15400 Federal Register / Vol. 77, No. 51 / Thursday, March 15, 2012 / Notices 

1 15 U.S.C. 78s(b)(1). 

2 17 CFR 240.19b–4. 

3A Complex Order is any order involving the 

simultaneous purchase and/or sale of two or more 

different options series in the same underlying 

security, priced at a net debit or credit based on the 

relative prices of the individual components, for the 

same account, for the purpose of executing a 

particular investment strategy. Furthermore, a 

Complex Order can also be a stock-option order, 

which is an order to buy or sell a stated number 

of units of an underlying stock or exchange-traded 

fund (‘‘ETF’’) coupled with the purchase or sale of 

options contract(s). See Exchange Rule 1080, 

Commentary .08(a)(i). 

4The Select Symbols are listed in Section I of the 

Fee Schedule. 

Dated: March 12, 2012. 

Martha P. Rico, 

Secretary to the Board. 

[FR Doc. 2012–6419 Filed 3–13–12; 4:15 pm] 

BILLING CODE 7905–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

Proposed Collection; Comment 

Request 

Upon Written Request, Copies Available 

From: Securities and Exchange 

Commission, Office of Investor 

Education and Advocacy, 

Washington, DC 20549–0213. 

Extension: 

Rule 15g–6; OMB Control No. 3235–0395; 

SEC File No. 270–349. 

Notice is hereby given that pursuant 

to the Paperwork Reduction Act of 1995 

(44 U.S.C. 3501 et seq.), the Securities 

and Exchange Commission 

(‘‘Commission’’) is soliciting comments 

on the existing collection of information 

provided for in the following rule: Rule 

15g–6—Account statements for penny 

stock customers (17 CFR 240.15g–6) 

under the Securities Exchange Act of 

1934 (15 U.S.C. 78a et seq.). The 

Commission plans to submit this 

existing collection of information to the 

Office of Management and Budget 

(‘‘OMB’’) for extension and approval. 

Rule 15g–6 requires brokers and 

dealers that sell penny stocks to provide 

their customers monthly account 

statements containing information with 

regard to the penny stocks held in 

customer accounts. The purpose of the 

rule is to increase the level of disclosure 

to investors concerning penny stocks 

generally and specific penny stock 

transactions. 

The Commission estimates that 

approximately 209 broker-dealers will 

spend an average of 78 hours annually 

to comply with this rule. Thus, the total 

compliance burden is approximately 

16,302 burden-hours per year. 

Written comments are invited on: (a) 

Whether the proposed collection of 

information is necessary for the proper 

performance of the functions of the 

agency, including whether the 

information shall have practical utility; 

(b) the accuracy of the agency’s 

estimates of the burden of the proposed 

collection of information; (c) ways to 

enhance the quality, utility, and clarity 

of the information to be collected; and 

(d) ways to minimize the burden of the 

collection of information on 

respondents, including through the use 

of automated collection techniques or 

other forms of information technology. 

Consideration will be given to 

comments and suggestions submitted in 

writing within 60 days of this 

publication. 

The commission may not conduct or 

sponsor a collection of information 

unless it displays a currently valid 

control number. No person shall be 

subject to any penalty for failing to 

comply with a collection of information 

subject to the PRA that does not display 

a valid Office of Management and 

Budget (OMB) control number. 

Please direct your written comments 

to: Thomas Bayer, Director/Chief 

Information Officer, Securities and 

Exchange Commission, c/o Remi PavlikSimon, 6432 General Green Way, 

Alexandria, VA 22312 or send an email 

to PRA_Mailbox@sec.gov. 

Dated: March 12, 2012. 

Kevin M. O’Neill, 

Deputy Secretary. 

[FR Doc. 2012–6318 Filed 3–14–12; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–66551; File No. SR–Phlx– 

2012–27] 

Self-Regulatory Organizations; 

NASDAQ OMX PHLX LLC; Notice of 

Filing and Immediate Effectiveness of 

Proposed Rule Change Relating to 

Complex Order Fees and Rebates for 

Adding and Removing Liquidity in 

Select Symbols 

March 9, 2012. 

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 1, 

2012, NASDAQ OMX PHLX LLC 

(‘‘Phlx’’ or ‘‘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. 

I. Self-Regulatory Organization’s 

Statement of the Terms of Substance of 

the Proposed Rule Change 

The Exchange proposes to amend 

Section I of the Exchange’s Fee 

Schedule titled ‘‘Rebates and Fees for 

Adding and Removing Liquidity in 

Select Symbols,’’ by amending the 

transaction fees and rebates for Complex 

Orders and proposing a new rebate. 

The Exchange has designated these 

changes to be operative on March 1, 

2012. 

