
[Federal Register Volume 82, Number 157 (Wednesday, August 16, 2017)]
[Notices]
[Pages 38962-38964]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2017-17278]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-81370; File No. SR-Phlx-2017-64]


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

August 10, 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 July 31, 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 Pricing Schedule at 
Section I, entitled ``Rebates and Fees for Adding and Removing 
Liquidity in SPY,'' and Section IV, Part A entitled ``PIXL Pricing'' to 
amend pricing related to PIXL \3\ executions.
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    \3\ PIXL\TM\ is the Exchange's price improvement mechanism known 
as Price Improvement XL or PIXL. A member or member organization may 
electronically submit for execution an order it represents as agent 
on behalf of a public customer, broker-dealer, or any other entity 
(``PIXL Order'') against principal interest or against any other 
order (except as provided in Rule 1080(n)(i)(E)) it represents as 
agent (``Initiating Order''), provided it submits the PIXL order for 
electronic execution into the PIXL Auction pursuant to Rule 1080. 
See Exchange Rule 1080(n).
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    While these amendments are effective upon filing, the Exchange has 
designated the proposed amendments to be operative on August 1, 2017.
    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 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The purpose of the proposed rule change is to amend the Exchange's 
Pricing Schedule at Section I, entitled ``Rebates and Fees for Adding 
and Removing Liquidity in SPY'' and specifically, the section that 
pertains to PIXL Executions in Standard and Poor's Depositary Receipts/
SPDRs (``SPY'').\4\ The Exchange also proposes to amend PIXL Pricing in 
Section IV, Part A, entitled ``PIXL Pricing'' for all other Multiply-
Listed options symbols.
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    \4\ Options overlying Standard and Poor's Depositary Receipts/
SPDRs (``SPY'') are based on the SPDR exchange-traded fund 
(``ETF''), which is designed to track the performance of the S&P 500 
Index.
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    First, the Exchange proposes to increase the SPY Complex PIXL 
rebate it offers Phlx members or member organizations that qualify for 
Section B, Customer Rebate Tiers \5\ 2 through 6 or qualify for the 
Monthly Firm Fee Cap. Presently, the Exchange offers a rebate of $0.10 
per contract for all SPY Complex PIXL Orders greater than 499 
contracts, provided the member or member organization executes an 
average of 2,500 contracts per day of SPY Complex PIXL Orders in a 
month. The Exchange proposes to increase that rebate to $0.12 per 
contract. In doing so, the Exchange desires to incentivize members or 
member organizations to transact a greater number of SPY Complex PIXL 
Orders while also incentivizing members or member organizations to 
submit Customer order flow on Phlx.
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    \5\ Section B of the Pricing Schedule contains Customer Rebate 
Tiers which are calculated by totaling Customer volume in Multiply 
Listed Options (including SPY) that are electronically-delivered and 
executed, except volume associated with electronic QCC Orders, as 
defined in Exchange Rule 1080(o). Rebates are paid on Customer 
Rebate Tiers according to certain categories. Members and member 
organizations under Common Ownership may aggregate their Customer 
volume for purposes of calculating the Customer Rebate Tiers and 
receiving rebates. Affiliated Entities may aggregate their Customer 
volume for purposes of calculating the Customer Rebate Tiers and 
receiving rebates. See Section B of the Pricing Schedule.
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    Second, the Exchange proposes to increase the Complex PIXL 
(excluding SPY Options rebate it offers to Phlx members and member 
organizations that qualify for Section B, Customer Rebate Tiers 2 
through 6 or qualify for the Monthly Firm Fee Cap. Presently, the 
Exchange offers a rebate of $0.10 per contract for all Complex PIXL 
Orders (excluding SPY Options) greater than 499 contracts, provided the 
member or member organization executes an average of 2,500 contracts 
per day of Complex SPY PIXL Orders in a month. The Exchange proposes to 
increase that rebate to $0.12 per contract. In doing so, the Exchange 
desires to incentivize members and member organizations to transact a 
greater number of Complex PIXL Orders while also incentivizing members 
and member organizations to submit Customer order flow on Phlx to 
obtain the $0.12 rebate on all Complex PIXL Orders (excluding SPY 
Options).
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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    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.'' \8\
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    \8\ Securities Exchange Act Release No. 51808 (June 9, 2005), 70 
FR 37496, 37499 (June 29, 2005) (``Regulation NMS Adopting 
Release'').
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    Likewise, in NetCoalition v. Securities and Exchange Commission \9\ 
(``NetCoalition'') the D.C. Circuit upheld

