83 FR 1054 - Self-Regulatory Organizations; Nasdaq PHLX LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Amend the Exchange's Pricing Schedule
SECURITIES AND EXCHANGE COMMISSION Federal Register Volume 83, Issue 6 (January 9, 2018)
Federal Register Volume 83, Issue 6 (January 9, 2018)
| Page Range | 1054-1058 | |
| FR Document | 2018-00214 |
[Federal Register Volume 83, Number 6 (Tuesday, January 9, 2018)] [Notices] [Pages 1054-1058] From the Federal Register Online [www.thefederalregister.org] [FR Doc No: 2018-00214] ----------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION [Release No. 34-82442; File No. SR-Phlx-2017-108] Self-Regulatory Organizations; Nasdaq PHLX LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Amend the Exchange's Pricing Schedule January 4, 2018. 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 December 21, 2017, Nasdaq PHLX LLC (``Phlx'' or ``Exchange'') filed with the Securities and Exchange Commission (``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 in the following respects: (i) Modify the Simple Order rebate applicable to Specialists \3\ and Market Makers \4\ for adding liquidity in SPY; \5\ (ii) establish a new $0.05 per contract surcharge for Customers \6\ whose SPY Complex Orders execute against simple Market Maker or Specialist orders resting on the Simple Order Book; (iii) reduce the per contract [[Page 1055]] credit that certain member organizations are entitled to receive when routing away more than 5,000 Customer contracts per day in a given month; and (iv) increase permit fees for Floor Brokers and Floor Specialists and Market Makers. --------------------------------------------------------------------------- \3\ The term ``Specialist'' applies to transactions for 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 1020(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. \4\ The term ``ROT, SQT and RSQT'' applies to transactions for the accounts of Registered Option Traders (``ROTs''), Streaming Quote Traders (``SQTs''), and Remote Streaming Quote Traders (``RSQTs''). For purposes of the Pricing Schedule, the term ``Market Maker'' will be utilized to describe fees and rebates applicable to ROTs, SQTs and RSQTs. RSQTs may also be referred to as Remote Market Markers (``RMMs''). \5\ 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. \6\ 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 (``OCC'') 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)). --------------------------------------------------------------------------- The text of the proposed rule change is available on the Exchange's website 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 purpose of the proposed rule change is to amend the Exchange's Pricing Schedule in the following respects: (i) Modify the Simple Order rebate applicable to Specialists and Market Makers for adding liquidity in SPY; (ii) establish a new $0.05 per contract surcharge for Customers whose SPY Complex Orders execute against simple Market Maker or Specialist orders resting on the Simple Order Book; (iii) reduce the per contract credit that certain member organizations are entitled to receive when routing away more than 5,000 Customer contracts per day in a given month; and (iv) increase permit fees for Floor Brokers and Floor Specialists and Market Makers. Simple Order Rebate for Adding Liquidity in SPY The Exchange first proposes to amend Section I.A. of the Exchange's Pricing Schedule, which sets forth a schedule of rebates and fees for adding and removing liquidity in SPY with respect to Simple Orders. Presently, the Pricing Schedule provides that Customers and Specialists are entitled to a rebate to the extent that they add a requisite amount of electronically executed Simple Order contracts per day in a given month in SPY. The existing rebate varies on a five tier basis, which each tier corresponding to a range of average daily volumes (``ADV'') of Simple Order contracts in SPY added per month. The Exchange now proposes to add a sixth tier to this Pricing Schedule. Specifically, it proposes to amend Tier 4 by adjusting the applicable ADV range from 20,000 to 49,999 to 20,000 to 34,999 contracts per day in SPY in a month and by decreasing the applicable per contract rebate from $0.31 to $0.27 per contract. The Exchange also proposes to establish a new Tier 5, which will provide for a $0.30 per contract rebate that Customers and Specialists will receive for adding an ADV of between 35,000 and 49,999 contracts per day in SPY in a month. Finally, the Exchange proposes to rename the existing Tier 5 as Tier 6. The rebate applicable to the new Tier 6 will remain $0.35 per contract for an ADV of greater than 49,999 contracts per day in SPY in a month. The Exchange proposes the foregoing amendments, which will reduce the rebate amount from that which applies to existing Tier 4 to that which will apply to new Tiers 4 and 5, so as to provide a greater incentive to Specialists and Market Makers to seek to qualify for the top tier of rebates (new Tier 6). The Exchange also proposes to split the existing Tier 4 into two tiers to provide for a more graduated transition among tiers in the Pricing Schedule. Customer Complex Order Surcharge Second, the Exchange proposes to amend Section I.B of the Pricing Schedule, which sets forth a schedule of rebates and fees for adding and removing liquidity in SPY with respect to Complex Orders. Presently, the Pricing Schedule charges Customers no fees for adding or removing Complex Orders in SPY even as it charges fees to other categories of member organizations for doing the same, including Market