Document ID: SEC-2010-1994-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: NASDAQ OMX PHLX LLC
Posted Date: 2010-12-27T05:00Z

[Federal Register Volume 75, Number 247 (Monday, December 27, 2010)]
[Notices]
[Pages 81323-81326]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2010-32376]

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

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-63569; File No. SR-Phlx-2010-178]

Self-Regulatory Organizations; NASDAQ OMX PHLX LLC; Notice of 
Filing and Immediate Effectiveness of Proposed Rule Change To Amend Its 
Fee Schedule

December 17, 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 December 15, 2010, NASDAQ OMX PHLX LLC (``Phlx'' or ``Exchange'') 
filed with the Securities and Exchange Commission (the ``Commission'') 
the proposed rule change as described in Items I and II below, which 
Items have been prepared by the Exchange. Phlx has filed the proposal 
pursuant to Section 19(b)(3)(A) of the Act \3\ and Rule 19b-4(f)(2) 
thereunder,\4\ which renders the proposal effective upon filing with 
the Commission. 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.
    \3\ 15 U.S.C. 78s(b)(3)(A).
    \4\ 17 CFR 240.19b-4(f)(2).
---------------------------------------------------------------------------

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

    The Exchange proposes to eliminate the Examinations Fee, amend the 
Exchange's Permit Fees and Application Fee and create a Transfer of 
Affiliation Fee. The Exchange also proposes to make other technical 
non-substantive amendments to the proposal to update the Fee Schedule 
by removing obsolete language and adding clarifying language.
    While changes to the Exchange's Fee Schedule pursuant to this 
proposal are effective upon filing, the Exchange has designated this 
proposal to be operative on January 3, 2011, except for the Lapsed 
Application Fee which the Exchange proposes to be operative on the 
approval of proposed rule change SR-Phlx-2010-148.\5\
---------------------------------------------------------------------------

    \5\ See Securities Exchange Act Release No. 63318 (November 16, 
2010), 75 FR 71155 (November 22, 2010) (SR-Phlx-2010-148).
---------------------------------------------------------------------------

    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 eliminate the 
Exchange's Examination Fee, amend the Permit Fee and Application Fee 
and propose a new Transfer of Affiliation Fee.
Examinations Fee
    The Exchange is proposing to eliminate the Examinations Fee. The 
Exchange believes that the Examinations Fee is no longer necessary 
because the number of off-floor traders for which the Exchange is the 
Designated Examining Authority (``DEA'') has declined to under ten 
member organizations with a limited number of off-floor trades. Also, 
the Exchange believes that members should bear the burden of certain 
Exchange expenses associated with membership equally. The Exchange 
proposes to amend its Permit Fees, as described below, to differentiate 
between members who transact business at the Exchange and those members 
who do not transact business at the Exchange. Members who transact 
business at the Exchange pay transaction fees and other types of fees, 
as compared to members who do not transact business at the Exchange and 
do not pay such fees but still incur costs for the Exchange related to 
membership. The Exchange believes that eliminating the Examinations Fee 
and creating the proposed Permit Fees spreads Exchange costs equally 
among members.
    Currently, the Exchange assesses an Examinations Fee based on a 
tiered schedule. The fee is applicable to member organizations for 
which the Exchange is the DEA.\6\ The Exchange assesses the monthly 
Examinations Fee as follows: $2,100 is assessed to a member 
organization that has from 0-10 off-floor traders; $2,600 is assessed 
to a member organization that has from 11-50 off-floor traders; $5,000 
is assessed to a member organization that has from 51-200 off-floor 
traders; and $12,500 is assessed to a member organization that has over 
200 off-floor traders.
---------------------------------------------------------------------------

    \6\ Member Organizations operating through one or more Exchange 
markets that are able to demonstrate that 25% or more of its 
revenue, as reflected in the most recently submitted FOCUS Report or 
transactions as reflected on its purchased and sales blotter, are 
derived from securities transactions on the Exchange are exempt from 
the Examinations Fee.

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

[[Page 81324]]

Permit Fees
    The Exchange is proposing to amend its current Permit Fee which is 
$1,000 per month. The Exchange proposes to amend this Permit Fee by 
instead assessing two different Permit Fees based on whether a member 
is transacting business on the Exchange.
    The Exchange proposes to assess members who are transacting 
business on the Exchange a Permit Fee of $1,100 per month. The Exchange 
proposes to assess members who are not transacting business on the 
Exchange a Permit Fee of $7,500 per month. A member or member 
organization would not be assessed the $7,500 Permit Fee for not 
transacting business on the Exchange if that member is either: (i) 
Solely a PSX Participant \7\ or (ii) engaged in any options business at 
the Exchange in a particular month. That member would instead be 
assessed the $1,100 monthly Permit Fee. In addition, a member or member 
organization that sponsors an options participant \8\ would pay an 
additional Permit Fee for each sponsored options participant.
---------------------------------------------------------------------------

