[Federal Register Volume 83, Number 66 (Thursday, April 5, 2018)]
[Notices]
[Pages 14696-14698]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2018-06911]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-82968; File No. SR-Phlx-2018-27]


Self-Regulatory Organizations; Nasdaq PHLX LLC; Notice of Filing 
and Immediate Effectiveness of Proposed Rule Change To Amend the 
Exchange's Provisions for Excluding a Day From Its Volume Calculations 
for Purposes of Determining Volume Based Pricing

March 30, 2018.
    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 March 19, 2018, 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 provisions for 
excluding a day from its volume calculations for purposes of 
determining volume based pricing.
    The text of the proposed rule change is available on the Exchange's 
website 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.

[[Page 14697]]

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 
provisions for excluding a day from its volume calculations for 
purposes of determining volume based pricing. The Exchange is 
standardizing its practice for removing a day from volume calculations 
in the fee schedule with its affiliated options exchanges, Nasdaq ISE, 
LLC (``ISE), Nasdaq GEMX, LLC (``GEMX''), and Nasdaq MRX, LLC (``MRX'') 
(collectively, the ``Nasdaq ISE Markets'').
    To avoid penalizing members when aberrant low volume days result 
from systems or other issues at the Exchange, or where the Exchange 
closes early for holiday observance, the Exchange has language in its 
pricing schedule allowing it to exclude certain days from its average 
daily volume (``ADV'') or other volume calculations. Currently, 
language in the Exchange's pricing schedule provides that, for purposes 
of determining average daily volume or volume-based pricing, any day 
that the market is not open for the entire trading day will be excluded 
from such calculation. The Exchange proposes to adopt language for Phlx 
options \3\ that is identical to language currently in place on the 
Nasdaq ISE Markets,\4\ with the one exception that it would include 
language that clarifies how this rule applies to calculations that are 
based on a percentage of industry volume.\5\ Specifically, as proposed, 
any day that the market is not open for the entire trading day or the 
Exchange instructs members in writing to route their orders to other 
markets may be excluded from the ADV calculation or calculation based 
on a percentage of industry volume; provided that the Exchange will 
only remove the day for members that would have a lower ADV or 
percentage of industry volume with the day included. If a day is 
removed from a calculation based on a percentage of monthly industry 
volume, volume executed that day will be removed from both the 
numerator and the denominator of the calculation. While similar to the 
language currently in place on the Exchange, the proposed language: (1) 
Provides greater flexibility to remove a day when the Exchange 
instructs members in writing to route their orders to other markets, 
(2) modifies the provision so that members will only have the day 
removed when doing so is beneficial for the member, (3) applies the 
provision to ADV calculations or calculation based on a percentage of 
industry volume, and not for other volume-based pricing where members 
would not benefit from having the day excluded, and (4) accounts for 
calculations based on a percentage of industry volume by removing the 
day from both the numerator and denominator of the calculation. Other 
than days where the Exchange closes early for a scheduled holiday 
observance, the Exchange will inform members of days that are to be 
excluded from its ADV calculations via system status message 
disseminated to all members.
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    \3\ Because the Exchange is conforming its practice for options 
markets only, the current language will remain in place for PSX 
equities.
    \4\ See ISE Schedule of Fees, Preface; GEMX Schedule of Fees, 
Qualifying Tier Thresholds; and MRX Schedule of Fees, Member Volume 
Program: Qualifying Tier Thresholds.
    \5\ The Nasdaq ISE Markets do not have any fees calculated based 
on a percentage of industry volume.
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    The Nasdaq ISE Markets adopted the language on instructing members 
to route away to prevent situations where days that have artificially 
lower volume could not be excluded, for example, because the exchange 
experienced an issue in the morning that did not carry over into the 
trading day. Like the Nasdaq ISE Markets, the Exchange believes that it 
should have the flexibility to exclude days if members have been 
instructed to send their orders elsewhere, regardless of whether the 
issue that resulted in this instruction ultimately impacts the 
availability of the Exchange for trading.
    In addition, to avoid penalizing members that step up and trade on 
a day that the Exchange is experiencing difficulties, the Nasdaq ISE 
Markets only remove days from their ADV calculations for members that 
would have a lower ADV or percentage of industry volume with the day 
included. This provision would also be helpful on the Exchange as it 
would ensure that members that continue to execute a large volume of 
contracts are not inadvertently disadvantaged when the Exchange removes 
a day from its ADV calculation.
    Furthermore, the proposed language applies to ADV calculations or 
calculation based on a percentage of industry volume, and not for other 
volume-based pricing, as members do not benefit when a day is removed 
for straight volume accumulations. Again, the Exchange believes that 
the approach of the Nasdaq ISE Markets would be beneficial for the 
Exchange as it counts volume executed during an excluded day for 
purposes of straight volume accumulations. Unlike the Nasdaq ISE 
Markets, however, the Exchange has fees that are based on a percentage 
of industry volume. As such, the Exchange is including language in its 
rule that accounts for these calculations by explicitly mentioning that 
days may be removed from these calculations, and including language 
that explains that the day will be moved from both the numerator of the 
calculation and the denominator of the calculation. Removing the day 
from both the numerator and denominator of the calculation will ensure 
that members benefit from this rule as removing the day from the 
numerator only (i.e., the member's volume) without removing it from the 
denominator (i.e., industry volume) would penalize the member.
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 Exchange believes that the proposed rule change is reasonable 
and equitable as it provides a new framework for removing days from the 
Exchange's volume calculations that the Exchange believes is beneficial 
to members and consistent with similar provisions already in place on 
its affiliated options exchanges, with the one exception described 
above for fees based on a percentage of industry volume. The proposed 
rule change would allow the Exchange to remove a day from its ADV 
calculations in more circumstances, i.e., when the Exchange instructs 
members in writing to route their orders to other markets, and ensures 
that the Exchange will only do so in circumstances where beneficial for 
the member due to the member executing a lower ADV or percentage of 
industry volume during the excluded day. The Exchange believes that it 
is reasonable and equitable to exclude a day from its ADV calculations 
when members are instructed to route their orders to other markets as 
this preserves the Exchange's intent behind adopting volume-based 
pricing, and avoids penalizing members that follow this instruction. 
Similarly, the Exchange believes that it is reasonable and

