
[Federal Register Volume 82, Number 135 (Monday, July 17, 2017)]
[Notices]
[Pages 32728-32731]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2017-14887]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-81117; File No. SR-Phlx-2017-53]


Self-Regulatory Organizations; NASDAQ PHLX LLC; Notice of Filing 
and Immediate Effectiveness of Proposed Rule Change To Amend Nasdaq 
Phlx Pricing Schedule, Section IX

July 11, 2017.

    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(the ``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given 
that on June 29, 2017, NASDAQ PHLX LLC (``Phlx'' or the ``Exchange'') 
filed with the Securities and Exchange Commission (the ``Commission'') 
the proposed rule change as described in Items I, II, and III below, 
which Items have been prepared by the Exchange. The Commission is 
publishing this notice to solicit comments on the proposed rule change 
from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of the 
Substance of the Proposed Rule Change

    The Exchange proposes to amend Nasdaq PHLX Rules, Section IX 
(``Proprietary Data Feed Fees'') to make a sample of PHLX Options Trade 
Outline (``PHOTO'') Historical Data for the period January 1 through 
June 30, 2014, available free of charge; current charges will continue 
to be assessed for PHOTO Historical Data for any other period.
    The text of the proposed rule change is available on the Exchange's 
Web site at http://nasdaqphlx.cchwallstreet.

[[Page 32729]]