Makers and Specialists. Customers submit Complex Orders to the Exchange because often, Customers are able to execute such Complex Orders immediately by executing the individual components thereof through interactions with Market Maker and Specialist quotes that rest on the Exchange's Simple Order Book. These Customers benefit from not having to wait for counterparties that are willing to execute against their Complex Orders in the Complex Order Book. Going forward, the Exchange proposes to impose a $0.05 per contract surcharge on Customers that execute Complex Orders against Market Maker or Specialist quotes resting on the Simple Order Book. The Exchange proposes this surcharge to reduce the costs to it of such transactions. Not only does the Exchange receive no fees from Customers for engaging in these transactions, but the Exchange also pays rebates to the Market Makers and Specialists whose quotes execute against the Customers' Complex Orders. Pursuant to Section I.A. of the Exchange's Pricing Schedule, these rebates range from $0.15 to $0.35 per contact. Routing Credit Third, the Exchange proposes to amend Section V of its Pricing Schedule, which sets forth the fees it charges to Customers and Non- Customers for routing orders away from the Exchange. Presently, Section V pays a credit (equal to a Fixed Fee plus $0.05 per contract) \7\ to a member organization that qualifies for a Tier 2, 3, 4 or 5 rebate in the Customer Rebate Program in Section B of the Pricing Schedule and that routes away more than 5,000 Customer contracts per day in a given month. The Exchange proposes to decrease the amount of the per contract portion of the credit from $0.05 to $0.01 per contract. The Exchange proposes to decrease the amount of this credit because it no longer wishes to provide substantial subsidies to member organizations that route Customer orders away from the Exchange. --------------------------------------------------------------------------- \7\ If the away market transaction fee is $0.00 or the away market pays a rebate, then the Exchange provides the member organization with a credit equal to the applicable Fixed Fee only. --------------------------------------------------------------------------- Permit Fees Finally, the Exchange proposes to amend Section VI of the Pricing Schedule, which sets forth the Exchange's membership fees. Specifically, the Exchange proposes to increase its monthly Permit Fees for Floor Brokers, Floor Specialists and Market Makers. The Exchange presently charges Floor Brokers a monthly Permit Fee of $3,000 and it now proposes to increase that fee to $4,000 per month. The Exchange presently charges Floor Specialists and Market Makers a monthly Permit Fee of $4,500 and it now proposes to increase that Fee to $6,000 per month. The Exchange proposes to increase the amounts of these Permit Fees to recoup its financial investment in building a new Trading Floor for the Exchange as well as the costs associated with developing and deploying new and more advanced technologies for use on the new Trading Floor by Floor Brokers, Floor Specialists, and Market Makers. [[Page 1056]] 2. Statutory Basis The Exchange believes that its proposal is consistent with Section 6(b) of the Act,\8\ in general, and furthers the objectives of Sections 6(b)(4) and 6(b)(5) of the Act,\9\ 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. --------------------------------------------------------------------------- \8\ 15 U.S.C. 78f(b). \9\ 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.'' \10\ --------------------------------------------------------------------------- \10\ 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 \11\ (``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.\12\ 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.'' \13\ --------------------------------------------------------------------------- \11\ NetCoalition v. SEC, 615 F.3d 525 (D.C. Cir. 2010). \12\ See NetCoalition, at 534-535. \13\ 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'. . . .'' \14\ 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. --------------------------------------------------------------------------- \14\ 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)). --------------------------------------------------------------------------- Simple Order Rebate for Adding Liquidity in SPY The Exchange believes that its proposal is reasonable to decrease the amounts of its mid-tier rebates to Market Makers and Specialists that add liquidity in SPY because the Exchange seeks to provide a greater incentive to Market Makers and Specialists to increase their ADVs of contracts in SPY so as to qualify for the top rebate tier, which will be new Tier 6. The Exchange believes that this proposal is an equitable allocation and is not unfairly discriminatory because the same decrease in rebates will apply to all similarly situated Market Makers and Specialists. Further, Market Makers and Specialists and Market Makers have obligations to the market and regulatory requirements, which normally do not apply to other market participants.\15\ 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 differentiation as between Specialists and Market Makers and all other market participants recognizes the differing contributions made to the liquidity and trading environment on the Exchange by these market participants. 