[Federal Register Volume 81, Number 34 (Monday, February 22, 2016)]
[Notices]
[Pages 8814-8818]
[FR Doc No: 2016-03526]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-77143; File No. SR-Phlx-2016-09]

Self-Regulatory Organizations; NASDAQ PHLX LLC; Notice of Filing
and Immediate Effectiveness of Proposed Rule Change Relating to a
Policy for Amending Billing Information and a Research Fee

February 16, 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 February 3, 2016, NASDAQ PHLX LLC (``Phlx'' or the ``Exchange'')
filed with the Securities and Exchange Commission (``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 adopt a new policy entitled, ``Policy for
Amending Billing Information.'' The Exchange also proposes to adopt a
Research Fee.
    The text of the proposed rule change is available on the Exchange's
Web site at http://nasdaqomxphlx.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 Exchange proposes to adopt a ``Policy for Amending Billing
Information'' and a Research Fee. The Exchange also proposes some minor
amendments to clarify the Pricing Schedule. Each of these changes will
be discussed in more detail below. Adopting a policy regarding amending
billing information will clarify how the Exchange will treat such
corrections. The Research Fee is intended to relieve the Exchange of
administrative burdens associated with handling errors on the part of
members and member organizations (hereinafter ``member(s)'') for proper
billing with respect to strategy transactions.
Policy for Amending Billing Information
    The Exchange proposes to adopt a Policy for Amending Billing
Information which would apply to corrections submitted to the Exchange
after trade date and prior to the issuance of an invoice. These
corrections are errors on the part of members with respect to executed
orders that impact billing. These errors are not Exchange errors as no
billing has occurred at this time for the transactions at issue.\3\ The
Exchange notes that members may correct certain trade information on
trade date, but not after the trade date without Exchange intervention.
For example, today a member is required to mark transactions related to
strategy trades \4\ by identifying the specific strategy. Members may
need to correct a marking related to a strategy trade by amending the
type of identified transactions or adding a missed marking throughout
the trading day. Once the trade date passes, Exchange staff would need
to be notified of such errors for billing purposes.\5\ Also, once an
invoice is issued, the Exchange's Billing Dispute Policy \6\ is
effective.
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    \3\ The Exchange bills one month in arrears.
    \4\ The Exchange permits dividend, merger, short stock interest,
reversal or conversion, jelly roll or box spread strategies on the
Exchange.
    \5\ Members may correct certain information at The Options
Clearing Corporation (``OCC''). The Exchange is able to capture
corrected information such as capacity changes for billing purposes
through OCC records. The type of information that would need to be
corrected at the Exchange by submitting a trade correction for
billing purposes includes marking trades for strategy transactions,
contra party information, account information or CMTA changes.
    \6\ The Exchange's billing dispute policy provides that all
disputes must be submitted to the Exchange in writing and must be
accompanied by supporting documentation. All disputes must be
submitted no later than sixty (60) days after receipt of a billing
invoice, except for disputes concerning NASDAQ OMX PSX fees,
proprietary data feed fees and co-location service fees. After sixty
calendar days, all fees assessed by the Exchange are final.
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    The Exchange proposes to require members to submit corrections
impacting billing to the Exchange, in writing, and accompanied by
supporting documentation. The Exchange believes that requiring members
to support their corrections to the billing information is important to
validate trades for billing purposes. Further, the Exchange proposes to
require that only members may submit information related to billing
corrections. This policy will eliminate the need for the Exchange to
deal with Customers directly. Members are responsible for all trades
submitted to the Exchange and should be responsible for handling
related billing information corrections such as marking strategy
transactions. The Exchange also proposes to clarify at this time that
only members may submit billing disputes. The Exchange proposes to add
this language to the rule text for clarity and to hold members
responsible for also handling billing disputes.
    The Exchange's adoption of this Policy for Amending Billing
Information will also amend a prior policy related to strategy
transactions. Today, the Exchange requires members to designate on the
