
[Federal Register Volume 79, Number 218 (Wednesday, November 12, 2014)]
[Notices]
[Pages 67229-67232]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2014-26693]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-73535; File No. SR-Phlx-2014-70]


Self-Regulatory Organizations; NASDAQ OMX PHLX LLC; Notice of 
Filing and Immediate Effectiveness of Proposed Rule Change To Amend the 
Exchange's Pricing Schedule Under Section VIII With Respect to 
Execution and Routing of Orders in Securities Priced at $1 or More Per 
Share and the Excess Order Fee

November 5, 2014
    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 October 24, 2014, 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 the 
Substance of the Proposed Rule Change

    The Exchange proposes to amend the Exchange's Pricing Schedule 
under Section VIII, entitled ``NASDAQ OMX PSX FEES,'' with respect to 
execution and routing of orders in securities priced at $1 or more per 
share and to eliminate the Excess Order Fee.
    While changes to the Pricing Schedule pursuant to this proposal are 
effective upon filing, the Exchange has designated that they become 
operative on November 3, 2014. 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 the proposed changes to Chapter VIII of the 
Exchange's Pricing Schedule is to reduce the fee assessed for shares 
executed on the NASDAQ OMX PSX System (``PSX'') in securities listed on 
the Nasdaq Stock Market (``Nasdaq'') and traded at $1 or more per 
share, to modify the eligibility requirements of two credits provided 
for providing displayed liquidity in securities traded at $1 or more 
per share, and to eliminate the Excess Order Fee under the rule.
    Chapter VIII(a)(1) of the PSX Pricing Schedule concerns fees 
assessed for execution of quotes/orders on PSX in securities priced at 
$1 or more per share that are Nasdaq-listed, are listed on the New York 
Stock Exchange (``NYSE'') and listed on exchanges other than Nasdaq and 
NYSE. The Exchange currently assesses three separate fees for execution 
of securities based on the venue on which the security is listed. 
Specifically, the Exchange assesses a charge of $0.0024 per share 
executed in securities listed on NYSE, $0.0024 per share executed in 
securities listed on an exchange other than Nasdaq or NYSE, and $0.0026 
per share executed in securities listed on Nasdaq. The Exchange is 
proposing to reduce the fee assessed for execution of Nasdaq-listed 
securities on PSX to $0.0024 per share executed. Reducing the fee will 
harmonize the fees currently assessed member organizations that are 
participants on PSX for removing liquidity from PSX and may attract 
more volume to PSX in Nasdaq-listed securities.
    The Exchange is also proposing to amend the eligibility 
requirements of two credits provided under the rule to member 
organizations that provide displayed liquidity on PSX. First, the 
Exchange currently provides a credit of $0.0025 per share executed for 
Quotes/Orders entered by a member organization that provides an average 
daily volume of 6 million or more shares of liquidity during the month; 
provided that (i) the Quote/Order is entered through a PSX MPID through 
which the member organization displays, on average over the course of 
the month, 100 shares or more at the national best bid and/or national 
best offer at least 25% of the time during regular market hours in the 
security that is the subject of the Quote/Order, or (ii) the member 
organization displays, on average over the course of the month, 100 
shares or more at the national best bid and/or national best offer at 
least 25% of the time during regular market hours in 500 or more 
securities. The Exchange is proposing to eliminate the 6 million 
average daily volume requirement and replace it with a requirement to 
have average daily volume in shares of liquidity during the month that 
represents at least 0.12% of Consolidated Volume, which the Exchange 
defines as the total consolidated volume reported to all consolidated 
transaction reporting plans by all exchanges and trade reporting 
facilities during a month, excluding executed orders with a size of 
less than one round lot.\3\ Replacing the current average daily volume 
requirement with an average daily volume requirement based on 
Consolidated Volume will cause the required level of liquidity 
provision to vary depending on overall market volumes during the month. 
As such, the change is expected to increase the number of member 
organizations that qualify for this credit tier during months when 
overall trading volumes are lower, by allowing the required level of 
liquidity provision to vary with overall trading volumes, and 
conversely reduce the number of member organizations eligible for the 
credit when market volumes are high, for firms

[[Page 67230]]

