Nasdaq PHLX LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Amend the Exchange's Pricing Schedule at Section IV, Entitled ``Other Transaction Fees'' November 3, 2017. Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (``Act''),\1\ and Rule 19b-4 thereunder,\2\ [[Page 52085]] notice is hereby given that on October 30, 2017, 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 Exchange's Pricing Schedule at Section IV, entitled ``Other Transaction Fees.'' Specifically, the Exchange proposes to amend its subsidy program, the Market Access and Routing Subsidy or ``MARS,'' for Phlx members that provide certain order routing functionalities \3\ to other Phlx members and/or use such functionalities themselves. --------------------------------------------------------------------------- \3\ The order routing functionalities permit a Phlx member to provide access and connectivity to other members as well as utilize such access for themselves. The Exchange notes that under this arrangement one Phlx member may be eligible for payments under MARS, while another Phlx member might potentially be liable for transaction charges associated with the execution of the order, because those orders were delivered to the Exchange through a Phlx member's connection to the Exchange and that member qualified for the MARS Payment. Consider the following example: Both members A and B are Phlx members but A does not utilize its own connections to route orders to the Exchange, and instead utilizes B's connections. Under this program, B will be eligible for the MARS Payment while A is liable for any transaction charges resulting from the execution of orders that originate from A, arrive at the Exchange via B's connectivity, and subsequently execute and clear at The Options Clearing Corporation or ``OCC,'' where A is the valid executing clearing member or give-up on the transaction. Similarly, where B utilizes its own connections to execute transactions, B will be eligible for the MARS Payment, but would also be liable for any transaction resulting from the execution of orders that originate from B, arrive at the Exchange via B's connectivity, and subsequently execute and clear at OCC, where B is the valid executing clearing member or give-up on the transaction. --------------------------------------------------------------------------- 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 Phlx proposes to amend its subsidy program, MARS, which pays a subsidy to Phlx members that provide certain order routing functionalities to other Phlx members and/or use such functionalities themselves. Generally, under MARS, Phlx pays participating Phlx members to subsidize their costs of providing routing services to route orders to Phlx. The Exchange believes that MARS will continue to attract higher volumes of electronic equity and ETF options volume to the Exchange from non-Phlx market participants as well as Phlx members with the proposed amendments. Today, to qualify for MARS, a Phlx member's order routing functionality would be required to meet certain criteria.\4\ With respect to Complex Orders, the Exchange would not require Complex Orders to enable the electronic routing of orders to all of the U.S. options exchanges or provide current consolidated market data from the U.S. options exchanges. Any Phlx member may apply for MARS, provided the requirements are met, including a robust and reliable System. The member is solely responsible for implementing and operating its System. --------------------------------------------------------------------------- \4\ Specifically the member's routing system (hereinafter ``System'') would be required to: (1) Enable the electronic routing of orders to all of the U.S. options exchanges, including Phlx; (2) provide current consolidated market data from the U.S. options exchanges; and (3) be capable of interfacing with Phlx's API to access current Phlx match engine functionality. The member's System would also need to cause Phlx to be one of the top three default destination exchanges for individually executed marketable orders if Phlx is at the national best bid or offer (``NBBO''), regardless of size or time, but allow any user to manually override Phlx as the default destination on an order-by-order basis. The Exchange does not require Complex Orders to enable the electronic routing of orders to all of the U.S. options exchanges or provide current consolidated market data from the U.S. options exchanges. --------------------------------------------------------------------------- Today, a MARS Payment would be made to Phlx members that have System Eligibility and have routed the requisite number of Eligible Contracts daily in a month, which were executed on Phlx. For the purpose of qualifying for the MARS Payment, Eligible Contracts include Firm,\5\ Broker-Dealer,\6\ Joint Back Office or ``JBO'' \7\ or Professional \8\ equity option orders that are electronically delivered and executed. Eligible Contracts do not include floor-based orders, qualified contingent cross or ``QCC'' orders,\9\ price improvement or ``PIXL'' orders,\10\ Mini-Option orders \11\ or Singly-Listed Options \12\ orders. The Eligible Contracts requirements are not being amended. --------------------------------------------------------------------------- \5\ The term ``Firm'' or (``F'') applies to any transaction that is identified by a Participant for clearing in the Firm range at OCC. \6\ The term ``Broker-Dealer'' applies to any transaction which is not subject to any of the other transaction fees applicable within a particular category. \7\ The term ``Joint Back Office'' or ``JBO'' applies to any transaction that is identified by a member or member organization for clearing in the Firm range at OCC and is identified with an origin code as a JBO. A JBO will be priced the same as a Broker- Dealer. A JBO participant is a member, member organization or non- member organization that maintains a JBO arrangement with a clearing broker-dealer (``JBO Broker'') subject to the requirements of Regulation T Section 220.7 of the Federal Reserve System as further discussed at Exchange Rule 703. \8\ The term ``professional'' means any person or entity that (i) is not a broker or dealer in securities, and (ii) places more than 390 orders in listed options per day on average during a calendar month for its own beneficial account(s). See Rule 1000(b)(14). \9\ A QCC Order is comprised of an order to buy or sell at least 1000 contracts that is identified as being part of a qualified contingent trade, as that term is defined in Rule 1080(o)(3), coupled with a contra-side order to buy or sell an equal number of contracts. The QCC Order must be executed at a price at or between the NBBO and be rejected if a Customer order is resting on the Exchange book at the same price. A QCC Order shall only be submitted electronically from off the floor to the Exchange's match engine. See Rule 1080(o). \10\ PIXL is the Exchange's price improvement mechanism known as Price Improvement XL or (PIXL\SM\). See Rule 1080(n). \11\ Mini Options are further specified in Phlx Rule 1012, Commentary .13. \12\ Singly Listed Options are options overlying currencies, equities, ETFs, ETNs treasury securities and indexes not listed on another exchange. --------------------------------------------------------------------------- Phlx members that have System Eligibility and have executed the requisite number of Eligible Contracts in a month are paid rebates today as follows: ------------------------------------------------------------------------ Average daily MARS Tiers volume payment (``ADV'') ------------------------------------------------------------------------ 1.................................................. 1,000 $0.01 2.................................................. 27,500 0.08 3.................................................. 32,500 0.10 4.................................................. 40,000 0.12 ------------------------------------------------------------------------ With respect to the MARS program, the Exchange proposes two sets of changes. First, the Exchange proposes to change the eligibility criteria for the program so that, instead of requiring the member's System to designate Phlx to [[Page 52086]] be one of the top three default destination exchanges for individually executed marketable orders (if Phlx is at the NBBO), the Rule would require the member's System to designate Phlx to be one of the top five default designation exchanges in those circumstances. The Exchange proposes this change in recognition of the increasing number of options trading venues that exist and the desire of members for additional flexibility to route orders to such venues. Second, the Exchange proposes to replace the existing MARS Payment schedule in its entirety with a new schedule that will include all new ADV tiers as well as different rebate amounts that depend upon whether the Eligible Contracts that a member executes at a particular ADV tier are in Standard and Poor's Depositary Receipts/SPDRs (``SPY'') \13\ or not. The proposed tier schedule is as follows: --------------------------------------------------------------------------- \13\ Options overlying Standard and Poor's Depositary Receipts/ SPDRs (``SPY'') are based on the SPDR exchange-traded fund (``ETF''), which is designed to track the performance of the S&P 500 Index. ------------------------------------------------------------------------ Average MARS payment daily --------------- Tiers volume Non- (``ADV'') SPY SPY ------------------------------------------------------------------------ 1............................................ 1,000 $0.01 $0.01 2............................................ 30,000 0.10 0.10 3............................................ 40,000 0.12 0.12 4............................................ 52,500 0.14 0.12 5............................................ 65,000 0.18 0.12 6............................................ 75,000 0.20 0.12 ------------------------------------------------------------------------ As is the case today, no payment will be made with respect to orders that are routed to Phlx, but not executed.