    \7\ Applicants that apply for membership solely to participate 
in the NASDAQ OMX PSX equities market are not assessed a Permit Fee, 
Application Fee, Initiation Fee, or Account Fee. See Securities 
Exchange Act Release No. 61863 (April 7, 2010), 75 FR 20021 (April 
16, 2010) (SR-Phlx-2010-54).
    \8\ See Exchange Rule 1094 titled Sponsored Participants. A 
Sponsored Participant may obtain authorized access to the Exchange 
only if such access is authorized in advance by one or more 
Sponsoring Member Organizations. Sponsored Participants must enter 
into and maintain participant agreements with one or more Sponsoring 
Member Organizations establishing a proper relationship(s) and 
account(s) through which the Sponsored Participant may trade on the 
Exchange.
---------------------------------------------------------------------------

    The Exchange is proposing to increase the current Permit Fee, the 
addition of a Permit Fee for members not transacting business and a fee 
for sponsored participants to recoup costs associated with the 
administration of its members.
Application Fee
    The Exchange is proposing to amend its Application Fee to add 
another Application Fee for Lapsed Applications. The title of the new 
fee will be ``Application Fee for Lapsed Applications'' and the 
Exchange would assess $350 to submit the application after a lapse. The 
Application Fee for Lapsed Applications is the same as the current 
Application Fee.\9\ The fee is proposed to recoup administrative 
expenses incurred by the Exchange to review new applications for 
membership.
---------------------------------------------------------------------------

    \9\ Application Fees are used to help offset Exchange clerical 
and administrative expenditures related to application processing 
including, but not limited to, regulatory background checks, 
registration and fingerprint card processing.
---------------------------------------------------------------------------

    Pursuant to Exchange Rule 900.2, applicants desiring membership in 
the Exchange are required to submit information in a form prescribed by 
the Membership Department. The Exchange recently proposed to amend its 
rules to require persons seeking membership to the Exchange to provide 
all information and subsequent requests from the Membership Department 
for information within a 90 calendar day period, otherwise the 
application lapses.\10\ If an application lapses, the applicant would 
be required to resubmit a new application.\11\ The Exchange would not 
refund the fee associated with submitting an application and the 
applicant would be required to pay a new fee to resubmit the 
application.
---------------------------------------------------------------------------

    \10\ See Securities Exchange Act Release No. 63318 (November 16, 
2010), 75 FR 71155 (November 22, 2010) (SR-Phlx-2010-148).
    \11\ The purpose of the new application would be to update all 
information to provide the Membership Department current information 
on which to base a decision to accept the applicant for membership.
---------------------------------------------------------------------------

    Applicants that apply for membership solely to participate in the 
NASDAQ OMX PSX equities market today are not assessed a Permit Fee, 
Application Fee, Initiation Fee, or Account Fee.\12\ The Exchange would 
not assess the Application Fee for Lapsed Applications because the 
Application Fee is currently waived.
---------------------------------------------------------------------------

    \12\ See Securities Exchange Act Release No. 61863 (April 7, 
2010), 75 FR 20021 (April 16, 2010) (SR-Phlx-2010-54).
---------------------------------------------------------------------------

    The Exchange also proposes to amend the manner in which the 
Application and Initiation Fees are assessed. Currently, the 
Application Fee is charged only upon the first such approval of an 
applicant and is non-recurring; however, a lapse for 6 months or more 
necessitates the payment of an Application Fee for reapplication.\13\ 
For example, if a member ceases to be a member on January 1st and 
applies on or after July 1st of that year to once again become a 
member, an Application Fee is charged to that applicant.
---------------------------------------------------------------------------

    \13\ See Securities Exchange Act Release No. 47148 (January 9, 
2003), 68 FR 2614 (January 17, 2003) (SR-Phlx-2002-79).
---------------------------------------------------------------------------

    The Exchange proposes to discontinue this practice of allowing a 
former member to reapply without being assessed an Application Fee so 
long as the former member reapplies for membership with the Exchange 
within 6 months of terminating membership. The Exchange proposes to 
assess the Application Fee each time an applicant applies for 
membership, notwithstanding the fact that the applicant may have 
previously been a member of the Exchange.\14\
---------------------------------------------------------------------------

    \14\ An Initiation Fee would also be assessed. See footnote 16.
---------------------------------------------------------------------------

