[Federal Register Volume 74, Number 129 (Wednesday, July 8, 2009)]
[Notices]
[Pages 32675-32678]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E9-15997]


-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-60202; File No. SR-Phlx-2009-54)]


Self-Regulatory Organizations; Notice of Filing of Proposed Rule 
Change by NASDAQ OMX PHLX, Inc. Relating to Fees for the Top of PHLX 
Options (``TOPO'') Data Feed

June 30, 2009.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act'') \1\, and Rule 19b-4 \2\ thereunder, notice is hereby given 
that on June 30, 2009, NASDAQ OMX PHLX, Inc. (``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.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------

I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to amend its fee schedule by establishing 
subscriber fees for a direct data product related to the trading of 
standardized options on the Exchange's enhanced electronic trading 
platform for options, Phlx XL II.\3\ Specifically, the Exchange is 
proposing to adopt fees for the Top of Phlx Options (``TOPO''), a 
direct data feed product that features the Exchange's best bid and 
offer position, with aggregate size and last sale information on the 
Phlx XL II system.
---------------------------------------------------------------------------

    \3\ See Securities Exchange Act Release No. 59995 (May 28, 
2009), 74 FR 26750 (June 3, 2009) (SR-Phlx-2009-32).
---------------------------------------------------------------------------

    The text of the proposed rule change is available on the Exchange's 
Web site at http://nasdaqomxphlx.cchwallstreet.com/NASDAQOMXPHLX/Filings/, 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
    On June 5, 2009, the Exchange launched the Phlx XL II system, which 
is subject to a symbol-by-symbol rollout schedule expected to last up 
to 12 weeks. In conjunction with the launch and rollout of the Phlx XL 
II system, the Exchange is developing TOPO. TOPO will provide to 
subscribers a direct data feed that includes the Exchange's best bid 
and offer position, with aggregate size, based on displayable order and 
quoting interest on the Phlx XL II system. The data contained in the 
TOPO data feed is identical to the data sent to the processor for the 
Options Price Regulatory Authority (``OPRA''), and the TOPO and OPRA 
data leave the Phlx XL II System at the same time.
    Currently, the Exchange does not make market data products such as 
TOPO available. Accordingly, there are no current fees for distribution 
or use of these products on the Exchange's fee schedule. In 
coordination with the projected completion of the rollout of the Phlx 
XL II system, the Exchange proposes to charge monthly fees to 
distributors, beginning August 1, 2009, for use of TOPO. The monthly 
``Distributor Fee'' charged will depend on whether the distributor is 
an ``Internal Distributor'' or an ``External Distributor,'' as defined 
below.
    Under the proposal, the Exchange's fee schedule will reflect that a 
``distributor'' of NASDAQ OMX PHLX data is any entity that receives a 
feed or data file of data directly from NASDAQ OMX PHLX or indirectly 
through another entity and then distributes it either internally 
(within that entity) or externally (outside that entity), and that all 
distributors would be required to execute a NASDAQ OMX PHLX distributor 
agreement.\4\
---------------------------------------------------------------------------

    \4\ The Exchange notes that the proposed definition of 
``distributor'' and references to internal and external distribution 
are identical to those set forth in NASDAQ Rule 7019(c).
---------------------------------------------------------------------------

Internal Distributor

    An Internal Distributor is an organization that subscribes to the 
Exchange for the use of TOPO, and is permitted by agreement with the 
Exchange to provide TOPO data to internal users (i.e., users within 
their

[[Page 32676]]

own organization). Internal Distributors would be charged a monthly fee 
of $2,000 per organization.

External Distributor

    An External Distributor is an organization that subscribes to the 
Exchange for the use of TOPO, and is permitted by agreement with the 
Exchange to provide TOPO data to both internal users and to external 
users (i.e., users outside of their own organization). External 
Distributors will be charged a monthly fee of $2,500 per organization.
2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with the provisions of Section 6 of the Act,\5\ in general and with 
Section 6(b)(4) of the Act,\6\ 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 Phlx operates or controls.
---------------------------------------------------------------------------

    \5\ 15 U.S.C. 78f.
    \6\ 15 U.S.C. 78f(b)(4).
---------------------------------------------------------------------------

    The Exchange believes that the proposed rule change is also 
consistent with the provisions of Section 6(b)(5) of the Act,\7\ in 
that it is designed to promote just and equitable principles of trade, 
to foster cooperation and coordination with persons engaged in 
regulating, clearing, settling, processing information with respect to, 
and facilitating transactions in securities, to remove impediments to 
and perfect the mechanism of a free and open market and a national 
market system, and, in general, to protect investors and the public 
interest; and is not designed to permit unfair discrimination between 
customers, issuers, brokers, or dealers, or to regulate by virtue of 
any authority conferred by the Act matters not related to the purposes 
of the Act or the administration of the Exchange.
---------------------------------------------------------------------------

    \7\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

    The Exchange believes that the proposed rule change is also 
consistent with Section 6(b)(8) of the Act \8\ in that it does not 
impose any burden on competition not necessary or appropriate in 
furtherance of the purposes of the Act, as set forth in more detail 
below.
---------------------------------------------------------------------------

