Document ID: SEC-2010-0573-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: NASDAQ OMX PHLX, Inc.
Posted Date: 2010-04-16T04:00Z

[Federal Register: April 16, 2010 (Volume 75, Number 73)]
[Notices]               
[Page 20021-20023]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr16ap10-139]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-61863; File No. SR-Phlx-2010-54]

 
Self-Regulatory Organizations; Notice of Filing and Immediate 
Effectiveness of Proposed Rule Change by NASDAQ OMX PHLX, Inc. Relating 
to Fees for Participation in NASDAQ OMX PSX

April 7, 2010.
    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 31, 2010, 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.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to adopt a new access fee applicable to 
Exchange members approved for participation in PSX, to waive this fee 
for a six month period, and to waive certain Exchange membership fees 
for new members seeking to participate solely in PSX.
    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
    In October 2008, the Exchange ceased operation of its cash equities 
trading platform, XLE\3\, and since has solely operated an options 
market. The Exchange plans to launch PSX, a new cash equities market to 
be operated by the Exchange, in the second quarter of 2010, at a time 
following effectiveness of necessary filings with the Securities and 
Exchange Commission (``Commission'').
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    \3\ See Securities Exchange Act Release No. 58613 (September 22, 
2008), 73 FR 57181 (October 1, 2008) (SR-Phlx-2008-65).
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Membership Fees
    Under the Exchange's current fee schedule, a broker-dealer applying 
for Exchange membership (``Applicant'') is assessed a non-refundable 
application fee of $350.00, which must be provided to the Exchange 
concurrent with the membership application. An applicant that is 
subsequently approved for Exchange membership is assessed an initiation 
fee of $1,500.00 and in return receives an A-1 trading permit,\4\ which 
allows the approved Applicant to use the trading facilities of the 
Exchange. In addition to these two one-time fees, members are assessed 
a permit fee of $1,000.00 per month.\5\
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    \4\ See Rule 908.
    \5\ A member participating in the Exchange's options market is 
also assessed an account fee of $50 per month for each account 
number assigned to the member in addition to the account number 
provided with the permit. Account numbers are assigned by the 
Exchange to options participants as a means to identify the member 
in options market transactions. Members may request additional 
account numbers for various business purposes. The additional 
account fee will not be applicable to PSX participants as MPIDs will 
be used to identify member firms' participation, not account 
numbers.
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    As a consequence of the Exchange's pending operation of both a cash 
equities and options market, an Applicant will have the option of 
applying to participate in one or both of the markets. The Exchange is 
proposing to waive the application, initiation, and permit fees for 
Applicants applying to participate in PSX. The proposed fee waivers 
would apply to new Exchange members applying to participate solely in 
PSX. The proposed fee waiver does not apply to an Applicant seeking 
approval to participate solely in the options market, or to an 
Applicant seeking to participate in both markets. In these cases, the 
application, initiation, and permit fees, as they relate to options, 
would apply. An Exchange member approved to participate in PSX would 
not be assessed an application fee should it subsequently determine to 
participate in the Exchange's options market, but would be charged the 
one-time initiation fee and would thereafter be charged the monthly 
account fee and permit fee.\6\
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    \6\ PHLX notes that the majority of time and expense incurred in 
reviewing an application is realized in the initial membership 
application process. As a consequence, a PSX participant that 
submits a subsequent application to participate on the Exchange's 
options market would result in little additional expense to the 
Exchange. In addition, the Exchange believes that many of the new 
PSX market participants will be current Exchange options market 
participants and therefore will have paid an application fee to 
participate on that market. Coupled with the fact that the current 
application fee set at a low level, the Exchange believes that the 
fee waiver will result in a non-material loss in application fee 
revenues.
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    Because the Exchange proposes to waive the application, initiation, 
and permit fees as an incentive to attract market participants to the 
PSX, it seeks to implement the fee waivers immediately so that 
Applicants seeking to participate in PSX may begin submitting 
applications to the Exchange prior to the market's commencement of 
operations.

