
[Federal Register Volume 81, Number 95 (Tuesday, May 17, 2016)]
[Notices]
[Pages 30573-30575]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-11541]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-77811; File No. SR-Phlx-2016-57]


Self-Regulatory Organizations; NASDAQ PHLX LLC; Notice of Filing 
and Immediate Effectiveness of Proposed Rule Change Related to Customer 
Rebates

May 11, 2016.
    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 2, 2016, 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.
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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 the Exchange's Pricing Schedule at 
Section B, entitled ``Customer Rebate Program.''
    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 rule change is to amend the Exchange's 
Pricing Schedule at Section B, entitled ``Customer Rebate Program.'' 
Specifically, the Exchange is proposing to exclude options overlying 
NDX \3\ and MNX \4\ from receiving a Customer \5\ rebate.
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    \3\ NDX represents options on the Nasdaq 100 Index traded under 
the symbol NDX (``NDX'').
    \4\ MNX represents options on the one-tenth value of the Nasdaq 
100 Index traded under the symbol MNX (``MNX'').
    \5\ 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 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)).
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    Currently, the Exchange has a Customer Rebate Program consisting of 
five tiers that pay Customer rebates on three Categories, A,\6\ B \7\ 
and C \8\ of transactions.\9\ A Phlx member qualifies for a certain 
rebate tier based on the percentage of total national customer volume 
in multiply-listed options that it transacts monthly on Phlx. The 
Exchange calculates Customer volume in Multiply Listed Options by 
totaling electronically-delivered and executed volume, excluding volume 
associated with electronic Qualified Contingent Cross (``QCC'') 
Orders,\10\ as defined in Exchange Rule 1080(o).\11\ The Exchange pays 
the following rebates: \12\
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    \6\ Category A rebates are paid to members executing 
electronically-delivered Customer Simple Orders in Penny Pilot 
Options and Customer Simple Orders in Non-Penny Pilot Options in 
Section II symbols.
    \7\ Category B rebates are paid on Customer PIXL Orders in 
Section II symbols that execute against non-Initiating Order 
interest. In the instance where member organizations qualify for 
Tier 4 or higher in the Customer Rebate Program, Customer PIXL 
Orders that execute against a PIXL Initiating Order are paid a 
rebate of $0.14 per contract. Rebates on Customer PIXL Orders are 
capped at 4,000 contracts per order for Simple PIXL Orders.
    \8\ Category C rebates are paid to members executing 
electronically-delivered Customer Complex Orders in Penny Pilot 
Options and Non-Penny Pilot Options in Section II symbols. Rebates 
are paid on Customer PIXL Complex Orders in Section II symbols that 
execute against non-Initiating Order interest. Customer Complex PIXL 
Orders that execute against a Complex PIXL Initiating Order are not 
paid a rebate under any circumstances. The Category C Rebate is paid 
[sic] when an electronically-delivered Customer Complex Order, 
including Customer Complex PIXL Order, executes against another 
electronically-delivered Customer Complex Order. Rebates on Customer 
PIXL Orders are capped at 4,000 contracts per order leg for Complex 
PIXL Orders.
    \9\ See Section B of the Pricing Schedule.
    \10\ A QCC Order is comprised of an originating order to buy or 
sell at least 1,000 contracts, or 10,000 contracts in the case of 
Mini Options, that is identified as being part of a qualified 
contingent trade, as that term is defined in Rule 1080(o)(3), 
coupled with a contra-side order or orders totaling an equal number 
of contracts. See Rule 1080(o).
    \11\ Members and member organizations under common ownership may 
aggregate their Customer volume for purposes of calculating the 
Customer Rebate Tiers and receiving rebates. Common ownership means 
members or member organizations under 75% common ownership or 
control. See the Preface of the Pricing Schedule.
    \12\ SPY is included in the calculation of Customer volume in 
Multiply Listed Options that are electronically-delivered and 
executed for purposes of the Customer Rebate Program, however, the 
rebates do not apply to electronic executions in SPY. Additionally, 
the Exchange pays a $0.02 per contract Category A and B rebate and a 
$0.03 per contract Category C rebate in addition to the applicable 
Tier 2 and 3 rebate to a Specialist or Market Maker or its member or 
member organization affiliate under Common Ownership provided the 
Specialist or Market Maker has reached the Monthly Market Maker Cap, 
as defined in Section II. See Section B of the Pricing Schedule.

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                                       Percentage thresholds of
                                     national customer volume in
                                      multiply-listed equity and
       Customer rebate tiers             ETF options classes,       Category A      Category B      Category C
                                        excluding spy options
                                              (monthly)
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Tier 1.............................  0.00%-0.60%................           $0.00           $0.00           $0.00
Tier 2.............................  Above 0.60%-1.10%..........            0.10            0.10            0.17
Tier 3.............................  Above 1.10%-1.60%..........            0.15            0.12            0.17
Tier 4.............................  Above 1.60%-2.50%..........            0.20            0.16            0.22
Tier 5.............................  Above 2.50%................            0.21            0.17            0.22
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[[Page 30574]]