The text of the proposed rule change 

is available on the Exchange’s Web site 

at http://nasdaqtrader.com/ 

micro.aspx?id=PHLXfilings, 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 proposed rule change will 

increase certain Complex Order 3

rebates, create a new rebate and also 

increase certain fees. The proposed 

changes will enable the Exchange to 

continue to reward market participants 

that add liquidity to the Exchange and 

allow the Exchange to compete more 

effectively respecting Complex Orders. 

The Complex Order fees and rebates 

being amended appear in Section I of 

the Exchange’s Fee Schedule, entitled 

‘‘Rebates and Fees for Adding and 

Removing Liquidity in Select 

Symbols.’’ 4

The Exchange proposes to: (1) Amend 

the Customer Rebate for Adding 

Liquidity, (2) create a new Rebate for 

Removing Liquidity, (3) amend the Fee 

for Removing Liquidity for all 

participants that are assessed such a fee, 

and (4) create a volume tier for certain 


srobinson on DSK4SPTVN1PROD with NOTICES
Federal Register / Vol. 77, No. 51 / Thursday, March 15, 2012 / Notices 15401 

5The term ‘‘Directed Participant’’ applies to 

transactions for the account of a Specialist, 

Streaming Quote Trader (‘‘SQT’’) or Remote 

Streaming Quote Trader (‘‘RSQT’’) resulting from a 

Customer order that is (1) directed to it by an order 

flow provider, and (2) executed by it electronically 

on Phlx XL II. 

6A ‘‘Market Maker’’ includes Specialists (see 

Rule 1020) and Registered Options Traders 

(‘‘ROTs’’) (Rule 1014(b)(i) and (ii), which includes 

SQTs (see Rule 1014(b)(ii)(A)) and RSQTs (see Rule 

1014(b)(ii)(B)). 

7The 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). See Rule 

1000(b)(14). 8A Specialist is an Exchange member who is 

registered as an options specialist pursuant to Rule 

1020(a). 9A ROT includes a SQT, a RSQT and a Non-SQT 

ROT, which by definition is neither a SQT or a 

RSQT. A Registered Option Trader is defined in 

Rule 1014(b) as a regular member of the Exchange 

located on the trading floor who has received 

permission from the Exchange to trade in options 

for his own account. See Rule 1014 (b)(i) and (ii). 

10An SQT is defined in Rule 1014(b)(ii)(A) as an 

ROT who has received permission from the 

Exchange to generate and submit option quotations 

electronically in options to which such SQT is 

assigned. 

11An RSQT is defined in Rule in 1014(b)(ii)(B) as 

an ROT that is a member or member organization 

with no physical trading floor presence who 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. 

12 15 U.S.C. 78f(b). 

13 15 U.S.C. 78f(b)(4). 

market participants that transact 

significant volumes of Complex Orders 

on the Exchange. Currently, the 

Exchange’s Complex Order fees and 

rebates are as follows: 

Customer Directed participant Market maker Firm Broker-dealer Professional 

Rebate for Adding Liquidity ..................... $0.30 $0.00 $0.00 $0.00 $0.00 $0.00 

Fee for Adding Liquidity ........................... 0.00 0.10 0.10 0.20 0.20 0.20 

Fee for Removing Liquidity ...................... 0.00 0.30 0.32 0.35 0.35 0.35 

First, the Exchange is amending the 

Customer Complex Order Rebate for 

Adding Liquidity. Specifically, the 

Exchange proposes to increase the 

Customer Complex Order Rebate to Add 

Liquidity from $0.30 per contract to 

$0.32 per contract to further incentivize 

market participants to route Customer 

Complex Orders to the Exchange. 

Second, the Exchange proposes to 

create a new Customer Complex Order 

rebate to attract additional Customer 

Complex Orders to the Exchange. The 

new rebate, entitled ‘‘Rebate for 

Removing Liquidity,’’ will pay a rebate 

of $0.06 per contract for each contract 

of liquidity removed by an order 

designated as a Customer Complex 

Order. The Exchange currently pays no 

rebate and assesses no fee for removing 

Customer Complex Order liquidity. The 

Exchange will pay no rebate for other 

market participants removing Complex 

Order liquidity. This is similar to the 

existing Complex Order Rebate for 

Adding Liquidity where the Exchange 

offers a rebate only with respect to 

Customer Complex Orders. The 

Exchange believes that increasing the 

Customer Complex Order Rebate for 

Adding Liquidity and creating a new 

Customer Rebate for Removing 

Liquidity will incentivize market 

participants to transact Customer 

Complex Orders on the Exchange. 

