
[Federal Register Volume 81, Number 123 (Monday, June 27, 2016)]
[Notices]
[Pages 41629-41634]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-15065]


-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-78116; File No. SR-Phlx-2016-69]


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

June 21, 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 June 10, 2016, NASDAQ 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.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------

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 
(``Pricing Schedule'') at Section B, entitled ``Customer Rebates,'' and 
Section IV, Part E., entitled ``Market Access and Routing Subsidy 
(``MARS'')'' \3\ to propose a change regarding the MARS Payment.\4\
---------------------------------------------------------------------------

    \3\ Multiply Listed Options Fees include fees on options 
overlying equities, exchange traded funds (``ETFs''), exchange 
traded notes (``ETNs''), and indexes which are Multiply Listed.
    \4\ MARS and MARS Payment are discussed below.
---------------------------------------------------------------------------

    The text of the proposed rule change is available on the Exchange's 
Web site at http://nasdaqphlx.cchwallstreet.com/ 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 the 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The purpose of this filing is to amend the Exchange's Pricing 
Schedule at Section IV, Part E. to propose two MARS Payment levels and 
at Section B to propose a MARS incentive to obtain higher rebates.
Change 1--New MARS Payment Tiers
    The Exchange proposes to amend the MARS Eligible Contracts to 
remove the ``at least 30,000 Eligible Contracts'' requirement and 
replace it with two-tier pricing in the MARS Payment section.
    The Exchange proposes to amend the MARS Payment to offer two tiers 
for MARS Payment. Proposed Tier 1 would offer a MARS Payment of $0.01 
per contract to Phlx members that have executed 1,000 average daily 
volume (``ADV'') or more contracts.

[[Page 41630]]

    Proposed Tier 2, which is similar to the current MARS Payment 
threshold of at least 30,000 contracts in a month, would offer a MARS 
Payment of $0.10 per contract to Phlx members that have executed 30,000 
ADV in a month or more contracts. In each instance all of the contracts 
have to be executed on Phlx.
    For the purpose of qualifying for the Tier 1 or Tier 2 MARS 
Payment, Eligible Contracts would continue to include Firm,\5\ Broker-
Dealer,\6\ Joint Back Office, or ``JBO'' \7\ or Professional \8\ equity 
option orders that are electronically delivered and executed.\9\
---------------------------------------------------------------------------

    \5\ The term ``Firm'' applies to any transaction that is 
identified by a member or member organization for clearing in the 
Firm range at The Options Clearing Corporation. See Preface to the 
Phlx's Pricing Schedule.
    \6\ The term ``Broker-Dealer'' applies to any transaction which 
is not subject to any of the other transaction fees applicable 
within a particular category. See Preface to the Phlx's Pricing 
Schedule.
    \7\ A member, member organization or non-member organization may 
maintain a JBO arrangement with a clearing broker-dealer subject to 
the requirements of Regulation T Section 220.7 of the Federal 
Reserve System. See also Rule 703.
    \8\ The term ``Professional'' means any person or entity that 
(i) is not a broker or dealer in securities, and (ii) places more 
than 390 orders in listed options per day on average during a 
calendar month for its own beneficial account(s). See Rule 
1000(b)(14).
    \9\ A Phlx member is not entitled to receive any other revenue 
for the use of its System specifically with respect to orders routed 
to Phlx, with the exception of Payment for Order Flow. This 
requirement does not prevent the member from charging fees (for 
example, a flat monthly fee) for the general use of its System. Nor 
does it prevent the member from charging fees or commissions in 
accordance with its general practices with respect to transactions 
effected through its System. The Payment for Order Flow (``PFOF'') 
Program assesses fees to Specialists and Market Makers resulting 
from Customer orders. These PFOF Fees are available to be disbursed 
by the Exchange according to the instructions of the Specialist or 
Marker Maker to order flow providers who are members or member 
organizations who submit, as agent, customer orders to the Exchange 
through a member or member organization who is acting as agent for 
those customer orders.
---------------------------------------------------------------------------

    MARS is a subsidy program that pays Phlx members that provide 
certain order routing functionalities to other Phlx members and/or use 
such functionalities \10\ themselves. Generally, under MARS, Phlx makes 
payments to participating Phlx members to subsidize their costs of 
providing routing services to route orders to Phlx. The proposed 
amendments to MARS are intended to attract higher volumes of electronic 
equity and ETF options volume to the Exchange from non-Phlx market 
participants as well as Phlx members.
---------------------------------------------------------------------------

