
[Federal Register Volume 78, Number 79 (Wednesday, April 24, 2013)]
[Notices]
[Pages 24263-24265]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2013-09629]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-69401; File No. SR-Phlx-2013-38]


Self-Regulatory Organizations; NASDAQ OMX PHLX LLC; Notice of 
Filing and Immediate Effectiveness of Proposed Rule Change To Amend 
Routing Fees

April 18, 2013.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act'') \1\, and Rule 19b-4 \2\ thereunder, notice is hereby given 
that on April 8, 2013, NASDAQ OMX 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.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to amend Section V of the Pricing Schedule 
entitled ``Routing Fees.''
    While changes to the Pricing Schedule pursuant to this proposal are 
effective upon filing, the Exchange has designated the proposed 
amendment to be operative on May 1, 2013.
    The text of the proposed rule change is available on the Exchange's 
Web site at http://nasdaqomxphlx.cchwallstreet.com/, at the principal 
office of the Exchange, and at the Commission's Public Reference Room.

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

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

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

1. Purpose
    The purpose of this filing is to amend Routing Fees in Section V of 
the Pricing Schedule in order to recoup costs that the Exchange incurs 
for routing and executing orders in equity options to various away 
markets.
    Today, the Exchange assesses Non-Customers a flat rate of $0.95 per 
contract on all Non-Customer orders routed to any away market and the 
Exchange assesses Customer orders a fixed fee plus the actual 
transaction fee dependent on the away market. Specifically, the 
Exchange assesses Customer orders routed to NASDAQ Options Market LLC 
(``NOM'') a fixed fee of $0.05 per contract in addition to the actual 
transaction fee assessed by the away market. With respect to Customer 
orders that are routed to NASDAQ OMX BX, Inc. (``BX Options''), the 
Exchange does not assess a Routing Fee and does not pass rebates paid 
by the away market.\3\ The Exchange does not assess a Routing Fee when 
routing orders to BX Options because that exchange pays a rebate. 
Instead of netting the customer rebate paid by BX Options against the 
fixed fee,\4\ the Exchange simply does not assess a fee. The Exchange 
assesses Customer orders routed to all other away markets, except NOM 
and BX Options, a fixed fee of $0.11 per contract in addition to the 
actual transaction fee assessed by the away market, unless the away 
market pays a rebate, then the Routing Fee is $0.00.
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    \3\ BX Options pays a Customer Rebate to Remove Liquidity as 
follows: Customers are paid $0.12 per contract in IWM, SPY and QQQ, 
$0.32 per contract in All Other Penny Pilot Options and $0.70 per 
contract in Non-Penny Pilot Options. See BX Options Rules at Chapter 
XV, Section 2(1).
    \4\ BX Options does not assess a Customer a Fee to Remove 
Liquidity in any symbols today. See Chapter V, Section 2(1) of the 
BX Options Rules.
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    The fixed fees are based on costs that are incurred by the Exchange 
when routing to an away market in addition to the away market's 
transaction fee. For example, the Exchange incurs a fee when it 
utilizes Nasdaq Options Services LLC (``NOS''), a member of the 
Exchange and the Exchange's exclusive order router,\5\ to route orders 
in options listed and open for trading on the PHLX XL system to 
destination markets. Each time NOS routes to away markets NOS incurs a 
clearing-related cost \6\ and, in the case of certain exchanges, a 
transaction fee is also charged in certain symbols, which fees are 
passed through to the Exchange. The Exchange also incurs administrative 
and technical costs associated with operating NOS, membership fees at 
away markets, Options Regulatory Fees (``ORFs'') and technical costs 
associated with routing options. For Customer orders, the transaction 
fee assessed by the Exchange is based on the away market's actual 
transaction fee or rebate for a particular market participant at the 
time that the order was entered into the Exchange's trading system. 
This transaction fee is calculated on an order-by-order basis for 
Customer orders, since different away markets charge different amounts. 
In the event that there is no transaction fee or rebate assessed by the 
away market, the only fee assessed is the fixed Routing Fee.
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    \5\ In May 2009, the Exchange adopted Rule 1080(m)(iii)(A) to 
establish Nasdaq Options Services LLC (``NOS''), a member of the 
Exchange, as the Exchange's exclusive order router. See Securities 
Exchange Act Release No. 59995 (May 28, 2009), 74 FR 26750 (June 3, 
2009) (SR-Phlx-2009-32). NOS is utilized by the Exchange's fully 
automated options trading system, PHLX XL[supreg].
    \6\ The Options Clearing Corporation (``OCC'') assesses a 
clearing fee of $0.01 per contract side. See Securities Exchange Act 
Release No. 68025 (October 10, 2012), 77 FR 63398 (October 16, 2012) 
(SR-OCC-2012-18).
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    The Exchange is proposing to amend the Routing Fees to all other 
options exchanges, except NOM and BX Options, to increase the fixed fee 
of