Third, the Exchange proposes to 

increase the Complex Order Fees for 

Removing Liquidity for the Directed 

Participant,5 Market Maker,6 Firm, 

Broker-Dealer and Professional7

categories. The fee for Directed 

Participant transactions would increase 

from $0.30 to $0.32 per contract; the fee 

for Market Makers would increase from 

$0.32 to $0.37 per contract; the fee for 

Firms would increase from $0.35 to 

$0.38 per contract; the fee for BrokerDealers would increase from $0.35 to 

$0.38 per contract; and the fee for 

Professionals would increase from $0.35 

to $0.38 per contract. As a result, the 

new Complex Order Fees for Removing 

Liquidity would be as follows: 

% Customer Directed participant Market maker Firm Broker-dealer Professional 

Fee for removing liquidity ........................ $0.00 $0.32 $0.37 $0.38 $0.38 $0.38 

Finally, the Exchange will provide a 

new volume incentive to Market 

Makers. The Exchange has four 

categories of market makers: 

Specialists,8 ROTs,9 SQTs 10and 

RSQTs.11 The Exchange proposes to 

offer a volume incentive to Market 

Makers that execute more than 25,000 

contracts per day in a month of 

Complex Orders, either adding or 

removing liquidity, in Select Symbols. 

Market Makers that meet the 

aforementioned volume criteria will 

receive a $0.01 per contract reduction of 

both the Directed Participant and 

Market Maker Complex Order Fees for 

Removing Liquidity, as applicable, on 

all of their transactions for the month. 

For example, assume Market Maker 

ABCD executes 30,000 contracts per day 

of Complex Orders, including 5,000 

contracts of Complex Orders that would 

be assessed the Directed Participant fee 

and 5,000 contracts per day of Complex 

Orders that would be assessed the 

Market Maker fee. In that case, Market 

Maker ABCD’s Directed Participant 

Complex Orders transactions in the 

month would be assessed a Directed 

Participant Fee for Removing Liquidity 

of $0.31 per contract instead of the new 

$0.32 per contract, and Market Maker 

ACBD’s Market Maker Complex Orders 

would be assessed a Market Maker Fee 

of $0.36 per contract instead of the new 

$0.37 per contract. For the purposes of 

the $0.01 reduction in the 

aforementioned fees, the Exchange also 

proposes to aggregate the trading 

activity of Market Makers where there is 

at least 75% common ownership 

between member organizations. 

The Exchange is not proposing any 

amendments to Parts A or C of Section 

I of the Fee Schedule. 

2. Statutory Basis 

The Exchange believes that its 

proposal to amend its Fee Schedule is 

consistent with Section 6(b) of the Act 12

in general, and furthers the objectives of 

Section 6(b)(4) of the Act 13 in 

particular, in that it is an equitable 

allocation of reasonable fees and other 

charges among Exchange members and 


srobinson on DSK4SPTVN1PROD with NOTICES
15402 Federal Register / Vol. 77, No. 51 / Thursday, March 15, 2012 / Notices 

14See Rule 1014 titled ‘‘Obligations and 

Restrictions Applicable to Specialists and 

Registered Options Traders.’’ 

15See Rule 1014 titled ‘‘Obligations and 

Restrictions Applicable to Specialists and 

Registered Options Traders.’’ 

16See the Chicago Board Options Exchange 

Incorporated’s (‘‘CBOE’’) Fees Schedule. 

17Today, the Exchange assesses Directed 

Participants a fee of $0.36 per contract and Market 

Makers a fee of $0.38 per contract for Single contraside transactions and the Exchange assesses 

Directed Participants a fee of $0.30 per contract and 

Market Makers a fee of $0.32 per contract for 

Complex Order transactions. 

18The term ‘‘Order Flow Provider’’ (‘‘OFP’’) 

means any member or member organization that 

submits, as agent, orders to the Exchange. See Rule 

1080(l)(i)(B). 

19Neither a Market Maker nor a Directed 

Participant is entitled to a rebate for transacting a 

Customer Complex Order today. 

20This distinction holds true today for Market 

Makers and Directed Participants executing either 

Single contra-side transactions (Part A of Section I 

other persons using its facilities. The 

Exchange also believes that it is an 

equitable allocation of reasonable 

rebates among Exchange members and 

other persons using its facilities. 

Customer Rebates 

Customer Complex Orders are 

becoming an increasingly important 

segment of options trading. The 

Exchange believes that it is reasonable 

to increase the current Customer 

Complex Order Rebate for Adding 

Liquidity to $0.32 per contract and 

create a new Customer Complex Order 

Rebate for Removing Liquidity of $0.06 

per contract, because the Exchange 

seeks to incentivize market participants 

to direct and transact a greater number 

of Customer Complex Orders at the 

Exchange. Creating these incentives and 

attracting Customer Complex Orders to 

the Exchange, in turn, benefits all 

market participants through increased 

liquidity at the Exchange. A higher 

percentage of Customer Complex Orders 

leads to increased Complex Order 

auctions and better opportunities for 

price improvement. 

The Exchange also believes it is 

reasonable, equitable and not unfairly 

discriminatory to only offer rebates to 

Customers and not other market 

participants. Customer Complex Order 

flow brings unique benefits to the 

marketplace in terms of liquidity and 

order interaction. It is an important 

Exchange function to provide an 

opportunity to all market participants to 

trade against Customer Complex Orders. 