    \10\ The order routing functionalities permit a Phlx member to 
provide access and connectivity to other members as well as utilize 
such access for themselves. The Exchange notes that under this 
arrangement it will be possible for one Phlx member to be eligible 
for payments under MARS, while another Phlx member might potentially 
be liable for transaction charges associated with the execution of 
the order, because those orders were delivered to the Exchange 
through a Phlx member's connection to the Exchange and that member 
qualified for the MARS Payment. Consider the following example: Both 
members A and B are Phlx members but A does not utilize its own 
connections to route orders to the Exchange, and instead utilizes 
B's connections. Under this program, B will be eligible for the MARS 
Payment while A is liable for any transaction charges resulting from 
the execution of orders that originate from A, arrive at the 
Exchange via B's connectivity, and subsequently execute and clear at 
The Options Clearing Corporation or ``OCC,'' where A is the valid 
executing clearing member or give-up on the transaction. Similarly, 
where B utilizes its own connections to execute transactions, B will 
be eligible for the MARS Payment, but would also be liable for any 
transaction resulting from the execution of orders that originate 
from B, arrive at the Exchange via B's connectivity, and 
subsequently execute and clear at OCC, where B is the valid 
executing clearing member or give-up on the transaction.
---------------------------------------------------------------------------

    To qualify for MARS, a Phlx member's order routing functionality is 
required to complete a form \11\ and meet certain criteria.\12\ With 
respect to Complex Orders,\13\ a Phlx member's routing system would not 
be required to enable the electronic routing of orders to all of the 
U.S. options exchanges or provide current consolidated market data from 
the U.S. options exchanges.
---------------------------------------------------------------------------

    \11\ The Exchange requires Phlx members desiring to participate 
in MARS to complete a form, in a manner prescribed by the Exchange, 
and reaffirm their information on a quarterly basis to the Exchange. 
Any Phlx member is permitted to apply for MARS, provided the 
requirements are met, including a robust and reliable System. The 
member is solely responsible for implementing and operating its 
System.
    \12\ Specifically the member's routing system (hereinafter 
``System'') is required to: (1) Enable the electronic routing of 
orders to all of the U.S. options exchanges, including Phlx; (2) 
provide current consolidated market data from the U.S. options 
exchanges; and (3) be capable of interfacing with Phlx's API to 
access current Phlx match engine functionality. The member's System 
would also need to cause Phlx to be one of the top three default 
destination exchanges for individually executed marketable orders if 
Phlx is at the national best bid or offer (``NBBO''), regardless of 
size or time, but allow any user to manually override Phlx as the 
default destination on an order-by-order basis.
    \13\ A Complex Order is any order involving the simultaneous 
purchase and/or sale of two or more different options series in the 
same underlying security, priced at a net debit or credit based on 
the relative prices of the individual components, for the same 
account, for the purpose of executing a particular investment 
strategy. Furthermore, a Complex Order can also be a stock-option 
order, which is an order to buy or sell a stated number of units of 
an underlying stock or ETF coupled with the purchase or sale of 
options contract(s). See Exchange Rule 1080, Commentary .07(a)(i).
---------------------------------------------------------------------------

    Section IV, Part E. of the Exchange's Pricing Schedule provides 
that Phlx members that have executed the required MARS Eligible 
Contracts (``Eligible Contracts'') may receive the MARS Payment on all 
their Eligible Contracts. The Exchange proposes to make the MARS 
Payment tiered according to ADV, as discussed.
    The Exchange believes that the proposed change will incentivize 
market participants to bring liquidity and order flow to the Exchange 
for the benefit of all market participants. Liquidity benefits all 
market participants by providing more trading opportunities.
    Currently, Section IV, Part E. in the Pricing Schedule states that 
a MARS Payment is made to Phlx members that have System Eligibility and 
have routed and executed at least 30,000 Eligible Contracts daily in a 
month on Phlx.
    For the purpose of qualifying for the MARS Payment, Eligible 
Contracts include the following: Firm, Broker-Dealer, JBO, or 
Professional equity option orders that are electronically delivered and 
executed. Eligible Contracts do not include floor-based orders, 
qualified contingent cross or ``QCC'' orders,\14\ price improvement or 
``PIXL'' orders,\15\ Mini Option \16\ orders or Singly Listed 
Orders.\17\
---------------------------------------------------------------------------