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. --------------------------------------------------------------------------- \15\ See Rule 1014 titled ``Obligations and Restrictions Applicable to Specialists and Registered Options Traders.'' --------------------------------------------------------------------------- Customer Complex Order Surcharge The Exchange believes that its proposal is reasonable to impose a $0.05 per contract surcharge on Customers that execute Complex Orders against Market Maker or Specialist Quotes that rest on the Simple Order Book. Specifically, the Exchange believes that it is reasonable for it to impose this surcharge as a means to reduce the Exchange's costs associated with these transactions because each such transaction costs the Exchange between $0.15 and $0.35 per contract in rebates to Market Makers and Specialists. Moreover, it is reasonable to impose this surcharge on Customers because Customers benefit the most from being able to achieve immediate executions of their Complex Orders in the relevant scenario. The Exchange believes that the surcharge is minimal and will not be substantial enough to eliminate or even significantly diminish the benefits to Customers of being able to achieve immediate executions in this manner. Finally, the Exchange notes that all other account categories--Professionals, Firms, Broker-Dealers, Specialists, and Market Makers--pay higher fees (between $0.43 and $0.50 per contract) for removing liquidity from the Complex Order Book than Customers would pay under the proposal when they execute their Complex Orders against Simple Orders of Market Makers and Specialists that are resting on the Simple Order Book. The Exchange believes that the proposal is an equitable allocation and is not unfairly discriminatory because the Exchange will uniformly apply the fee to all similarly situated Customers. Moreover, Customers may avoid this new surcharge by executing their Complex Orders in the Exchange's Complex Order Book or by sending them to other trading venues where the transaction costs to them will be less expensive. Even with this surcharge, Customers are assessed the least amount per contract for executions in SPY. As noted herein, Customers are not assessed fees for adding and removing liquidity for SPY Complex Orders. The Exchange believes that assessing Customers lower fees is equitable and not unfairly discriminatory because Customer orders bring valuable liquidity to the market, which liquidity benefits other 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. Routing Credit The Exchange believes that its proposal is reasonable to reduce the amount of the credit it presently provides to certain member organizations that route away more than 5,000 Customer orders per day in a given month. Although the Exchange wishes to continue providing incentives to member organizations to utilize its routing service, it seeks to reduce the incentive for member organizations to route orders to away markets. Despite the reduction, the Exchange believes the credit remains competitive. [[Page 1057]] The Exchange believes that the proposal is an equitable allocation and is not unfairly discriminatory because the same reduced credit will uniformly be assessed on all member organizations when routing orders. Permit Fees Finally, the Exchange believes that its proposal is reasonable to increase its monthly Permit Fees for Floor Brokers and Floor Specialists and Market Makers. The Exchange has made substantial investments in building a new state-of-the-art Trading Floor for the Exchange as well as developing and deploying new and more advanced technologies for use on the new Trading Floor to the benefit of Floor Brokers, Floor Specialists, and Market Makers. The increased Permit Fees are a reasonable way for the Exchange to recoup some of these investments. Moreover, it is reasonable for the Exchange to recoup these investments from those members and member organizations that utilize the new Trading Floor and associated technologies. The Exchange believes that the proposal is an equitable allocation and is not unfairly discriminatory because the same reduced credit will uniformly apply uniformly to all situated Floor Brokers, Specialists, and Market Makers that utilize the Trading Floor. Likewise, the Exchange does not believe that its proposal to increase Permit Fees will unduly burden competition because Floor Brokers, Market Makers, and Specialists may choose to utilize the Exchange's electronic environment or become members of other exchanges' trading floors if they conclude that the Exchange's Permit Fees are prohibitively expensive. 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 this instance, the proposed changes to the charges assessed and the credits and rebates available do not impose a burden on competition because the Exchange's execution services are completely voluntary and subject to extensive competition both from other exchanges and from off-exchange venues. 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. Simple Order Rebate for Adding Liquidity in SPY The Exchange's proposal to decrease the amounts of its mid-tier rebates to Market Makers and Specialists that add liquidity in SPY does not impose an undue burden on competition because Market Makers and Specialists and Market Makers have obligations to the market and regulatory requirements, which normally do not apply to other market participants.\16\ 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 differentiation as between Specialists and Market Makers and all other market participants recognizes the differing contributions made to the liquidity and trading environment on the Exchange by these market participants. 