Federal Register / Vol. 77, No. 11 / Wednesday, January 18, 2012 / Notices 2579 

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

2 17 CFR 240.19b–4. 

3A QCC Order is comprised of an order to buy 

or sell at least 1,000 contracts that is identified as 

being part of a qualified contingent trade, as that 

term is defined in Rule 1080(o)(3), coupled with a 

contra-side order to buy or sell an equal number of 

contracts. The QCC Order must be executed at a 

price at or between the National Best Bid and Offer 

and be rejected if a Customer order is resting on the 

Exchange book at the same price. A QCC Order 

shall only be submitted electronically from off the 

floor to the PHLX XL II System. See Rule 1080(o). 

See also Securities Exchange Act Release No. 64249 

(April 7, 2011), 76 FR 20773 (April 13, 2011) (SR– 

Phlx–2011–47) (a rule change to establish a QCC 

Order to facilitate the execution of stock/option 

Qualified Contingent Trades (‘‘QCTs’’) that satisfy 

the requirements of the trade through exemption in 

connection with Rule 611(d) of the Regulation 

NMS). 

4A Floor QCC Order must: (i) be for at least 1,000 

contracts, (ii) meet the six requirements of Rule 

1080(o)(3) which are modeled on the QCT 

Exemption, (iii) be executed at a price at or between 

the National Best Bid and Offer (‘‘NBBO’’); and (iv) 

be rejected if a Customer order is resting on the 

Exchange book at the same price. In order to satisfy 

the 1,000-contract requirement, a Floor QCC Order 

must be for 1,000 contracts and could not be, for 

example, two 500-contract orders or two 500- 

contract legs. See Rule 1064(e). See also Securities 

Exchange Act Release No. 64688 (June 16, 2011), 76 

FR 36606 (June 22, 2011) (SR–Phlx–2011–56). 

5Multiply Listed Securities include those 

symbols which are subject to rebates and fees in 

Section I, Rebates and Fees For Adding and 

Removing Liquidity in Select Symbols, and Section 

II, Equity Options Fees. 

6A Directed Participant is a Specialist, SQT, or 

RSQT that executes a customer order that is 

directed to them by an Order Flow Provider and is 

executed electronically on PHLX XL II. 

7A Specialist is an Exchange member who is 

registered as an options specialist pursuant to Rule 

1020(a). 

8A Registered Options Trader (‘‘ROT’’) includes 

a Streaming Quote Trader (‘‘SQT’’), a Remote 

Streaming Quote Trader (‘‘RSQT’’) and a Non-SQT 

ROT, which by definition is neither a SQT or a 

RSQT. A ROT is defined in Exchange Rule 1014(b) 

as a regular member or a foreign currency options 

participant of the Exchange located on the trading 

floor who has received permission from the 

Exchange to trade in options for his own account. 

See Exchange Rule 1014 (b)(i) and (ii). 

9An SQT is defined in Exchange 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. 

10An RSQT is defined Exchange 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. 

11The Exchange defines a ‘‘professional’’ as 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) (hereinafter 

‘‘Professional’’). 

12Section I of the Fee Schedule is entitled 

‘‘Rebates and Fees for Adding and Removing 

Liquidity in Select Symbols.’’ The Section I fees 

and rebates are applicable to certain select symbols 

which are defined in that section. 

13Section II of the Fee Schedule is entitled 

‘‘Equity Options Fees.’’ Section II includes options 

overlying equities, ETFs, ETNs, indexes and 

HOLDRS which are Multiply Listed. 

14QCC Transaction Fees for a Specialist, ROT, 

SQT, RSQT, Professional, Firm and Broker-Dealer 

are $0.20 per contract. QCC Transaction Fees apply 

to QCC Orders, as defined in Exchange Rule 

1080(o), and Floor QCC Orders, as defined in 

1064(e). 

15A 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. See Section II of the Fee Schedule. 

16A merger strategy is defined as transactions 

done to achieve a merger arbitrage involving the 

Continued 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–66145; File No. SR–Phlx– 

2011–189] 

Self-Regulatory Organizations; 

NASDAQ OMX PHLX LLC; Notice of 

Filing and Immediate Effectiveness of 

Proposed Rule Change Relating to 

Qualified Contingent Cross Orders 

January 11, 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 December 

30, 2011, NASDAQ OMX 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. 

I. Self-Regulatory Organization’s 

Statement of the Terms of Substance of 

the Proposed Rule Change 

The Exchange proposes to amend its 

Fee Schedule to create a tiered rebate for 

Qualified Contingent Cross orders 

(‘‘QCC Orders’’). 