    The Exchange is required to examine each applicant and perform all 
the necessary diligence for reviewing an applicant for membership.\15\ 
The ability to assess the Application Fee on former members who have a 
lapse in their membership would allow the Exchange to recoup 
administrative expenses incurred by the Exchange to determine if the 
lapsed member still meets all the membership requirements.
---------------------------------------------------------------------------

    \15\ See Exchange Rule 908(b) which states, ``A Series A-1 
permit shall only be issued to an individual or to a corporation 
meeting the requirements of Section 12-4 of the By-Laws, who meets 
the eligibility and application requirements set forth in Article 
XII of the By-Laws and in these rules, including, without 
limitation, Rule 972. * * *''
---------------------------------------------------------------------------

Transfer of Affiliation Fee
    The Exchange proposes to create a $350 fee titled a ``Transfer of 
Affiliation Fee.'' The Exchange would assess this fee on permit holders 
who apply to transfer their affiliation from one Exchange member to 
another Exchange member, so long as there is no lapse in membership 
status.
    The Exchange has received requests from permit holders to affiliate 
with a different member organization. Today, the Exchange is required 
to assess an Application Fee \16\ on applicants for membership, unless 
the member reapplies within 6 months. The Exchange is proposing to 
eliminate the ability of a permit holder to lapse an application for 6 
months as mentioned herein.
---------------------------------------------------------------------------

    \16\ The Initiation Fee is $1,500 and is assessed upon the 
issuance of a permit. The initiation fee is payable by a non-member 
upon election to membership and is non-recurring unless there is a 
lapse in membership and the former member subsequently applies for 
admission. See Securities Exchange Act Release No. 20651 (February 
23, 1984), 49 FR 6817 (SR-Phlx-84-2).
---------------------------------------------------------------------------

    The Exchange is also proposing to treat permit holders who apply to 
transfer his or her affiliation from one member to another member as a 
transfer instead of as a new applicant, so long as the membership is 
continuous (permit was continuously held by the permit holder). 
Pursuant to Exchange Rule 908(b), no individual shall hold more than a 
single Series A-1 permit. A permit holder who desires to transfer his 
or her affiliation to a different member is required today to cancel 
their current permit and apply for another permit and incur an 
Application Fee \17\

[[Page 81325]]

and an Initiation Fee.\18\ In this scenario, the Membership Department 
would not be required to perform the same diligence that would be 
necessary for a permit holder whose membership lapsed for any period of 
time. The Membership Department would be required to issue another 
permit and cancel the current permit and amend the affiliation in its 
records.
---------------------------------------------------------------------------

    \17\ The Application Fee would not apply today if a lapse in 
membership was not more than 6 months. The Exchange is proposing to 
eliminate this treatment with this proposal.
    \18\ See footnote 16.
---------------------------------------------------------------------------

    The Exchange proposes to assess a Transfer of Affiliation Fee of 
$350 \19\ and waive the Initiation Fee of $1,500 because the 
administrative time and clerical expenditures are substantially less 
for this type of request as compared to a new applicant or a former 
permit holder who left the Exchange, canceled his or her permit and is 
seeking to become a permit holder once again. The Exchange is proposing 
to assess only a Transfer of Affiliation Fee and waive the Initiation 
Fee because the Transfer Fee alone should allow the Exchange to recoup 
the costs of affiliating a current Exchange permit holder with a 
different member and issuing a new permit.
---------------------------------------------------------------------------

    \19\ This is the same amount that is currently assessed for an 
Application Fee.
---------------------------------------------------------------------------

Technical Amendments
    The Exchange is proposing to delete the language in Section III 
concerning Sector Index Options, related to the incentive program for 
Options Overlying QNET. This $.20 per contract transaction promotional 
pricing will expire on December 31, 2010,\20\ and the Exchange would 
instead assess members the applicable sector index options transaction 
charges, by market participant, on January 3, 2011.\21\ For example, 
for transactions in QNET sector index options, a customer would no 
longer be assessed the $.20 per contract on trade date January 3, 2011, 
but instead would be assessed the option transaction charge, which is 
$.44 per contract.\22\ The Exchange proposes to remove this text which 
will be obsolete on January 3, 2011.\23\
---------------------------------------------------------------------------

    \20\ See SR-Phlx-2010-177 (a proposal to expand the Sector Index 
Options promotional pricing for options overlying QNET to December 
31, 2010).
    \21\ See SR-Phlx-2010-177.
    \22\ See SR-Phlx-2010-177.
    \23\ See SR-Phlx-2010-177.
---------------------------------------------------------------------------

2. Statutory Basis
    The Exchange believes that its proposal to amend its Fee Schedule 
is consistent with Section 6(b) of the Act-- \24\ in general, and 
furthers the objectives of Section 6(b)(4) of the Act-- \25\ in 
particular, in that it is an equitable allocation of reasonable fees 
and other charges among Exchange members and other persons using its 
facilities.
---------------------------------------------------------------------------

