Document ID: SEC-2013-0050-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: NASDAQ OMX PHLX LLC
Posted Date: 2013-01-10T05:00Z

[Federal Register Volume 78, Number 7 (Thursday, January 10, 2013)]
[Notices]
[Pages 2310-2312]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2013-00305]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-68582; File No. SR-Phlx-2012-146]

Self-Regulatory Organizations; NASDAQ OMX PHLX LLC; Notice of 
Filing and Immediate Effectiveness of Proposed Rule Change Relating to 
Strategy Caps

January 4, 2013.
    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 21, 2012, 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.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of the 
Substance of the Proposed Rule Change

    The Exchange proposes to amend rule text related to fee caps 
applicable to certain strategies on Multiply Listed Options in Section 
II, entitled ``Equity Options Fees.'' \3\
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    \3\ Section II Equity Options fees include options overlying 
equities, ETFs, ETNs and indexes which are Multiply Listed.
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    The text of the proposed rule change is available on the Exchange's 
Web site at http://nasdaqomxphlx.cchwallstreet.com/, at the principal 
office of the Exchange, and at the Commission's Public Reference Room.

[[Page 2311]]

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 correct rule text 
inadvertently included in a recent proposed rule change related to fee 
caps on dividend,\4\ merger,\5\ short stock interest \6\ and reversal 
\7\ and conversion \8\ strategies in order to clarify contradictory 
language within the rule text.
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    \4\ A dividend strategy is defined as transactions done to 
achieve a dividend arbitrage involving the purchase, sale and 
exercise of in-the-money options of the same class, executed the 
first business day prior to the date on which the underlying stock 
goes ex-dividend.
    \5\ A merger strategy is defined as transactions done to achieve 
a merger arbitrage involving the purchase, sale and exercise of 
options of the same class and expiration date, executed the first 
business day prior to the date on which shareholders of record are 
required to elect their respective form of consideration, i.e., cash 
or stock.
    \6\ A short stock interest strategy is defined as transactions 
done to achieve a short stock interest arbitrage involving the 
purchase, sale and exercise of in-the-money options of the same 
class.
    \7\ Reversals are established by combining a short stock 
position with a short put and a long call position that shares the 
same strike and expiration.
    \8\ Conversions are established by combining a long position in 
the underlying stock with a long put and a short call position that 
share the same strike and expiration.
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    The Exchange recently filed a rule change which applied fee caps on 
various strategies in Section II of the Pricing Schedule.\9\
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    \9\ See Securities Exchange Act Release No. 68406 (December 11, 
2012), 77 FR 74715 (December 17, 2012) (SR-Phlx-2012-138).
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    Among other amendments, this rule change increased the cap for 
dividend, merger and short stock interest strategies from $1,000 to 
$1,250 provided the strategy is executed on the same trading day in the 
same options class when such members are trading in their own 
proprietary account. Further, the Exchange adopted a cap for floor 
options transaction charges for reversal and conversion strategies of 
$750, provided the reversal and conversion strategy is executed on the 
same trading day in the same options class when such members are 
trading in their own proprietary account, similar to dividend, merger 
and short stock interest strategies.\10\
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    \10\ The Exchange also increased the cap for floor equity 
options transaction charges for dividend, merger and short stock 
interest strategies combined from the greater of $10,000 per member 
or $25,000 per member organization per month to simply $35,000 per 
member organization per month provided that such members are trading 
in their own proprietary account. The Exchange proposed to apply 
this cap of $35,000 per member organization per month to reversal 
and conversion strategies as well and term the cap as the ``Monthly 
Strategy Cap.'' See Securities Exchange Act Release No. 68406 
(December 11, 2012), 77 FR 74715 (December 17, 2012) (SR-Phlx-2012-
138).
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    The rule text was amended to state, ``Specialist, Market Maker, 
Professional, Firm and Broker-Dealer floor option transaction charges 
in Multiply Listed Options will be capped at $1,250 per month for 
dividend, merger and short stock interest strategies executed on the 
same trading day in the same options class, and option transaction 
charges in Multiply Listed Options will be capped at $750 per month for 
reversal and conversion strategies executed on the same trading day in 
the same options class when such members are trading in their own 
proprietary accounts.'' [emphases added] The Exchange noted that the 
strategies need to be executed on the same trading day. Strategy caps 
offered by the Exchange are and have always been on a per symbol, per 
day basis. The insertion of the text ``per month'' was inadvertent. The 
Exchange proposes to delete the ``per month'' text which is inaccurate 
and contradicts other text which states the strategies need to be 
executed on the same trading day. The Exchange intended the strategy 
caps of $1,250 and $750 to be per symbol, per day. The Exchange is 
proposing to remove the text ``per month'' to correct the Pricing 
Schedule at Section II and clarify the caps are for the same trading 
day as specified in the rule text.
    The Exchange does not believe that this error caused confusion 
because the Exchange issued an Options Trader Alert at the time the 
filing became effective to notify members of the cap. The alert was 
clear that the caps were per day. In addition, the Exchange has spoken 
to members and does not believe there is any confusion. The purpose of 
this filing is to correct the Pricing Schedule by removing the words 
``per month'' to make clear the caps are per day.
2. Statutory Basis
    The Exchange believes that its proposal to amend its Pricing 
Schedule is consistent with Section 6(b) of the Act \11\ in general, 
and furthers the objectives of Section 6(b)(4) of the Act \12\ in 
particular, in that it is an equitable allocation of reasonable fees 
and other charges among Exchange members and other persons using its 
facilities.
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    \11\ 15 U.S.C. 78f(b).
    \12\ 15 U.S.C. 78f(b)(4).
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    The Exchange's proposal to amend the rule text relating to 
strategies is reasonable because the words ``per month'' and ``on the 
same trading day'' are at odds. The Exchange's proposal to remove the 
words ``per month'' should clarify the application of the fee caps 
related to strategies.
    The Exchange's proposal to amend the rule text relating to 
strategies is equitable and not unfairly discriminatory because the 
Exchange would apply the fee caps in a similar manner to all market 
participants. All market participants are entitled to the caps on a per 
day, per symbol basis.

B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange does not believe that the proposed rule change will 
impose any burden on competition not necessary or appropriate in 
furtherance of the purposes of the Act. The Exchange's proposal is to 
correct rule text which contains contradictory language. The Exchange 
believes this amendment would provide clarity with respect to the 
application of strategy caps and would benefit market participants. The 
Exchange does not believe that there is a misunderstanding among market 
participants that the strategy caps are per day.

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.\13\ 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,

[[Page 2312]]

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.
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    \13\ 15 U.S.C. 78s(b)(3)(A)(ii).
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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 rule-comments@sec.gov. Please include 
File Number SR-Phlx-2012-146 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-2012-146. 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 on official business 
days between the hours of 10:00 a.m. and 3:00 p.m. Copies of such 
filing also will be available for inspection and copying at the 
principal offices of the Exchange. All comments received will be posted 
without change; the Commission does not edit personal identifying 
information from submissions. You should submit only information that 
you wish to make available publicly. All submissions should refer to 
File Number SR-Phlx-2012-146, and should be submitted on or before 
January 31, 2013.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\14\
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    \14\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2013-00305 Filed 1-9-13; 8:45 am]
BILLING CODE 8011-01-P