
[Federal Register Volume 81, Number 115 (Wednesday, June 15, 2016)]
[Notices]
[Pages 39078-39081]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-14085]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-78027; File No. SR-Phlx-2016-64]


Self-Regulatory Organizations; NASDAQ PHLX LLC; Notice of Filing 
and Immediate Effectiveness of Proposed Rule Change To Amend the 
Exchange's Pricing Schedule Under Section VIII

June 9, 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 31, 2016, NASDAQ PHLX LLC (``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 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.
    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 certain charges 
and credits for the use of the order execution and routing services of 
the NASDAQ OMX PSX System (``PSX'') by member organizations for all 
securities traded at $1 or more per share. The Exchange is proposing 
to: (1) Add an additional Consolidated Volume \3\ requirement to the 
existing fee tiers assessed a member organization that enters an order 
that executes in PSX; (2) add an new default fee assessed a member 
organization that enters an order that executes in PSX in the security 
of any Tape \4\ of $0.0030 per share executed; and (3) delete text from 
the preamble of paragraph (a)(1) of Section VIII, Order Execution and

[[Page 39079]]

Routing concerning Consolidated Volume.
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    \3\ Consolidated Volume is defined as the total consolidated 
volume reported to all consolidated transaction reporting plans by 
all exchanges and trade reporting facilities during a month in 
equity securities, excluding executed orders with a size of less 
than one round lot. For purposes of calculating Consolidated Volume 
and the extent of a member's trading activity, expressed as a 
percentage of, or ratio to, Consolidated Volume, the date of the 
annual reconstitution of the Russell Investments Indexes shall be 
excluded from both total Consolidated Volume and the member's 
trading activity. See of Section VIII, Order Execution and Routing, 
paragraph (a)(1).
    \4\ There are three Tapes, which are based on the listing venue 
of the security: Tape C securities are Nasdaq-listed; Tape A 
securities are New York Stock Exchange-listed securities; and Tape B 
securities are listed on exchanges other than Nasdaq and NYSE.
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First Change
    The purpose of the first change is to add a new requirement to 
qualify for each of the existing fee tiers assessed a member 
organization that enters an order that executes in PSX. The Exchange 
currently assesses a member organization a fee of $0.0029 per share 
executed in Nasdaq-listed securities (``Tape C''), and fee of $0.0028 
per share executed in NYSE-Listed Securities (``Tape A'') and in 
securities listed on exchanges other than Nasdaq and NYSE (``Tape B''). 
These fees currently do not require a member organization to have met a 
performance measure in return for the fees, but rather are the 
``default'' fees assessed for removal of liquidity from PSX. In light 
of the proposed new $0.0030 default removal fee discussed below, the 
Exchange is proposing to add a Consolidated Volume-based requirement to 
the existing fee tiers in order to qualify for the now-lower charges 
assessed member organizations for removing liquidity. Specifically, the 
Exchange is proposing to require a member organization to access 0.065% 
or more of Consolidated Volume during the month to be eligible to 
receive the lower charges assessed under the fee tiers.
Second Change
    The purpose of the second change is to add a new default fee 
assessed a member organization that enters an order that executes in 
PSX in the security of any Tape. Currently, a member organization is 
assessed a fee of $0.0029 per share executed in Tape C securities, and 
fee of $0.0028 per share executed in Tape A and Tape B securities. The 
Exchange is proposing to assess a member organization that enters an 
order that executes in PSX a fee of $0.0030 per share executed in a 
security of any Tape.
Third Change
    The purpose of the third change is to delete rule text from the 
preamble of paragraph (a)(1) of Section VIII, Order Execution and 
Routing, concerning Consolidated Volume. The rule currently defines 
Consolidated Volume as the total consolidated volume reported to all 
consolidated transaction reporting plans by all exchanges and trade 
reporting facilities during a month in equity securities, excluding 
executed orders with a size of less than one round lot. The Exchange 
excludes from the calculations of fees and credits that have a 
Consolidated Volume component all trading that occurs on the date of 