    \8\ 15 U.S.C. 78f(b)(8).
---------------------------------------------------------------------------

    In adopting Regulation NMS, the Commission granted self-regulatory 
organizations and broker-dealers increased authority and flexibility to 
offer new and unique market data to the public. It was believed that 
this authority would expand the amount of data available to consumers, 
and also spur innovation and competition for the provision of market 
data.
    The Commission has recently issued an order firmly establishing 
that in reviewing non-core data products such as TOPO, the Commission 
will utilize a market-based approach that relies primarily on 
competitive forces to determine the terms on which non-core data is 
made available to investors.\9\ The Commission adopted a two-part test:

    \9\ Securities Exchange Act Release No. 57917 [sic] (Dec. 2, 
2008) (NetCoalition Order'' resolving File No. SR-NYSEArca-2006-21).

    The first is to ask whether the exchange was subject to 
significant competitive forces in setting the terms of its proposal 
for non-core data, including the level of any fees. If an exchange 
was subject to significant competitive forces in setting the terms 
of a proposal, the Commission will approve the proposal unless it 
determines that there is a substantial countervailing basis to find 
that the terms nevertheless fail to meet an applicable requirement 
of the Exchange Act or the rules thereunder. If, however, the 
exchange was not subject to significant competitive forces in 
setting the terms of a proposal for non-core data, the Commission 
will require the exchange to provide a substantial basis, other than 
competitive forces, in its proposed rule change demonstrating that 
the terms of the proposal are equitable, fair, reasonable, and not 
unreasonably discriminatory.\10\
---------------------------------------------------------------------------

    \10\ Id. at 48-49.

    This standard begins from the premise that no Commission rule 
requires exchanges or market participants either to distribute non-core 
data to the public or to display non-core data to investors.\11\
---------------------------------------------------------------------------

    \11\ Id. at 4.
---------------------------------------------------------------------------

    In its NetCoalition Order the Commission concluded that ``at least 
two broad types of significant competitive forces applied to NYSE Arca 
in setting the terms of its Proposal to distribute the ArcaBook data: 
(1) NYSE Arca's compelling need to attract order flow from market 
participants; and (2) the availability to market participants of 
alternatives to purchasing the ArcaBook data. The Commission conducted 
an exhaustive 14-page review of these two competitive forces before 
concluding that the availability of alternatives, as well as the 
compelling need to attract order flow, imposed significant competitive 
pressure on the exchange's need to act equitably, fairly, and 
reasonably in setting the terms of the fees for its non-core data 
product.\12\
---------------------------------------------------------------------------

    \12\ Id. at 51-65. The Commission then spent an additional 36 
pages (65-101) analyzing and refuting comments challenging the 
Commission's competition analysis.
---------------------------------------------------------------------------

    The market data provided in TOPO is non-core data that is governed 
by the same analysis the Commission set forth in the NetCoalition 
Order. As with the NYSE Arca depth-of-book product, no rule requires 
Phlx or any other exchange to offer top of book data; nor are vendors 
required to purchase or display that data. Additionally, Phlx is 
constrained by the same two competitive forces in the options market as 
the Commission found are present in the proposal of the International 
Securities Exchange, Inc. (``ISE'') to establish fees for a real-time 
depth of market data offering, the ISE Depth of Market Data Feed 
(``Depth of Market'').\13\
---------------------------------------------------------------------------

    \13\ See Securities Exchange Act Release No. 59949 (May 20, 
2009), 74 FR 25593 (May 28, 2009) (SR-ISE-2007-97) (Order Approving 
Proposed Rule Change, as Modified by Amendment No. 1, Relating to 
Market Data Fees).
---------------------------------------------------------------------------

    First, Phlx has a compelling need to attract order flow from market 
participants, just as ISE, in order to maintain its share of trading 
volume. This compelling need to attract order flow imposes significant 
pressure on Phlx to act reasonably in setting its fees for Phlx market 
data, particularly given that the market participants that will pay 
such fees often will be the same market participants from whom Phlx 
must attract order flow. These market participants include broker-
dealers that control the handling of a large volume of customer and 
proprietary order flow. Given the portability of order flow from one 
exchange to another, any exchange that sought to charge unreasonably 
high data fees would risk alienating many of the same customers on 
whose orders it depends for competitive survival.
    As an illustration of the intensity of the competition for options 
order flow among the seven U.S. options exchanges, the ISE and Chicago 
Board Options Exchange, Inc. (``CBOE'') each enjoy close to thirty 
percent market share of volume, followed by Phlx at close to twenty 
percent market share, followed by four other exchanges with meaningful 
market share.
    Phlx currently trades options on 7 proprietary index products that 
are not traded on any other exchange. These 7 options currently 
represent less than 0.04% of Phlx's total contract volume. Given the 
small percentage of Phlx's total contract volume represented by these 7 
products, the Exchange believes that the inclusion of data on these 
products in the TOPO product should not confer market power on Phlx to 
compel market participants to purchase the entire Phlx data feed. The 
Exchange therefore believes that the inclusion of top-of-book data for 
these products in Phlx's TOPO product does not undermine the fact that 
Phlx is subject