[[Page 24264]]

$0.11 to $0.15 per contract.\7\ The Exchange currently does not recoup 
all of its costs to route to away markets other than NOM and BX 
Options. As mentioned herein, the Exchange incurs costs when routing to 
away markets including away market transaction fees, ORFs, clearing 
fees, Section 31 related fees, connectivity and membership fees. The 
Exchange is not recouping its costs currently with the $0.11 per 
contract fixed fee and proposes to increase the fixed fee to $0.15 per 
contract.
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    \7\ The Exchange is not proposing to amend Non-Customer Routing 
Fees or Routing Fees for Customer orders routed to NOM or BX 
Options.
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2. Statutory Basis
    The Exchange believes that its proposal to amend its Pricing 
Schedule is consistent with Section 6(b) of the Act \8\ in general, and 
furthers the objectives of Section 6(b)(4) of the Act,\9\ in 
particular, in that it is an equitable allocation of reasonable fees 
and other charges among Exchange members.
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    \8\ 15 U.S.C. 78f(b).
    \9\ 15 U.S.C. 78f(b)(4).
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    The Exchange believes that amending the Customer Routing Fee to 
other away markets, other than NOM and BX Options, from a fixed fee of 
$0.11 to $0.15 per contract, in addition to the actual transaction fee, 
is reasonable because the proposed fixed fee for Customer orders is an 
approximation of the costs the Exchange will be charged for routing 
orders to away markets. For example, today, NYSE MKT LLC (``Amex'') 
does not assess a Customer transaction fee.\10\ Today, the Exchange 
would therefore assess a Customer order that was routed to Amex an 
$0.11 per contract Routing Fee. The Exchange's effective per contract 
expenses to route to Amex include the ORF, OCC clearing charges, 
Section 31 related fees, connectivity and membership fees are not 
covered by the $0.11 per contract and are slightly higher than the 
$0.15 per contract. As a general matter, the Exchange believes that the 
proposed fees will allow it to recoup and cover its costs of providing 
optional routing services for Customer orders because it better 
approximates the costs incurred by the Exchange for routing such 
orders. While, each destination market's transaction charge varies and 
there is a cost incurred by the Exchange when routing orders to away 
markets, including OCC clearing costs, administrative and technical 
costs associated with operating NOS, membership fees at away markets, 
ORFs and technical costs associated with routing options, the Exchange 
believes that the proposed Routing Fees will enable it to recover the 
costs it incurs to route Customer orders to away markets. Today, the 
Exchange is paying a higher average cost per contract than to route 
Customer orders to away markets, other than NOM and BX Options.
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    \10\ See Amex's Fee Schedule.
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    The Exchange believes that the proposed pricing for Customer 
Routing Fees to all other away markets, except NOM and BX Options, is 
equitable and not unfairly discriminatory because the Exchange would 
assess the same fixed fee when routing orders to an away market in 
addition to the away market transaction fee. The proposal would apply 
uniformly to all market participants when routing to an away market 
that pays a rebate. Market participants may submit orders to the 
Exchange as ineligible for routing or ``DNR'' to avoid Routing 
Fees.\11\ It is important to note that when orders are routed to an 
away market they are routed based on price first.\12\
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    \11\ See Rule 1066(h) (Certain Types of Orders Defined) and 
1080(b)(i)(A) (PHLX XL and PHLX XL II).
    \12\ PHLX XL will route orders to away markets where the 
Exchange's disseminated bid or offer is inferior to the national 
best bid (best offer) (``NBBO'') price. See Rule 1080(m). The PHLX 
XL II system will contemporaneously route an order marked as an 
Intermarket Sweep Order (``ISO'') to each away market disseminating 
