
[Federal Register Volume 78, Number 98 (Tuesday, May 21, 2013)]
[Notices]
[Pages 29801-29803]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2013-12049]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-69588; File No. SR-Phlx-2013-51]


Self-Regulatory Organizations; NASDAQ OMX PHLX LLC; Notice of 
Filing of Proposed Rule Change to Its Schedule of Fees and Rebates for 
Execution of Quotes and Orders on NASDAQ OMX PSX

May 15, 2013.
    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 May 3, 2013, NASDAQ OMX 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.
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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 changes to its schedule of fees and rebates 
for execution of quotes and orders on NASDAQ OMX PSX (``PSX''). Phlx 
proposes to implement the proposed rule change on May 3, 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 Commission recently approved modifications to the rules 
governing the operation of Phlx's PSX trading platform in order to 
replace its price/size/pro rata allocation model with a price/time 
model, and to permit member organizations to register as market makers 
in securities traded on PSX.\3\ Phlx is now proposing to modify its 
schedule of fees and rebates for transactions occurring on PSX.
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    \3\ Securities Exchange Act Release No. 69452 (April 25, 2013), 
78 FR 25512 (May 1, 2013) (SR-Phlx-2013-24).
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    Currently, the Exchange charges the following fees for execution of 
orders that access liquidity on PSX: A volume-based discounted fee of 
$0.0028 per share executed for an order entered through a market 
participant identifier (``MPID'') through which a member organization 
provides shares of liquidity that represent more than 0.10% of 
Consolidated Volume \4\ during the month; $0.0028 per share executed 
for an order that is designated as eligible for routing, and $0.0030 
per share executed for other orders. The Exchange is proposing to 
reduce significantly the criterion for the volume-based discounted fee, 
from 0.10% of Consolidated Volume to an average daily volume of 10,000 
or more shares of liquidity provided. Moreover, for securities listed 
on the NASDAQ Stock Market (``NASDAQ'') or the New York Stock Exchange 
(``NYSE''), Phlx proposes to lower the volume-based discounted fee to 
$0.00275 per share executed. For securities listed on exchanges other 
than NASDAQ or NYSE, the Exchange proposes to make

[[Page 29802]]

