Document ID: SEC-2010-1817-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: NASDAQ OMX PHLX LLC
Posted Date: 2010-12-01T05:00Z

[Federal Register: December 1, 2010 (Volume 75, Number 230)]
[Notices]               
[Page 74757-74759]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr01de10-96]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-63372; File No. SR-Phlx-2010-162]

 
Self-Regulatory Organizations; Notice of Filing and Immediate 
Effectiveness of Proposed Rule Change by NASDAQ OMX PHLX LLC Relating 
to Price Improvement (PIXL) Fees

 November 24, 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 November 18, 2010, NASDAQ OMX PHLX LLC (``Phlx'' or the 
``Exchange'') filed with the Securities and Exchange Commission 
(``Commission'') the proposed rule change as described in Items I, II, 
and III below, which Items have been prepared by the self-regulatory 
organization. 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 and supersede its pricing applicable 
to members utilizing the Exchange's price improvement mechanism known 
as Price Improvement XL or (PIXL[supreg]).
    While changes to the Fee Schedule pursuant to this proposal are 
effective upon filing, the Exchange has designated these changes to be 
operative for transactions settling on or after November 22, 2010.
    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 self-regulatory organization 
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 those 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 parts of such statements.

A. Self-Regulatory Organization's Statement of the Purpose of, and the 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The purpose of the proposed rule change is to amend and supersede 
the current fees assessed for orders known as PIXL Orders \3\ and 
Initiating Orders.\4\ The Exchange intends to place a cap on the 
maximum fee that would be assessed to market participants for utilizing 
the price improvement mechanism. The Exchange also proposes to amend 
the fee assessed for Initiating Orders.
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    \3\ A member may electronically submit for execution an order it 
represents as agent on behalf of a public customer, broker-dealer, 
or any other entity (``PIXL Order'') against principal interest or 
against any other order (except as provided in sub-paragraph 
(n)(i)(E) below) it represents as agent (``Initiating Order'') 
provided it submits the PIXL order for electronic execution into the 
PIXL Auction (``Auction'') pursuant to Rule 1080. See Exchange Rule 
1080(n).
    \4\ See footnote 3.
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    Currently, the Exchange assesses PIXL fees on Customers, Directed 
Participants,\5\ Specialists,\6\ Streaming Quote Traders (``SQT''),\7\ 
Remote Streaming Quote Traders (``RSQT''),\8\ Firms and Broker-Dealers. 
All options traded on the Exchange are eligible for PIXL.
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    \5\ See Exchange Rule 1080(l), ``* * * The term `Directed 
Specialist, RSQT, or SQT' means a specialist, RSQT, or SQT that 
receives a Directed Order.'' A Directed Participant has a higher 
quoting requirement as compared with a specialist, SQT or RSQT who 
is not acting as a Directed Participant. See Exchange Rule 1014.
    \6\ A Specialist is an Exchange member who is registered as an 
options specialist pursuant to Rule 1020(a).
    \7\ A Streaming Quote Trader 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.
    \8\ A Remote Streaming Quote Trader is defined Exchange Rule in 
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.
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    The Exchange assesses a fee of $0.05 per contract when an 
Initiating Order executes against a PIXL Order in the symbols listed in 
Section I, the Fees and Rebates for Adding and Removing Liquidity in 
Select Symbols \9\ (known as ``Select Symbols''), and the symbols 
defined in Section II \10\ (``Section II

[[Page 74758]]

