Document ID: SEC-2011-2016-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: NASDAQ OMX PHLX LLC
Posted Date: 2011-12-23T05:00Z

[Federal Register Volume 76, Number 247 (Friday, December 23, 2011)]
[Notices]
[Pages 80444-80445]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2011-32889]

[[Page 80444]]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-66005; File No. SR-Phlx-2011-174]

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

December 19, 2011.
    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 7, 2011, 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 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 amend its Fee Schedule to exclude all 
dividend,\3\ merger,\4\ short stock interest \5\ and reversal \6\ and 
conversion \7\ strategies (collectively ``Strategy Executions'') from 
the Monthly Firm Fee Cap \8\ and the Monthly Cap.\9\
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    \3\ 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. See Section II of the Fee Schedule.
    \4\ 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. See Section II of the Fee Schedule.
    \5\ 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. See Section II of the Fee Schedule.
    \6\ 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.
    \7\ Conversions are established by combining a long position in 
the underlying security with a long put and a short call position 
that shares the same strike and expiration.
    \8\ The Monthly Firm Fee Cap is currently $75,000. Firm equity 
option transaction charges, in the aggregate, for one billing month 
will not exceed the Monthly Firm Fee Cap per member organization 
when such members are trading in their own proprietary account. The 
Firm equity options transaction charges will be waived for members 
executing facilitation orders pursuant to Exchange Rule 1064 when 
such members are trading in their own proprietary account. Firms 
that (i) are on the contra-side of an electronically-delivered and 
executed Customer complex order; and (ii) have reached the Monthly 
Firm Fee Cap will be assessed a $0.05 per contract fee. See 
Securities Exchange Act Release No. 63780 (January 26, 2011), 76 FR 
5846 (February 2, 2011) (SR-Phlx-2011-07).
    \9\ ROTs and Specialists are currently subject to a Monthly Cap 
of $550,000. The trading activity of separate ROTs and Specialist 
member organizations will be aggregated in calculating the Monthly 
Cap if there is at least 75% common ownership between the member 
organizations. In addition, ROTs and Specialists that (i) are on the 
contra-side of an electronically-delivered and executed Customer 
complex order; and (ii) have reached the Monthly Cap will be 
assessed a $0.05 per contract fee. See Securities Exchange Act 
Release No. 64113 (March 23, 2011), 76 FR 17468 (March 29, 2011) 
(SR-Phlx-2011-36).
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    While changes to the Fee Schedule pursuant to this proposal are 
effective upon filing, the Exchange has designated these changes to be 
operative on January 3, 2012.
    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, at the Commission's Web site at 
http://www.sec.gov, 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 Section II of 
the Exchange's Fee Schedule \10\ entitled ``Equity Option Fees'' to 
exclude Strategy Executions from the Monthly Firm Fee Cap and the 
Monthly Cap.
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    \10\ Section II includes options overlying equities, ETFs, ETNs, 
indexes and HOLDRS which are Multiply Listed.
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    Currently, Specialist,\11\ Registered Options Trader,\12\ SQT \13\ 
and RSQT,\14\ Professional,\15\ Firm and Broker-Dealer equity option 
transaction fees are capped at $1,000 for dividend, merger and short 
stock interest strategies executed on the same trading day in the same 
options class when such members are trading in their own proprietary 
accounts. Equity option transaction fees for dividend, merger and short 
stock interest strategies combined are further capped at the greater of 
$10,000 per member or $25,000 per member organization per month when 
such members are trading in their own proprietary accounts. Specialist, 
ROT, SQT and RSQT, Professional, Firm and Broker-Dealer options 
transaction fees in Multiply Listed Options are capped at $500 per day 
for reversal and conversion strategies executed on the same trading day 
in the same options class (``Reversal and Conversion Cap''). The 
Exchange is proposing to exclude the Strategy Executions, which are 
already subject to caps today, from the Monthly Firm Fee Cap and the 
Monthly Cap.
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    \11\ A Specialist is an Exchange member who is registered as an 
options specialist pursuant to Rule 1020(a).
    \12\ A Registered Options Trader (``ROT'') includes a Streaming 
Quote Trader (``SQT''), a Remote Streaming Quote Trader (``RSQT'') 
and a Non-SQT ROT, which by definition is neither a SQT or a RSQT. A 
ROT is defined in Exchange Rule 1014(b) as a regular member or a 
foreign currency options participant of the Exchange located on the 
trading floor who has received permission from the Exchange to trade 
in options for his own account. See Exchange Rule 1014(b)(i) and 
(ii).
    \13\ An SQT is defined in Exchange Rule 1014(b)(ii)(A) as an ROT 
who has received permission from the Exchange to generate and submit 
option quotations electronically in options to which such SQT is 
assigned.
    \14\ An RSQT is defined in Exchange Rule 1014(b)(ii)(B) as an 
ROT that is a member or member organization with no physical trading 
floor presence who has received permission from the Exchange to 
generate and submit option quotations electronically in options to 
which such RSQT has been assigned. An RSQT may only submit such 
quotations electronically from off the floor of the Exchange.
    \15\ The Exchange defines a ``professional'' as any person or 
entity that (i) is not a broker or dealer in securities, and (ii) 
places more than 390 orders in listed options per day on average 
during a calendar month for its own beneficial account(s) 
(hereinafter ``Professional'').
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    The Exchange is also proposing to amend the name of the ``Monthly 
Cap'' to the ``Monthly Market Maker Cap'' to better reflect the market 
participants that are eligible for the cap.\16\ The