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. --------------------------------------------------------------------------- \16\ See Rule 1014 titled ``Obligations and Restrictions Applicable to Specialists and Registered Options Traders.'' --------------------------------------------------------------------------- Customer Complex Order Surcharge The Exchange's proposal to impose a $0.05 per contract surcharge on Customers that execute Complex Orders against Market Maker or Specialist Quotes that rest on the Simple Order Book does not impose an undue burden on competition because Customers may avoid this new surcharge by executing their Complex Orders in the Exchange's Complex Order Book or by sending them to other trading venues where the transaction costs to them will be less expensive. Even with this surcharge, Customers are assessed the least amount per contract for executions in SPY. As noted herein, Customers are not assessed fees for adding and removing liquidity for SPY Complex Orders. The Exchange believes that assessing Customers lower fees is equitable and not unfairly discriminatory because Customer orders bring valuable liquidity to the market, which liquidity benefits other 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. Routing Credit The Exchange's proposal to reduce the amount of the credit it presently provides to certain member organizations that route away more than 5,000 Customer orders per day in a given month does not impose an undue burden on competition because the reduced credit will uniformly be assessed on all member organizations when routing orders. Permit Fees The Exchange's proposal to increase its monthly Permit Fees for Floor Brokers and Floor Specialists and Market Makers does not impose an undue burden on competition because the permit fees will be uniformly assessed to all Floor Brokers, Specialists, and Market Makers that utilize the Trading Floor. Likewise, the Exchange does not believe that its proposal to increase Permit Fees will unduly burden competition because Floor Brokers, Market Makers, and Specialists may choose to utilize the Exchange's electronic environment or become members of other exchanges' trading floors if they conclude that the Exchange's Permit Fees are prohibitively expensive. 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. [[Page 1058]] 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.\17\ --------------------------------------------------------------------------- \17\ 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-2017-108 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-2017-108. 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 website (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 website 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-2017-108, and should be submitted on or before January 30, 2018. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.\18\ --------------------------------------------------------------------------- \18\ 17 CFR 200.30-3(a)(12). --------------------------------------------------------------------------- Eduardo A. Aleman, Assistant Secretary. [FR Doc. 2018-00214 Filed 1-8-18; 8:45 am] BILLING CODE 8011-01-P
![1054 Federal Register / Vol. 83, No. 6 / Tuesday, January 9, 2018 / Notices
19b–4(f)(6)(iii) 26 permits the • Send an email to rule-comments@ SECURITIES AND EXCHANGE
Commission to designate a shorter time sec.gov. Please include File Number SR– COMMISSION
if such action is consistent with the CboeBZX–2017–022 on the subject line.
protection of investors and the public [Release No. 34–82442; File No. SR–Phlx–
interest. The Exchange has asked the Paper Comments 2017–108]
Commission to waive the 30-day • Send paper comments in triplicate Self-Regulatory Organizations; Nasdaq
operative delay so that the proposal may to Brent J. Fields, Secretary, Securities PHLX LLC; Notice of Filing and
become operative immediately upon Immediate Effectiveness of Proposed
and Exchange Commission, 100 F Street
filing. The Exchange notes that the Rule Change To Amend the
NE, Washington, DC 20549–1090.
proposal will promote consistency Exchange’s Pricing Schedule
between the Exchange and its affiliated All submissions should refer to File
exchanges, and is part of a larger Number SR–CboeBZX–2017–022. This January 4, 2018.
technology integration that will file number should be included on the Pursuant to Section 19(b)(1) of the
ultimately reduce complexity for Users subject line if email is used. To help the Securities Exchange Act of 1934
of the Exchange that are also Commission process and review your (‘‘Act’’),1 and Rule 19b–4 thereunder,2
participants on other Cboe Affiliated comments more efficiently, please use notice is hereby given that on December
Exchanges. The Exchange further notes only one method. The Commission will 21, 2017, Nasdaq PHLX LLC (‘‘Phlx’’ or
that allowing the Exchange to move post all comments on the Commission’s ‘‘Exchange’’) filed with the Securities
forward with the proposed changes internet website (http://www.sec.gov/ and Exchange Commission
without an operative delay will ensure rules/sro.shtml). Copies of the (‘‘Commission’’) the proposed rule
that the technology integration can submission, all subsequent change as described in Items I, II, and
continue with periodic but measured III below, which Items have been
amendments, all written statements
changes rather than implementing prepared by the Exchange. The
with respect to the proposed rule
several changes at once. Furthermore, Commission is publishing this notice to
change that are filed with the
the Exchange states that the solicit comments on the proposed rule
implementation of the risk controls will Commission, and all written
change from interested persons.