prices better than the Exchange's price, for the lesser of: (a) The 
disseminated size of such away markets, or (b) the order size and, 
if order size remains after such routing, trade at the Exchange's 
disseminated bid or offer up to its disseminated size. If contracts 
still remain unexecuted after routing, they are posted on the book. 
Once on the book, should the order subsequently be locked or crossed 
by another market center, the PHLX XL II system will not route the 
order to the locking or crossing market center, with some exceptions 
noted in Rule 1080(m).
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    Further, the Exchange believes that it is reasonable to continue to 
not assess a Customer Routing Fee when routing to all other options 
exchanges, except NOM and BX Options, if the away market pays a rebate. 
The Exchange will continue to assess a fixed fee, which fee is being 
increased with this proposal, plus the actual transaction charge 
assessed by the away market when routing to all other options 
exchanges, except NOM and BX Options, unless the away market pays a 
rebate. The Exchange would continue to not assess a Routing Fee if the 
away market pays a rebate because the Exchange believes it is 
reasonable to retain the rebate to offset the Routing Fee. The Exchange 
believes that market participants will have more certainty as to the 
Customer Routing Fee that will be assessed by the Exchange by simply 
not assessing a Routing Fee for Customer orders routed to away markets, 
other than NOM, that pay a rebate.\13\ The Exchange believes that not 
assessing a fee for routing orders to BX Options, instead of netting 
the customer rebate paid by BX Options against the Fixed Fee \14\ is 
reasonable because although market participants routing orders to BX 
Options will not receive a credit, the Routing Fee is transparent. 
Market participants will not pay a Customer Routing Fee when routing 
orders to BX Options with this proposal instead of the $0.05 per 
contract fee netted against the rebate, as is the case today. The 
Exchange believes that the proposed Customer Routing Fee to BX Options 
is equitable and not unfairly discriminatory because the proposal would 
apply uniformly to all market participants.
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    \13\ BX Options pays a Customer Rebate to Remove Liquidity as 
follows: Customers are paid $0.12 per contract in IWM, SPY and QQQ, 
$0.32 per contract in All Other Penny Pilot Options and $0.70 per 
contract in Non-Penny Pilot Options. See BX Options Rules at Chapter 
XV, Section 2(1).
    \14\ BX Options does not assess a Customer a Fee to Remove 
Liquidity in any symbols today. See Chapter V, Section 2(1) of the 
BX Options Rules.
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    The Exchange believes that it is reasonable, equitable and not 
unfairly discriminatory to continue to assess Customer orders that are 
routed to NOM a fixed fee of $0.05 per contract and orders that are 
routed to other away markets, other than NOM and BX Options, a fixed 
fee of $0.15 per contract because the cost, in terms of actual cash 
outlays, to the Exchange to route to NOM (and BX Options) \15\ is 
lower. For example, costs related to routing to NOM are materially 
lower as compared to other away markets because NOS is utilized by all 
three exchanges to route orders.\16\ NOS and the three NASDAQ OMX 
options markets have a common data center and staff that are 
responsible for the day-to-day operations of NOS. Because the three 
exchanges are in a common data center, Routing Fees are reduced because 
costly expenses related to, for example, telecommunication lines to 
obtain connectivity are avoided when routing orders in this instance. 
The costs related to connectivity to route orders to other NASDAQ OMX 
exchanges are de minimis. When routing orders to non-NASDAQ OMX 
exchanges, the Exchange incurs costly connectivity charges related to 
telecommunication lines and other related costs. The Exchange believes 
it is reasonable, equitable and not unfairly discriminatory to pass 
along savings realized by leveraging NASDAQ OMX's infrastructure and 
scale to market