[[Page 20022]]

Access Services Fees
    Access to PSX will be provided through the OUCH, FIX, and RASH 
access protocols, with drop copies provided through the DROP protocol. 
Connections to PSX will be available through extranets, direct 
connection, and Internet-based virtual private networks. Prior to the 
launch of the PSX, the Exchange will make the PSX trading platform 
available for testing purposes, but will not charge for testing or for 
access ports used for testing. After the first full six months during 
which PSX operates, the Exchange will assess a fee of $400 per month 
for each port pair, with an additional $200 per month charged for each 
Internet port that requires additional bandwidth.\7\ The Exchange 
believes these fees are reasonable as they are identical to the fees 
charged by NASDAQ OMX BX (``BX'') for comparable access to its cash 
equities market.\8\ The Exchange expects that the proposed fees will 
eventually cover the costs associated with establishing the service, 
responding to customer requests, configuring Exchange systems, 
programming to user specifications, and administering the service, 
among other things, and may provide the Exchange with a profit. Similar 
to the membership fees discussed above, however, the Exchange will 
waive access services fees until the end of the sixth calendar month of 
PSX's operation as an incentive to attract market participants to the 
PSX. Prior to launch, however, access ports will be available for 
testing purposes.
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    \7\ See the NASDAQ OMX PHLX Fee Schedule, proposed Item XII.
    \8\ See BX Rule 7015.
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2. Statutory Basis
    The Exchange believes that its proposal to amend its schedule of 
fees is consistent with Section 6(b) of the Act \9\ in general, and 
furthers the objectives of Section 6(b)(4) of the Act \10\ in 
particular, in that it provides for an equitable allocation of 
reasonable fees and other charges among Exchange members. The Exchange 
makes all services and products subject to its fees available on a non-
discriminatory basis to similarly situated recipients. The proposed new 
access fees are structured in a manner comparable to corresponding fees 
of BX already in effect, and are set at levels equal to these 
comparable fees. Moreover, the proposed access fees are set at levels 
that are uniform for all members. The proposed waivers of both the 
access fees and certain membership fees are designed to encourage 
broader participation in the proposed new market, and are appropriate 
in light of the lack of certainty with respect to the start date of the 
new market as well as the speed with which liquidity will develop on 
it.
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    \9\ 15 U.S.C. 78f(b).
    \10\ 15 U.S.C. 78f(b)(4).
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B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange does not believe that the proposed rule change will 
result in any burden on competition that is not necessary or 
appropriate in furtherance of the purposes of the Act, as amended. 
Despite its long history of operating a cash equities market, the 
Exchange will effectively be entering the competitive markets for 
equities trading as a start-up venture, having shuttered its cash 
equities market in the fourth quarter of 2008. Accordingly, its fees 
must be set at a level that will promote competition in the markets, or 
potential users of its services will simply continue to obtain services 
from the Exchange's multiple competitors. In waiving certain fees 
associated with membership in the new market, the Exchange believes 
that market participants will be attracted to the market, which will 
help ensure market depth and liquidity. In its discretion, the Exchange 
may determine to eliminate the proposed membership fee waivers, in part 
or altogether, through a subsequent rule change.
    The Exchange is also proposing a new fee for access to the new 
market and to waive this fee for a limited period to attract market 
participants. The fee is based on the fees assessed by BX for access to 
its market. Accordingly, the Exchange believes that the proposed new 
access fee is fairly priced based on its similarity to the fee assessed 
for access to BX. As a consequence, the Exchange believes that the 
proposed fee will not unduly place a burden on competition. The 
Exchange notes that, if it sets fees at inappropriately high levels, 
market participants will avoid using the Exchange.

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 proposed rule change establishes or changes a due, 
fee, or other charge applicable only to a member pursuant to Section 
19(b)(3)(A)(ii) of the Act \11\ and Rule 19b-4(f)(2) \12\ thereunder. 
Accordingly, the proposal will take effect upon filing with the 
Commission.
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    \11\ 15 U.S.C. 78s(b)(3)(A)(ii).
    \12\ 17 CFR 240.19b-4(f)(2).
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    At any time within 60 days of the filing of the proposed rule 
change, the Commission may summarily abrogate 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.

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 e-mail to rule-comments@sec.gov. Please include 
File Number SR-Phlx-2010-54 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-2010-54. 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 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

[[Page 20023]]

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-2010-54 and should be submitted on 
or before May 7, 2010.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\13\
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    \13\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
[FR Doc. 2010-8684 Filed 4-15-10; 8:45 am]
BILLING CODE 8011-01-P