help to avoid potentially erroneous communications relating to the
executions. The Commission believes proposed rule change between the I. Self-Regulatory Organization’s
that waiver of the 30-day operative Commission and any person, other than Statement of the Terms of Substance of
delay is consistent with the protection those that may be withheld from the the Proposed Rule Change
of investors and the public interest. public in accordance with the The Exchange proposes to amend the
Accordingly, the Commission hereby provisions of 5 U.S.C. 552, will be Exchange’s Pricing Schedule in the
waives the operative delay and available for website viewing and following respects: (i) Modify the
designates the proposed rule change as printing in the Commission’s Public Simple Order rebate applicable to
operative upon filing.27 Reference Room, 100 F Street NE, Specialists 3 and Market Makers 4 for
At any time within 60 days of the Washington, DC 20549, on official adding liquidity in SPY; 5 (ii) establish
filing of the proposed rule change, the business days between the hours of a new $0.05 per contract surcharge for
Commission summarily may 10:00 a.m. and 3:00 p.m. Copies of the Customers 6 whose SPY Complex Orders
temporarily suspend such rule change if filing also will be available for execute against simple Market Maker or
it appears to the Commission that such inspection and copying at the principal Specialist orders resting on the Simple
action is: (1) Necessary or appropriate in office of the Exchange. All comments Order Book; (iii) reduce the per contract
the public interest; (2) for the protection received will be posted without change.
1 15 U.S.C. 78s(b)(1).
of investors; or (3) otherwise in Persons submitting comments are 2 17 CFR 240.19b–4.
furtherance of the purposes of the Act. cautioned that we do not redact or edit 3 The term ‘‘Specialist’’ applies to transactions for
If the Commission takes such action, the personal identifying information from the account of a Specialist (as defined in Exchange
Commission shall institute proceedings comment submissions. You should Rule 1020(a)). A Specialist is an Exchange member
to determine whether the proposed rule submit only information that you wish who is registered as an options specialist pursuant
should be approved or disapproved. to Rule 1020(a). An options Specialist includes a
to make available publicly. All Remote Specialist which is defined as an options
IV. Solicitation of Comments submissions should refer to File specialist in one or more classes that does not have
Number SR–CboeBZX–2017–022 and a physical presence on an Exchange floor and is
Interested persons are invited to approved by the Exchange pursuant to Rule 501.
submit written data, views, and should be submitted on or before 4 The term ‘‘ROT, SQT and RSQT’’ applies to
arguments concerning the foregoing, January 30, 2018. transactions for the accounts of Registered Option
Traders (‘‘ROTs’’), Streaming Quote Traders
including whether the proposed rule For the Commission, by the Division of (‘‘SQTs’’), and Remote Streaming Quote Traders
change is consistent with the Act. Trading and Markets, pursuant to delegated (‘‘RSQTs’’). For purposes of the Pricing Schedule,
Comments may be submitted by any of authority.28 the term ‘‘Market Maker’’ will be utilized to
the following methods: Eduardo A. Aleman, describe fees and rebates applicable to ROTs, SQTs
and RSQTs. RSQTs may also be referred to as
Electronic Comments Assistant Secretary. Remote Market Markers (‘‘RMMs’’).
5 Options overlying Standard and Poor’s
[FR Doc. 2018–00158 Filed 1–8–18; 8:45 am]
• Use the Commission’s internet Depositary Receipts/SPDRs (‘‘SPY’’) are based on
BILLING CODE 8011–01–P
comment form (http://www.sec.gov/ the SPDR exchange-traded fund (‘‘ETF’’), which is
sradovich on DSK3GMQ082PROD with NOTICES
rules/sro.shtml); or designed to track the performance of the S&P 500
Index.