    \24\ 15 U.S.C. 78f(b).
    \25\ 15 U.S.C. 78f(b)(4).
---------------------------------------------------------------------------

    The Exchange believes that eliminating the Examinations Fee is 
reasonable because the fee is no longer necessary with the decline in 
off-floor traders and because the Permit Fee, as proposed, would assist 
the Exchange is equally distributing costs associated with membership. 
The Exchange believes that eliminating the Examinations Fee is 
equitable because the Exchange would not assess such a fee on any 
member organization for which it is the DEA.
    The Exchange believes that increasing the current Permit Fee and 
adding a new category of fees for members not transacting business on 
the Exchange is reasonable. Member organizations that are not active at 
the Exchange receive the same benefits as members who are actively 
transacting business at the Exchange. The members who are transacting 
business at the Exchange are assessed other fees for conducting 
business while members not transacting business at the Exchange and 
maintaining a membership are not incurring such fees. The Exchange also 
believes that the distinction in fees is equitable because it is 
similar to fees assessed by the International Securities Exchange LLC 
(``ISE''), which distinguish between active and inactive 
memberships.\26\
---------------------------------------------------------------------------

    \26\ See Securities Exchange Act Release No. 45816 (April 24, 
2002), 67 FR 30406 (May 6, 2002) (SR-ISE-2002-11) (a rule change 
that distinguishes pricing for competitive market makers (``CMM'') 
who actively trade as compared to CMMs who do not actively trade on 
ISE.) See also primary market maker fees (active and inactive) on 
ISE's Schedule of Fees.
---------------------------------------------------------------------------

    The Exchange also believes that the additional Permit Fee assessed 
on members/member organizations for each sponsored participant is 
reasonable because the member is benefitting from the additional access 
that is granted to the sponsored participant from the permit. The fee 
is equitable because it is similar to fees assessed by C2 Options 
Exchange, Incorporated (``C2'') and the Chicago Board Options Exchange, 
Incorporated (``CBOE'').\27\
---------------------------------------------------------------------------

    \27\ See Securities Exchange Act Release No. 63175 (October 25, 
2010), 75 FR 66813 (October 29, 2010) (SR-C2-2010-006) (a rule 
change to impose sponsored user fees). See also CBOE's Fees Schedule 
at sponsored access fees.
---------------------------------------------------------------------------

    The Exchange expends resources in processing applications for 
members. The determination to admit a person for membership in the 
Exchange is contingent on the information provided in the application. 
After a 90 day calendar period has elapsed, the information provided by 
the applicant is stale and no longer a reasonable basis for the 
Exchange to make a determination on admitting a person for membership. 
The Membership Department expends a considerable amount of resources 
requesting updates from members and researching information to make a 
reasonable determination when an application is outdated. Similarly, 
the Exchange is proposing to eliminate the waiver for members who lapse 
for less than 6 months for similar reasons involving costs and 
resources.
    The Exchange believes that imposing a Transfer of Affiliation Fee 
on members desiring to transfer their affiliation and waiving the 
Initiation Fee is reasonable because the Exchange is proposing to only 
apply such a fee to members who have no lapse in their membership. 
Additionally, the Exchange believes that waiving the Initiation Fee is 
equitable because there is less administrative cost associated with 
transferring an affiliation as compared to a new application.
    Finally, the Exchange believes the proposed technical amendments to 
remove obsolete language will avoid confusion for members.

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 that is not necessary or appropriate 
in furtherance of the purposes of the Act.

C. Self-Regulatory Organization's Statement on Comments Regarding 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 \28\ and subparagraph (f)(2) of Rule 19b-4 
thereunder \29\ because it establishes or changes a due, fee, or other 
charge applicable only to a member imposed by the self-regulatory 
organization. Accordingly, the proposal is effective upon Commission 
receipt of the filing. 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

[[Page 81326]]

public interest, for the protection of investors, or otherwise in 
furtherance of the purposes of the Act.
---------------------------------------------------------------------------

    \28\ 15 U.S.C. 78s(b)(3)(A)(ii).
    \29\ 17 CFR 240.19b-4(f)(2).
---------------------------------------------------------------------------

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-2010-178 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-2010-178. 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 website 
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 
publicly available. All submissions should refer to File Number SR-
Phlx-2010-178 and should be submitted on or before January 18, 2011.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\30\
---------------------------------------------------------------------------

    \30\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Florence E. Harmon,
Deputy Secretary.
[FR Doc. 2010-32376 Filed 12-23-10; 8:45 am]
BILLING CODE 8011-01-P