[[Page 80445]]

Exchange also proposes to amend all references in the Fee Schedule to 
reflect the new name of the cap.
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    \16\ The Exchange market maker category includes Specialists 
(see Rule 1020) and Registered Options Traders (Rule 1014(b)(i) and 
(ii), which includes Streaming Quote Traders or SQTs (see Rule 
1014(b)(ii)(A)) and Remote Streaming Quote Traders or RSQTs (see 
Rule 1014(b)(ii)(B)). This would also include Directed Participants. 
The term ``Directed Participant'' applies to transactions for the 
account of a Specialist, Streaming Quote Trader or Remote Streaming 
Quote Trader resulting from a Customer order that is (1) directed to 
it by an order flow provider, and (2) executed by it electronically 
on Phlx XL II.
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    While changes to the Fee Schedule pursuant to this proposal are 
effective upon filing, the Exchange has designated these changes to be 
operative on January 3, 2012.
2. Statutory Basis
    The Exchange believes that its proposal to amend its Fee Schedule 
is consistent with Section 6(b) of the Act \17\ in general, and 
furthers the objectives of Section 6(b)(4) of the Act \18\ in 
particular, in that it is an equitable allocation of reasonable fees 
and other charges among Exchange members.
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    \17\ 15 U.S.C. 78f(b).
    \18\ 15 U.S.C. 78f(b)(4).
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    The Exchange believes that the proposal to exclude the Strategy 
Executions from the benefit of either the Monthly Firm Fee Cap or the 
Monthly Cap is reasonable because those strategies are already subject 
to caps. Firms, ROTs and Specialists have the ability to not pay 
transaction fees once either the Monthly Firm Fee Cap or the Monthly 
Cap, as applicable, is reached and therefore the Exchange believes it 
is reasonable to exclude Strategy Executions, which already have the 
benefit of caps, from receiving a second cap.
    The Exchange believes that it is equitable and not unfairly 
discriminatory to exclude Strategy Executions from the Monthly Firm Fee 
Cap or the Monthly Cap because only certain participants are impacted, 
namely Firms, ROTs and Specialists, as they are the only ones receiving 
the benefit of the Monthly Firm Fee Cap or the Monthly Cap, as 
applicable. Other market participants are not impacted because they are 
not subject to another cap. Therefore, the Exchange believes that this 
fee is being uniformly applied to those participants subject to caps. 
In addition, NYSE Amex LLC also excludes certain strategy executions 
from its monthly firm fee cap.\19\
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    \19\ See SR-NYSEAMEX-2011-94 (a proposal to exclude reversals 
and conversions, dividend spreads, box spreads, short stock interest 
spreads, merger spreads, and jelly rolls, which are currently capped 
at $750 per transaction and $25,000 per month, from the monthly firm 
fee cap of $100,000).
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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.\20\ 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, 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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    \20\ 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-2011-174 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-2011-174. 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 a.m. and 3 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-2011-174, and should be submitted on or before 
January 13, 2012.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\21\
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    \21\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2011-32889 Filed 12-22-11; 8:45 am]
BILLING CODE 8011-01-P