6 The term ‘‘Customer’’ applies to any transaction
26 17 CFR 240.19b–4(f)(6)(iii). that is identified by a member or member
27 For purposes only of waiving the 30-day organization for clearing in the Customer range at
operative delay, the Commission has also The Options Clearing Corporation (‘‘OCC’’) which
considered the proposed rule’s impact on is not for the account of a broker or dealer or for
efficiency, competition, and capital formation. See the account of a ‘‘Professional’’ (as that term is
15 U.S.C. 78c(f). 28 17 CFR 200.30–3(a)(12). defined in Rule 1000(b)(14)).
VerDate Sep<11>2014 15:58 Jan 08, 2018 Jkt 244001 PO 00000 Frm 00042 Fmt 4703 Sfmt 4703 E:\FR\FM\09JAN1.SGM 09JAN1](https://thefederalregister.org/doc/83_FR_1060/page/1.svg)
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2. Statutory Basis and the SEC were discussing the cash Customers benefit the most from being
equities markets, the Exchange believes able to achieve immediate executions of
The Exchange believes that its
that these views apply with equal force their Complex Orders in the relevant
proposal is consistent with Section 6(b)
to the options markets. scenario. The Exchange believes that the
of the Act,8 in general, and furthers the
surcharge is minimal and will not be
objectives of Sections 6(b)(4) and 6(b)(5) Simple Order Rebate for Adding
substantial enough to eliminate or even
of the Act,9 in particular, in that it Liquidity in SPY
significantly diminish the benefits to
provides for the equitable allocation of The Exchange believes that its Customers of being able to achieve
reasonable dues, fees and other charges proposal is reasonable to decrease the immediate executions in this manner.
among members and issuers and other amounts of its mid-tier rebates to Market Finally, the Exchange notes that all
persons using any facility, and is not Makers and Specialists that add other account categories—Professionals,
designed to permit unfair liquidity in SPY because the Exchange Firms, Broker-Dealers, Specialists, and
discrimination between customers, seeks to provide a greater incentive to Market Makers—pay higher fees
issuers, brokers, or dealers. Market Makers and Specialists to (between $0.43 and $0.50 per contract)
The Commission and the courts have increase their ADVs of contracts in SPY for removing liquidity from the
repeatedly expressed their preference so as to qualify for the top rebate tier, Complex Order Book than Customers
for competition over regulatory which will be new Tier 6. The Exchange would pay under the proposal when
intervention in determining prices, believes that this proposal is an they execute their Complex Orders
products, and services in the securities equitable allocation and is not unfairly against Simple Orders of Market Makers
markets. In Regulation NMS, while discriminatory because the same and Specialists that are resting on the
adopting a series of steps to improve the decrease in rebates will apply to all Simple Order Book.
current market model, the Commission similarly situated Market Makers and The Exchange believes that the
highlighted the importance of market Specialists. Further, Market Makers and proposal is an equitable allocation and
forces in determining prices and SRO Specialists and Market Makers have is not unfairly discriminatory because
revenues and, also, recognized that obligations to the market and regulatory the Exchange will uniformly apply the
current regulation of the market system requirements, which normally do not fee to all similarly situated Customers.
‘‘has been remarkably successful in apply to other market participants.15 Moreover, Customers may avoid this
promoting market competition in its They have obligations to make new surcharge by executing their
broader forms that are most important to continuous markets, engage in a course Complex Orders in the Exchange’s
investors and listed companies.’’ 10 of dealings reasonably calculated to Complex Order Book or by sending
Likewise, in NetCoalition v. Securities contribute to the maintenance of a fair them to other trading venues where the
and Exchange Commission 11 and orderly market, and not make bids transaction costs to them will be less
(‘‘NetCoalition’’) the D.C. Circuit upheld or offers or enter into transactions that expensive. Even with this surcharge,
the Commission’s use of a market-based are inconsistent with a course of Customers are assessed the least amount
approach in evaluating the fairness of dealings. The differentiation as between per contract for executions in SPY. As
market data fees against a challenge Specialists and Market Makers and all noted herein, Customers are not
claiming that Congress mandated a cost- other market participants recognizes the assessed fees for adding and removing
based approach.12 As the court differing contributions made to the liquidity for SPY Complex Orders. The
emphasized, the Commission ‘‘intended liquidity and trading environment on Exchange believes that assessing
in Regulation NMS that ‘market forces, the Exchange by these market Customers lower fees is equitable and
rather than regulatory requirements’ participants. An increase in the activity not unfairly discriminatory because
play a role in determining the market of these market participants in turn Customer orders bring valuable liquidity
data . . . to be made available to facilitates tighter spreads, which may to the market, which liquidity benefits
investors and at what cost.’’ 13 cause an additional corresponding other market participants. Customer
Further, ‘‘[n]o one disputes that increase in order flow from other market liquidity benefits all market participants
competition for order flow is ‘fierce.’ participants. by providing more trading
. . . As the SEC explained, ‘[i]n the U.S. Customer Complex Order Surcharge opportunities, which attracts Specialists
national market system, buyers and and Market Makers. An increase in the
The Exchange believes that its activity of these market participants in
sellers of securities, and the broker-
proposal is reasonable to impose a $0.05 turn facilitates tighter spreads, which
dealers that act as their order-routing
per contract surcharge on Customers may cause an additional corresponding
agents, have a wide range of choices of
that execute Complex Orders against increase in order flow from other market
where to route orders for execution’; Market Maker or Specialist Quotes that
[and] ‘no exchange can afford to take its participants.