    \14\ A QCC Order is comprised of an order to buy or sell at 
least 1000 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 to buy or sell an equal number of contracts. The 
QCC Order must be executed at a price at or between the NBBO and be 
rejected if a Customer order is resting on the Exchange book at the 
same price. A QCC Order shall only be submitted electronically from 
off the floor to the Exchange's match engine. See Rule 1080(o).
    \15\ PIXL is the Exchange's price improvement mechanism known as 
Price Improvement XL or (PIXL\SM\). See Rule 1080(n).
    \16\ Mini Options are further specified in Phlx Rule 1012, 
Commentary .13.
    \17\ Singly Listed Options are options overlying currencies, 
equities, ETFs, ETNs treasury securities and indexes not listed on 
another exchange.
---------------------------------------------------------------------------

    Today, Phlx members that have System Eligibility and have executed 
the Eligible Contracts in a month may receive the MARS Payment of $0.10 
per contract. No payment is made with respect to orders that are routed 
to Phlx, but not executed.
    The Exchange believes that the MARS Payment will subsidize the 
costs of Phlx members in providing the routing services. The Exchange 
does not propose to amend the MARS System Eligibility.
    In addition to amending the MARS Eligible Contracts section to 
remove the ``at least 30,000 Eligible Contracts'' requirement and 
replace it with two-tier pricing payments in the MARS Payment section, 
as described above, the Exchange also proposes to add a sentence that 
summarizes when MARS Payments will be paid.
    The proposed sentence indicates, in one place, that a MARS Payment 
will be paid on all executed Eligible Contracts that are routed to Phlx 
through a

[[Page 41631]]

participating Phlx member's System, and that meet the requisite 
eligible ADV contracts.
    The proposed summary sentence is similar to another options market 
with MARS Payments, namely the NASDAQ Options Market LLC (``NOM'').\18\ 
The tiered MARS Payment system as proposed for Phlx is similar in 
structure to the existing MARS subsidy program on NOM.\19\
---------------------------------------------------------------------------

    \18\ See NOM Chapter XV, Section 2(6). NOM is, along with Phlx 
and BX Options Market of NASDA BX, Inc., one of three options 
markets under the umbrella of Nasdaq, Inc.
    \19\ Id. As discussed, however, NOM has three MARS Payment 
tiers.
---------------------------------------------------------------------------

    The Exchange believes that the fees and rebates in its Pricing 
Schedule are structured to attract liquidity. The Exchange believes 
that the proposed tiered MARS Payment schedule will further encourage 
Phlx members to transact additional liquidity on the Exchange.
Change 2--Customer Rebate Program
    Currently, the Exchange has a Customer Rebate Program consisting of 
five tiers that pay Customer rebates on three Categories, A,\20\ B,\21\ 
and C \22\ of transactions.\23\ 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, excluding 
SPY Options.\24\ The Exchange calculates Customer volume in Multiply 
Listed Options, including SPY, by totaling electronically-delivered and 
executed volume, excluding volume associated with electronic QCC 
Orders, as defined in Exchange Rule 1080(o).\25\
---------------------------------------------------------------------------

    \20\ 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.
    \21\ 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.
    \22\ 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 
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.
    \23\ See Section B of the Pricing Schedule.
    \24\ The Exchange does not pay Customer Rebates on options 
overlying NDX and MNX.
    \25\ 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.
---------------------------------------------------------------------------

    The Exchange now pays the following rebates: \26\
---------------------------------------------------------------------------

    \26\ 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.

 
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                  Percentage thresholds of national customer volume in
            Customer rebate tiers              multiply-listed equity and ETF options classes, excluding    Category A      Category B      Category C
                                                                 SPY options  (monthly)
--------------------------------------------------------------------------------------------------------------------------------------------------------
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
--------------------------------------------------------------------------------------------------------------------------------------------------------