trade ticket whether the trade involves a dividend,\7\ merger,\8\ short
stock interest,\9\ reversal or conversion,\10\ jelly roll \11\ or box
spread \12\ strategy by inserting a code on the trade ticket \13\ or
requesting Exchange staff on the trading floor to input the code into
the trading system.\14\ This marking must occur on the day the order
was entered to receive the benefit of any trading cap \15\ for which
they may qualify.\16\ This proposed policy will enable members to make
corrections after the trade date and still qualify for the strategy fee
cap. The Exchange's proposed Policy for Amending Billing Information
does not impact the Exchange's Regulatory group's actions with respect
to the proper marking of trades. Members must comply with Exchange
rules in properly marking their trades and may be subject to
disciplinary action in the event they fail to comply with Exchange
Rules.
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    \7\ A dividend strategy is defined as transactions done to
achieve a dividend arbitrage involving the purchase, sale and
exercise of in-the-money options of the same class, executed the
first business day prior to the date on which the underlying stock
goes ex-dividend.
    \8\ A merger strategy is defined as transactions done to achieve
a merger arbitrage involving the purchase, sale and exercise of
options of the same class and expiration date, executed the first
business day prior to the date on which shareholders of record are
required to elect their respective form of consideration, i.e., cash
or stock.
    \9\ A short stock interest strategy is defined as transactions
done to achieve a short stock interest arbitrage involving the
purchase, sale and exercise of in-the-money options of the same
class.
    \10\ Reversal and conversion strategies are transactions that
employ calls and puts of the same strike price and the underlying
stock. Reversals are established by combining a short stock position
with a short put and a long call position that shares the same
strike and expiration. Conversions employ long positions in the
underlying stock that accompany long puts and short calls sharing
the same strike and expiration.
    \11\ A jelly roll strategy is defined as transactions created by
entering into two separate positions simultaneously. One position
involves buying a put and selling a call with the same strike price
and expiration. The second position involves selling a put and
buying a call, with the same strike price, but with a different
expiration from the first position.
    \12\ A box spread strategy is a strategy that synthesizes long
and short stock positions to create a profit. Specifically, a long
call and short put at one strike is combined with a short call and
long put at a different strike to create synthetic long and
synthetic short stock positions, respectively.
    \13\ The Exchange has designated ``Z1'' for dividend strategies,
``Z2'' for short stock interest and merger strategies, ``Z3'' for
box spread strategies and ``Z4'' for reversal and conversion and
jelly roll strategies.
    \14\ The Exchange's trading system on the trading floor is the
Floor Broker Management System or FBMS.
    \15\ The Exchange offers members certain strategy caps at
Section II of the Pricing Schedule. The buy and sell side of a
transaction must originate from the Exchange floor to qualify for
these caps. Also, reversal and conversion, jelly roll and box spread
strategy executions are not included in the Monthly Strategy Cap for
a Firm. Reversal and conversion, jelly roll and box spread strategy
executions are included in the Monthly Firm Fee Cap. All dividend,
merger, short stock interest, reversal and conversion, jelly roll
and box spread strategy executions will be excluded from the Monthly
Market Maker Cap. Firms are subject to a maximum fee of $75,000
(``Monthly Firm Fee Cap'').
    \16\ See Securities Exchange Act Release No. 70850 (November 12,
2013), 78 FR 69164 (November 18, 2013) (SR-Phlx-2013-109) (Notice of
Filing and Immediate Effectiveness of Proposed Rule Change Regarding
Box Spread Strategies).
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    The Exchange believes that the Policy for Amending Billing
Information will promote consistency in the treatment of all
corrections submitted to the Exchange.
Research Fee
    The Exchange proposes to adopt a Research Fee of $1,000 applicable
to members submitting corrections applicable to strategy transactions.
The Exchange would assess this fee for each transaction correction
presented to the Exchange. Assessing a fee to members to correct errors
related to the marking of strategy trades caused by the member will
relieve the administrative burden on the Exchange associated with
reviewing and validating these trade corrections. Correcting mismarked
strategy transactions requires Exchange personnel to review errors and
make adjustments to its billing processes to ensure the corrected trade
is properly