[[Page 38963]]

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.\10\ 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.'' \11\
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    \9\ NetCoalition v. SEC, 615 F.3d 525 (D.C. Cir. 2010).
    \10\ See NetCoalition, at 534-535.
    \11\ Id. at 537.
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    Further, ``[n]o one disputes that competition for order flow is 
`fierce.' . . . As the SEC explained, `[i]n the U.S. national market 
system, buyers and sellers of securities, and the broker-dealers that 
act as their order-routing agents, have a wide range of choices of 
where to route orders for execution'; [and] `no exchange can afford to 
take its market share percentages for granted' because `no exchange 
possesses a monopoly, regulatory or otherwise, in the execution of 
order flow from broker dealers'. . . .'' \12\ Although the court and 
the SEC were discussing the cash equities markets, the Exchange 
believes that these views apply with equal force to the options 
markets.
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    \12\ 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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    The Exchange believes that its proposal is reasonable to offer to 
Phlx members or member organizations that qualify for Section B, 
Customer Rebate Tiers 2 through 6 or qualify for the Monthly Firm Fee 
Cap an increased rebate of $0.12 per contract for all SPY Complex PIXL 
Orders greater than 499 contracts, provided the member or member 
organization executes an average of 2,500 contracts per day of SPY 
Complex PIXL Orders in a month. The proposed rebate increase will 
incentivize members and member organizations to transact a greater 
number of SPY Complex PIXL Orders will also incentivize members and 
member organizations to submit Customer order flow on Phlx. All members 
and member organizations are eligible for this increased rebate.
    The Exchange also believes that its proposal is equitable and not 
unfairly discriminatory because all members and member organizations 
are eligible for the proposed rebate increase, provided they met the 
requisite qualifications. Members and member organizations would be 
uniformly paid the increased rebate.
    The Exchange also believes that its proposal is reasonable to offer 
to Phlx members or member organizations that qualify for Section B, 
Customer Rebate Tiers 2 through 6 or qualify for the Monthly Firm Fee 
Cap an increased rebate of $0.12 per contract for all Complex PIXL 
Orders (excluding SPY Options) greater than 499 contracts, provided the 
member or member organization executes an average of 2,500 contracts 
per day of SPY Complex PIXL Orders in a month. The proposed increased 
rebate will incentivize members and member organizations to transact a 
greater number of Complex PIXL Orders and will also incentivize members 
and member organizations to submit Customer order flow on Phlx. All 
members and member organizations are eligible for this rebate, which 
applies to all Complex PIXL Orders excluding SPY Options.
    This proposal is equitable and not unfairly discriminatory because 
all members and member organizations are eligible for the proposed 
increased rebate, provided that they meet the requisite qualifications.

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 increasing its rebates will promote 
inter-market competition by differentiating it from other options 
exchanges (e.g., MIAX) and making it a more attractive options trading 
venue.
    The Exchange also believes that its proposal does not impose an 
undue burden on intra-market competition to offer Phlx members and 
member organizations that qualify for Section B, Customer Rebate Tiers 
2 through 6 or qualify for the Monthly Firm Fee Cap an increased rebate 
of $0.12 per contract for all SPY Complex PIXL Orders greater than 499 
contracts, provided the member or member organization executes an 
average of 2,500 contracts per day of SPY Complex PIXL Orders in a 
month. All members and member organizations are eligible for the 
proposed rebate increase, provided they met the requisite 
qualifications. Members and member organizations would be uniformly 
paid the increased rebate.
    For the same reasons, the Exchange does not believe that its 
proposal imposes an undue burden on intra-market competition to offer 
to Phlx members and member organizations that qualify for Section B, 
Customer Rebate Tiers 2 through 6 or qualify for the Monthly Firm Fee 
Cap an increased rebate of $0.12 per contract for all Complex PIXL 
Orders (excluding SPY Options) greater than 499 contracts, provided the 
member or member organization executes an average of 2,500 contracts 
per day of SPY Complex PIXL Orders in a month.

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.\13\
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    \13\ 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:

[[Page 38964]]

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-2017-64 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-2017-64. 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 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-2017-64 and should be 
submitted on or before September 6, 2017.
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    \14\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\14\
Robert W. Errett,
Deputy Secretary.
[FR Doc. 2017-17278 Filed 8-15-17; 8:45 am]
 BILLING CODE 8011-01-P