[[Page 24265]]

participants when those orders are routed to NOM.
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    \15\ The Exchange does not assess the $0.05 per contract Fixed 
Fee for routing orders to BX Options because that exchange pays 
Customer rebates, which the Exchange would retain to offset its 
cost.
    \16\ See Chapter VI, Section 11 of the NASDAQ and BX Options 
Rules and Phlx Rule 1080(m)(iii)(A).
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    Finally, the Exchange believes that it is reasonable, equitable and 
not unfairly discriminatory to assess different fees for Customers 
orders as compared to non-Customer orders because the Exchange has 
traditionally assessed lower fees to Customers as compared to non-
Customers. Customers will continue to receive the lowest fees or no 
fees when routing orders, as is the case today. Other options exchanges 
also assess lower Routing Fees for customer orders as compared to non-
customer orders.\17\
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    \17\ BATS assesses lower customer routing fees as compared to 
non-customer routing fees per the away market. For example BATS 
assesses ISE customer routing fees of $0.30 per contract and an ISE 
non-customer routing fee of $0.57 per contract. See BATS BZX 
Exchange Fee Schedule.
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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. The Exchange does not believe 
that the proposal creates intra-market competition because the Exchange 
is applying the same Routing Fees and credits to all market 
participants in the same manner dependent on the routing venue, with 
the exception of Customers. The Exchange will continue to assess 
separate Customer Routing Fees. Customers will continue to receive the 
lowest fees or no fees when routing orders, as is the case today. Other 
options exchanges also assess lower Routing Fees for customer orders as 
compared to non-customer orders.\18\
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    \18\ Id.
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    The Exchange's proposal would allow the Exchange to continue to 
recoup its costs when routing orders to away markets when such orders 
are designated as available for routing by the market participant. The 
Exchange continues to pass along savings realized by leveraging NASDAQ 
OMX's infrastructure and scale to market participants when those orders 
are routed to NOM and is providing those savings to all market 
participants. Members and member organizations may choose to mark the 
order as ineligible for routing to avoid incurring these fees.\19\ 
Today, other options exchanges also assess fixed routing fees to recoup 
costs incurred by the Exchange to route orders to away markets.\20\
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    \19\ See supra note 11.
    \20\ See CBOE's Fees Schedule and ISE's Fee Schedule.
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    The Exchange operates in a highly competitive market, comprised of 
eleven exchanges, in which market participants can easily and readily 
direct order flow to competing venues if they deem fee levels at a 
particular venue to be excessive. Accordingly, the fees that are 
assessed by the Exchange must remain competitive with fees charged by 
other venues and therefore must continue to be reasonable and equitably 
allocated to those members organizations that opt to direct orders to 
the Exchange rather than competing venues.

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.\21\ 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 necessary or appropriate in the public interest, 
for the protection of investors, or 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.
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    \21\ 15 U.S.C. 78s(b)(3)(A)(ii).
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IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether the proposed rule 
change is consistent with the Act. Comments may be submitted by any of 
the following methods:
    Electronic comments:
     Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to rule-comments@sec.gov. Please include 
File Number SR-Phlx-2013-38 on the subject line.
    Paper comments:
     Send paper comments in triplicate to Elizabeth M. Murphy, 
Secretary, Securities and Exchange Commission, 100 F Street NE., 
Washington, DC 20549-1090.
    All submissions should refer to File Number SR-Phlx-2013-38. 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 such filing also will be available 
for inspection and copying at the principal office of the Exchange. All 
comments received will be posted without change; the Commission does 
not edit personal identifying information from submissions. You should 
submit only information that you wish to make available publicly. All 
submissions should refer to File Number SR-Phlx-2013-38 and should be 
submitted on or before May 15, 2013.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\22\
Kevin M. O'Neill,
Deputy Secretary.
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    \22\ 17 CFR 200.30-3(a)(12).
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[FR Doc. 2013-09629 Filed 4-23-13; 8:45 am]
BILLING CODE 8011-01-P