[[Page 32677]]

to significant competitive forces in setting the terms of its proposal.
    Second, Phlx is constrained in pricing TOPO by the availability to 
market participants of alternatives to purchasing TOPO. Phlx must 
consider the extent to which market participants would choose one or 
more alternatives instead of purchasing the exchange's data. For 
example, although the TOPO data feed is separate from the core data 
feed made available by OPRA, all the information available in TOPO is 
included in the core data feed. The core OPRA data is widely 
distributed and relatively inexpensive, thus constraining Phlx's 
ability to price TOPO. Additionally, both ISE and CBOE are potential 
competitors because each exchange enjoys greater market share and thus 
the ability to offer a top-of-book product that would compete favorably 
with TOPO.
    If the Commission finds that Phlx is subject to significant 
competitive forces in setting the terms of TOPO pricing, then the 
Commission should approve the proposal in the absence of a substantial 
countervailing basis to find that its terms nevertheless fail to meet 
an applicable requirement of the Act or the rules thereunder. Phlx 
submits that no such countervailing basis exists.
    To the contrary, Phlx's considerations in setting the fees for TOPO 
are virtually identical to those the Commission approved in the 
NetCoaltion Order. First, the proposed fees for TOPO are lower for 
Internal Distributors than for External Distributors. Because Internal 
Distributors are by definition more limited in the scope of their 
distribution of TOPO data than External Distributors, it is reasonable 
to expect that Internal Distributors will provide TOPO data to a 
smaller number of internal subscribers. Conversely, External 
Distributors can reasonably be expected to distribute the TOPO data to 
a higher number of subscribers because they do not have the same 
limitation. Accordingly, the Exchange will charge a higher fee to 
External Distributors than to Internal Distributors. The fees therefore 
do not unreasonably discriminate among types of subscribers, such as by 
favoring participants in the Phlx market or penalizing participants in 
other markets. Second, Phlx projects that the total revenues generated 
by the TOPO fee initially will amount to less than the $8 million per 
year that NYSE Arca projected would be generated by its ArcaBook 
data.\14\
---------------------------------------------------------------------------

    \14\ Id. at 101-104. [sic]
---------------------------------------------------------------------------

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. To the contrary, the market for 
options orders and executions is already highly competitive and Phlx's 
proposal is itself pro-competitive in several ways. First, the TOPO 
data feed offers a competitive, lower-priced alternative to the 
consolidated data OPRA feed for users and situations where consolidated 
data is unnecessary. Second, the Phlx believes that offering the TOPO 
data feed will help attract new users and new order flow to the Phlx 
market, thereby improving Phlx's ability to compete in the market for 
options order flow and executions.

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 Exchange requests accelerated approval in order to expedite the 
availability of TOPO, which should promote consistency and transparency 
in the Exchange's markets.
    The Exchange believes that accelerated approval should provide 
customers, and broker-dealers that make routing decisions on behalf of 
customers, with greater transparency in the Phlx markets on an 
expedited basis. Once a full 21-day comment period has taken place, the 
Exchange believes (in the absence of any comments that would require a 
response) that it is appropriate for the Commission to accelerate the 
operative date for TOPO fees because the proposed rule change is in the 
public interest and supports the protection of investors by allowing 
data distributors to make additional market data available to investors 
that choose to purchase it. Widespread availability of Phlx options 
data benefits average investors by improving access to real-time market 
data that investors can use to make better-informed trading decisions. 
Additionally, to the extent users can substitute the lower-priced TOPO 
data for the higher-priced consolidated data feed, those users will 
have the opportunity to pass the savings on to investors in the form of 
lower overall trading costs.
    Within 35 days of the date of publication of this notice in the 
Federal Register or within such longer period (i) as the Commission may 
designate up to 90 days of such date if it finds such longer period to 
be appropriate and publishes its reasons for so finding or (ii) as to 
which the Exchange consents, the Commission shall: (a) by order approve 
such proposed rule change, or (b) institute proceedings to determine 
whether the proposed rule change should be 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

    <bullet> Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or
    <bullet> Send an e-mail to <a href="/cdn-cgi/l/email-protection#2e5c5b424b034d4143434b405a5d6e5d4b4d00494158"><span class="__cf_email__" data-cfemail="b5c7c0d9d098d6dad8d8d0dbc1c6f5c6d0d69bd2dac3">[email protected]</span></a>. Please include 
File Number SR-Phlx-2009-54 on the subject line.

Paper Comments

    <bullet> 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-2009-54. This file 
number should be included on the subject line if e-mail 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 inspection and 
copying in the Commission's Public Reference Room, 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

[[Page 32678]]

available publicly. All submissions should refer to File Number SR-
Phlx-2009-54 and should be submitted on or before July 29, 2009.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\15\
---------------------------------------------------------------------------

    \15\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Elizabeth M. Murphy,
Secretary.
[FR Doc. E9-15997 Filed 7-7-09; 8:45 am]
BILLING CODE 8010-01-P


</pre><script data-cfasync="false" src="/cdn-cgi/scripts/5c5dd728/cloudflare-static/email-decode.min.js"></script></body>
</html>