    The Exchange proposes to pay a $0.05 per contract Category C rebate 
in addition to the applicable Tier 2 and 3 rebates to members or member 
organizations or member or member organization affiliate under Common 
Ownership provided the member or member organization qualified for a 
Tier 1 or 2 MARS Payment in Section IV, Part E. The Exchange's proposal 
is intended to attract additional Customer volume to the Exchange to 
the benefit of all market participants that are able to interact with 
this Customer liquidity.
2. Statutory Basis
    The Exchange believes that its proposal to amend its Pricing 
Schedule is consistent with Section 6(b) of the Act,\27\ in general, 
and furthers the objectives of Section 6(b)(4) and (b)(5) of the 
Act,\28\ 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.
---------------------------------------------------------------------------

    \27\ 15 U.S.C. 78f(b).
    \28\ 15 U.S.C. 78f(b)(4), (5).
---------------------------------------------------------------------------

    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.'' \29\ Likewise, in 
NetCoalition v. Securities and Exchange Commission \30\ 
(``NetCoalition'') 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.\31\ 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.'' \32\
---------------------------------------------------------------------------

    \29\ Securities Exchange Act Release No. 51808 at 37499 (June 9, 
2005) (``Regulation NMS Adopting Release'').
    \30\ NetCoalition v. SEC, 615 F.3d 525 (D.C. Cir. 2010).
    \31\ See id. at 534-535.
    \32\ See id. at 537.

---------------------------------------------------------------------------

[[Page 41632]]

    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'. . . .'' \33\ 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.
---------------------------------------------------------------------------

    \33\ Id. at 539 (quoting Securities Exchange Release No. 59039 
(December 2, 2008), 73 FR 74770 (December 9, 2008) (SR-NYSEArca-
2006-21) at 73 FR at 74782-74783).
---------------------------------------------------------------------------

Change 1--New MARS Payment Tiers
    In Change 1 the Exchange proposes to specify two tiers for MARS 
Payment. The Exchange also proposes to add a sentence that summarizes 
when MARS Payments will be paid. Today, Phlx members that have System 
Eligibility and have executed the Eligible Contracts in a month may 
receive the MARS Payment of $0.10 per contract if they have routed at 
least 30,000 System Eligible Contracts. The Exchange proposes to make 
the current requirement into the Tier 2 $0.10 per contract MARS 
Payment; and proposes a new Tier 1 $0.01 per contract MARS Payment for 
Phlx members that bring a smaller number of Eligible Contracts, namely 
1,000 daily contracts, to the Exchange. As discussed, the current 
30,000 daily ADV and MARS Payment amount of $0.10 per contract is 
simply moved from the current MARS Payment standard to Tier 2. The 
Exchange believes that the proposed changes are reasonable, equitable 
and not unfairly discriminatory for the following reasons.
    The Exchange proposes to expand MARS Payments by structuring a 
tiered system of payments. The proposed tiered MARS Payment system is 
reasonable because it will encourage additional Phlx members to 
participate in MARS and deliver an even greater amount of liquidity on 
the Exchange. The proposed change would allow qualifying MARS volume to 
receive a MARS Payment, at two different levels. With the proposed 
change, all Phlx members that have executed MARS Eligible Contracts may 
receive the MARS Payment of $0.01 or $0.10 per contract. The Exchange 
believes that this is reasonable because it will incentivize more Phlx 
members to route Eligible Contracts for execution on the Exchange.
    The Exchange believes that the proposed change is equitable and not 
unfairly discriminatory because the increased ability to receive MARS 
Payment will be applied uniformly to all. In addition, any Phlx member 
is permitted to apply for MARS, provided the requirements are met, 
including a robust and reliable System. Thus, a $0.01 per contract MARS 
Payment will be made pursuant to Tier 1 to those Phlx members that have 
System Eligibility and have executed at least 1,000 daily ADV 
contracts; and a $0.10 per contract MARS Payment will be made pursuant 
to Tier 2 to those Phlx members that have System Eligibility and have 
executed at least 30,000 ADV contracts. In each instance, the Eligible 
Contracts must be properly routed and executed on Phlx in order to get 
MARS Payment.
    The proposed tiered MARS Payment for Phlx is reasonable because, as 
discussed, it is similar to the existing MARS Payment system on 
NOM.\34\ Moreover, the Exchange believes that the proposed Tiers for 
MARS Payment are reasonable in that they reflect a structure that is 
not novel in the options markets but rather is similar to that of other 
options markets and competitive with what is offered by other 
exchanges.\35\ In addition, the Exchange believes that making changes 
to add Tiers for MARS Payment is reasonable because it will attract 
more orders and liquidity to the Exchange. Activity that enhances 
liquidity on the Exchange benefits all market participants by providing 
more trading opportunities, which attracts market makers. An increase 
in the activity of these market participants in turn facilitates 
tighter spreads, which may cause an additional corresponding increase 
in order flow from other market participants.
---------------------------------------------------------------------------