The Exchange believes that it is 

equitable and not unfairly 

discriminatory to increase the current 

Customer Complex Order Rebate for 

Adding Liquidity to $0.32 per contract 

and create a new Customer Complex 

Order Rebate for Removing Liquidity of 

$0.06 per contract, because the 

Exchange will uniformly pay these 

rebates to all Customer orders from any 

member organization. 

Fee for Removing Liquidity 

The Exchange believes that it is 

reasonable to increase the Complex 

Order Fees for Removing Liquidity for 

Directed Participants, Market Makers, 

Firms, Broker-Dealers and Professionals 

so that the Exchange can offer increased 

rebates to Customers. As previously 

noted, the Exchange is proposing to 

increase the Customer Complex Order 

Rebate for Adding Liquidity and offer a 

new Customer Complex Order Rebate 

for Removing Liquidity. 

The Exchange believes that it is 

equitable and not unfairly 

discriminatory to increase the Complex 

Order Fees for Removing Liquidity for 

Directed Participants, Market Makers, 

Firms, Broker-Dealers and Professionals 

because, the Exchange is increasing 

these fees for all market participants, 

except Customers who are not assessed 

a fee, to position itself to offer greater 

Customer Complex Order rebates. The 

Exchange is consistently assessing lower 

Complex Order Fees for Removing 

Liquidity to Directed Participants and 

Market Makers as compared to Firms, 

Broker-Dealers and Professionals, 

because of the requisite quoting 

obligations applicable to Market Makers. 

Market Makers 14 have burdensome 

quoting obligations to the market which 

do not apply to Firms, Professionals and 

Broker-Dealers. Also, Market Makers 

that receive Directed Orders 15 have 

higher quoting obligations compared to 

other Market Makers and therefore are 

assessed a lower fee when they transact 

with a Customer order that was directed 

to them for execution as compared to 

Market Makers. Firms, Broker-Dealers 

and Professionals are being assessed the 

same $0.38 per contract fees. Customers 

are not assessed a Fee for Removing 

Liquidity, as is the case on competing 

exchanges.16

With respect to the proposed Complex 

Order Fees for Removing Liquidity for 

Directed Participant transactions as 

compared to Market Maker transactions, 

the Exchange provides a deeper analysis 

below and its basis for proposing a 

$0.32 per contract Complex Order 

Directed Participant Fee for Removing 

Liquidity and a $0.37 per contract 

Complex Order Market Maker Fee for 

Removing Liquidity. In summary, the 

Exchange’s Fees for Removing 

Liquidity, for both Single contra-side 

and Complex Order transactions, for the 

Directed Participant categories are two 

cents lower than the Fees for Removing 

Liquidity for the Market Maker 

categories.17 As explained above, 

Market Makers that receive Directed 

Orders have higher quoting obligations 

as compared to other Market Makers 

and therefore are assessed a lower fee. 

The fee differentials today reflect the 

additional obligation of a Market Maker 

that accepts directed orders when 

compared to a Market Maker that does 

not accept directed orders for both 

Single contra-side and Complex Order 

transactions. The Exchange is now 

proposing to increase the differential 

between the Directed Participant and 

Market Maker transaction fees from 

$0.02 per contract to $0.05 per contract 

for Complex Order transactions to also 

reflect the increased costs that are 

incurred by such Market Makers that 

enter into order flow arrangements at a 

cost and without the benefit of a 

guaranteed allocation. Market Makers 

that accept Directed Orders transacting 

Single contra-side orders today are 

entitled to a guaranteed allocation 

which is why the Exchange is 

distinguishing between these types of 

orders in assessing fees between the 

Market Maker and Directed Participant 

categories. The Exchange will discuss 

below its rationale for why the proposal 

is reasonable, equitable and not unfairly 

discriminatory. The Exchange believes 

that in order to attract Customer 

Complex Orders in an intensely 

competitive environment it must 

continue to adjust its fees and rebates, 

which benefits all market participants 

for the good of investors. 

The Directed Participants and Market 

Makers Categories 

Specialists, ROTs, SQTs and RSQTs 

are Market Makers. Such Market Makers 

may also be categorized as Directed 

Participants when such Market Makers 

execute against a Customer order 

directed to that Market Maker for 

execution by an Order Flow Provider 

(‘‘OFP’’).18 For example, Market Maker 

A is assessed the Directed Participant 

category fee for trading against a 

Customer order directed to it for 

execution by an OFP. Market Maker A 

is not assessed the Directed Participant 

category fee for executing a Customer 

order directed to different Market 

Maker, but rather is assessed the Market 

Maker category fee.19 It is important to 

note that a Market Maker, at the time of 

the trade, is unaware of the identity of 

the contra-party to the trade. In other 

words, it is only sometime after the 

trade occurs that the Market Maker 

learns whether the Market Maker or 

Directed Participant fees will be 

assessed on a particular transaction.20


srobinson on DSK4SPTVN1PROD with NOTICES
Federal Register / Vol. 77, No. 51 / Thursday, March 15, 2012 / Notices 15403 

of the Fee Schedule) or Complex Orders (Part B of 

Section of the Fee Schedule). When a Single contraside transaction is executed against the individual 

components of a Complex Order, the Single contraside part of the order will be subject to the fees in 

Part A of the Fee Schedule and the individual 

components will be subject to the fees in Part B. 