While changes to the Fee Schedule 

pursuant to this proposal are effective 

upon filing, the Exchange has 

designated these changes to be operative 

on January 3, 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, on the 

Commission’s Web site at http:// 

www.sec.gov, 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 rebate applicable 

to both electronic QCC Orders 

(‘‘eQCC’’) 3 and Floor QCC Orders,4 in 

order to create a tiered rebate structure. 

The Exchange believes that offering 

tiered rebates for QCC Orders will create 

an additional incentive for market 

participants to execute QCC Orders on 

the Exchange in Multiply Listed 

Securities.5

There are currently several categories 

of market participants: Customers, 

Directed Participants,6 Specialists,7

Registered Options Traders,8 SQTs,9

RSQTs,10 Broker-Dealers, Firms and 

Professionals.11 The Exchange proposes 

to amend the current rebates applicable 

to both eQCC Orders and Floor QCC 

Orders, for the above categories of 

market participants, applicable to both 

Sections I 12 and II 13 of the Fee 

Schedule. Currently, the Exchange pays 

a rebate of $0.07 per contract for all 

executed eQCC Orders and Floor QCC 

Orders.14

The Exchange proposes to offer a 

tiered rebate structure for both eQCC 

Orders and Floor QCC Orders. The 

Exchange proposes to pay a rebate of 

$0.07 per contract on all qualifying 

executed QCC Orders up to 1,000,000 

contracts in a month. If a member 

exceeds 1,000,000 contracts in a month 

of qualifying executed QCC Orders, the 

Exchange would pay $0.10 per contract 

on all qualifying executed QCC Orders 

in a given month. In other words, the 

Exchange would either pay a $0.07 or 

$0.10 rebate depending on the number 

of qualifying contracts for that month. 

With respect to a Floor QCC Order, the 

Exchange will continue to offer the 

rebate to the Floor Broker. 

The Exchange does not offer a rebate 

on executed eQCC Orders or Floor QCC 

Orders where the transaction is either: 

(i) Customer-to-Customer; or (ii) a 

dividend,15 merger 16 or short stock 


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2580 Federal Register / Vol. 77, No. 11 / Wednesday, January 18, 2012 / Notices 

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. 

See Section II of the Fee Schedule. 

17A 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. See 

Section II of the Fee Schedule. 

18Specialists, ROTs, SQTs and RSQTs, 

Professionals, Firms and Broker-Dealers options 

transaction fees in Multiply Listed Options are 

capped at $500 per day for reversal and conversion 

strategies executed on the same trading day in the 

same options class. 

19Firms are subject to a maximum fee of $75,000 

(‘‘Monthly Firm Fee Cap’’). Firm equity option 

transaction fees and QCC Transaction Fees in the 

aggregate, for one billing month may not exceed the 

Monthly Firm Fee Cap per member organization 

when such members are trading in their own 

proprietary account. All dividend, merger, short 

stock interest and reversal and conversion strategy 

executions are excluded from the Monthly Firm Fee 

Cap. The Firm equity options transaction fees are 

waived for members executing facilitation orders 

pursuant to Exchange Rule 1064 when such 

members are trading in their own proprietary 

account. QCC Transaction Fees are included in the 

calculation of the Monthly Firm Fee Cap. 

20ROTs and Specialists are currently subject to a 

Monthly Market Maker Cap of $550,000. The 

trading activity of separate ROTs and Specialist 

member organizations will be aggregated in 

calculating the Monthly Market Maker Cap if there 

is at least 75% common ownership between the 

member organizations. In addition, ROTs and 

Specialists that (i) are on the contra-side of an 

electronically-delivered and executed Customer 

complex order; and (ii) have reached the Monthly 

Market Maker Cap will be assessed a $0.05 per 

contract fee. See Securities Exchange Act Release 

No. 64113 (March 23, 2011), 76 FR 17468 (March 

29, 2011) (SR–Phlx–2011–36). 

21 15 U.S.C. 78f(b). 

22 15 U.S.C. 78f(b)(4). 

23The rebate does not apply to Singly Listed 

Securities. For purposes of this filing, a Singly 

Listed Option means an option that is only listed 

on the Exchange and is not listed by any other 

national securities exchange. See Section III of the 

Exchange’s Fee Schedule entitled Singly Listed 

Options. 

24See NYSE Arca, Inc.’s (‘‘NYSE Arca’’) Fee 

Schedule. NYSE Arca pays a $0.10 per contract 

rebate for executed QCC orders entered by a Floor 

Broker. 

25Specialists, ROTs, SQTs, RSQTs, Professionals, 

Firms and Broker-Dealers are assessed a QCC 

Transaction Fee of $0.20 per contract. 

26See ISE’s Schedule of Fees. ISE provides a 

rebate to members who reach a certain volume 

threshold in QCC orders and/or solicitation orders 

during a month. Once a member reaches the volume 

threshold, ISE pays a rebate to that member for all 

qualified contingent cross and solicitation traded 

contracts for that month. The rebate is paid to the 

member entering a qualifying order, i.e., a qualified 

contingent cross order and/or a solicitation order. 

