
[Federal Register Volume 79, Number 70 (Friday, April 11, 2014)]
[Notices]
[Pages 20287-20288]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2014-08126]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-71891; File No. SR-Phlx-2013-113]


Self-Regulatory Organizations; NASDAQ OMX PHLX LLC; Request for 
Comment and Notice of Designation of Longer Period for Commission 
Action on Proceedings To Determine Whether To Approve or Disapprove a 
Proposed Rule Change To Offer a Customer Rebate

April 7, 2014.
    On October 31, 2013, NASDAQ OMX PHLX LLC (``Exchange'' or ``Phlx'') 
filed with the Securities and Exchange Commission (``Commission''), 
pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act'') \1\ and Rule 19b-4 thereunder,\2\ a proposed rule change to 
amend the Customer Rebate Program in Section B of the Exchange's 
Pricing Schedule to increase Customer rebates available to certain 
market participants that transact Customer orders on Phlx. The proposed 
rule change was published for comment in the Federal Register on 
November 19, 2013.\3\ On November 25, 2013, the Commission temporarily 
suspended and initiated proceedings to determine whether to approve or 
disapprove the proposed rule change.\4\ The Commission has received six 
comment letters on the proposal \5\ and one rebuttal letter from 
Phlx.\6\
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Securities Exchange Act Release No. 70866 (November 13, 
2013), 78 FR 69472 (``Notice'').
    \4\ See Securities Exchange Act Release No. 70940 (November 25, 
2013), 78 FR 71700 (November 29, 2013) (``Order Instituting 
Proceedings'').
    \5\ See letters to Elizabeth M. Murphy, Secretary, Commission, 
from: Michael J. Simon, Secretary, International Securities 
Exchange, LLC, dated November 11, 2013; William O'Brien, Chief 
Executive Officer, Direct Edge Holdings LLC, dated November 13, 
2013; Brian O'Neill, Vice President and Senior Counsel, Miami 
International Securities Exchange, LLC, dated November 27, 2013; 
John C. Nagel, Managing Director and General Counsel, Citadel 
Securities, dated December 18, 2013; Angelo Evangelou, Associate 
General Counsel, Chicago Board Options Exchange, Inc., dated 
December 20, 2013; and Michael J. Simon, Secretary, International 
Securities Exchange, LLC, dated December 20, 2013.
    \6\ See letter to Elizabeth M. Murphy, Secretary, Commission, 
from Joan C. Conley, Senior Vice President & Corporate Secretary, 
NASDAQ OMX PHLX LLC, dated January 24, 2014 (``Phlx Response 
Letter'').
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    Section 19(b)(2) of the Act \7\ provides that, after instituting 
proceedings to determine whether to approve or disapprove a proposed 
rule change, within 180 days of the publication of notice of the filing 
of a proposed rule change, the Commission shall either approve the 
proposed rule change or disapprove the proposed rule change. The 
Commission may extend the period for issuing an order approving or 
disapproving the proposed rule change, however, by not more than 60 
days if the Commission determines that a longer period is appropriate 
and publishes the reasons for such determination. The 180th day for 
this filing is May 18, 2014.
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    \7\ 15 U.S.C. 78s(b)(2).
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    The Commission finds that it is appropriate to designate a longer 
period within which to take action on the proposed rule change so that 
it has sufficient time to review comment letters submitted in response 
to the Order Instituting Proceedings, to review the Exchange's response 
to such comments, and to consider and take action on the Exchange's 
proposed rule change.
    The Commission also seeks additional comment to help further inform 
its analysis of the proposed rule change. Specifically, the Commission 
invites interested persons to submit data, views, and arguments 
concerning the proposed rule change, including whether the proposed 
rule change is consistent with the Act. In particular, the Commission 
seeks comment on the following.
    Phlx states in its January 24, 2014 response to comments `` . . . 
if an exchange believes that it would be attractive to customers to 
have a choice between multiple affiliated exchanges, it may create such 
exchanges as some self-regulatory exchanges--including commenters CBOE 
and ISE--have already done.'' \8\ Phlx further states that ``[t]here 
are no significant barriers to SROs creating additional options 
exchanges.'' \9\ Phlx's response suggests that, if the proposal were 
approved, there is a potential for entities to create new options 
exchanges in order to compete with Phlx.\10\
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    \8\ See Phlx Response Letter, supra note 6, at 7.
    \9\ Id.
    \10\ Id.
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    The Commission has previously stated that its task has been to 
facilitate an appropriately balanced market structure that promotes 
competition among markets, while minimizing the potentially adverse 
effects of fragmentation on efficiency, price transparency, best 
execution of investor orders, and order interaction.\11\ In that 
Concept Release, the Commission discussed the impact of competition 
among trading venues and market fragmentation.\12\ The Commission also 
stated that when many trading centers compete for order flow in the 
same security, however, such competition can lead to the fragmentation 
of order flow in that security.\13\ The Commission further stated that 
fragmentation can inhibit the interaction of investor orders and 
thereby impair certain efficiencies and the best execution of 
investors' orders.\14\ On the other hand, the Commission stated that 
mandating the consolidation of order flow in a single venue would 
create a monopoly and thereby lose the important benefits of completion 
among markets.\15\ The Commission stated that the benefits of such 
competition include incentives for trading centers to create new 
products, provide high quality trading services that meet the needs of 
investors, and keep trading fees low.\16\
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    \11\ See Exchange Act Release No. 61358 (Jan. 14, 2010), 75 FR 
3593, 3597 (Jan. 21, 2010) (``Concept Release'').
    \12\ Id.
    \13\ Id.
    \14\ Id.
    \15\ Id.
    \16\ See Concept Release, supra note 11, at 3597.
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    As a result, the Commission has stated that such market 
fragmentation concerns have presented challenges to the Commission's 
objective to protect investors and maintain fair and orderly 
markets.\17\
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    \17\ Id.