    \34\ See NOM Chapter XV, Section 2(6).
    \35\ See NOM Chapter XV, Section 2(6).
---------------------------------------------------------------------------

    The Exchange believes that the proposed 1,000 contract and 30,000 
contract ADV levels are reasonable because the Exchange is only 
counting volume from Firms, Broker-Dealers, JBOs and Professionals 
which are electronically delivered and executed. The Exchange believes 
that these numbers reflect an appropriate level of commitment from Phlx 
members to earn the MARS Payment. The Exchange believes that these 
levels are equitable and not unfairly discriminatory because they will 
be uniformly applied to all qualifying Phlx members.\36\
---------------------------------------------------------------------------

    \36\ Moreover, the proposed Tier 2 level of 30,000 or more 
contracts is reasonable because, as discussed, it is similar to the 
current MARS Payment threshold of at least 30,000 contracts in a 
month.
---------------------------------------------------------------------------

    The Exchange believes that it is reasonable, equitable, and not 
unfairly discriminatory to pay the proposed MARS Payment to Phlx 
members that have System Eligibility and have executed the Eligible 
Contracts, even when a different Phlx member may be liable for 
transaction charges resulting from the execution of the orders upon 
which the subsidy might be paid. The Exchange notes that this sort of 
arrangement already exists on the Exchange with respect to QCC rebates 
for floor QCC transactions and results in a situation where the floor 
broker is earning a rebate and one or more different Phlx members are 
potentially liable for the Exchange transaction charges applicable to 
QCC Orders.\37\
---------------------------------------------------------------------------

    \37\ With the QCC rebates applicable to transactions executed on 
the trading floor, the Exchange does not offer a front-end for order 
entry; unlike some of the competing exchanges, the Exchange believes 
it is necessary from a competitive standpoint to offer this rebate 
to the executing floor broker on a QCC Order. Also, all qualifying 
Phlx members would be uniformly paid the subsidy on all qualifying 
volume that was routed by them to the Exchange and executed.
---------------------------------------------------------------------------

    The Exchange also proposes to add a sentence that summarizes when 
MARS Payments will be paid. The added sentence is reasonable, 
equitable, and not unfairly discriminatory because it is simply a way 
to summarize, in one place, that a MARS Payment has to be properly 
routed and executed and has to add a certain amount of liquidity. The 
proposed summary sentence is similar to that of NOM.
    The Exchange desires to continue to incentivize members and member 
organizations, through the Exchange's rebate and fee structure, to 
select Phlx as a venue for bringing liquidity and trading by offering 
competitive pricing. Such competitive, differentiated pricing exists 
today on other options exchanges. The Exchange's goal is creating and 
increasing incentives to attract orders to the Exchange that will, in 
turn, benefit all market participants through increased liquidity at 
the Exchange. The Exchange believes that the proposed change promotes 
the goal of creating and increasing incentives to attract liquidity.
Change 2--Customer Rebate Program
    The Exchange's proposal to amend Section B to offer members and 
member organizations an additional $0.05 per contract Category C rebate 
in Tiers 2 and 3 provided the member or member organization qualified 
for a Tier 1 or 2 MARS Payment in Section IV, Part E is reasonable 
because it will encourage

[[Page 41633]]

market participants to send a greater amount of Customer liquidity to 
Phlx. Customer liquidity benefits all market participants by providing 
more trading opportunities, which attract Specialists and Market 
Makers. An increase in the activity of these market participants in 
turn facilitates tighter spreads, which may cause an additional 
corresponding increase in order flow from other market participants. 
Certain market participants will receive higher Tier 4 and 5 Category B 
rebates for transacting the same Customer order flow as today, while 
other market participants may become eligible for higher Customer 
Rebates in Section B of the Pricing Schedule.
    The Exchange's proposal to amend Section B to offer members and 
member organizations an additional $0.05 per contract Category C rebate 
in Tiers 2 and 3 provided the member or member organization qualified 
for a Tier 1 or 2 MARS Payment in Section IV, Part E is equitable and 
not unfairly discriminatory because it will be applied to all market 
participants in a uniform matter. All members are eligible to receive 
the rebate provided they submit a qualifying number of electronic 
Customer volume. In addition, any Phlx member is permitted to apply for 
MARS, provided the requirements are met, including a robust and 
reliable System.
    Additionally, the Exchange believes that it is reasonable, 
equitable and not unfairly discriminatory to pay market participants 
different rebates for transacting Simple versus Complex Orders. Today, 
the Exchange pays different Category A (Simple Order) and Category B 
(Complex Order) rebates. The Exchange also differentiates pricing for 
Simple and Complex Orders transaction fees in Section I as do other 
options exchanges.