that maintain the same level of average daily volume as is currently 
provided. The Exchange believes that the 0.12% threshold will result in 
a change in market behavior that will improve liquidity on PSX overall.
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    \3\ In lieu of marking each individual fee level with the 
definition of Consolidated Volume, where applicable, the Exchange is 
inserting the definition prior to the schedule of fees under 
subparagraph (a)(1) of the rule.
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    Second, the Exchange currently provides a credit of $0.0024 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; provided that (i) the Quote/Order is 
entered through a PSX MPID through which the member organization 
displays, on average over the course of the month, 100 shares or more 
at the national best bid and/or national best offer at least 25% of the 
time during regular market hours in the security that is the subject of 
the Quote/Order, or (ii) the member organization displays, on average 
over the course of the month, 100 shares or more at the national best 
bid and/or national best offer at least 25% of the time during regular 
market hours in 500 or more securities. The Exchange is proposing to 
eliminate the 2 million average daily volume requirement and replace it 
with a requirement to have average daily volume in shares of liquidity 
during the month that represents at least 0.04% of Consolidated Volume. 
In addition, the Exchange is proposing to eliminate the additional 
requirements found under (i) and (ii) of the credit tier. Like the 
change to the credit tier discussed immediately above, replacing the 
current average daily volume requirement with an average daily volume 
requirement based on Consolidated Volume will cause the required level 
of liquidity provision to vary depending on overall market volumes 
during the month, thereby increasing the number of member organizations 
that qualify for this credit tier during months when overall trading 
volumes are lower, and conversely reducing the number of member 
organizations eligible for the credit when market volumes are high, for 
firms that maintain the same level of average daily volume as is 
currently provided. Likewise, the Exchange believes that the 0.04% 
threshold will result in a change in market behavior that will improve 
liquidity on PSX overall. The Exchange also believes that eliminating 
the extra requirements under (i) and (ii) of the credit tier will make 
the tier achievable to more member organizations and may provide 
incentive to a greater number of member organizations to achieve the 
tier, thereby improving liquidity on PSX.
    Lastly, the Exchange is proposing to eliminate the Excess Order Fee 
under subparagraph (c) of Chapter VIII of the Pricing Schedule. The 
Excess Order Fee was designed to provide a disincentive to member 
organizations to engage in order entry practices that are inefficient 
and thereby burdensome on the systems of PSX by assessing a fee on 
member organizations if they reach a threshold of order activity based 
on an Order Entry Ratio calculation.\4\ Although not a pervasive 
characteristic of the market, the fee was adopted to encourage member 
organizations with such practices to enhance the efficiency of their 
systems and modify their order entry practices, thus improving the 
market for all participants.\5\ An unwanted consequence of the rule has 
been to capture beneficial order flow and thereby dissuade member 
organizations from participating in PSX in an effort to avoid 
triggering the fee. Moreover, the Exchange has observed that the fee is 
not assessed on a significant number of member organizations nor is it 
triggered every month, leading the Exchange to conclude that the small 
number of member organizations that may have been affected by the fee 
because of their inefficient order practices have taken the steps 
necessary to avoid such practices. The Exchange believes that, in light 
of the lack of consistent order activity that triggers the fee and the 
negative effect it has had on beneficial order flow, the Excess Order 
Fee should be eliminated. The Exchange notes that, should the 
inefficient order entry practices that gave rise to the fee once again 
arise, it may adopt the fee once again or take other steps to provide 
disincentive for such practices.
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    \4\ See Chapter VIII(c)(2) for a definition of ``Order Entry 
Ratio.''
    \5\ See Securities Exchange Act Release Nos. 67004 (May 17, 
2012), 77 FR 30581 (May 23, 2012) (SR-Phlx-2012-64) (adopting the 
Excessive Order Fee).
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2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with Section 6 of the Act,\6\ in general, and furthers the objectives 
of Sections 6(b)(4) and 6(b)(5) of the Act,\7\ 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 the Exchange operates or controls, and is 
designed to prevent fraudulent and manipulative acts and practices, to 
promote just and equitable principles of trade, to foster cooperation 
and coordination with persons engaged in regulating, clearing, 
settling, processing information with respect to, and facilitating 
transactions in securities, to remove impediments to and perfect the 
mechanism of a free and open market and a national market system, and, 
in general, to protect investors and the public interest; and are not 
designed to permit unfair discrimination between customers, issuers, 
brokers, or dealers.
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    \6\ 15 U.S.C. 78f.
    \7\ 15 U.S.C. 78f(b)(4) and (5).
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    The Exchange believes that the proposed reduction in the charge 
assessed member organizations that remove liquidity from PSX in Nasdaq-
listed securities priced $1 or more per share is reasonable because it 
is a fee reduction designed to improve liquidity in Nasdaq-listed 
securities on PSX. Moreover, the proposed reduced charge is reasonable 
because it harmonizes the charges assessed for removing liquidity in 
all securities priced at $1 or more per share, thereby simplifying the 
charges assessed for removing liquidity under the rule. The Exchange 
believes that the change is consistent with an equitable allocation of 
fees and is not unfairly discriminatory because every member 
organization removing liquidity in securities priced at $1 or more per 
share will be assessed the same charge per share, regardless of the 
listing venue of the security. Lastly, the Exchange believes that the 
proposed change does not unfairly burden competition because it may 
promote member organizations to provide greater liquidity in Nasdaq-
listed securities, thereby promoting competition among member 
organizations rather than placing a burden thereon.
    The changes amending the eligibility requirements for the $0.0025 
and $0.0024 per share credits that PSX gives to member organizations 
that provide certain levels of displayed liquidity through PSX are 
reasonable because they provide member organizations an incentive to 
provide more meaningful liquidity by tying eligibility for the credits 
to how impactful their order activity is in relation to overall market 
volume. Thus the credit is more precise in awarding the credits for 
order activity that improves the PSX market for all market participants 
and is consistent with the Exchange's longstanding policy of 
encouraging the use of displayed orders, which promote price discovery. 
The changes to the eligibility requirements are consistent with an 
equitable allocation of fees and not unfairly discriminatory because 
they allocate the credits in a manner that is tied more closely to the 
impact on liquidity a member organization has as compared to overall 
market volume. The current requirement that is being replaced is based 
on achieving a fixed number of average daily volume in