\14\ --------------------------------------------------------------------------- \14\ A Phlx member will not be entitled to receive any other revenue for the use of its System specifically with respect to orders routed to Phlx with the exception of the Marketing Fee. --------------------------------------------------------------------------- 2. Statutory Basis The Exchange believes that its proposal is consistent with Section 6(b) of the Act,\15\ in general, and furthers the objectives of Sections 6(b)(4) and 6(b)(5) of the Act,\16\ 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. --------------------------------------------------------------------------- \15\ 15 U.S.C. 78f(b). \16\ 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.'' \17\ --------------------------------------------------------------------------- \17\ 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 \18\ (``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.\19\ 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.'' \20\ --------------------------------------------------------------------------- \18\ NetCoalition v. SEC, 615 F.3d 525 (D.C. Cir. 2010). \19\ See NetCoalition, at 534-535. \20\ 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'. . . .'' \21\ 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. --------------------------------------------------------------------------- \21\ 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 believes that its proposal is reasonable to relax its MARS eligibility criteria so that members' Systems need only designate Phlx to be among their top five (rather than top three) default destination exchanges for individually executed marketable orders. The Exchange recognizes that the number of options trading venues has increased over the last few years and that members may desire or require flexibility to route orders to these venues. The proposal accommodates members in this respect without compromising their ability to participate in the MARS program. The proposal is not unfairly discriminatory in that the relaxed criteria will apply equally to all those who participate in the MARS program. The Exchange also believes that its proposal is reasonable to replace the existing MARS Payment schedule with a new schedule comprising new ADV tiers. The proposed schedule is designed to attract higher volumes of electronic equity and ETF options orders to the Exchange, which will, in turn, benefit all Phlx members by offering greater price discovery, increased transparency, and an increased opportunity to trade on the Exchange. The Exchange intends for the proposed schedule to achieve these results by increasing the number of ADV tiers in the schedule from four to six and, at each tier, paying a rebate that will be roughly the same as or greater than that which it pays now.\22\ For example, proposed Tiers 4, 5, and 6 will entitle members to receive payments of $0.14, $0.18, and $0.20 for non-SPY executions, respectively, and $0.12 for SPY executions, whereas the current top rebate is $0.12 for all types and volumes of executions. --------------------------------------------------------------------------- \22\ The only instance in which the proposed schedule would result in member receiving a lower rebate than it does now for a given ADV would be where the member's ADV is between 27,500 and 30,000 contracts. --------------------------------------------------------------------------- The proposed tier structure will also allow Phlx members to price their services at a level that will enable them to attract order flow from market participants who would otherwise utilize an existing front- end order entry mechanism offered by the Exchange's competitors instead of incurring the cost in time and money to develop their own internal systems to be able to deliver orders directly to the Exchange's System. The proposed MARS Payment schedule is not unfairly discriminatory because the Exchange will uniformly pay all Phlx members the rebates specified in the proposed MARS Payment tiers provided that the Phlx member has executed the requisite number of Eligible Contracts. Moreover, the Exchange believes that the proposed MARS Payments offered by the Exchange are equitable and not unfairly discriminatory because any qualifying Phlx member that offers market access and connectivity to the Exchange and/or utilize such functionality themselves may earn the MARS Payment for all Eligible Contracts. Although the Exchange proposes to offer different rebates for executions of Eligible Contracts in SPY and those in other options, the Exchange does not [[Page 52087]] believe that this proposal is unfairly discriminatory. SPY options are currently the most actively traded options class and the Exchange does not need to pay same rebates to incent members to route orders on SPY to the Exchange as it may need to pay to attract other types of options orders. Moreover, pricing by symbol is a common practice on many U.S. options exchanges. 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. 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 intra-market competition, the Exchange believes that its proposed rebate schedule will be highly competitive, both with respect to SPY, which is the most actively traded options class, as well as non-SPY options. Indeed, the proposed rebates under the new schedule will in most instances be the same, if not higher, as they are under the existing schedule. Likewise, the proposed change to the MARS eligibility criteria is pro-competitive because it will make it easier for members to qualify for the program while routing orders to venues other than Phlx. 