rest on the Simple Order Book.
market share percentages for granted’ Specifically, the Exchange believes that Routing Credit
because ‘no exchange possesses a it is reasonable for it to impose this The Exchange believes that its
monopoly, regulatory or otherwise, in surcharge as a means to reduce the proposal is reasonable to reduce the
the execution of order flow from broker Exchange’s costs associated with these amount of the credit it presently
dealers’. . . .’’ 14 Although the court transactions because each such provides to certain member
8 15
transaction costs the Exchange between organizations that route away more than
U.S.C. 78f(b).
9 15 U.S.C. 78f(b)(4) and (5).
$0.15 and $0.35 per contract in rebates 5,000 Customer orders per day in a
to Market Makers and Specialists. given month. Although the Exchange
sradovich on DSK3GMQ082PROD with NOTICES
10 Securities Exchange Act Release No. 51808
(June 9, 2005), 70 FR 37496, 37499 (June 29, 2005) Moreover, it is reasonable to impose this wishes to continue providing incentives
(‘‘Regulation NMS Adopting Release’’). surcharge on Customers because to member organizations to utilize its
11 NetCoalition v. SEC, 615 F.3d 525 (D.C. Cir.
routing service, it seeks to reduce the
2010). 74770, 74782–83 (December 9, 2008) (SR–
12 See NetCoalition, at 534–535. incentive for member organizations to
NYSEArca–2006–21)).
13 Id. at 537. 15 See Rule 1014 titled ‘‘Obligations and
route orders to away markets. Despite
14 Id. at 539 (quoting Securities Exchange Act Restrictions Applicable to Specialists and the reduction, the Exchange believes the
Release No. 59039 (December 2, 2008), 73 FR Registered Options Traders.’’ credit remains competitive.
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![1058 Federal Register / Vol. 83, No. 6 / Tuesday, January 9, 2018 / Notices
III. Date of Effectiveness of the Washington, DC 20549 on official I. Self-Regulatory Organization’s
Proposed Rule Change and Timing for business days between the hours of Statement of the Terms of Substance of
Commission Action 10:00 a.m. and 3:00 p.m. Copies of the the Proposed Rule Change
The foregoing rule change has become filing also will be available for The Exchange filed a proposal to
effective pursuant to Section inspection and copying at the principal update Rule 21.1, Rule 21.10, and Rule
19(b)(3)(A)(ii) of the Act.17 office of the Exchange. All comments 21.17 to make modifications to the
At any time within 60 days of the received will be posted without change. Exchange’s rules and functionality
filing of the proposed rule change, the Persons submitting comments are applicable to the Exchange’s options
Commission summarily may cautioned that we do not redact or edit platform (‘‘EDGX Options’’) in
temporarily suspend such rule change if personal identifying information from preparation for the technology migration
it appears to the Commission that such comment submissions. You should of the Exchange’s affiliated options
action is: (i) Necessary or appropriate in submit only information that you wish exchanges onto the same technology as
the public interest; (ii) for the protection to make available publicly. All the Exchange.
of investors; or (iii) otherwise in submissions should refer to File The text of the proposed rule change
furtherance of the purposes of the Act. Number SR–Phlx–2017–108, and should is available at the Exchange’s website at
If the Commission takes such action, the be submitted on or before January 30, www.markets.cboe.com, at the principal
Commission shall institute proceedings 2018. office of the Exchange, and at the
to determine whether the proposed rule For the Commission, by the Division of Commission’s Public Reference Room.
should be approved or disapproved. Trading and Markets, pursuant to delegated
authority.18 II. Self-Regulatory Organization’s
IV. Solicitation of Comments Eduardo A. Aleman, Statement of the Purpose of, and
Interested persons are invited to Statutory Basis for, the Proposed Rule
Assistant Secretary.