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[[Page 20288]]

    1. What are commenters' views on the impact that Phlx's proposal 
would have on the current options market structure? Please explain. 
What would the impact be, if any, on the current equity market 
structure? Please explain.
    2. What are commenters' views on the impact the proposal would 
have, if any, on the trading of options orders across multiple options 
exchanges? Please explain. Specifically, what are commenters' views as 
to the impact, if any, on order interaction, quote competition, 
liquidity (both top of book and depth of book) on each options exchange 
or across all options exchanges, and/or short-term and long-term 
volatility? Please explain. What are commenters' views on the impact 
the proposal would have, if any, on the best execution of investor 
orders, including the implicit costs of executing their orders (such as 
spreads and price impact)? Please explain.
    3. What are commenters' views on the impact the proposal would 
have, if any, on the current total number of options exchanges? Please 
explain. Do commenters believe that the total number of exchanges that 
list and trade standardized options would likely increase, decrease, or 
remain unchanged? Please explain.
    4. What are commenters' views on how the proposal would impact the 
incentives for existing exchanges or new entities to create multiple 
exchanges under one group? What are commenters' views on how, if any, 
the proposal would impact the incentives for: (1) Entities that 
currently operate multiple options exchanges under common ownership 
(``exchange group'') to create additional options exchanges under their 
existing exchange group; (2) stand-alone options exchanges to create 
new options exchanges under an exchange group; or (3) stand-alone 
exchanges and/or exchange groups to consolidate and form new options 
exchange groups. Please elaborate.
    5. What are commenters' views on the potential explicit costs 
(e.g., connectivity costs, routing costs) or benefits of increasing or 
decreasing the total number of options exchanges? Please identify such 
potential costs or benefits and explain why they would change.
    6. Commenters are requested to provide empirical data and other 
factual support for their views.
    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-2013-113 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-2013-113. 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-2013-113 and should be 
submitted on or before April 25, 2014. Any person who wishes to file a 
rebuttal to any other person's submission must file that rebuttal by 
May 9, 2014.
    Accordingly, pursuant to Section 19(b)(2)(B)(ii)(II) of the Act and 
for the reasons stated above, the Commission designates July 17, 2014, 
as the date by which the Commission should either approve or disapprove 
the proposed rule change (File No. SR-Phlx-2013-113).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\18\
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    \18\ 17 CFR 200.30-3(a)(57).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2014-08126 Filed 4-10-14; 8:45 am]
BILLING CODE 8011-01-P