The rebate applies to qualified contingent cross 

orders and solicitation orders in all symbols traded 

on the Exchange. Additionally, the threshold levels 

are based on the originating side. Specifically, the 

following rebates apply: For 0–199,999 originating 

contract sides ISE pays no rebate; for 200,000 to 

999,999 originating contract sides ISE pays $0.02 

per contract; for 1,000,000 to 1,699,999 originating 

contract sides ISE pays $0.03 per contract; for 

1,700,000 to 1,999,999 ISE pays $0.04 per contract; 

interest strategy 17 and executions 

subject to the Reversal and Conversion 

Cap.18 These exceptions will remain the 

same. Currently, QCC Transaction Fees 

apply to Sections I and II of the Fee 

Schedule and are subject to the Monthly 

Firm Fee Cap 19 and the Monthly Market 

Maker Cap.20 This will also remain the 

same. 

The Exchange also proposes to add 

additional language to Section I, Part C 

to clarify which QCC Orders are 

qualifying orders. The proposed 

language that is added to Section I 

conforms the text related to the QCC 

rebate to Section II text. The proposed 

text is being added to clarify the 

exceptions to the rebate, which 

exceptions apply to both Sections I and 

II. 

While changes to the Fee Schedule 

pursuant to this proposal are effective 

upon filing, the Exchange has 

designated these changes to be operative 

on January 3, 2012. 

2. Statutory Basis 

The Exchange believes that its 

proposal to amend its Fee Schedule is 

consistent with Section 6(b) of the Act 21

in general, and furthers the objectives of 

Section 6(b)(4) of the Act 22 in 

particular, in that it is an equitable 

allocation of reasonable fees and other 

charges among Exchange members. The 

Exchange also believes that there is an 

equitable allocation of reasonable 

rebates among Exchange members. 

The Exchange believes that it is 

reasonable to incentivize members to 

transact both eQCC Orders and Floor 

QCC Orders in Multiply Listed 

securities 23 by paying a tiered rebate of 

$0.07 per contract on all qualifying 

executed QCC Orders up to 1,000,000 

contracts in a month or a rebate of $0.10 

per contract for members with 

qualifying executed QCC Orders 

exceeding 1,000,000 contracts in a 

month. The Exchange believes that 

paying a tiered rebate will sufficiently 

incentivize its members to send both 

eQCC Orders and Floor QCC Orders to 

the Exchange. The Exchange believes 

that offering a tiered rebate, as 

compared to a flat rate, is reasonable 

because the Exchange is paying a rebate 

on every contract, similar to the flat rate, 

and the Exchange is also incentivizing 

members to execute an even greater 

number of qualifying executed QCC 

Orders to achieve a higher rebate on all 

contracts in that given month. In other 

words, the proposal offers members 

more incentive to send a greater number 

of QCC Orders, while still paying a 

$0.07 rebate below 1,000,000 contracts. 

The proposed tiered rebate structure is 

within the range of rebates paid by other 

exchanges 24 and balances the 

Exchange’s desire to incentivize its 

members to send order flow to the 

Exchange while considering the costs 

attributable to offering such rebates. 

With respect to the Floor QCC Order, 

the Exchange will also continue to offer 

the rebate to the Floor Broker. The Floor 

Broker is in receipt of the Floor QCC 

Orders and enters those orders into 

FBMS. The Exchange believes it is 

necessary from a competitive standpoint 

to offer this rebate to the executing Floor 

Broker on a Floor QCC Order. The 

Exchange expects that the rebate offered 

to executing Floor Brokers will allow 

them to price their services at a level 

that will enable them to attract Floor 

QCC order flow from participants who 

would otherwise enter these orders 

electronically from off the floor to the 

PHLX XL II System. To the extent that 

Floor Brokers are able to attract these 

Floor QCC orders, they will gain 

important information that will allow 

them to solicit the parties to the Floor 

QCC orders for participation in other 

trades, which will in turn benefit all 

other Exchange participants through the 

additional liquidity and price discovery 

that may occur as a result. 

The Exchange believes it continues to 

be reasonable to not offer a rebate for 

eQCC Orders and Floor QCC Orders for 

Customer-to-Customer executions 

because members executing Customer 

orders are not assessed a QCC 

Transaction Fee 25 and therefore do not 

need to be incentivized to send QCC 

Orders to the Exchange. Likewise, the 

Exchange believes that it is reasonable 

to not offer a rebate for dividend, merger 

and short stock interest strategies and 

executions subject to the Reversal and 

Conversion Cap because the Exchange 

already provides a cap today on the 

transaction fees associated with these 

strategies and therefore does not believe 

an additional incentive is required. 

