Document ID: SEC-2010-1307-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: NASDAQ OMX PHLX, Inc.
Posted Date: 2010-08-26T04:00Z

[Federal Register: August 26, 2010 (Volume 75, Number 165)]
[Notices]               
[Page 52558-52560]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr26au10-98]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-62744; File No. SR-Phlx-2010-105]

 
Self-Regulatory Organizations; NASDAQ OMX PHLX, Inc.; Notice of 
Filing and Immediate Effectiveness of Proposed Rule Change Relating to 
the Cancellation Fee

August 19, 2010.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(the ``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given 
that on August 13, 2010, NASDAQ OMX PHLX, Inc. (``Phlx'' or 
``Exchange'') filed with the Securities and Exchange Commission 
(``Commission'') the proposed rule change as described in Items I and 
II 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 assess a Cancellation Fee on all 
electronically delivered all-or-none (``AON'') orders that are 
submitted by a Professional and subsequently cancelled by the party 
that originally submitted the order.
    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 purpose of the proposed rule change is to amend the manner in 
which the Cancellation Fee is assessed on members. The Exchange 
proposes to assess a Cancellation Fee of $1.10 on all electronically 
delivered \3\ AON orders that are submitted by a Professional \4\ 
(hereafter ``Professional AON'') and subsequently cancelled by the 
party that originally submitted the order. The Exchange has observed 
that the number of cancelled Professional AON orders greatly exceeds 
the normal order cancellation activity on the Exchange for all other 
order types, and thus affects the automated order handling capacity of 
the Exchange's systems. The Exchange proposes to include Professional 
AON orders into the calculation of cancelled orders to assess the 
Cancellation Fee to recover costs associated with system issues that 
are attributable to cancelled AON orders. A Professional order is 
treated, for purposes of priority, as a Customer order.\5\
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    \3\ Electronically delivered orders are delivered through the 
Exchange's options trading platform known as PHLX XL II.
    \4\ Currently, a Professional is treated in the same manner as 
an off-floor broker-dealer for purposes of Rules 1014(g) (except 
with respect to AON orders, which will be treated like Customer 
orders), 1033(e), 1064.02 (except professional orders will be 
considered Customer orders subject to facilitation), and 1080.08 as 
well as Options Floor Procedure Advices B-6, B-11 and F-5. Member 
organizations must indicate whether orders are for professionals.
    \5\ Id.
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    Currently, the Exchange assesses a Cancellation Fee of $2.10 per 
order on member organizations for each cancelled electronically 
delivered Customer order that exceeds the number of Customer orders 
executed on the Exchange by that member organization in a given month. 
The Exchange calculates the Cancellation Fee by aggregating all 
Customer orders and cancellations received from a member organization 
in a particular calendar month. At least 500 Customer cancellations 
must be made in a given month by a member organization in order for a 
member organization to be assessed the Cancellation Fee (``500 
Threshold''). The Cancellation Fee is not assessed in a month in which 
fewer than 500 electronically delivered Customer orders \6\ are 
cancelled. Simple

[[Page 52559]]