the annual reconstitution of the Russell Investments. The annual 
reconstitution represents a day of abnormal trading volume, as the 
Russell Investment indexes adjust holdings to accurately reflect the 
current state of equity markets and their market segments.\5\ 
Consequently, the Exchange excludes the date of the Russell Investment 
reconstitution in all calculations of fees and credits because it is 
not reflective of a member organization's normal trading. The Exchange 
expresses this under the rule by stating that, ``[f]or purposes of 
calculating Consolidated Volume and the extent of a member's trading 
activity, expressed as a percentage of, or ratio to, Consolidated 
Volume, the date of the annual reconstitution of the Russell 
Investments Indexes shall be excluded from both total Consolidated 
Volume and the member's trading activity.'' The Exchange believes that 
the text stating ``expressed as a percentage of, or ratio to, 
Consolidated Volume'' may be confusing to market participants in 
understanding how the Exchange excludes trading activity on the day of 
the Russell Investment reconstitution should the Exchange ever adopt a 
fee or credit tier based on a different measure of Consolidated Volume. 
Specifically, the Exchange seeks to clarify that all trading activity 
on the date of the Russell Investment reconstitution (including trading 
activity not based on a percentage or ratio of Consolidated Volume) is 
excluded from a member's trading activity for determining credit and 
fee tiers. This proposed change has no impact on PSX at this time, as 
all tiers under the rule are currently expressed as a percentage of 
Consolidated Volume; however, if the Exchange adopted a new metric, 
such as a certain nominal level of share volume (e.g., a requirement to 
add 5 million shares), the Exchange wants to ensure that member 
organizations understand that all trading activity on the day of the 
Russell Investment reconstitution would be excluded for purposes of 
determining what fees and credits a member qualifies for.
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    \5\ See https://www.ftserussell.com/research-insights/russell-reconstitution.
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2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) 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 not designed to 
permit unfair discrimination between customers, issuers, brokers, or 
dealers.
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    \6\ 15 U.S.C. 78f(b).
    \7\ 15 U.S.C. 78f(b)(4) and (5).
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    The proposed increases to the credits and charges in the fee 
schedule under the Exchange's Pricing Schedule under Section VIII are 
reflective of the Exchange's ongoing efforts to use pricing incentives 
to attract order flow to the Exchange and improve market quality, while 
also providing a profit to the Exchange through the operation of its 
market.
First Change
    The Exchange believes that the proposed new requirement to qualify 
for each of the existing fee tiers assessed a member organization that 
enters an order that executes in PSX is reasonable because the Exchange 
is providing member organizations the ability to continue to have the 
ability to qualify for current lower removal fees. The Exchange uses 
credits and reduced fees to provide incentive to market participants to 
improve the markets. In the present case, the Exchange is adding to 
each of the existing fee tiers under the rule a new requirement that a 
member organization access 0.065% or more of Consolidated Volume during 
the month. Removal of liquidity adds to the price discovery process and 
therefore benefits all market participants. Consequently, the Exchange 
believes that requiring member organizations to improve the market 
through the removal of liquidity by a certain level of Consolidated 
Volume in return for lower liquidity removal fees is reasonable.
    The Exchange believes that the proposed new requirement to qualify 
for each of the lower fee tiers assessed a member organization that 
enters an order that executes in PSX is an equitable allocation and is 
not unfairly discriminatory because the Exchange will apply the same 
fee to all similarly situated members. The Exchange is not proposing to 
adjust the fee assessed for removal of the securities of each Tape, but 
rather is adding a new Consolidated Volume-based requirement in light 
of the proposed new $0.0030 per share executed fee, which will be the 
new ``default'' rate assessed member organizations for removal of 
liquidity. Thus, to qualify for a reduced fee in any of the amended fee 
tiers, a member organization must accesses 0.065% or more of 
Consolidated Volume during the month.