submit written data, views, and Change
[FR Doc. 2018–00214 Filed 1–8–18; 8:45 am]
arguments concerning the foregoing, BILLING CODE 8011–01–P
In its filing with the Commission, the
including whether the proposed rule Exchange included statements
change is consistent with the Act. concerning the purpose of and basis for
Comments may be submitted by any of SECURITIES AND EXCHANGE the proposed rule change and discussed
the following methods: COMMISSION any comments it received on the
proposed rule change. The text of these
Electronic Comments
[Release No. 34–82437; File No. SR–
statements may be examined at the
• Use the Commission’s internet CboeEDGX–2017–009] places specified in Item IV below. The
comment form (http://www.sec.gov/ Exchange has prepared summaries, set
rules/sro.shtml); or Self-Regulatory Organizations; Cboe forth in Sections A, B, and C below, of
• Send an email to rule-comments@ EDGX Exchange, Inc.; Notice of Filing the most significant parts of such
sec.gov. Please include File Number SR– and Immediate Effectiveness of a statements.
Phlx–2017–108 on the subject line. Proposed Rule Change To Adopt Risk (A) Self-Regulatory Organization’s
Paper Comments Controls and Modify Rules 21.1, 21.10, Statement of the Purpose of, and
and 21.17 in Connection With Statutory Basis for, the Proposed Rule
• Send paper comments in triplicate Technology Migration of Cboe
to Secretary, Securities and Exchange Change
Exchanges
Commission, 100 F Street NE, 1. Purpose
Washington, DC 20549–1090. January 3, 2018.
In 2016, the Exchange and its
All submissions should refer to File Pursuant to Section 19(b)(1) of the affiliates Cboe BYX Exchange, Inc.
Number SR–Phlx–2017–108. This file Securities Exchange Act of 1934 (the (‘‘BYX’’), Cboe EDGA Exchange, Inc.
number should be included on the ‘‘Act’’),1 and Rule 19b–4 thereunder,2 (‘‘EDGA’’), and Cboe BZX Exchange,
subject line if email is used. To help the notice is hereby given that on December Inc. (‘‘BZX’’) received approval to affect
Commission process and review your 21, 2017, Cboe EDGX Exchange, Inc. a merger (the ‘‘Merger’’) of the
comments more efficiently, please use (the ‘‘Exchange’’) filed with the Exchange’s then-current indirect parent
only one method. The Commission will Securities and Exchange Commission company, Bats Global Markets, Inc.,
post all comments on the Commission’s (‘‘Commission’’) the proposed rule with Cboe Global Markets f/k/a CBOE
internet website (http://www.sec.gov/ change as described in Items I and II Holdings, Inc. (‘‘Cboe’’), the direct
rules/sro.shtml). Copies of the below, which Items have been prepared parent of Cboe Exchange, Inc. (‘‘Cboe
submission, all subsequent by the Exchange. The Exchange has Options’’) and Cboe C2 Exchange, Inc.
amendments, all written statements designated this proposal as a ‘‘non- (‘‘C2 Options’’, and together with the
with respect to the proposed rule controversial’’ proposed rule change Exchange, BZX, and Cboe Options the
change that are filed with the pursuant to Section 19(b)(3)(A) of the ‘‘Cboe Affiliated Exchanges’’).5 The
Commission, and all written Act 3 and Rule 19b–4(f)(6)(iii) Cboe Affiliated Exchanges are working
communications relating to the thereunder,4 which renders it effective to align certain system functionality,
proposed rule change between the upon filing with the Commission. The retaining only intended differences
Commission and any person, other than Commission is publishing this notice to between the Cboe Affiliated Exchanges,
sradovich on DSK3GMQ082PROD with NOTICES
those that may be withheld from the solicit comments on the proposed rule
public in accordance with the change from interested persons. 5 See Securities Exchange Act Release No. 79585
provisions of 5 U.S.C. 552, will be (December 16, 2016), 81 FR 93988 (December 22,
available for website viewing and 18 17 CFR 200.30–3(a)(12).
2016) (SR–BatsBZX–2016–68; SR–BatsBYX–2016–
printing in the Commission’s Public 1 15
29; SR–BatsEDGA–2016–24; SR–BatsEDGX–2016–
U.S.C. 78s(b)(1). 60). The Exchange notes that BYX and EDGA are
Reference Room, 100 F Street NE, 2 17 CFR 240.19b–4.
also affiliated exchanges but do not operate options
3 15 U.S.C. 78s(b)(3)(A).
platforms and thus the integration described in this
17 15 U.S.C. 78s(b)(3)(A)(ii). 4 17 CFR 240.19b–4(f)(6)(iii). proposal is inapplicable to such exchanges.
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Document Created: 2018-01-09 02:18:32
Document Modified: 2018-01-09 02:18:32
| 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 | 83 FR 1054 |
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