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.\23\ --------------------------------------------------------------------------- \23\ 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-2017-88 on the subject line. Paper Comments Send paper comments in triplicate to Brent J. Fields, Secretary, Securities and Exchange Commission, 100 F Street NE., Washington, DC 20549-1090. All submissions should refer to File Number SR-Phlx-2017-88. 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. Persons submitting comments are cautioned that we do not redact or edit personal identifying information from comment submissions. You should submit only information that you wish to make available publicly. All submissions should refer to File Number SR-Phlx-2017-88 and should be submitted on or before November 30, 2017. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.\24\ --------------------------------------------------------------------------- \24\ 17 CFR 200.30-3(a)(12). --------------------------------------------------------------------------- Eduardo A. Aleman, Assistant Secretary. [FR Doc. 2017-24368 Filed 11-8-17; 8:45 am] BILLING CODE 8011-01-P
![52084 Federal Register / Vol. 82, No. 216 / Thursday, November 9, 2017 / Notices
with quotes and orders entered by C. Self-Regulatory Organization’s number should be included on the
different badges within the same Statement on Comments on the subject line if email is used. To help the
Exchange account or member. Thus, the Proposed Rule Change Received From Commission process and review your
Exchange is proposing to provide Members, Participants, or Others comments more efficiently, please use
members with flexibility with respect to No written comments were either only one method. The Commission will
how AIQ is implemented. While solicited or received. post all comments on the Commission’s
members that like the current Internet Web site (http://www.sec.gov/
functionality can continue to use it, III. Date of Effectiveness of the rules/sro.shtml). Copies of the
members who would prefer to prevent Proposed Rule Change and Timing for submission, all subsequent
self-trades across different badges Commission Action amendments, all written statements
within the same Exchange account or at Because the foregoing proposed rule with respect to the proposed rule
the member level will now be provided change does not: (i) Significantly affect change that are filed with the
with functionality that lets them do this. the protection of investors or the public Commission, and all written
Similar flexibility is offered on both interest; (ii) impose any significant communications relating to the
NOM and BZX.10 The Exchange burden on competition; and (iii) become proposed rule change between the
believes that flexibility to apply AIQ at operative for 30 days from the date on Commission and any person, other than
the Exchange account or member firm which it was filed, or such shorter time those that may be withheld from the
level would be useful for Phlx members as the Commission may designate, it has public in accordance with the
too. The Exchange believes that the become effective pursuant to Section provisions of 5 U.S.C. 552, will be
proposed rule change is designed to 19(b)(3)(A)(iii) of the Act 12 and available for Web site viewing and
promote just and equitable principles of subparagraph (f)(6) of Rule 19b–4 printing in the Commission’s Public
trade and will remove impediments to thereunder.13 Reference Room, 100 F Street NE.,
and perfect the mechanisms of a free At any time within 60 days of the Washington, DC 20549, on official
and open market as it will further filing of the proposed rule change, the business days between the hours of
enhance self-trade protections provided Commission summarily may 10:00 a.m. and 3:00 p.m. Copies of the
to market makers similar to those temporarily suspend such rule change if filing also will be available for
protections provided on other markets. it appears to the Commission that such inspection and copying at the principal
This functionality does not relieve or action is: (i) Necessary or appropriate in office of the Exchange. All comments
otherwise modify the duty of best the public interest; (ii) for the protection received will be posted without change.
execution owed to orders received from of investors; or (iii) otherwise in Persons submitting comments are
public customers. furtherance of the purposes of the Act. cautioned that we do not redact or edit
If the Commission takes such action, the personal identifying information from
B. Self-Regulatory Organization’s comment submissions. You should
Statement on Burden on Competition Commission shall institute proceedings
to determine whether the proposed rule submit only information that you wish
to make available publicly. All
In accordance with Section 6(b)(8) of should be approved or disapproved.
submissions should refer to File
the Act,11 the Exchange does not believe IV. Solicitation of Comments Number SR–Phlx–2017–93 and should
that the proposed rule change will be submitted on or before November 30,
impose any burden on intermarket or Interested persons are invited to
submit written data, views, and 2017.