[[Page 14698]]

equitable to only exclude a day from its calculations for members that 
would otherwise have a lower ADV or percentage of industry volume. 
Without these changes, members that route away in accordance with the 
Exchange's instructions, or that step up and trade significant volume 
on excluded trading days, may be negatively impacted, resulting in an 
effective cost increase for those members. In addition, the Exchange 
believes that it is reasonable and equitable to apply the proposed 
language only to ADV based volume calculations and calculation based on 
a percentage of industry volume as removing the day for straight volume 
accumulations would never be beneficial for the member as it would 
reduce the volume counted for the member for the month. Furthermore, 
the proposed language about removing the day from both the numerator 
and denominator of a calculation based on a percentage of industry 
volume is reasonable and equitable and this treatment ensures that the 
member actually benefits from having the day removed. Finally, the 
Exchange further believes that the proposed rule change is not unfairly 
discriminatory because it applies equally to all members. While the 
Exchange currently has rules in place for removing a day from its 
pricing, the Exchange believes that the proposed changes will benefit 
all members by providing broader authority to remove a day similar to 
that available on its affiliates, and ensuring that days are removed 
only in situations where the member benefits.

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. The proposed rule change is 
designed to standardize the Exchange's practice for removing days from 
its ADV calculations with its affiliated options exchanges, with one 
exception that accounts for fees based on a percentage of industry 
volume. The Exchange believes that the proposed modifications to its 
ADV calculations are pro-competitive and will result in lower total 
costs to end users, a positive outcome of competitive markets. The 
Exchange operates in a highly competitive market in which market 
participants can readily direct their order flow to competing venues. 
In such an environment, the Exchange must continually review, and 
consider adjusting, its fees and rebates to remain competitive with 
other exchanges. For the reasons described above, the Exchange believes 
that the proposed fee changes reflect this competitive environment.

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 [email protected]. Please include 
File Number SR-Phlx-2018-27 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-2018-27. 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 website (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 website 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. Persons submitting comments are 
cautioned that we do not redact or edit personal identifying 
information from comment submissions. You should submit only 
information that you wish to make available publicly.
    All submissions should refer to File Number SR-Phlx-2018-27 and 
should be submitted on or before April 26, 2018.
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    \9\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\9\
Eduardo Aleman,
Assistant Secretary.
[FR Doc. 2018-06911 Filed 4-4-18; 8:45 am]
BILLING CODE 8011-01-P


