
[Federal Register Volume 82, Number 117 (Tuesday, June 20, 2017)]
[Notices]
[Pages 28171-28173]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2017-12888]



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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-80938; File No. SR-Phlx-2017-44]


Self-Regulatory Organizations; NASDAQ PHLX LLC; Notice of Filing 
and Immediate Effectiveness of Proposed Rule Change to Exchange's 
Transaction Fees at Section VIII

June 15, 2017.
    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 1, 2017, 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.
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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 transaction fees at 
Section VIII (NASDAQ PSX Fees) to: (i) Assess a fee of $0.0026 per 
share executed for any PSCN order (other than PSKP) that receives an 
execution on NASDAQ PSX (``PSX'') or is routed away from PSX and 
receives an execution at an away market; and (ii) reduce the 
qualification criteria required to be met in order to receive a credit 
for providing liquidity through the PSX.
    The text of the proposed rule change is available on the Exchange's 
Web site at http://nasdaqphlx.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 the 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The purpose of the proposed rule change is to amend the Exchange's 
transaction fees at Section VIII (NASDAQ PSX Fees) to: (i) Assess a fee 
of $0.0026 per share executed for any PSCN order (other than PSKP) that 
receives an execution on PSX or is routed away from PSX and receives an 
execution at an away market; and (ii) reduce the qualification criteria 
required to be met in order to receive a credit for providing liquidity 
through PSX.
First Change
    The Exchange proposes to assess a charge of $0.0026 per share 
executed for PSCN orders \3\ that execute on PSX or that are routed to 
other venues and receive an execution thereon. PSCN is a routing option 
under which orders check the System for available shares and 
simultaneously route the remaining shares to destinations on the System 
routing table. If shares remain unexecuted after routing, they are 
posted on the book. Once on the book, should the order subsequently be 
locked or crossed by another market center, the System will not route 
the order to the locking or crossing market center.
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    \3\ See Rule 3315(a)(1)(A)(iv).
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    Currently, under Section VIII(a)(1) the Exchange assesses fees 
ranging from $0.0028 per share executed to $0.0030 per share executed 
for an order that executes on PSX, including PSCN orders. Section 
VIII(a)(2) concerns fees for routing of orders in all securities. Under 
Section VIII(a)(2) the Exchange does not charge a member organization 
entering a PSTG \4\ or PSCN order that executes at NASDAQ BX, and 
assesses a fee of $0.0030 per share executed to a member organization 
entering such an order that executes at a venue other than PSX, to 
which the fee schedule under Section VIII(a)(1) would apply, or NASDAQ 
BX.
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    \4\ PSTG is a routing option under which orders check the System 
for available shares and simultaneously route the remaining shares 
to destinations on the System routing table. If shares remain 
unexecuted after routing, they are posted on the book. Once on the 
book, should the order subsequently be locked or crossed by another 
accessible market center, the System shall route the order to the 
locking or crossing market center. PSKN is a form of PSTG in which 
the entering firm instructs the System to bypass any market centers 
included in the PSTG System routing table that are not posting 
Protected Quotations within the meaning of Regulation NMS. See Rule 
3315(a)(1)(A)(iii).
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    The Exchange is proposing to assess a member organization a fee of 
$0.0026 per share executed for a PSCN order that receives an execution 
on PSX or that is routed away from PSX and receives an execution on 
another venue. PSCN is meant to attract users to PSX, and generally 
providing a discount to member organizations for PSCN executions will 
provide greater incentive to member organizations to use PSX as a 
venue. Specifically, the Exchange believes that assessing the lowered 
rate will encourage member organizations to interact with PSX 
liquidity, while also encouraging such participants to take advantage 
of the sophisticated routing functionality offered by PSX. Last, since 
PSCN does not re-route when it is locked or crossed by an away market, 
the Exchange believes that increased use of PSCN will also increase 
displayed liquidity on PSX.
    The Exchange notes that member organizations will realize a fee 
increase for any PSCN order that is executed on NASDAQ BX. As noted 
above, currently such PSCN orders are not assessed a fee. In offering 
the lower fees for all other PSCN orders, the Exchange must increase 
the fee assessed for PSCN orders executed on NASDAQ BX to help cover, 
in part, the cost to the Exchange in offering the reduced fees for PSCN 
executions.
    The Exchange notes that it is not including PSKP orders \5\ in the 
proposed changes. PSKP orders are a form of PSCN in which the entering 
firm instructs the System to bypass any market centers included in the 
PSCN System routing table that are not posting Protected Quotations 
within the meaning of Regulation NMS. The Exchange is not including 
PSKP orders in the proposed change because the Exchange has only 
limited funds to apply to the proposed reduced PSCN fees. PSCN orders 
route to both venues with protected quotations and venues without 
protected quotations, which are often low-cost venues, based on the 
System routing table following the principal of best execution. By 
contrast, PSKP orders are routed only to venues with protected 
quotations, which typically assess the Exchange higher fees for 
execution thereon. Consequently, extending the proposed pricing to PSKP 
would result in significant cost to the Exchange in comparison to the 
proposed fee assessed for such executions. As such, the fees assessed 
for execution of PSKP orders will remain unchanged.
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    \5\ See supra note 3.