intramarket competition that is not
necessary or appropriate in furtherance arguments concerning the foregoing, For the Commission, by the Division of
including whether the proposed rule Trading and Markets, pursuant to delegated
of the purposes of the Act. The
change is consistent with the Act. authority.14
proposed rule change is designed to
Comments may be submitted by any of Eduardo A. Aleman,
enhance AIQ functionality provided to
Exchange market makers, and will the following methods: Assistant Secretary.
benefit members that wish to protect [FR Doc. 2017–24370 Filed 11–8–17; 8:45 am]
Electronic Comments
their quotes and orders against trading BILLING CODE 8011–01–P
with other quotes and orders within the • Use the Commission’s Internet
same Exchange account or member, comment form (http://www.sec.gov/
rather than the more limited badge rules/sro.shtml); or SECURITIES AND EXCHANGE
standard applied today. The new • Send an email to rule-comments@ COMMISSION
functionality, which provides similar sec.gov. Please include File Number SR–
[Release No. 34–82008; File No. SR–Phlx–
flexibility to that offered on both NOM Phlx–2017–93 on the subject line. 2017–88]
and BZX, is also completely voluntary, Paper Comments
and members that wish to use the Self-Regulatory Organizations; Nasdaq
• Send paper comments in triplicate PHLX LLC; Notice of Filing and
current functionality can also continue to Brent J. Fields, Secretary, Securities
to do so. The Exchange does not believe Immediate Effectiveness of Proposed
and Exchange Commission, 100 F Street Rule Change To Amend the
that providing more flexibility to NE., Washington, DC 20549–1090.
members will have any significant Exchange’s Pricing Schedule at
impact on competition. In fact, the All submissions should refer to File Section IV, Entitled ‘‘Other Transaction
Exchange believes that the proposed Number SR–Phlx–2017–93. This file Fees’’
rule change is evidence of the
sradovich on DSK3GMQ082PROD with NOTICES
12 15 U.S.C. 78s(b)(3)(A)(iii). November 3, 2017.
competitive environment in the options 13 17 CFR 240.19b–4(f)(6). In addition, Rule 19b– Pursuant to Section 19(b)(1) of the
industry where exchanges must 4(f)(6) requires a self-regulatory organization to give Securities Exchange Act of 1934
continually improve their offerings to the Commission written notice of its intent to file (‘‘Act’’),1 and Rule 19b–4 thereunder,2
maintain competitive standing. the proposed rule change at least five business days
prior to the date of filing of the proposed rule
14 17 CFR 200.30–3(a)(12).
change, or such shorter time as designated by the
10 See supra notes 6–7. 1 15 U.S.C. 78s(b)(1).
Commission. The Exchange has satisfied this
11 15 U.S.C. 78f(b)(8). requirement. 2 17 CFR 240.19b–4.
VerDate Sep<11>2014 17:32 Nov 08, 2017 Jkt 244001 PO 00000 Frm 00047 Fmt 4703 Sfmt 4703 E:\FR\FM\09NON1.SGM 09NON1](https://thefederalregister.org/doc/82_FR_52300/page/1.svg)
![52086 Federal Register / Vol. 82, No. 216 / Thursday, November 9, 2017 / Notices
be one of the top three default markets. In Regulation NMS, while in the MARS program. The proposal is
destination exchanges for individually adopting a series of steps to improve the not unfairly discriminatory in that the
executed marketable orders (if Phlx is at current market model, the Commission relaxed criteria will apply equally to all
the NBBO), the Rule would require the highlighted the importance of market those who participate in the MARS
member’s System to designate Phlx to forces in determining prices and SRO program.