processed for billing. The Exchange believes that assessing a fee will
promote increased accuracy in executing strategy transactions and
proper marking of those trades among members who may wish to avoid the
correction fee. The integrity of the audit trail is important to the
Exchange and the fee will continue to reinforce the need to ensure that
strategy trades are properly marked. The Research Fee will also
compensate the Exchange for administrative resources utilized to
research fees and promote accuracy for strategy transaction
corrections.
Other Amendments
    The Exchange proposes to remove a historical date from the Billing
Dispute policy as the origination date of the policy is no longer
relevant. The Exchange also proposes to amend the Table of Contents to
properly reflect sections which have been revised in the Pricing
Schedule. Finally, the Exchange proposes to add the letter ``D'' before
the Remote Specialist Fee to identify that section in the Table of
Contents.
2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section
6(b) of the Act \17\ in general, and furthers the objectives of
Sections 6(b)(4) and 6(b)(5) of the Act \18\ 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 the Exchange operates or controls, and is not
designed to permit unfair discrimination between customers, issuers,
brokers, or dealers. The Exchange further addresses its adoption of a
Policy for Amending Billing Information and Research Fee below.
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    \17\ 15 U.S.C. 78f(b).
    \18\ 15 U.S.C. 78f(b)(4) and (5).
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Policy for Amending Billing Information
    The Exchange's proposal to adopt a Policy for Amending Billing
Information is reasonable because the corrections are related to member
errors that are not yet ripe for treatment pursuant to the Billing
Dispute Policy. This proposal will enable the Exchange to apply the
proper pricing to each transaction in the event of an error. The
Exchange believes that the Policy for Amending Billing Information will
promote consistency in the treatment of all corrections submitted to
the Exchange. Requiring members to support their corrections with
documentation is reasonable to maintain the integrity of executed
transactions on the Exchange by verifying that each trade should be
corrected for billing purposes.
    The Exchange's amendment to corrections related to strategy
transactions is reasonable because the Exchange will price all
qualifying strategy transactions uniformly according to the Pricing
Schedule, regardless of whether an error occurred when the trade was
initially submitted, provided the member submits a trade correction.
The Exchange will validate all trade corrections and apply the
appropriate fees, rebates and caps to the transaction. All members will
be able to qualify for the strategy cap even in the event of an error.
Members remain responsible to comply with Exchange rules and properly
mark their trades or be subject to disciplinary action in the event
they fail to comply with Exchange Rules. Also, the proposed Research
Fee should continue to promote the consistent marking of strategy
trades.
    The Exchange's proposal to adopt a Policy for Amending Billing
Information is equitable and not unfairly discriminatory because it
will uniformly apply to all members. All members will be required to
support their corrections with documentation. The Exchange's amendment
to corrections related to strategy transactions is equitable and not
unfairly discriminatory because the Exchange's Policy for Amending
Billing Information will uniformly apply to all members submitting
corrections for strategy transactions. All strategy transactions will
be uniformly assessed the pricing in the Pricing Schedule for all
qualifying strategy transactions, regardless of whether an error
occurred when the trade was initially submitted, provided the member
submits a correction. All members will be able to qualify for the
strategy cap even in the event of an error.
    The Exchange's proposal to require members to submit corrections
and billing disputes is reasonable because members should be
responsible for all trades submitted to the Exchange and handling
related corrections. The Exchange provides members with both daily and
monthly fee reports in an effort to keep members apprised of executions
and associated pricing. This practice also is intended to encourage
members to review transactions so errors can be promptly identified.
Errors identified prior to the invoice may be corrected pursuant to the
Policy for Amending Billing Information. The Exchange's proposal to
require members to submit corrections and billing disputes is equitable
and not unfairly discriminatory because the Exchange has privity with
its members and those members will uniformly be held responsible for
all trades submitted to the Exchange and the handling of related
corrections and billing disputes.
Research Fee
    The Exchange's proposal to adopt a Research Fee of $1,000
applicable to member submitting corrections related to strategy
transactions is reasonable because the Exchange expends resources to
review a correction submitted by members and believes this fee will
compensate the Exchange. For example, Exchange staff validates the
corrections to ensure the accuracy of the correction as it relates to a
specific strategy and reviews its internal billing to correct its
records to properly bill the corrected transaction. The Exchange
believes that assessing a Research Fee will also promote proper marking
of strategy transactions. The Exchange believes that it is reasonable
to only assess a Research Fee related to strategy transactions because
these types of marking errors require Exchange staff intervention.
Other types of marking errors may be handled at OCC. The Exchange
believes assessing a Research Fee in the amount of $1,000 is reasonable
because the Exchange believes that the fee level is appropriate given
the amount of Exchange resources expended to correct the error. Further
the fee is not egregious and similar fee levels are assessed by the
Exchange for failures to mark certain transactions.\19\
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    \19\ See Options Floor Procedure Advices and Order & Decorum
Regulations in Section F. These fines range from $250 to $2,500. See
F-1, F-2 and F-4.
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    The Exchange's proposal to adopt a Research Fee of $1,000
applicable to members submitting corrections related to strategy
transactions is equitable and not unfairly discriminatory because the
Exchange will uniformly assess this fee to all members submitting
corrections related to strategy transactions. The Exchange believes
that it is equitable and not unfairly discriminatory to only assess a
Research Fee related to strategy transactions because the Exchange must
intervene to correct the billing of these types of transactions when
the member fails to mark a strategy transaction. Other types of
information may be corrected at OCC and Exchange intervention is not
required. The Exchange proposes this fee to recoup administrative costs
associated with validating all trade corrections and applying the
appropriate fees, rebates and caps to the transaction. The Exchange
does not have the same administrative burdens with other types of
corrections required by members with respect to executed transactions.
The