[[Page 67231]]

shares of liquidity provided during the month, without accounting for 
the relative impact that liquidity had on the market at the time. 
Moreover, the proposed change is equitably allocated because all member 
organizations that achieve the Consolidated Volume level required by 
the tiers, together with any other requirements of the rule, will 
receive the credit. The Exchange believes that the proposed change does 
not unfairly burden competition, but rather it will promote competition 
among member organizations to provide more meaningful displayed 
liquidity on PSX.
    The Exchange believes that elimination of the additional 
eligibility requirements to qualify for the $0.0024 credit tier is 
reasonable because it broadens the number of member organizations that 
may qualify for the credit by eliminating requirements tied to the 
nature and timing of the volume provided on PSX, not the volume of 
liquidity. Although the additional requirements that are being deleted 
from the credit tier are designed to improve market quality, the 
Exchange believes market quality will be improved more at this juncture 
by attracting additional member organizations to provide liquidity on 
PSX. The elimination of additional requirements of the tier is 
consistent with an equitable allocation of fees and not unfairly 
discriminatory because the credit will be available to more member 
organizations than is the currently the case, and all member 
organizations that qualify under the amended tier will receive the 
credit. Lastly, the Exchange believes that the elimination of the 
additional requirements under the tier will not unfairly burden 
competition, but rather will promote competition among member firms to 
provide greater liquidity to PSX.
    The Exchange believes that elimination of the Excessive Order Fee 
is reasonable because the fee is not triggered by a significant number 
of member organizations nor is it triggered every month, however, the 
Exchange believes that certain member organizations are disincentivized 
from providing order activity that is beneficial to market 
participants. Moreover, the Exchange may adopt the fee once again 
should the issues that gave rise to it reemerge. The Exchange believes 
that the proposed change is consistent with an equitable allocation of 
fees and is not unfairly discriminatory because it eliminates a fee, 
which applies to all member organizations and which has served as a 
disincentive to certain market participants in providing beneficial 
order activity while also not being assessed significantly on member 
organizations. The Exchange believes that elimination of the Excess 
Order Fee will not unfairly burden competition because the fee is not 
relevant to competition. The Exchange notes that the fee was adopted to 
deter member organizations from using inefficient order practices that 
place excessive burden on the systems of PSX and, as a consequence, was 
not designed to impact competition among member organizations.

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, as amended.\8\ 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 reduced charge assessed member 
organizations that remove liquidity from PSX is intended to provide 
incentive to market participants to add liquidity to the Exchange in 
securities listed on Nasdaq, which is reflective of a relative decline 
in liquidity on PSX in Nasdaq-listed securities. The proposed changes 
to the credits provided are designed to more precisely reward displayed 
liquidity provided by member organizations and, in the case of the 
lower tier, expand eligibility for the credit by eliminating other 
requirements not directly tied to the amount of displayed liquidity 
provided. As noted above, the Exchange believes that elimination of the 
Excess Order Fee will not unfairly burden competition because the fee 
is not relevant to competition as it was adopted to deter member 
organizations from using inefficient order practices that place 
excessive burdens on the systems of PSX. Moreover, other exchanges' fee 
schedules do not restrict order activity by using a fee like the Excess 
Order Fee. As noted, the practices that prompted the Exchange to adopt 
the rule have subsided and, consequently, the change does not impact 
the ability of any market participant or trading venue to compete.
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    \8\ 15 U.S.C. 78f(b)(8).
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    Because there are numerous competitive alternatives to PSX, it is 
possible that the changes will not have the desired effect and, 
although the Exchange believes it to be unlikely as a result of the 
current proposal, the Exchange could lose market share as a result of 
the changes to the extent that they are unattractive to market 
participants. Accordingly, the Exchange does not believe the proposed 
changes will impair the ability of members or competing order execution 
venues to maintain their competitive standing in the financial markets.

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 change has become effective pursuant to Section 
19(b)(3)(A) of the Act \9\ and paragraph (f) of Rule 19b-4 \10\ 
thereunder. 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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    \9\ 15 U.S.C. 78s(b)(3)(A).
    \10\ 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-2014-70 on the subject line.

[[Page 67232]]

Paper Comments

     Send paper comments in triplicate to Brent J. Fields, 
Secretary, Securities and Exchange Commission, 100 F Street NE., 
Washington, DC 20549-1090.

All submissions should refer to File Number SR-Phlx-2014-70. 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-2014-70, and should be 
submitted on or before December 3, 2014.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\11\
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    \11\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2014-26693 Filed 11-10-14; 8:45 am]
BILLING CODE 8011-01-P