[[Page 39080]]

Second Change
    The Exchange believes that the new base removal fee is reasonable 
because although it will increase the fee assessed to access liquidity 
on the Exchange, it is identical to the fee assessed by The NASDAQ 
Stock Market LLC (``Nasdaq'') for removing liquidity in the securities 
of any Tape from the Nasdaq Market Center.\8\ As a general principle, 
the Exchange must, from time to time, adjust the level of fees and 
credits provided to most efficiently allocate such fees and credits in 
terms of market-improving behavior. In this regard, the Exchange is 
limited in how far it may reduce fees and in the amount of credits that 
it can provide to market participants. In the present case, the 
Exchange has observed high levels of liquidity removal on PSX 
sufficient to allow the Exchange to increase removal fees, which will 
allow the Exchange to offer credits for market-improving behavior, and 
to realize a greater profit.
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    \8\ See Nasdaq Rules 7018(a)(1)-(3).
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    The Exchange believes that the increased removal fee is an 
equitable allocation and is not unfairly discriminatory because the 
Exchange will apply the same fee to all similarly situated members. In 
this regard, the Exchange notes that the fee is uniform across the 
securities of all three Tapes. In addition, the Exchange will offer 
reduced fees for removal of liquidity, but in return for market 
improving behavior. Last, the Exchange believes that increasing the fee 
assessed does not discriminate unfairly because it is a modest increase 
that is consistent with the fee assessed for removing liquidity at 
other exchanges.
Third Change
    The Exchange believes that deleting rule text from the preamble of 
paragraph (a)(1) of Section VIII, Order Execution and Routing, 
concerning Consolidated Volume is reasonable because it will help 
clarify how credit and fee tiers that rely on a calculation of 
Consolidated Volume will be handled by the Exchange during the annual 
Russell Indexes reconstitution. Currently, the rule text could be 
interpreted to apply to only a member organization's trading activity 
under a fee or credit tier that is expressed as a ratio or percentage 
of Consolidated Volume. The Exchange believes that, should it ever 
adopt a credit or fee tier based on another measure of Consolidated 
Volume, such an interpretation would undermine the Exchange's intent to 
exclude the abnormal trading activity that occurs on that day. 
Accordingly, the Exchange believes that it is reasonable to remove the 
potentially confusing rule text.
    The Exchange believes that deleting rule text from the preamble of 
paragraph (a)(1) of Section VIII, Order Execution and Routing, 
concerning Consolidated Volume is an equitable allocation and is not 
unfairly discriminatory because the proposed change only serves to 
clarify the application of the rule and does not alter how Consolidated 
Volume is calculated. Thus, the Exchange will apply the same process to 
all similarly situated member organizations that seek to qualify under 
a fee or credit tier under the rule that relies on a calculation of 
Consolidated Volume.

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 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 changes to the fees assessed for removing 
liquidity do not impose a burden on competition because the Exchange 
membership is optional and is the subject of competition from other 
exchanges. The increased charges are reflective of the intent to 
balance the fees that it assesses with the order flow it receives. For 
these reasons, the Exchange does not believe that any of the proposed 
changes will impair the ability of members or competing order execution 
venues to maintain their competitive standing in the financial markets. 
Moreover, because there are numerous competitive alternatives to the 
use of the Exchange, it is likely that the Exchange will lose market 
share as a result of the changes if they are unattractive to market 
participants. As noted above, the proposed changes are consistent with 
similar fees assessed members of other 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 rule change has become effective pursuant to Section 
19(b)(3)(A)(ii) of the Act.\9\
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    \9\ 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-2016-64 on the subject line.

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-2016-64. 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

[[Page 39081]]

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-2016-64 and 
should be submitted on or before July 6, 2016.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\10\
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    \10\ 17 CFR 200.30-3(a)(12).
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Robert W. Errett,
Deputy Secretary.
[FR Doc. 2016-14085 Filed 6-14-16; 8:45 am]
 BILLING CODE 8011-01-P