the discounted fee applicable to routed orders and orders entered 
through an MPID qualifying for the volume-based discount $0.0025 per 
share executed rather than $0.0028 per share executed.
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    \4\ ``Consolidated Volume'' is defined as the total consolidated 
volume reported to all consolidated transaction reporting plans by 
all exchanges and trade reporting facilities.
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    With respect to orders that provide liquidity, the Exchange 
currently provides a rebate of $0.0010 per share executed for non-
displayed orders. The Exchange proposes to modify this rebate such that 
$0.0010 per share executed would be paid with respect to midpoint 
pegged or midpoint peg post-only orders (``midpoint orders''), while 
$0.0005 per share executed would be paid with respect to other forms of 
non-displayed orders. For displayed orders that provide liquidity, the 
Exchange currently provides a rebate of $0.0028 per share executed for 
orders entered through an MPID through which a member organization 
provides shares of liquidity that represent more than 0.10% of 
Consolidated Volume; $0.0028 per share executed for orders entered 
through a PSX MPID through which the member organization provides 
shares of liquidity that represent more than 0.05% of Consolidated 
Volume, provided that the member organization and any affiliated member 
organizations also have an average daily volume during the month of 
1,000 or more electronically delivered and executed customer contracts 
that add liquidity on the Exchange's Options Market; and $0.0026 per 
share executed for other orders.
    The Exchange proposes to lower the basic rebate for orders to which 
no other pricing applies from $0.0026 to $0.0020 per share executed. In 
addition, the Exchange proposes to reduce the requirement for an 
enhanced rebate based on volume of liquidity provision from 0.10% of 
Consolidated Volume to an average daily volume of 100,000 or more 
shares of liquidity provided, while also reducing the associated rebate 
from $0.0028 per share executed to $0.0026 per share executed. The 
Exchange is also proposing to eliminate the rebate tier that requires 
participation in the Exchange's Options Market. Finally, the Exchange 
proposes a rebate tier of $0.0028 per share executed for quotes/orders 
entered by a member organization that provides an average daily volume 
of 2 million or more shares of liquidity during the month.
    In addition to the foregoing changes, Phlx is also replacing the 
term ``order'' with the term ``quote/order'' where appropriate in the 
PSX fee schedule to reflect the introduction of quoting on PSX. Phlx is 
also adding new headings to the fee schedule to delineate sections for 
fees applicable to quotes/orders in securities listed on NASDAQ, NYSE, 
and other exchanges, respectively, and for fees applicable to routing. 
Finally, Phlx is deleting a footnote describing conditions under which 
member organizations may be deemed affiliates, since it relates solely 
to the pricing tier relating to trading on the Phlx Options Market, 
which Phlx is eliminating.
2. Statutory Basis
    Phlx believes that the proposed rule change is consistent with the 
provisions of Section 6 of the Act,\5\ in general, and with Sections 
6(b)(4) and 6(b)(5) of the Act,\6\ 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 or 
system which Phlx operates or controls, and is not designed to permit 
unfair discrimination between customers, issuers, brokers, or dealers.
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    \5\ 15 U.S.C. 78f.
    \6\ 15 U.S.C. 78f(b)(4) and (5).
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    The proposed new rebate tier of $0.0028 per share executed for 
members that provide an average daily volume of liquidity of 2 million 
shares or more is reasonable because it will reduce fees for member 
organizations that make significant contributions to PSX and its market 
quality by providing high volumes of liquidity. Moreover, the proposed 
rebate is consistent with an equitable allocation of fees because the 
rebate is provided to member organizations that benefit the market 
through high levels of liquidity provision. As such, the proposal is 
consistent with volume-based pricing tiers in effect at many other 
national securities exchanges. Finally, the proposal is not 
unreasonably discriminatory because the rebate is consistent with the 
benefits provided by market participants receiving it, and because the 
Exchange offers alternative means to receive a rebate that is only 
slightly lower and that has very modest liquidity requirements 
associated with it.
    The proposed changes with respect to the existing volume-based 
tiers for accessing and providing liquidity are reasonable because the 
reduction in the liquidity-provision criterion for achieving the tier--
from 0.10% of Consolidated Volume to an average daily volume of 10,000 
or more shares for the take fee discount, or 100,000 or more shares for 
the higher rebate \7\--will make it easier for a broader range of 
market participants to achieve the tier, thereby resulting in price 
reductions for PSX participants who may not qualify for the tier at 
present. In addition, the applicable fee for accessing liquidity in 
securities listed on NASDAQ or NYSE will be reduced from $0.0028 to 
$0.00275 per share executed, and to $0.0025 per share executed for 
other securities.\8\ The cost of enhancing the tiers in this manner 
will be offset by reducing the rebate for liquidity provision from 
$0.0028 to $0.0026 per share executed, but the Exchange believes that 
this change is reasonable in light of the significant broadening of the 
tiers. The Exchange further believes that these changes reflect an 
equitable allocation of fees and are not unreasonably discriminatory, 
because they are consistent with pricing at many other national 
securities exchanges under which discounts are provided to members that 
achieve specified volumes of liquidity provision. In addition, the 
changes should make the applicable fees and rebates available to a 
wider range of market participants, and the Exchange offers other means 
by which a member organization may achieve comparable or better rates.
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    \7\ By contrast, on a trading day with a Consolidated Volume of 
6 billion shares, the current tier would require a member to provide 
6 million shares of liquidity.
    \8\ The rate reductions, as well as the rate reduction for 
routable orders in securities listed on exchanges other than NASDAQ 
and NYSE, are reasonable because they will reduce costs to market 
participants. The changes are consistent with an equitable 
allocation of fees and not unfairly discriminatory because they are 
assessed against members that either achieve specified volume tiers 
or that assist the development of PSX's routing services by making 
use of its router. To the extent that fees differ depending on the 
listing venue of the security, the change is not unfairly 
discriminatory because it is consistent with established practices 
on other national securities exchanges of using security-specific 
discounts as a means to promote the exchange as a venue for trading 
certain types of securities. See e.g., http://usequities.nyx.com/markets/nyse-arca-equities/trading-fees.
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    The proposed change with respect to the basic rebate to which no 
other pricing applies from $0.0026 to $0.0020 per share executed is 
reasonable because the rate is comparable to the base rebate payable on 
several other national securities exchanges, including NASDAQ 
($0.0020), NYSEArca ($0.0021), and the EDGX Exchange ($0.0021). The 
change is consistent with an equitable allocation of fees and not 
unreasonably discriminatory because it is consistent with providing a 
rebate to all liquidity providers, regardless of volume or other 
factors, while paying higher rebates to member organizations that do 
more to support the Exchange through higher volumes and/or 
contributions to market quality.
    The elimination of the rebate tier that requires participation in 
both PSX and the Exchange's Options Market is reasonable, consistent 
with an equitable allocation of fees, and not unreasonably