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 allow the Exchange to 
make a sample of PHOTO Historical Data for the period January 1 through 
June 30, 2014, available free of charge; current charges will continue 
to be assessed for PHOTO Historical Data for any other period. The 
proposed change will allow potential customers an opportunity to 
inspect the product, and the Exchange expects that the resulting 
greater familiarity with the product will lead to greater sales and 
wider dissemination of the data.
PHOTO Historical Data
    PHOTO Historical Data provides information about the past activity 
of all option series traded on the Exchange for each trading session 
conducted during a particular prior calendar month, as selected by the 
subscriber.\3\ The data is intended to enhance a purchaser's ability to 
analyze option trade and volume data, evaluate historical trends in the 
trading activity of a particular option series, and create and test 
trading models and analytical strategies. The product provides the 
following data:
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    \3\ See Securities Exchange Act Release 63351 (November 19, 
2010) 75 FR 73140 (November 29, 2010) (SR-Phlx-2010-154).
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     Aggregate number of buy and sell transactions in the 
affected series for each trading session conducted during the specified 
calendar month(s);
     Aggregate volume traded electronically on the Exchange in 
the affected series for each trading session conducted during the 
specified calendar month(s);
     Aggregate number of trades effected on the Exchange to 
open a position \4\ for each trading session conducted during the 
specified calendar month(s);
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    \4\ PHOTO Historical Data provides subscribers with the 
aggregate number of ``opening purchase transactions'' in the 
affected series for each trading session conducted during the 
calendar month(s) selected. An opening purchase transaction is an 
Exchange options transaction in which the purchaser's intention is 
to create or increase a long position in the series of options 
involved in such transaction. See Exchange Rule 1000(b)(24). PHOTO 
Historical Data will also provide subscribers with the aggregate 
number of ``opening writing transactions'' in the affected series 
for each trading session conducted during the calendar month(s) 
selected. An opening writing transaction is an Exchange options 
transaction in which the seller's (writer's) intention is to create 
or increase a short position in the series of options involved in 
such transaction. See Exchange Rule 1000(b)(25).
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     Aggregate number of trades effected on the Exchange to 
close a position \5\ for each trading session conducted during the 
specified calendar month(s);
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    \5\ PHOTO Historical Data provides subscribers with the 
aggregate number of ``closing purchase transactions'' in the 
affected series for each trading session conducted during the 
calendar month(s) selected. A closing purchase transaction is an 
Exchange options transaction in which the purchaser's intention is 
to reduce or eliminate a short position in the series of options 
involved in such transaction. See Exchange Rule 1000(b)(27). PHOTO 
Historical Data will also provide subscribers with the aggregate 
number of ``closing sale transactions'' in the affected series for 
each trading session conducted during the calendar month(s) 
selected. A closing sale transaction is an Exchange options 
transaction in which the seller's intention is to reduce or 
eliminate a long position in the series of options involved in such 
transaction. See Exchange Rule 1000(b)(26).
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     Origin of the orders involved in trades on the Exchange in 
the affected series for each trading session conducted during the 
specified calendar month(s), specifically aggregated in the following 
categories of participants: customers, broker-dealers, market makers 
(including specialists, Registered Options Traders (``ROTs''), 
Streaming Quote Traders (``SQTs'') \6\ and Remote Streaming Quote 
Traders (``RSQTs'') \7\, and professionals.\8\
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    \6\ An SQT is an ROT that has received permission from the 
Exchange to generate and submit option quotations electronically in 
options to which such SQT is assigned. See Exchange Rule 
1014(b)(ii)(A).
    \7\ An RSQT is an ROT that is a member or member organization 
with no physical trading floor presence that has received permission 
from the Exchange to generate and submit option quotations 
electronically in options to which such RSQT has been assigned. An 
RSQT may only submit such quotations electronically from off the 
floor of the Exchange. See Exchange Rule 1014(b)(ii)(B).
    \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). A professional 
will be treated in the same manner as an off-floor broker-dealer for 
purposes of Rules 1014(g) (except with respect to all-or-none 
orders, which will be treated like customer orders except that 
orders submitted pursuant to Rule 1080(n) for the beneficial 
account(s) of professionals with an all-or-none designation will be 
treated in the same manner as off-floor broker-dealer orders), 
1033(e), 1064.02 (except professional orders will be considered 
customer orders subject to facilitation), 1080(n) and 1080.07 as 
well as Options Floor Procedure Advices B-6 and F-5. Member 
organizations must indicate whether orders are for professionals. 
See Exchange Rule 1000(b)(14).
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    PHOTO Historical Data is composed of an End of Day Product and an 
Intra-Day Product. The End of Day product provides the aggregate data 
described above for the entire trading session. The Intra-Day product 
includes periodic, cumulative data for a particular trading session, 
updated every ten minutes during the trading day. The fee for the PHOTO 
Historical Data End of Day product is $400.00 per calendar month 
selected; the fee for the PHOTO Historical Data Intra-Day product is 
$750.00 per calendar month selected. Data is available starting in 
January 2009.
    The PHOTO Historical Data product is available to any person or 
entity that wishes to subscribe to it, whether or not the person or 
entity is a member of the Exchange. Data is available for internal use 
only.
Proposed Change
    The Exchange proposes to make a sample of PHOTO Historical Data 
available for the period January 1 through June 30, 2014, on the Nasdaq 
Trader Web site (www.nasdaqtrader.com) or a successor Web site free of 
charge as an FTP (File Transfer Protocol) file. The purpose of the 
proposed change is to allow potential customers an opportunity to 
inspect and test the value of the product in analyzing option trade and 
volume data, evaluating historical trends in the trading activity of a 
particular option series, and creating and testing trading models and 
analytical strategies. The Exchange expects that providing potential 
customers an opportunity to become acquainted with the benefits of the 
product will lead to greater sales and wider dissemination of PHOTO 
Historical Data.
    Any person or entity, including both subscribers and non-
subscribers, will be able to download the FTP file of PHOTO Historical 
Data for the period January 1 through June 30, 2014, free of charge. 
Fees for other periods of PHOTO Historical Data will remain $400.00 for 
the End of Day product and $750.00 for the Intra-Day product.
2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act,\9\ in general, and furthers the

[[Page 32730]]

objectives of Sections 6(b)(4) and 6(b)(5) of the Act,\10\ 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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    \9\ 15 U.S.C. 78f(b).
    \10\ 15 U.S.C. 78f(b)(4) and (5).
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    The proposal provides for the equitable allocation of reasonable 
dues, fees and other charges among members and issuers and other 
persons using any facility because all persons and entities will have 
equal access to the sample data, and none will be charged for the 
sample product.
    In adopting Regulation NMS,\11\ the Commission granted SROs and 
broker-dealers increased authority and flexibility to offer new and 
unique market data to the public. It was believed that this authority 
would expand the amount of data available to consumers, and also spur 
innovation and competition for the provision of market data. The PHOTO 
Historical Data product--which provides historical information about 
option series traded on the Exchange--is the type of market data 
product that the Commission envisioned when it adopted regulation NMS. 
The Commission concluded that Regulation NMS--deregulating the market 
in proprietary data--would further the Act's goals of facilitating 
efficiency and competition:
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    \11\ See Securities Exchange Act Release No. 51808 (June 9, 
2005), 70 FR 37496 (June 29, 2005) (``Regulation NMS Adopting 
Release'').