cancels and cancel-replacement orders are the types of orders that are 
counted when calculating the number of electronically delivered 
orders.\7\ The following order activity is exempt from the Cancellation 
Fee: (i) Pre-market cancellations; \8\ (ii) Complex Orders \9\ that are 
submitted electronically; (iii) unfilled Immediate-or-Cancel \10\ 
Customer orders; and (iv) cancelled Customer orders that improved the 
Exchange's prevailing bid or offer (PBBO) market at the time the 
Customer orders were received by the Exchange.
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    \6\ For purposes of assessing the Cancellation Fee, Customer 
orders from the same member organization in the same series on the 
same side of the market that are executed at the same price within a 
300 second period will be aggregated and counted as one executed 
Customer option order.
    \7\ A cancel-replacement order is a contingency order consisting 
of two or more parts which require the immediate cancellation of a 
previously received order prior to the replacement of a new order 
with new terms and conditions. If the previously placed order is 
already filled partially or in its entirety the replacement order is 
automatically canceled or reduced by such number. See Exchange Rule 
1066(c)(7).
    \8\ See Securities Exchange Act Release Nos. 53226 (February 3, 
2006), 71 FR 7602 (February 13, 2006) (SR-Phlx-2005-92); and 53670 
(April 18, 2006), 71 FR 21087 (April 24, 2006) (SR-PHLX-2006-21). 
See also Securities Exchange Act Release No. 60046 (June 4, 2009), 
74 FR 28083 (June 12, 2009) (SR-Phlx-2009-44).
    \9\ A complex order is a spread, straddle, combination, ratio or 
collar order, all of which consist of more than one component, 
priced like a single order at a net debit or credit based on the 
prices of the individual components. See Exchange Rule 1080.08 
Commentary .08(a)(i).
    \10\ An Immediate-or-Cancel (IOC) order is a limit order that is 
to be executed in whole or in part upon receipt. Any portion not so 
executed shall be cancelled.
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    The Exchange proposes to continue to assess the $2.10 Cancellation 
Fee on all Customer orders that exceed the 500 Threshold for cancelled 
orders. Professional AON orders would be computed in calculating the 
500 Threshold before any order is assessed a Cancellation Fee.\11\ 
Beyond the 500 Threshold, each Customer order would be assessed a 
Cancellation Fee of $2.10 per order; this is not changing. The Exchange 
proposes to assess each Professional AON order, beyond the 500 
Threshold, a $1.10 per order Cancellation Fee.
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    \11\ In reaching the 500 Threshold, orders must be executed from 
the same member organization in the same series on the same side of 
the market and executed at the same price within a 300 second 
period. Orders are aggregated and counted as one executed Customer 
or Professional AON option order.
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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 other persons using its 
facilities. The Exchange believes that the proposed amendments to the 
Cancellation Fee are reasonable because they will ease system 
congestion and allow the Exchange to recover costs associated with 
excessive order cancellation activity. The Exchange has experienced a 
significant increase in the number of Professional AON orders. Also, 
the Exchange believes that the amendment to the Cancellation Fee is 
equitable because the addition of the Professional AON orders to the 
Cancellation Fee computation would continue to be applied equitably 
among members according to system use.
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    \12\ 15 U.S.C. 78f(b).
    \13\ 15 U.S.C. 78f(b)(4).
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    With respect to Section I, Rebates and Fees for Adding and Removing 
Liquidity in Select Symbols, of the Fee Schedule, a Customer is 
entitled to receive a $.20 rebate for adding liquidity, is assessed no 
fee for adding liquidity and is assessed a $.25 fee for removing 
liquidity. A Professional in that same fee model is entitled to receive 
a $.20 rebate for adding liquidity, is assessed no fee for adding 
liquidity and is assessed a $.40 fee for removing liquidity. The 
Professional AON orders would be assessed a fee that is $1.00 lower 
($1.10 as compared to $2.10) than fees assessed for Customer orders 
over the 500 Threshold.
    With respect to the fees in Section II, Equity Options Fees, of the 
Fee Schedule, a Customer is not assessed a fee for options transactions 
(penny or non-penny); however, a Professional is assessed a $.20 fee 
for options transactions (penny and non-penny). Neither a Customer nor 
a Professional is assessed an Options Surcharge in RUT, RMN, MNX or 
NDX. Again, there would be a $1.00 differential between Customer and 
Professional AON orders with this proposed Cancellation Fee.
    The Exchange assesses the Cancellation Fee by aggregating all 
Customer orders. Cancellations received from a member organization in a 
particular calendar month from the same member organization in the same 
series on the same side of the market and executed at the same price 
within a 300-second period are aggregated and counted as one option 
order. The Professional AON orders, which receive a Customer priority, 
are proposed to be included in that calculation. The Exchange would 
assess the Cancellation Fee only after the 500 Threshold is reached. 
The Exchange believes that this proposal is equitable because: (i) The 
Exchange is assessing the fee on aggregate Customer orders (including 
Professional AON orders) because they are the specific cause of the 
system congestion; \14\ (ii) Professional AON orders have the benefit 
of the Customer priority and therefore should be treated similar to 
Customers in terms of the Cancellation Fee assessment; and (iii) the 
Exchange proposes to assess a lower Cancellation Fee on a Professional 
order as compared to a Customer order.
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    \14\ The Exchange has no evidence that Broker-Dealer and other 
market participants contribute to system congestion as a result of 
cancellation orders.
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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 
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 \15\ and Rule 19b-4(f)(2) \16\ thereunder. 
At any time within 60 days of the filing of such 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.
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    \15\ 15 U.S.C. 78s(b)(3)(A)(ii).
    \16\ 17 CFR 19b-4(f)(2).
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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 e-mail to rule-comments@sec.gov. Please include 
File Number SR-Phlx-2010-105 on the subject line.

Paper Comments

     Send paper comments in triplicate to Elizabeth M. Murphy, 
Secretary, Securities and Exchange Commission,

[[Page 52560]]

100 F Street, NE., Washington, DC 20549-1090.

All submissions should refer to File Number SR-Phlx-2010-105. 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,\17\ 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-2010-105 and should be submitted on or before September 16, 2010.
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    \17\ The text of the proposed rule change is available on 
Exchange's Web site at http://nasdaqtrader.com/
micro.aspx?id=PHLXfilings, on the Commission's Web site at http://
www.sec.gov, at Phlx, and at the Commission's Public Reference Room.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\18\
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    \18\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
[FR Doc. 2010-21177 Filed 8-25-10; 8:45 am]
BILLING CODE 8010-01-P