    Today, options overlying NDX and MNX are included in the total 
volume to qualify a market participant for a Customer Rebate. The 
Exchange is proposing to continue to permit the electronically-
delivered and executed volume associated with options overlying NDX and 
MNX to be included in the calculation of total market volume. The 
Exchange proposes to exclude options overlying NDX and MNX as eligible 
to receive a Customer Rebate in any Category.
    In calculating electronically-delivered and executed Customer 
volume in Multiply Listed Options, the numerator of the equation will 
remain unchanged and will continue to include all electronically-
delivered and executed Customer volume in Multiply Listed Options, 
including NDX and MNX. The denominator of that equation will also 
remain unchanged and will continue to include national customer volume 
in multiply-listed equity and ETF options volume. By including options 
overlying NDX and MNX in the computation for Customer Rebates, members 
will continue to receive the benefit of those transactions toward 
calculating their eligible rebate tiers and earning a rebate on all 
qualifying transactions.
    At this time, the Exchange proposes to not pay Customer Rebates on 
options overlying NDX and MNX because of the exclusivity of these 
options. NDX and MNX are Phlx proprietary index options which currently 
trade on Phlx and one other options exchange. Therefore, the Exchange 
would not pay rebates on options overlying NDX and MNX as part of the 
Customer Rebate Program. The Exchange believes members will continue to 
be afforded an opportunity to achieve new Customer Rebate Program tiers 
or maintain their current level of Customer Rebate Program tiers.
2. Statutory Basis
    The proposal is consistent with Section 6(b) of the Act,\13\ in 
general, and furthers the objectives of Sections 6(b)(4) and 6(b)(5) of 
the Act,\14\ 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 not designed to permit unfair 
discrimination between customers, issuers, brokers, or dealers.
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    \13\ 15 U.S.C. 78f(b).
    \14\ 15 U.S.C. 78f(b)(4) and (5).
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    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.'' \15\
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    \15\ See Securities Exchange Act Release No. 51808 (June 9, 
2005), 70 FR 37497 [sic], 37499 (June 29, 2005) (``Regulation NMS 
Adopting Release'').
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    Likewise, in NetCoalition v. Securities and Exchange Commission 
\16\ 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.\17\ 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.'' \18\
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    \16\ See Securities Exchange Act Release No. 51808 (June 9, 
2005) [sic] at 534-535.
    \17\ See Securities Exchange Act Release No. 51808 (June 9, 
2005) [sic] at 534.
    \18\ See Securities Exchange Act Release No. 51808 (June 9, 
2005) [sic] at 537.
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    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' . . . .'' \19\ 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.
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    \19\ See Securities Exchange Act Release No. 51808 (June 9, 
2005) [sic] at 539 (quoting Securities Exchange Act Release No. 
59039 (December 2, 2008), 73 FR 74770, 74782-83 (December 9, 2008) 
(SR-NYSEArca-2006-21) [sic].
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    It is reasonable to no longer pay Customer Rebates on options 
overlying NDX and MNX in any Category (A, B or C) because these 
proprietary index options only trade on two options markets at this 
time. The original intent of the Customer Rebate Program was to pay 
rebates on electronically-delivered Multiply-Listed Options. By 
definition, these indices qualify as Multiply-Listed Options because 
they trade on more than one options exchange. These proprietary index 
options trade on Phlx and one other options exchange. The Exchange does 
not desire to pay rebates on options overlying NDX and MNX because of 
their exclusivity. Despite the fact that technically these options 
trade on more than one venue, other exchanges cannot list these 
options. The Exchange believes it is reasonable to continue to count 
options overlying NDX and MNX in the total volume to qualify a market 
participant for a Customer Rebate, however, options overlying NDX and 
MNX will no longer be paid the Customer rebates in any Category because 
of the exclusivity of this option. Market participants would continue 
to benefit from NDX and MNX options volume in terms of qualifying for 
Customer Rebate Tiers. The Exchange believes that not paying Customer 
Rebates on options overlying NDX and MNX further aligns these products 
with other Singly Listed Options as compared to Multiply-Listed 
Options.
    It is equitable and not unfairly discriminatory to no longer pay 
Customer Rebates on options overlying NDX and MNX in any Category 
because the Exchange would apply its calculation to determine the 
eligibility and payment of Customer rebates in a uniform manner. The 
Exchange's proposal to no longer pay Customer Rebates on options 
overlying NDX and MNX in any Category is equitable and not unfairly 
discriminatory because the Exchange would no longer pay Customer 
Rebates on any transaction with options overlying either NDX or MNX to 
any market participant. Also, any market participant is eligible to 
earn a Customer Rebate.

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

[[Page 30575]]

order routing practices, that the degree to which fee changes in this 
market may impose any burden on competition is extremely limited.
    The Exchange's proposal to no longer pay Customer Rebates on 
options overlying NDX and MNX in any Category does not impose an undue 
burden on intra-market competition because the Exchange would apply the 
calculation of Customer rebates and would pay rebates on qualifying 
orders in a uniform manner. No market participant would be paid a 
Customer Rebate in options overlying NDX or MNX. All market 
participants may participate in the Customer Rebate Program. Members 
would continue to benefit from the inclusion of options overlying NDX 
and MNX in the total volume to qualify a market participant for a 
Customer Rebate.
    Also, the Exchange's proposal to no longer pay Customer Rebates on 
options overlying NDX and MNX in any Category does not impose an undue 
burden on inter-market competition because there is only one other 
exchange that transacts options overlying NDX and MNX through a 
contractual agreement with the Exchange. That venue may choose to also 
not pay rebates on options overlying NDX or MNX. Other venues may not 
list these proprietary indices.

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.\20\
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    \20\ 15 U.S.C. 78s(b)(3)(A)(ii).
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    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 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-2016-57 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-2016-57. 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-2016-57 and should be 
submitted on or before June 7, 2016.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\21\
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    \21\ 17 CFR 200.30-3(a)(12).
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Robert W. Errett,
Deputy Secretary.
[FR Doc. 2016-11541 Filed 5-16-16; 8:45 am]
 BILLING CODE 8011-01-P