    [E]fficiency is promoted when broker-dealers who do not need the 
data beyond the prices, sizes, market center identifications of the 
NBBO and consolidated last sale information are not required to 
receive (and pay for) such data. The Commission also believes that 
efficiency is promoted when broker-dealers may choose to receive 
(and pay for) additional market data based on their own internal 
analysis of the need for such data.\12\
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    \12\ Id.

    By removing unnecessary regulatory restrictions on the ability of 
exchanges to sell their own data, Regulation NMS advanced the goals of 
the Act and the principles reflected in its legislative history.
    In NetCoalition v. Securities and Exchange Commission \13\ 
(``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.\14\ 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.'' \15\ ``No 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'. . . .'' \16\
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    \13\ NetCoalition v. SEC, 615 F.3d 525 (D.C. Cir. 2010).
    \14\ See NetCoalition, at 534--535.
    \15\ Id. at 537.
    \16\ Id. at 539 (quoting Securities Exchange Act Release No. 
59039 (December 2, 2008), 73 FR 74770, 74782-83 (December 9, 2008) 
(SR-NYSEArca-2006-21)).
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    Data products such as PHOTO Historical Data are a means by which 
exchanges compete to attract order flow. To the extent that exchanges 
are successful in such competition, they earn trading revenues and also 
enhance the value of their data products by increasing the amount of 
data they provide. The need to compete for order flow places 
substantial pressure upon exchanges to keep their fees for both 
executions and data reasonable.\17\ The very existence of a proposal to 
provide PHOTO Historical Data free of charge to generate potential 
customer interest is itself evidence of a competitive market.
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    \17\ See Sec. Indus. Fin. Mkts. Ass'n (SIFMA), Initial Decision 
Release No. 1015, 2016 SEC LEXIS 2278 (ALJ June 1, 2016) (finding 
the existence of vigorous competition with respect to non-core 
market data).
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    The proposed changes are consistent with Section 6(b)(5) of the Act 
because the free sample of historical data will encourage additional 
customers to purchase the product, thereby increasing the availability 
of market information to the investing public. The proposed changes 
would not permit unfair discrimination because all persons and entities 
will have access to the data for free.
    There will be no charge for the sample PHOTO Historical Data; 
persons and firms will be free to choose whether or not to download the 
data. Fees for PHOTO Historical Data not included in the free sample 
are optional in that they apply only to firms that elect to purchase 
the product, which, like all proprietary data products, they may cancel 
at any time.

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. Indeed, the Exchange believes 
that offering certain PHOTO Historical Data free of charge will enhance 
competition by encouraging sales, which will make analytical data more 
readily available to investors.
    The market for data products is extremely competitive and firms may 
freely choose alternative venues and data vendors based on the 
aggregate fees assessed, the data offered, and the value provided. 
Numerous exchanges compete with each other for listings, trades, and 
market data itself, providing virtually limitless opportunities for 
entrepreneurs who wish to produce and distribute their own market data. 
Transaction execution and proprietary data products are complementary 
in that market data is both an input and a byproduct of the execution 
service. In fact, market data and trade execution are a paradigmatic 
example of joint products with joint costs. The decision whether and on 
which platform to post an order will depend on the attributes of the 
platform where the order can be posted, including the execution fees, 
data quality and price, and distribution of its data products. Without 
trade executions, exchange data products cannot exist. Moreover, data 
products are valuable to many end users only insofar as they provide 
information that end users expect will assist them or their customers 
in making trading decisions.
    The costs of producing market data include not only the costs of 
the data distribution infrastructure, but also the costs of designing, 
maintaining, and operating the exchange's transaction execution 
platform and the cost of regulating the exchange to ensure its fair 
operation and maintain investor confidence. The total return that a 
trading platform earns reflects the revenues it receives from both 
products and the joint costs it incurs. Moreover, the operation of the 
exchange is characterized by high fixed costs and low marginal costs. 
This cost structure is common in content distribution industries such 
as software, where developing new software typically requires a large 
initial investment (and continuing large investments to upgrade the 
software), but once the software is developed, the incremental cost of 
providing that software to an additional user is typically small, or 
even zero