be one of the top five default revenues and, also, recognized that The Exchange also believes that its
designation exchanges in those current regulation of the market system proposal is reasonable to replace the
circumstances. The Exchange proposes ‘‘has been remarkably successful in existing MARS Payment schedule with
this change in recognition of the promoting market competition in its a new schedule comprising new ADV
increasing number of options trading broader forms that are most important to tiers. The proposed schedule is
venues that exist and the desire of investors and listed companies.’’ 17 designed to attract higher volumes of
members for additional flexibility to Likewise, in NetCoalition v. Securities electronic equity and ETF options
route orders to such venues. and Exchange Commission 18 orders to the Exchange, which will, in
Second, the Exchange proposes to (‘‘NetCoalition’’) the D.C. Circuit upheld turn, benefit all Phlx members by
replace the existing MARS Payment the Commission’s use of a market-based offering greater price discovery,
schedule in its entirety with a new approach in evaluating the fairness of increased transparency, and an
schedule that will include all new ADV market data fees against a challenge increased opportunity to trade on the
tiers as well as different rebate amounts claiming that Congress mandated a cost- Exchange. The Exchange intends for the
that depend upon whether the Eligible based approach.19 As the court proposed schedule to achieve these
Contracts that a member executes at a emphasized, the Commission ‘‘intended results by increasing the number of ADV
particular ADV tier are in Standard and in Regulation NMS that ‘market forces, tiers in the schedule from four to six
Poor’s Depositary Receipts/SPDRs rather than regulatory requirements’ and, at each tier, paying a rebate that
(‘‘SPY’’) 13 or not. The proposed tier play a role in determining the market will be roughly the same as or greater
schedule is as follows: data . . . to be made available to than that which it pays now.22 For
investors and at what cost.’’ 20 example, proposed Tiers 4, 5, and 6 will
MARS Further, ‘‘[n]o one disputes that entitle members to receive payments of
Average
daily payment competition for order flow is ‘fierce.’ $0.14, $0.18, and $0.20 for non-SPY
Tiers executions, respectively, and $0.12 for
volume Non- . . . As the SEC explained, ‘[i]n the U.S.
(‘‘ADV’’) SPY SPY national market system, buyers and SPY executions, whereas the current top
sellers of securities, and the broker- rebate is $0.12 for all types and volumes
1 ........................ 1,000 $0.01 $0.01 dealers that act as their order-routing of executions.
2 ........................ 30,000 0.10 0.10 agents, have a wide range of choices of The proposed tier structure will also
3 ........................ 40,000 0.12 0.12 where to route orders for execution’; allow Phlx members to price their
4 ........................ 52,500 0.14 0.12
[and] ‘no exchange can afford to take its services at a level that will enable them
5 ........................ 65,000 0.18 0.12 to attract order flow from market
6 ........................ 75,000 0.20 0.12 market share percentages for granted’
because ‘no exchange possesses a participants who would otherwise
monopoly, regulatory or otherwise, in utilize an existing front-end order entry
As is the case today, no payment will mechanism offered by the Exchange’s
be made with respect to orders that are the execution of order flow from broker
dealers’. . . .’’ 21 Although the court competitors instead of incurring the cost
routed to Phlx, but not executed.14 in time and money to develop their own
and the SEC were discussing the cash
2. Statutory Basis equities markets, the Exchange believes internal systems to be able to deliver
that these views apply with equal force orders directly to the Exchange’s
The Exchange believes that its
System.
proposal is consistent with Section 6(b) to the options markets.
The proposed MARS Payment
of the Act,15 in general, and furthers the The Exchange believes that its
schedule is not unfairly discriminatory
objectives of Sections 6(b)(4) and 6(b)(5) proposal is reasonable to relax its MARS
because the Exchange will uniformly
of the Act,16 in particular, in that it eligibility criteria so that members’
pay all Phlx members the rebates
provides for the equitable allocation of Systems need only designate Phlx to be
specified in the proposed MARS
reasonable dues, fees and other charges among their top five (rather than top
Payment tiers provided that the Phlx
among members and issuers and other three) default destination exchanges for
member has executed the requisite
persons using any facility, and is not individually executed marketable number of Eligible Contracts. Moreover,
designed to permit unfair orders. The Exchange recognizes that the Exchange believes that the proposed
discrimination between customers, the number of options trading venues MARS Payments offered by the
issuers, brokers, or dealers. has increased over the last few years Exchange are equitable and not unfairly
The Commission and the courts have and that members may desire or require discriminatory because any qualifying
repeatedly expressed their preference flexibility to route orders to these Phlx member that offers market access
for competition over regulatory venues. The proposal accommodates and connectivity to the Exchange and/
intervention in determining prices, members in this respect without or utilize such functionality themselves
products, and services in the securities compromising their ability to participate may earn the MARS Payment for all
17 Securities Exchange Act Release No. 51808
Eligible Contracts.