21The Exchange is not proposing to amend the 

fees in Section I, Part A applicable to Single contraside transactions. 

22Complex Orders can be distinguished from 

Single contra-side transactions with respect to 

allocation guarantees applicable to Directed 

Specialists, Directed ROTs, Directed SQTs and 

Directed RSQTs pursuant to Rule 1014(g)(viii). 

Directed Specialists, Directed ROTs, Directed SQTs 

and Directed RSQTs are guaranteed a 40% 

allocation with respect to Single contra-side 

transactions eligible as a Directed Order. 

23All other types of directed non-Customer order 

flow is not eligible for Directed Participant pricing. 

24The Complex Order Live Auction (‘‘COLA’’) is 

the auction for eligible Complex Orders. See Rule 

1080, Commentary .08. 

25A COLA Sweep is when a Phlx XL participant 

bids and/or offers on either or both sides of the 

market during the COLA Timer (a timing 

mechanism which is a counting period not to 

exceed 5 seconds) by submitting one or more bids 

or offers that improve the cPPBO (the best net debit 

or credit price for a Complex Order Strategy based 

on the PBBO for individual components of such 

Complex Order Strategy). See Rule 1080, 

Commentary .08. 

26 In this scenario the Customer order is ‘‘legged’’ 

against interest present in the disseminated market. 

27See Rule 1080. 

28This statistic is based on Customer Complex 

Order data from September 2011 to January 2012 

and ranges from (7.2% to 17.94%). During this 

period, Customer Complex Orders received by the 

Exchange were directed on average at least 95% of 

the time. 

29For example if a Market Maker, that is the 

intended recipient of a Customer Complex Order, 

only executes the Customer Complex Order 14.5% 

of the time (paying the Directed Participant 

Complex Order fee of $0.32 per contract), then that 

Market Maker is paying the proposed Market Maker 

Complex Order fee of $0.37 per contract the other 

85.5% of the time. The effective Complex Order Fee 

for Removing Liquidity for that Market Maker is 

$0.3613 in a given month, less than $0.01 below the 

rate paid by a Market Maker that never receives a 

Customer Complex Order directed to it for 

execution. Approximately 80% of Market Makers 

executing Customer Complex Orders receive an 

order directed to it for execution. 

The proposed amendments to the 

Fees for Removing Liquidity apply only 

to Complex Orders.21 Market Makers 

receive no allocation guarantee when a 

Customer Complex Order is directed to 

them by an OFP and the order is 

executed.22 Also, only Customer 

Complex Order flow which is directed 

to a Market Maker by an OFP and is 

executed by that particular Market 

Maker is eligible for the Directed 

Participant fees for Complex Orders.23

When a Market Maker executes against 

a Customer Complex Order the Market 

Maker may do so by responding to an 

auction,24 executing against an order on 

the Complex Order Book (‘‘CBOOK’’), or 

sweeping a resting Customer Complex 

Order.25 The Customer Complex Order 

may also be executed against existing 

quote and or limit orders on the limit 

order book for the individual 

components of the Complex Order.26 In 

each of these cases, the order will trade 

based on the best price or prices 

available pursuant to Exchange Rules.27

Therefore, in order to enjoy the benefits 

of trading against a directed Complex 

Customer order by receiving a lower 

transaction fee (the Directed Participant 

Complex Order Fee for Removing 

Liquidity), the transaction must: (i) 

Occur at the best price; and (ii) be 

directed, by an OFP, to the particular 

Market Maker that executed the order. 

Currently, on the Exchange, an 

average of 14.5% of Customer Complex 

directed orders trade with the Market 

Maker to which they are directed.28 All 

market participants may compete 

equally for Customer Complex Order 

executions, even if that Customer 

Complex Order is directed to a specific 

Market Maker. All Market Makers have 

the ability to incentivize an OFP to 

direct or preference an order if they 

desire to enter into, for example, a 

payment for order flow arrangement 

with an OFP. A Market Maker that pays 

for such Customer Complex Order flow 

cannot control whether it executes an 

order directed to it, because that Market 

Maker must compete equally against 

other market participants and as 

previously stated must be at the best 

price. While all market participants 

enjoy the benefits of the liquidity that 

such order flow brings to the market, 

not all market participants incur the 

additional expense of paying an OFP for 

such order flow. The Exchange believes 

that this additional expense should be 

considered in assessing fees to Market 

Makers that attract directed order flow 

to the Exchange for the benefit of all 

market participants. 