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(e.g., if the software can be downloaded over the internet after being 
purchased).\18\ In the case of any exchange, it is costly to build and 
maintain a trading platform, but the incremental cost of trading each 
additional share on an existing platform, or distributing an additional 
instance of data, is very low. Market information and executions are 
each produced jointly (in the sense that the activities of trading and 
placing orders are the source of the information that is distributed) 
and are each subject to significant scale economies.
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    \18\ See William J. Baumol and Daniel G. Swanson, ``The New 
Economy and Ubiquitous Competitive Price Discrimination: Identifying 
Defensible Criteria of Market Power,'' Antitrust Law Journal, Vol. 
70, No. 3 (2003).
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    Competition among trading platforms can be expected to constrain 
the aggregate return each platform earns from the sale of its joint 
products. The level of competition and contestability in the market is 
evident in the numerous alternative venues that compete for order flow, 
including SRO markets, as well as internalizing BDs and various forms 
of alternative trading systems (``ATSs''), including dark pools and 
electronic communication networks (``ECNs''). Each SRO market competes 
to produce transaction reports via trade executions. It is common for 
BDs to further and exploit this competition by sending their order flow 
and transaction reports to multiple markets, rather than providing them 
all to a single market. Competitive markets for order flow, executions, 
and transaction reports provide pricing discipline for the inputs of 
proprietary data products. The large number of SROs, TRFs, BDs, and 
ATSs that currently produce proprietary data or are currently capable 
of producing it provides further pricing discipline for proprietary 
data products. Each SRO, TRF, ATS, and BD is currently permitted to 
produce proprietary data products, and many currently do or have 
announced plans to do so, including Nasdaq, NYSE, NYSE MKT, NYSE Arca, 
and the BATS exchanges. As noted above, the very fact that the Exchange 
is proposing to provide a sample of PHOTO Historical Data free of 
charge to generate potential customer interest is itself evidence of a 
competitive market.
    In this competitive environment, an ``excessive'' price for one 
product will have to be reflected in lower prices for other products 
sold by the Exchange, or otherwise the Exchange may experience a loss 
in sales that may adversely affect its profitability. In this case, the 
proposed rule change enhances competition by lowering the price of the 
product through distribution of free samples. As such, the Exchange 
believes that the proposed changes will enhance, and not impair, 
competition in the financial markets.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants, or Others

    No written comments were either solicited or received.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    The foregoing rule change has become effective pursuant to Section 
19(b)(3)(A)(ii) of the Act.\19\
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    \19\ 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-2017-53 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-2017-53. This file 
number should be included on the subject line if email is used. To help 
the Commission process and review your comments more efficiently, 
please use only one method. The Commission will post all comments on 
the Commission's Internet Web site (http://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, all 
written statements with respect to the proposed rule change that are 
filed with the Commission, and all written communications relating to 
the proposed rule change between the Commission and any person, other 
than those that may be withheld from the public in accordance with the 
provisions of 5 U.S.C. 552, will be available for Web site viewing and 
printing in the Commission's Public Reference Room, 100 F Street NE., 
Washington, DC 20549 on official business days between the hours of 
10:00 a.m. and 3:00 p.m. Copies of such filing also will be available 
for inspection and copying at the principal office of the Exchange. All 
comments received will be posted without change; the Commission does 
not edit personal identifying information from submissions. You should 
submit only information that you wish to make available publicly. All 
submissions should refer to File Number SR-Phlx-2017-53, and should be 
submitted on or before August 7, 2017.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\20\
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    \20\ 17 CFR 200.30-3(a)(12).
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Jill M. Peterson,
Assistant Secretary.
[FR Doc. 2017-14887 Filed 7-14-17; 8:45 am]
 BILLING CODE 8011-01-P