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. The 
Exchange believes that its proposal to establish MARS Payment tiers 
will continue to encourage eligible market participants to transact 
orders on the Exchange in order to obtain MARS Payments.
    The Exchange operates in a highly competitive market, comprised of 
fourteen options exchanges, in which market participants can easily and 
readily direct order flow to competing venues if they deem fee levels 
at a particular venue to be excessive or rebates to be inadequate. 
Accordingly, the fees that are assessed and the rebates paid by the 
Exchange described in the above proposal are influenced by these robust 
market forces and therefore must remain competitive with fees charged 
and rebates paid by other venues and therefore must continue to be 
reasonable and equitably allocated to those members that opt to direct 
orders to the Exchange rather than competing venues.
Change 1--Tiered MARS Payment
    The Exchange believes that the proposal to amend MARS Payments to 
offer tiers will continue to encourage order flow to be directed to the 
Exchange. Certain market participants will receive $0.10 per contract 
Tier 2 MARS Payments for transacting the same order flow as today, 
while other market participants may become eligible for new lower $0.01 
per contract Tier 1 MARS Payments for transacting a smaller amount of 
order flow. The Exchange believes that MARS Payments will continue to 
encourage order flow to be directed to the Exchange. Any Phlx member is 
permitted to apply for MARS, provided the requirements are met, 
including a robust and reliable System. All Phlx members are eligible 
to qualify for a MARS Payments. By incentivizing members to route 
Eligible Contracts, the Exchange desires to attract liquidity to the 
Exchange, which in turn benefits all market participants.
    The Exchange does not believe that this proposal will impose an 
undue burden on intra-market competition because it will be applied to 
all market participants in a uniform manner. All Phlx members are 
eligible to receive MARS Payments provided they submit a qualifying 
number of Eligible Contracts. In addition, any Phlx member is permitted 
to apply for MARS, provided the requirements are met, including a 
robust and reliable System. The Exchange believes this pricing 
amendment does not impose a burden on competition but rather that the 
proposed rule change will continue to promote competition on the 
Exchange.
Change 2--Customer Rebates
    The Exchange believes that the Customer Rebate Program will 
continue to encourage Customer order flow to be directed to the 
Exchange. Certain market participants will receive higher Tier 4 and 5 
Category B rebates for transacting the same Customer order flow as 
today, while other market participants may become eligible for higher 
Customer Rebates in Section B of the Pricing Schedule. The Exchange 
believes that the Customer Rebate Program will continue to encourage 
Customer order flow to be directed to the Exchange. By incentivizing 
members to route Customer orders, the Exchange desires to attract 
liquidity to the Exchange, which in turn benefits all market 
participants. All market participants are eligible to qualify for a 
Customer Rebate.
    The Exchange does not believe that this proposal will impose an 
undue burden on intra-market competition because it will be applied to 
all market participants in a uniform matter. All members are eligible 
to receive the rebate provided they submit a qualifying number of 
electronic Customer volume. In addition, any Phlx member is permitted 
to apply for MARS, provided the requirements are met, including a 
robust and reliable System. The Exchange believes this pricing 
amendment does not impose a burden on competition but rather that the 
proposed rule change will continue to promote competition on the 
Exchange.

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.\38\
---------------------------------------------------------------------------

    \38\ 15 U.S.C. 78s(b)(3)(A)(ii).
---------------------------------------------------------------------------

    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

[[Page 41634]]

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-2016-69 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-2016-69. 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-2016-69, and should be 
submitted on or before July 18, 2016.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\39\
---------------------------------------------------------------------------

    \39\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Brent J. Fields,
Secretary.
[FR Doc. 2016-15065 Filed 6-24-16; 8:45 am]
 BILLING CODE 8011-01-P