A Market Maker that executes a 

Customer Complex Order on a nondirected basis pays a fee of $0.32 per 

contract today (Market Maker Complex 

Order Fee for Removing Liquidity). A 

Market Maker that executes a Customer 

Complex Order on a directed basis pays 

a fee of $0.30 per contract today 

(Directed Participant Complex Order 

Fee for Removing Liquidity) plus the 

additional cost associated with the order 

flow. The Exchange believes that the 

Customer Complex Order rebates may 

partially compensate Market Makers for 

payments they owe to the OFP for the 

Customer order flow. 

The Exchange believes it is 

reasonable, equitable and not unfairly 

discriminatory to raise the Market 

Maker Complex Order Fee for Removing 

Liquidity from $0.32 to $0.37 per 

contract and raise the Directed 

Participant Complex Order Fee for 

Removing Liquidity from $0.30 to $0.32 

per contract. Generally, a Market Maker 

will be assessed the Market Maker Fee 

for Removing Liquidity in Complex 

Orders when the Market Maker is not 

executing a Customer order intended for 

that Market Maker. Moreover, in a given 

month the effective Complex Order Fee 

for Removing Liquidity for a Market 

Maker that also has executions subject 

to the Directed Participant rate is 

approximately $0.02 below the Market 

Maker Complex Order Fee for Removing 

Liquidity.29

The Exchange bases its belief that the 

proposed fees are reasonable, in part, on 

an analysis of the level of price 

improvement currently received by 

Customer Complex Orders trading in an 

auction process. Based on an analysis of 

the week of October 10, 2011, Customer 

Complex Orders received price 

improvement 29% of the time and the 

average level of price improvement was 

$0.059 per option or $5.90 per contract 

for options receiving price 

improvement. Market Makers compete 

in offering price improvement in 

auctions. The significant difference in 

magnitude between the proposed $0.03 

per contract increased fee differential 

(between Market Makers and Directed 

Participants) and the extent of price 

improvement supports the Exchange’s 

belief that the proposed fee is 

reasonable and will have a negligible 

impact on Directed and non-Directed 

Market Makers. 

New Volume Discount 

The Exchange is further incentivizing 

Market Makers by providing an 

opportunity to lower the Market Maker 

and Directed Participant Complex Order 

Fees for Removing Liquidity, as 

applicable, when a Market Maker 

executes more than 25,000 Complex 

Order contracts (either adding or 

removing liquidity) per day in a month. 

The Exchange proposes to reduce, by 

$0.01 per contract, the Market Maker 

and Directed Participant Complex Order 

Fees for Removing Liquidity, as 

applicable on all of their transactions for 

the month (‘‘Added Incentive’’). The 

Exchange believes that the Added 

Incentive will encourage all Market 

Makers to transact additional order flow 

at the Exchange because of the fee 

reduction. All Market Maker Complex 

Order contracts will be counted toward 

the 25,000 contracts per day in a month. 

The Exchange also believes that this 

Added Incentive to Market Makers that 

pay for directed orders will encourage 

those Market Makers to continue to pay 

for such orders and provide liquidity to 


srobinson on DSK4SPTVN1PROD with NOTICES
15404 Federal Register / Vol. 77, No. 51 / Thursday, March 15, 2012 / Notices 

30See Section II of the Exchange’s Fee Schedule. 

31Unlike Complex Orders, Single contra-side 

orders are governed by Rule 1014. Specifically, 

Directed Orders that are executed electronically 

shall be automatically allocated as follows: (A) 

First, to customer limit orders resting on the limit 

order book at the execution price; (B) Thereafter, 

contracts remaining in the Directed Order, if any, 

shall be allocated automatically as follows: (1) The 

Directed Specialist (where applicable), shall be 

allocated a number of contracts that is the greater 

of: (a) the proportion of the aggregate size at the 

NBBO associated with such Directed Specialist’s 

quote, SQT and RSQT quotes, and non-SQT ROT 

limit orders entered on the book at the disseminated 

price represented by the size of the Directed 

Specialist’s quote; (b) the Enhanced Specialist 

Participation as described in Rule 1014(g)(ii); or (c) 

40% of the remaining contracts. See Rule 

1014(g)(viii). Thereafter, SQTs and RSQTs quoting 

at the disseminated price, and non-SQT ROTs that 

have placed limit orders on the limit order book via 

electronic interface at the Exchange’s disseminated 

price shall be allocated contracts according to a 

formula specified in Rule 1014(g)(viii). If any 

contracts remain to be allocated after the specialist, 

SQTs, RSQTs and non-SQT ROTs with limit orders 

on the limit order book have received their 

respective allocations, off-floor broker-dealers (as 

defined in Rule 1080(b)(i)(C)) that have placed limit 

orders on the limit order book which represent the 

Exchange’s disseminated price shall be entitled to 

receive a number of contracts that is the proportion 

of the aggregate size associated with off-floor 

broker-dealer limit orders on the limit order book 

at the disseminated price represented by the size of 

the limit order they have placed on the limit order 

book. 32Other markets discount their directed fee for 

other classes of market participants in addition to 

customers. For example, NYSE Amex assesses a an 

[sic] options market maker that is non directed a fee 

of $0.17 per contract and am [sic] options market 

maker that is directed a fee of $0.15 per contract. 