13 Options overlying Standard and Poor’s
Although the Exchange proposes to
Depositary Receipts/SPDRs (‘‘SPY’’) are based on (June 9, 2005), 70 FR 37496, 37499 (June 29, 2005)
offer different rebates for executions of
sradovich on DSK3GMQ082PROD with NOTICES
the SPDR exchange-traded fund (‘‘ETF’’), which is (‘‘Regulation NMS Adopting Release’’).
designed to track the performance of the S&P 500 18 NetCoalition v. SEC, 615 F.3d 525 (D.C. Cir. Eligible Contracts in SPY and those in
Index. 2010). other options, the Exchange does not
14 A Phlx member will not be entitled to receive 19 See NetCoalition, at 534–535.
any other revenue for the use of its System 20 Id. at 537. 22 The only instance in which the proposed
specifically with respect to orders routed to Phlx 21 Id. at 539 (quoting Securities Exchange Act schedule would result in member receiving a lower
with the exception of the Marketing Fee. Release No. 59039 (December 2, 2008), 73 FR rebate than it does now for a given ADV would be
15 15 U.S.C. 78f(b).
74770, 74782–83 (December 9, 2008) (SR– where the member’s ADV is between 27,500 and
16 15 U.S.C. 78f(b)(4) and (5). NYSEArca–2006–21)). 30,000 contracts.
VerDate Sep<11>2014 17:32 Nov 08, 2017 Jkt 244001 PO 00000 Frm 00049 Fmt 4703 Sfmt 4703 E:\FR\FM\09NON1.SGM 09NON1](https://thefederalregister.org/doc/82_FR_52300/page/3.svg)
![Federal Register / Vol. 82, No. 216 / Thursday, November 9, 2017 / Notices 52087
believe that this proposal is unfairly C. Self-Regulatory Organization’s those that may be withheld from the
discriminatory. SPY options are Statement on Comments on the public in accordance with the
currently the most actively traded Proposed Rule Change Received From provisions of 5 U.S.C. 552, will be
options class and the Exchange does not Members, Participants, or Others available for Web site viewing and
need to pay same rebates to incent No written comments were either printing in the Commission’s Public
members to route orders on SPY to the solicited or received. Reference Room, 100 F Street NE.,
Exchange as it may need to pay to Washington, DC 20549, on official
attract other types of options orders. III. Date of Effectiveness of the business days between the hours of
Moreover, pricing by symbol is a Proposed Rule Change and Timing for 10:00 a.m. and 3:00 p.m. Copies of the
common practice on many U.S. options Commission Action filing also will be available for
exchanges. The foregoing rule change has become inspection and copying at the principal
effective pursuant to Section office of the Exchange. All comments
B. Self-Regulatory Organization’s 19(b)(3)(A)(ii) of the Act.23 received will be posted without change.
Statement on Burden on Competition At any time within 60 days of the Persons submitting comments are
filing of the proposed rule change, the cautioned that we do not redact or edit
The Exchange does not believe that
Commission summarily may personal identifying information from
the proposed rule change will impose
temporarily suspend such rule change if comment submissions. You should
any burden on competition not
it appears to the Commission that such submit only information that you wish
necessary or appropriate in furtherance
action is: (i) Necessary or appropriate in to make available publicly. All
of the purposes of the Act. In terms of
the public interest; (ii) for the protection submissions should refer to File
inter-market competition, the Exchange of investors; or (iii) otherwise in Number SR–Phlx–2017–88 and should
notes that it operates in a highly furtherance of the purposes of the Act. be submitted on or before November 30,
competitive market in which market If the Commission takes such action, the 2017.
participants can readily favor competing Commission shall institute proceedings
venues if they deem fee levels at a For the Commission, by the Division of
to determine whether the proposed rule Trading and Markets, pursuant to delegated
particular venue to be excessive, or should be approved or disapproved. authority.24
rebate opportunities available at other
venues to be more favorable. In such an IV. Solicitation of Comments Eduardo A. Aleman,
environment, the Exchange must Interested persons are invited to Assistant Secretary.