The Exchange believes that it is 

equitable and not unfairly 

discriminatory to pay a tiered rebate for 

executed QCC Orders because all market 

participants will continue to be eligible 

for the $0.07 rebate, as they are today, 

unless they are able to exceed 1,000,000 

contracts of qualifying executed QCC 

Orders in a given month, then the 

member would be entitled to a higher 

rebate of $0.10 per contract on all 

qualifying executed QCC Orders. This 

benefit is intended to incentivize 

members to transact a greater number of 

contracts and qualifying QCC Orders in 

order to take advantage of the higher 

rebate. Additionally, the proposed 

rebate is within the range of tiered 

rebates offered by the International 

Securities Exchange, LLC (‘‘ISE’’).26


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Federal Register / Vol. 77, No. 11 / Wednesday, January 18, 2012 / Notices 2581 

and for 2,000,000 or more originating contract sides 

ISE pays $0.05 per contract. 27 15 U.S.C. 78s(b)(3)(A)(ii). 

28 17 CFR 200.30–3(a)(12). 

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

2 17 CFR 240.19b–4. 

Also, all members are equally eligible to 

transact Multiply Listed securities. 

The Exchange believes that it 

continues to be equitable and not 

unfairly discriminatory to pay the rebate 

for Floor QCC Orders to Floor Brokers 

because it would uniformly apply to all 

Floor QCC Orders entered by a Floor 

Broker into FBMS for execution based 

on volume. The rebate is not unfairly 

discriminatory to firms that enter eQCC 

Orders directly into PHLX XL II, 

because the transaction fees and rebates 

are the same whether the order is 

entered electronically or through a Floor 

Broker. In addition, pursuant to 

Exchange Rule 1080(o)(3), only Floor 

Brokers may enter a Floor QCC Order 

from the floor of the Exchange; 

therefore, providing the rebate to Floor 

Brokers does not discriminate against 

eQCC orders entered into PHLX XL II. 

Any participant will be able to engage 

a rebate-receiving Floor Broker in a 

discussion surrounding the appropriate 

level of fees that they may be charged 

for entrusting the entry of the Floor QCC 

Order to the Floor Broker into FBMS for 

execution. The additional order flow 

attracted by this rebate should benefit 

all participants. The rebate is meant to 

assist Floor Brokers to recruit business 

on an agency basis. The Floor Broker 

may use all or part of the rebate to offset 

its fees. 

The Exchange believes it is equitable 

and not unfairly discriminatory to not 

offer a rebate for eQCC Orders and Floor 

QCC Orders for Customer-to-Customer 

executions and for dividend, merger and 

short stock interest strategies and 

executions subject to the Reversal and 

Conversion Cap because the Exchange 

would not offer a rebate for these two 

types of transactions for any QCC Order 

uniformly. Neither Customer-toCustomer executions nor dividend, 

merger and short stock interest 

strategies and executions subject to the 

Reversal and Conversion Cap will 

receive the rebate. Also, Customers are 

not assessed a QCC Transaction Fee. 

The Exchange believes that the 

technical amendments proposed herein 

are reasonable, equitable and not 

unfairly discriminatory because they 

would add clarity to the Fee Schedule 

and conform the Fee Schedule. 

The Exchange operates in a highly 

competitive market comprised of nine 

U.S. options exchanges in which 

sophisticated and knowledgeable 

market participants readily can, and do, 

send order flow to competing exchanges 

if they deem fee levels at a particular 

exchange to be excessive. The Exchange 

believes that the proposed rebates for 

eQCC Orders and Floor QCC Orders 

must be competitive with rebates 

offered at other options exchanges. The 

Exchange believes that this competitive 

marketplace impacts the rebates and 

fees present on the Exchange today and 

influences the proposals set forth above. 

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.27 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. 

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–2011–189 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–2011–189. 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 such filing 

also will be available for inspection and 

copying at the principal office of the 

Exchange. All comments received will 

be posted without change; the 

Commission does not edit personal 

identifying information from 

submissions. You should submit only 

information that you wish to make 

available publicly. All submissions 

should refer to File Number SR–Phlx– 

2011–189 and should be submitted on 

or before February 8, 2012. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.28

Kevin M. O’Neill, 

Deputy Secretary. 

[FR Doc. 2012–818 Filed 1–17–12; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–66130; File No. SR–EDGA– 

2011–42] 

Self-Regulatory Organizations; EDGA 

Exchange, Inc.; Notice of Filing and 

Immediate Effectiveness of Proposed 

Rule Change Relating to Amendments 

to the EDGA Exchange, Inc. Fee 

Schedule 

January 11, 2012. 

Pursuant to Section 19(b)(1) of the 

Securities Exchange Act of 1934 (the 

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


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