See NYSE Amex’s Fee Schedule. Phlx only assesses 

the Directed Participant Fee for Removing Liquidity 

with respect to Customer orders. 33 15 U.S.C. 78s(b)(3)(A)(ii). 

the market even without a guaranteed 

allocation in Complex Orders, because 

the Added Incentive would benefit 

Market Makers whether directed or not, 

but, in the instance the Market Maker is 

assessed a Directed Participant fee, the 

benefit is greater. The Exchange believes 

that its proposal to allow Market Makers 

to aggregate trading activity where there 

is at least 75% common ownership 

between member organizations is 

reasonable, because this would allow 

member organizations to also obtain the 

Added Incentive by combining 

transaction fees where the common 

ownership is met. The Exchange 

currently permits such aggregation in 

the calculation of the Monthly Market 

Maker Cap.30 The Exchange believes 

that permitting member organizations 

with at least 75% common ownership to 

aggregate fees to obtain the Added 

Incentive is equitable and not unfairly 

discriminatory because the ability to 

aggregate would apply uniformly to all 

member organizations that are at least 

75% commonly owned, but chose to 

operate under separate entities. 

The Exchange desires to continue to 

encourage Market Makers to enter into 

order flow arrangements by assessing a 

lower Directed Participant Fee for 

Removing Liquidity, as compared to the 

Market Maker Fee for Removing 

Liquidity. The Exchange believes that 

offering a Directed Participant fee that is 

a lower Fee for Removing Liquidity than 

the Market Maker Fee to Remove 

Liquidity offsets costs incurred by these 

Market Markers that pay for order flow 

and assume the risk of possibly being 

assessed the same Fee for Removing 

Liquidity as a Market Maker who did 

not enter into similar arrangements. 

Today, options exchanges aggressively 

compete for Complex order flow. In 

January 2012, based on data from the 

Options Price Reporting Authority 

(‘‘OPRA’’), the average daily equity 

options complex order transactions on 

the various option exchanges totaled 

117,539. The combined total for the last 

six months of 2011 was 593,286. With 

respect to market share, the six options 

exchanges handling complex orders had 

market share in complex orders ranging 

from 2.4% to 40.1% in January 2012. 

The benefit that a Market Maker 

brings to the Exchange when it pays for 

order flow is not an insignificant one 

and this benefit should not go 

unrewarded. Market Makers who pay 

for order flow must still compete for 

that order flow with other Exchange 

participants in order to reap benefits. 

This competition provides the Exchange 

greater execution quality, which also 

benefits all participants. 

The Exchange believes that the 

proposed Market Maker and Directed 

Participant Complex Order Fees for 

Removing Liquidity and the Added 

Incentive are reasonable, equitable and 

not unfairly discriminatory because: (i) 

Market Makers are not entitled to 

guaranteed allocations for directed 

Complex Orders; 31 (ii) all Market 

Makers have an equal opportunity to 

incentivize an OFP to direct an order to 

it for execution on the Exchange; (iii) 

only Customer orders that are directed 

by an OFP and executed by the intended 

Market Maker receive the Complex 

Order Directed Participant fee; 32 (iv) the 

proposed Directed Participant and 

Market Maker Complex Order fees are 

less than the fees assessed to Firms, 

Professionals and Broker-Dealers 

because of obligations carried by those 

Market Makers which do not burden 

other participants; (v) Market Makers 

are unaware of the identity of the 

contra-party at the time of the trade and 

are also required to execute at the best 

price, pursuant to Exchange Rules, 

against an order intended for them by an 

OFP in order to be assessed the Directed 

Participant Complex Order Fee for 

Removing Liquidity (the only benefit) 

which does not happen more than 80% 

of the time; (vi) order flow arrangements 

benefit all market participants equally 

through added liquidity; and (vii) the 

Added Incentive will further encourage 

Market Makers to respond more 

aggressively in the COLA, with respect 

to Customer orders, and sweep resting 

orders in CBOOK thereby improving 

execution quality of Customer Complex 

Orders. 