Exchange believes assessing a Research Fee in the amount of $1,000 is
equitable and not unfairly discriminatory because the Exchange would
uniformly assess this fee to all members with strategy transaction
corrections and this fee would serve to recoup the Exchange for the
administrative time related to these corrections.
Other Amendments
    The Exchange's proposal to remove a historical date from the
Billing Dispute policy, amend the Table of Contents to properly reflect
sections, which have been revised, and add the letter ``D'' before the
Remote Specialist Fee is reasonable, equitable and not unfairly
discriminatory because the Exchange believes that removing unnecessary
language, reflecting current sections and identifying sections in the
Pricing Schedule brings clarity to Exchange's pricing and benefits
market participants.

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 Exchange believes that the
adoption of a Policy for Amending Billing Information does not impose
an undue burden on inter-market competition because the Exchange
believes that other Exchanges have policies related to trade
corrections. The Exchange believes that the adoption of a Research Fee
does not impose an undue burden on inter-market competition because the
purpose of the fee is to recover costs expended by the Exchange to
review corrections related to strategy transactions.
Policy for Amending Billing Information
    The Exchange's proposal to adopt a Policy for Amending Billing
Information, which would apply to billing corrections submitted to the
Exchange after trade date and prior to the issuance of an invoice, does
not impose an undue burden on intra-market competition because the
policy will uniformly apply to all members. All members will be
required to support their trade corrections by providing documentation.
Only members will be permitted to submit corrections and billing
disputes.
    The Exchange's amendment to the Policy for Amending Billing
Information related to strategy transactions does not impose an undue
burden on intra-market competition because all members will be able to
submit errors related to strategy transactions for correction. All
members will be able to qualify for the strategy cap even in the event
of an error. These members will be assessed a Research Fee. The
Exchange's proposal to require members to submit corrections and
billing disputes does not impose an undue burden on intra-market
competition because members have privity with the Exchange and those
members will uniformly be held responsible for all trades submitted to
the Exchange and the handling of related corrections and billing
disputes.
Research Fee
    The Exchange's proposal to adopt a Research Fee of $1,000
applicable to members submitting corrections related to strategy
transactions does not impose an undue burden on intra-market
competition because the purpose of the fee is to recoup costs
associated with expending Exchange resources to review corrections
submitted by members who inadvertently mismark or neglect to mark a
strategy transaction. The Exchange will uniformly assess this fee to
all members submitting strategy transaction corrections.
    The Exchange's proposal to only assess a Research Fee related to
strategy transactions does not impose an undue burden on intra-market
competition because the Exchange must intervene to correct the billing
of these types of transactions when the member fails to mark a strategy
transaction. Other types of information may be corrected at OCC and
Exchange intervention is not required. The Exchange's proposal to
assess a Research Fee in the amount of $1,000 does not impose an undue
burden on intra-market competition because the Exchange would uniformly
assess this fee to all members with strategy transaction corrections
and this fee would serve to recoup the Exchange for the administrative
time related to these corrections.
Other Amendments
    The Exchange's proposal to remove a historical date from the
Billing Dispute policy, amend the Table of Contents to properly reflect
sections, which have been revised, and add the letter ``D'' before the
Remote Specialist Fee does not impose an undue burden on intra-market
competition because the proposed changes are non-substantive.

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.\20\
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    \20\ 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_ADDRESS>Please include
File Number SR-Phlx-2016-09 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-2016-09. 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 offices 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-2016-09,
and should be submitted on or before March 14, 2016.

    For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\21\
Brent J. Fields,
Secretary.
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    \21\ 17 CFR 200.30-3(a)(12).
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[FR Doc. 2016-03526 Filed 2-19-16; 8:45 am]
 BILLING CODE 8011-01-P