[[Page 29803]]

discriminatory because any PSX Participant that qualifies for the tier 
at present would be required to have a volume of liquidity provision of 
at least 0.05% of Consolidated Volume. Following the implementation of 
the proposed change, any such market participant would also likely 
qualify for the proposed new rebate tier requiring an average daily 
volume of liquidity provision of at least 2 million shares, and receive 
the same rebate of $0.0028 per share executed. Accordingly, the change 
will not alter the rebate for which such participants qualify.
    The changes with respect to rebates payable for non-displayed 
orders is reasonable because the rebate will remain unchanged for 
midpoint orders that provide liquidity, and therefore will be reduced 
only for other forms of non-displayed orders, which are expected to 
constitute only a small percentage of liquidity-providing orders. The 
fees reflect an equitable allocation of fees and are not unreasonably 
discriminatory because they reflect the Exchange's belief that all 
market participants benefit from pricing that encourages the use of 
displayed orders, which promote active price discovery. Accordingly, as 
is the case with other national securities exchanges, such as NASDAQ, 
the Exchange pays a lower rebate with respect to non-displayed orders 
than displayed orders. However, the change adopts a distinction between 
midpoint orders, which provide price improvement by executing at the 
midpoint between the national best bid and national best offer, and 
other forms of non-displayed orders, which do not provide such a 
benefit.

B. Self-Regulatory Organization's Statement on Burden on Competition

    Phlx does not believe that the proposed rule change will result in 
any burden on competition that is not necessary or appropriate in 
furtherance of the purposes of the Act, as amended.\9\ Phlx 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, Phlx 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, Phlx believes that the degree to which fee changes in this 
market may impose any burden on competition is extremely limited. In 
this instance, Phlx is introducing new pricing to accompany changes to 
PSX's market structure. These changes were necessitated by the failure 
of PSX's former price/size execution algorithm to garner significant 
market share, and therefore reflect an effort to increase PSX's 
competitiveness. If the changes are unattractive to market 
participants, it is likely that PSX will fail to increase its share of 
executions. Conversely, to the extent that the proposed changes broaden 
the availability of favorable pricing, if they are successful in 
attracting additional order flow, they will reduce costs to market 
participants and possibly encouraging [sic] competitive responses from 
other trading venues. Accordingly, Phlx believes that the proposed 
changes will promote greater competition, but will not impair the 
ability of members or competing order execution venues to maintain 
their competitive standing in the financial markets.
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    \9\ 15 U.S.C. 78f(b)(8).
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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) of the Act \10\ and paragraph (f) of Rule 19b-4 
thereunder.\11\ 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.
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    \10\ 15 U.S.C. 78s(b)(3)(A).
    \11\ 17 CFR 240.19b-4(f).
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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-2013-51 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-2013-51. This file 
number should be included on the subject line if email is used. To help 
the Commission process and review your comments more efficiently, 
please use only one method. The Commission will post all comments on 
the Commission's Internet Web site (http://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, all 
written statements with respect to the proposed rule change that are 
filed with the Commission, and all written communications relating to 
the proposed rule change between the Commission and any person, other 
than those that may be withheld from the public in accordance with the 
provisions of 5 U.S.C. 552, will be available for Web site viewing and 
printing in the Commission's Public Reference Room, 100 F Street NE., 
Washington, DC 20549, on official business days between the hours of 
10:00 a.m. and 3:00 p.m. Copies of the filing also will be available 
for inspection and copying at the principal office of the Exchange. All 
comments received will be posted without change; the Commission does 
not edit personal identifying information from submissions. You should 
submit only information that you wish to make available publicly. All 
submissions should refer to File Number SR-Phlx-2013-51 and should be 
submitted on or before June 11, 2013.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\12\
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    \12\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2013-12049 Filed 5-20-13; 8:45 am]
BILLING CODE 8011-01-P