The Exchange operates in a highly 

competitive market, comprised of nine 

exchanges, in which market participants 

can easily and readily direct order flow 

to competing venues if they deem fee 

levels at a particular venue to be 

excessive or rebates offered to be 

insufficient. Accordingly, the fees that 

are assessed by the Exchange and the 

rebates it pays for options overlying the 

various Select Symbols in Complex 

Orders must remain competitive with 

fees and rebates charged/paid by other 

venues and therefore must continue to 

be reasonable and equitably allocated to 

those members that opt to direct orders 

to the Exchange rather than competing 

venues. 

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. 

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.33 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 

necessary or appropriate in the public 

interest, for the protection of investors, 

or 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. 


srobinson on DSK4SPTVN1PROD with NOTICES
Federal Register / Vol. 77, No. 51 / Thursday, March 15, 2012 / Notices 15405 

34 17 CFR 200.30–3(a)(12). 

1 15 U.S.C. 78s(b)(1). 

2 17 CFR 240.19b–4. 

3As defined in Rule 1.5(cc)[sic]. 4As defined in Rule 11.5(c)(7). 

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 rulecomments@sec.gov. Please include File 

Number SR–Phlx–2012–27 on the 

subject line. 

Paper Comments 

• Send paper comments in triplicate 

to Elizabeth M. Murphy, Secretary, 

Securities and Exchange Commission, 

100 F Street NE., Washington, DC 

20549–1090. 

All submissions should refer to File 

Number SR–Phlx–2012–27. 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 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 

a.m. and 3 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– 

2012–27 and should be submitted on or 

before April 5, 2012. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.34

Kevin M. O’Neill, 

Deputy Secretary. 

[FR Doc. 2012–6229 Filed 3–14–12; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–66557; File No. SR–EDGA– 

2012–06] 

Self-Regulatory Organizations; EDGA 

Exchange, Inc.; Notice of Filing and 

Immediate Effectiveness of Proposed 

Rule Change To Amend EDGA Rule 

11.9 

March 9, 2012. 

Pursuant to Section 19(b)(2) [sic] of 

the Securities Exchange Act of 1934 (the 

‘‘Act’’),1 and Rule 19b–4 thereunder,2

notice is hereby given that on February 

24, 2012, the EDGA Exchange, Inc. (the 

‘‘Exchange’’ or the ‘‘EDGA’’) 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 selfregulatory organization. The 

Commission is publishing this notice to 

solicit comments on the proposed rule 

change from interested persons. 

I. Self-Regulatory Organization’s 

Statement of the Terms of Substance of 

the Proposed Rule Change 

The Exchange proposes to introduce 

an additional routing option to Rule 

11.9 to provide Users 3 with increased 

access to multiple sources of liquidity 

and greater flexibility in routing orders. 

The text of the proposed rule change is 

attached as Exhibit 5 and is available on 

the Exchange’s Web site at 

www.directedge.com, at the Exchange’s 

principal office and at the Public 

Reference Room of the Commission. 

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 

self-regulatory organization 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’s current list of routing 

options are codified in Rule 11.9(b)(3). 

In this filing, the Exchange proposes to 

amend Rule 11.9(b)(3) to add an 

additional routing strategy. In 

connection with the introduction of the 

subject routing strategy, the Exchange 

also proposes to amend Rule 11.5(c)(7) 

so that the definition of a Mid-Point Peg 

Order is consistent with the 

functionality of this new routing 

strategy. 

In particular, the Exchange proposes 

to add the RMPT routing strategy in 

Rule 11.9(b)(3)(t) to allow an order to 

access additional sources of liquidity. 

RMPT is a routing option under which 

a Mid-Point Peg Order 4 checks the 

System for available shares and any 

shares that remain unexecuted are then 

sent sequentially to destinations on the 

System routing table that support 

midpoint eligible orders. This allows 

orders sent through the RMPT strategy 

to interact with such midpoint eligible 

orders. If any shares remain unexecuted 

after routing, they are posted on the 

EDGA book as a Mid-Point Peg Order, 

unless otherwise instructed by the User. 

Consequently, the Exchange also 

seeks to amend the definition of a MidPoint Peg Order to allow for order 

routing pursuant to the RMPT routing 

strategy. Rule 11.5(c)(7) currently states 

that ‘‘Mid-Point Peg Orders are not 

eligible for routing pursuant to Rule 

11.9(b)(2) and are not displayed on the 

Exchange’’. The Exchange proposes to 

carve out an exception to allow Users to 

elect to route the Mid-Point Peg Order 

pursuant to the RMPT routing strategy, 

as defined in Rule 11.9(b)(3)(t), to 

account for this new routing option. 

This revised definition allows for 

greater clarity and consistency between 

the behavior of the Exchange’s order 

types and routing options, resulting in 

increased transparency for the User. 

The Exchange believes that the 

proposed introduction of the routing 

option described above will provide 

Users with increased access to multiple 

sources of liquidity and greater 

flexibility in routing orders without 

having to develop their own 

complicated routing strategies. 


srobinson on DSK4SPTVN1PROD with NOTICES