Symbols''). The Exchange assesses the fees listed in Section II of the 
Fee Schedule for the PIXL Order when the PIXL Order trades against the 
Initiating Order in Section II Symbols and the Select Symbols. For 
example, a member or member organization is assessed $0.00 for Customer 
transactions.
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    \9\ The Fees and Rebates for Adding and Removing Liquidity in 
Select Symbols are listed in Section I of the Fee Schedule.
    \10\ An equity option includes exchange-traded fund share 
(``ETF''), Holding Company Depositary Receipt (``HOLDR''), Russell 
2000(R) Index (the ``Full Value Russell Index'' or ``RUT''), options 
on the one-tenth value Russell 2000[supreg] Index (the ``Reduced 
Value Russell Index'' or ``RMN''), options on the Nasdaq 100 Index 
traded under the symbol NDX (``NDX''), options on the one-tenth 
value of the Nasdaq 100 Index traded under the symbol MNX (``MNX'') 
and the KBW Bank Index (``BKX'').
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    For the symbols assessed according to Section III \11\ of the Fee 
Schedule, titled Sector Index Options Fees and U.S Dollar-Settled 
Foreign Currency (``WCO'') Options Fees, the transaction fees described 
in Section III apply to both the Initiating Order and the PIXL Order 
for all executions.
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    \11\ The symbols assessed fees according to Section III are BKX, 
FPX, HGX, OSX, SOX, UTY, and XAU (``Sector Index Options'') and U.S. 
Dollar-Settled Foreign Currency Options (``WCOs'').
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Select Symbols: Section I
    With respect to executions in Select Symbols, where the PIXL Order 
is not trading against the Initiating Order, the PIXL Order is assessed 
the Fee for Removing Liquidity when that order is executed against a 
resting contra-side order or quote that was present upon initial 
receipt of the PIXL Order. The resting contra-side order or quote 
receives the Rebate for Adding Liquidity. Additionally, the PIXL Order 
receives the Rebate for Adding Liquidity when that order is executed 
against contra-side order(s) that respond to the PIXL auction broadcast 
message as well as when executed against contra-side quotes and 
unrelated orders on the PHLX book that arrived after the PIXL auction 
was initiated. The PIXL auction responders, contra-side order(s) and 
quote(s) is/are assessed the Fee for Removing Liquidity.
    For the symbols assessed according to Section III of the Fee 
Schedule, titled Sector Index Options Fees and U.S Dollar-Settled 
Foreign Currency (``WCO'') Options Fees, the transaction fees described 
in Section III apply to both the Initiating Order and the PIXL Order 
for all executions.
Equity Options: Section II
    With respect to executions in Section II Equity Options,\12\ the 
PIXL Order is assessed the appropriate Equity Option Fee in Section II 
of the Fee Schedule. The contra-side order or quote is assessed the 
appropriate Equity Option Fee listed on the Fee Schedule as well. All 
other Equity Options Fees in Section II apply as appropriate, including 
but not limited to Payment for Order Flow.
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    \12\ This includes all Symbols that are not specifically Select 
Symbols as listed in Section I of the Fee Schedule.
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    The Exchange is proposing to amend its PIXL fees to assess $0.07 
per contract for each Initiating Order and to add language to the Fee 
Schedule to indicate that certain fees will be limited to a maximum of 
$0.32 per contract for PIXL Orders. Specifically, for options overlying 
the Select Symbols defined in Section I and Equity Options defined in 
Section II of the Fee Schedule, the maximum fee any participant will 
pay will be $0.32 per contract. The Exchange believes that these fees 
should encourage the initiation of price improvement auctions.
    The Exchange is also adding ``BKX'' to the text of Section IV of 
the Fee Schedule, as BKX was added to the equity options fees.\13\
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    \13\ See Securities Exchange Act Release No. 63252 (November 5, 
2010), 75 FR 69486 (November 12, 2010) (SR-Phlx-2010-150) (a rule 
change to add the KBW Bank Index (``BKX'') to the Equity Option 
Fees).
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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 for transactions settling on or after November 22, 2010.
2. Statutory Basis
    The Exchange believes that its proposal to amend its Fee Schedule 
is consistent with Section 6(b) of the Act \14\ in general, and 
furthers the objectives of Section 6(b)(4) of the Act \15\ in 
particular, in that it is an equitable allocation of reasonable fees 
and other charges among Exchange members.
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    \14\ 15 U.S.C. 78f(b).
    \15\ 15 U.S.C. 78f(b)(4).
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    The Exchange is lowering prices to provide incentives for its 
members to seek price improvement for customer orders. Offering lower 
prices to members that initiate a price improvement opportunity is 
sound public policy and market structure. Any order that is assessed 
the lower fee will, by definition, have received the opportunity for an 
execution at a price superior to the market. The Exchange believes that 
the fee proposal is both equitable and reasonable for this and the 
reasons listed hereafter.
    The proposed fees are consistent with the price differentials that 
exist today at most option exchanges. For example, the highest 
transaction fee differential proposed by the Exchange is the same 
transaction fee differential that currently exists between broker-
dealers that that manually facilitate their customer order flow (known 
as firm facilitation) and the transaction fees charged to other broker-
dealers by the both NYSE Arca, Inc. (``NYSE Arca'') \16\ and NYSE Amex 
LLC (``NYSE Amex'').17 18 [sic]
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    \16\ See Securities Exchange Act Release No. 62670 (August 9, 
2010), 75 FR 49546 (August 13, 2010) (SR-NYSEArca-2010-77). See also 
NYSE Arca's Fee Schedule. NYSE Arca assesses no fee for firm 
facilitation-manual trades and a $0.25 per contract fee for all 
other firm and broker-dealer manual trades.
    \17\ See Securities Exchange Act Release No. 50012 (August 9, 
2010), 75 FR 50012 (August 16, 2010) (SR-NYSEAmex-2010-81). See also 
NYSE Amex's Fee Schedule. NYSE Amex assesses no fee for firm 
facilitation-manual trades and a $0.25 per contract fee for all 
other firm and broker-dealer manual trades.
    \18\ The Exchange also assesses similar firm facilitation fees. 
See Exchange's Fee Schedule.
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    Additionally, the fees and rebates assessed by the Exchange are 
similar, and in some cases less than, the fees and rebates assessed by 
the Boston Options Exchange Group, LLC (``BOX'') \19\ and the 
International Securities Exchange (``ISE'') \20\ for orders executed in 
a price improvement mechanism. For example a BOX participant could be 
assessed total fees of $0.35 per contract as the price improvement 
period (``PIP'') initiator and receive a rebate for their customer PIP 
order of $0.25 per contract (in this example the net fee charged the 
BOX participant would be $0.10), whereas the PIP responder could be 
assessed a fee of $0.50 per contract. This is a differential of $0.40 
per contract between two BOX participants for participating in the PIP 
auction, which is equal to or less than the differentials that exist in 
the Exchange's proposal. With respect to ISE, the Exchange pays a 
rebate for certain PIXL executions, which is similar to the $0.15 
rebate ISE pays for its price improvement mechanism.
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    \19\ See Securities and Exchange Act Release No. 62632 (August 
3, 2010), 75 FR 47869 (August 3, 2010) (SR-BX-2010-049).
    \20\ See the ISE schedule of fee as of August 2, 2010.
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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

[[Page 74759]]

19(b)(3)(A)(ii) of the Act.\21\ 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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    \21\ 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 e-mail to rule-comments@sec.gov. Please include 
File Number SR-Phlx-2010-162 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-2010-162. 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,\22\ 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 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-2010-162 and should be submitted on or before December 22, 2010.
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    \22\ The text of the proposed rule change is available on the 
Commission's Web site at http://www.sec.gov/rules/sro.shtml.
    \23\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\23\
Elizabeth M. Murphy,
Secretary.
[FR Doc. 2010-30227 Filed 11-30-10; 8:45 am]
BILLING CODE 8011-01-P