continually adjust its fees to remain submit written data, views, and [FR Doc. 2017–24368 Filed 11–8–17; 8:45 am]
competitive with other exchanges and arguments concerning the foregoing, BILLING CODE 8011–01–P
with alternative trading systems that including whether the proposed rule
have been exempted from compliance change is consistent with the Act.
with the statutory standards applicable Comments may be submitted by any of SMALL BUSINESS ADMINISTRATION
to exchanges. Because competitors are the following methods: [Disaster Declaration #15366 and #15367;
free to modify their own fees in SOUTH CAROLINA Disaster Number SC–
Electronic Comments
response, and because market 00052]
participants may readily adjust their • Use the Commission’s Internet
order routing practices, the Exchange comment form (http://www.sec.gov/ Presidential Declaration Amendment of
believes that the degree to which fee rules/sro.shtml); or a Major Disaster for Public Assistance
changes in this market may impose any • Send an email to rule-comments@ Only for the State of South Carolina
burden on competition is extremely sec.gov. Please include File Number SR–
limited. In sum, if the changes proposed Phlx–2017–88 on the subject line. AGENCY: U.S. Small Business
herein are unattractive to market Administration.
Paper Comments
participants, it is likely that the ACTION: Amendment 1.
Exchange will lose market share as a • Send paper comments in triplicate
to Brent J. Fields, Secretary, Securities SUMMARY: This is an amendment of the
result. Accordingly, the Exchange does Presidential declaration of a major
not believe that the proposed changes and Exchange Commission, 100 F Street
NE., Washington, DC 20549–1090. disaster for Public Assistance Only for
will impair the ability of members or the State of South Carolina (FEMA–
competing order execution venues to All submissions should refer to File
Number SR–Phlx–2017–88. This file 4346–DR), dated 10/16/2017.
maintain their competitive standing in Incident: Hurricane Irma.
the financial markets. number should be included on the
subject line if email is used. To help the Incident Period: 09/06/2017 through
In terms of intra-market competition, Commission process and review your 09/13/2017.
the Exchange believes that its proposed comments more efficiently, please use DATES: Issued on 11/01/2017.
rebate schedule will be highly only one method. The Commission will Physical Loan Application Deadline
competitive, both with respect to SPY, post all comments on the Commission’s Date: 12/15/2017.
which is the most actively traded Internet Web site (http://www.sec.gov/ Economic Injury (EIDL) Loan
options class, as well as non-SPY rules/sro.shtml). Copies of the Application Deadline Date: 07/16/2018.
options. Indeed, the proposed rebates submission, all subsequent ADDRESSES: Submit completed loan
under the new schedule will in most amendments, all written statements applications to: U.S. Small Business
instances be the same, if not higher, as Administration, Processing and
sradovich on DSK3GMQ082PROD with NOTICES
with respect to the proposed rule
they are under the existing schedule. change that are filed with the Disbursement Center, 14925 Kingsport
Likewise, the proposed change to the Commission, and all written Road, Fort Worth, TX 76155.
MARS eligibility criteria is pro- communications relating to the FOR FURTHER INFORMATION CONTACT: A.
competitive because it will make it proposed rule change between the Escobar, Office of Disaster Assistance,
easier for members to qualify for the Commission and any person, other than U.S. Small Business Administration,
program while routing orders to venues
other than Phlx. 23 15 U.S.C. 78s(b)(3)(A)(ii). 24 17 CFR 200.30–3(a)(12).
VerDate Sep<11>2014 17:32 Nov 08, 2017 Jkt 244001 PO 00000 Frm 00050 Fmt 4703 Sfmt 4703 E:\FR\FM\09NON1.SGM 09NON1](https://thefederalregister.org/doc/82_FR_52300/page/4.svg)
Document Created: 2018-10-25 10:29:18
Document Modified: 2018-10-25 10:29:18
| 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 | 82 FR 52084 |
2025 Federal Register | Disclaimer | Privacy Policy
USC | CFR | eCFR