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Second Change
    The Exchange provides a credit of $0.0031 per share executed for 
displayed quotes and orders entered by a member organization that 
provides and accesses 0.35% or more of Consolidated Volume during the 
month. Consolidated Volume is defined by Section VIII(a)(1) 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.'' Moreover, the rule states that for purposes 
of calculating Consolidated Volume and the extent of a member's trading 
activity 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.
    To qualify for the $0.0031 per share executed credit, a member 
organization must provide and access 0.35% or more of Consolidated 
Volume during the month. The Exchange is proposing to reduce the 
monthly percentage of Consolidated Volume provided and accessed from 
0.35% to 0.30%, thereby making it easier to qualify for the credit.
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, 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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First Change
    The Exchange believes that the proposed reduced fees assessed for 
PSCN executions are reasonable because they remain consistent with the 
fees currently assessed for executions on PSX and on other venues. As 
described above, these fees range from no charge to $0.0030 per share 
executed.
    The Exchange believes that the proposed reduced fees assessed for 
PSCN executions are an equitable allocation and are not unfairly 
discriminatory because the Exchange is using the reduced fees to 
provide incentive to member organizations to use PSCN orders, which, as 
discussed above, will in turn promote greater interaction with PSX 
liquidity, while also encouraging such member organizations to take 
advantage of the sophisticated routing functionality offered by PSX. 
Promoting interaction with PSX liquidity will benefit all market 
participants on PSX by deepening liquidity and price discovery on PSX. 
Last, encouraging member organizations to use the Exchange's routing 
functionality will help smaller firms that do not have the resources to 
build their own routing functionality. The Exchange believes that 
increasing the fee assessed for PSCN executions on NASDAQ BX is an 
equitable allocation and is not unfairly discriminatory because the 
Exchange has limited funds to apply toward both lower fees and credits. 
In this case, the Exchange is applying the same charge assessed for all 
other PSCN executions to such executions occurring on NASDAQ BX to help 
offset the cost to the Exchange in offering the reduced charge for all 
other PSCN executions. Similarly, the Exchange believes that excluding 
PSKP orders from the proposal is an equitable allocation and is not 
unfairly discriminatory because applying the reduced fees to PSKP 
orders would likely result in a significant cost to the Exchange. As 
noted, the Exchange has limited funds to apply toward both lower fees 
and credits. PSCN orders allow the Exchange to route to both venues 
with a protected quote and lower cost venues without a protected 
quotation. By contrast, PSKP orders must be routed to venues with a 
protected quotation, which results in a higher overall cost to 
Exchange. Consequently, fees for PSKP orders will remain unchanged. For 
these reasons, the Exchange believes that the proposed amended criteria 
is an equitable allocation and is not unfairly discriminatory.
Second Change
    The Exchange believes that the credit is reasonable because it is 
not changing. A $0.0031 per share executed credit represents a 
significant incentive to market participants to improve their levels of 
Consolidated Volume on the Exchange. The Exchange is maintaining this 
significant incentive, but is also potentially broadening eligibility 
for the credit, as discussed below.
    The Exchange believes that the credit is an equitable allocation 
and is not unfairly discriminatory because the proposed amendment will 
ease the qualification criteria, thereby potentially expanding the 
number of member organizations that may qualify for the credit. From 
time to time, the Exchange must assess the effectiveness of the 
incentives it provides to member organizations. In the present case, 
the Exchange has observed that the $0.0031 per share executed credit 
has not provided adequate incentive to member organizations to provide 
the level of Consolidated Volume required by the qualification 
criteria. As a consequence, the Exchange is lowering the Consolidated 
Volume criteria in an effort to attract more member organizations to 
increase their levels of Consolidated Volume to reach the level 
required to receive the credit. The Exchange notes that the proposed 
criteria required to receive the credit will remain significantly 
higher than the next highest credit provided for displayed quotes and 
orders. Specifically, the Exchange provides a $0.0029 per share 
executed credit for quotes and orders entered by a member organization 
that provides and accesses 0.25% or more of Consolidated Volume during 
the month. For these reasons, the Exchange believes that the proposed 
amended criteria is an equitable allocation and is not unfairly 
discriminatory.

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 Exchange is proposing to generally reduce the 
fee assessed for PSCN executions and to reduce the level of 
Consolidated Volume required to qualify for a credit available to all 
member organizations. The reduced fees for PSCN orders are designed to 
provide incentive to member organizations to use PSCN, which in turn 
should increase order

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interaction on PSX. The proposed change to the credit is also designed 
to improve the market by providing incentive to member organizations to 
increase their activity on PSX. Thus, the proposed changes are designed 
to improve market quality for all market participants on PSX. The 
Exchange has observed that the current fee structure for PSCN order 
executions has not provided adequate incentive to member organizations 
to use PSCN. The Exchange believes that the proposed fee structure will 
provide such incentive. The Exchange has also observed that the credit 
has not provided adequate incentive to member organizations to increase 
their Consolidated Volume to meet the credit's qualification criteria. 
As a consequence, the Exchange is proposing to reduce the level of 
Consolidated Volume required to qualify for the credit, which should 
make the credit attainable by more member organizations while still 
requiring a high level of Consolidated Volume to receive the credit. 
Because the Exchange's execution services are completely voluntary and 
subject to extensive competition both from other exchanges and from 
off-exchange venues, the proposed overall reduction in the fees 
assessed for PSCN order executions and the reduction in the 
qualification criteria of the credit should not impose a burden on 
competition. Ultimately, the Exchange believes that the proposal is 
pro-competitive because, to the extent it is effective in improving 
market quality on PSX, other markets may be compelled to provide 
similar incentives to improve market quality on their markets. Thus, 
the Exchange does not believe that the proposed changes will impair the 
ability of members or competing order execution venues to maintain 
their competitive standing in the financial markets or impose any 
burden on competition, but may rather promote competition.

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.\8\
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    \8\ 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 No. SR-Phlx-2017-44 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 No. SR-Phlx-2017-44. 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 No. SR-Phlx-2017-44, and should be 
submitted on or before July 11, 2017.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\9\
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    \9\ 17 CFR 200.30-3(a)(12).
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Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2017-12888 Filed 6-19-17; 8:45 am]
BILLING CODE 8011-01-P


