Document ID: SEC-2012-1352-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: NASDAQ OMX PHLX LLC
Posted Date: 2012-08-15T04:00Z

[Federal Register Volume 77, Number 158 (Wednesday, August 15, 2012)]
[Notices]
[Pages 49040-49044]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2012-19984]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-67633; File No. SR-Phlx-2012-104]

Self-Regulatory Organizations; NASDAQ OMX PHLX LLC; Notice of 
Filing and Immediate Effectiveness of Proposed Rule Change Relating to 
Pricing in Select Symbols and Multiply Listed Options

August 9, 2012.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ and Rule 19b-4 \2\ thereunder, notice is hereby given 
that, on August 1, 2012, 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, 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 amend Section I of the Exchange's Pricing 
Schedule titled ``Rebates and Fees for Adding and Removing Liquidity in 
Select Symbols,'' to amend various Select Symbols,\3\ increase certain 
Complex Order \4\ Rebates for Adding Liquidity, eliminate the Complex 
Order

[[Page 49041]]

Fees for Adding Liquidity, increase certain Complex Order Fees for 
Removing Liquidity, and eliminate a discount applicable to Customer 
Complex Order Rebates, and make technical corrections to ``Part B. 
Complex Order'' in Section I. The Exchange also proposes to amend 
Section II of the Pricing Schedule titled ``Multiply Listed Options 
Fees'' to decrease the threshold amount which entitles members to a 
reduced Firm Electronic Options Transaction Charges in Penny Pilot and 
non-Penny Pilot Options and amend the Customer Rebate Program.\5\
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    \3\ The rebates and fees in Section I apply to certain Select 
Symbols which are listed in Section I of the Pricing Schedule.
    \4\ A Complex Order is any order involving the simultaneous 
purchase and/or sale of two or more different options series in the 
same underlying security, priced at a net debit or credit based on 
the relative prices of the individual components, for the same 
account, for the purpose of executing a particular investment 
strategy. Furthermore, a Complex Order can also be a stock-option 
order, which is an order to buy or sell a stated number of units of 
an underlying stock or exchange-traded fund (``ETF'') coupled with 
the purchase or sale of options contract(s). See Exchange Rule 1080, 
Commentary .08(a)(i).
    \5\ Section II includes options overlying equities, ETFs, ETNs, 
indexes, and HOLDRs which are Multiply Listed.
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    The text of the proposed rule change is available on the Exchange's 
Web site at http://www.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 Sections I and 
II of the Exchange's Pricing Schedule. Specifically, the Exchange is 
proposing to amend Section I of the Pricing Schedule to amend the 
Select Symbols, increase certain Complex Order Rebates for Adding 
Liquidity, eliminate Complex Order Fees for Adding Liquidity, increase 
certain Complex Order Fees for Removing Liquidity, eliminate a discount 
applicable to options overlying SPDR S&P 500 (``SPY''),\6\ and to make 
other technical amendments. The Exchange is proposing to amend Section 
II of the Pricing Schedule to decrease the threshold to receive the 
reduced Firm Electronic Options Transaction Charges in Penny Pilot and 
non-Penny Pilot Options and to amend the Customer Rebates Program. Each 
amendment will be described in more detail below.
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    \6\ SPY is one of the Select Symbols subject to the rebates and 
fees in Section I. A complete list of Select Symbols is included in 
Section I of the Pricing Schedule.
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Section I Amendments
Select Symbols
    The Exchange displays a list of Select Symbols in its Pricing 
Schedule at Section I, which symbols are subject to the rebates and 
fees in that section. The Exchange is proposing to add the following 
symbol to the list of Select Symbols in Section I of the Pricing 
Schedule: Arena Pharmaceuticals Inc. (``ARNA''). The Exchange is also 
proposing to delete the following symbols from the list of Select 
Symbols in Section I of the Pricing Schedule: Dell Inc. (``DELL''), and 
Newmont Mining Corp. (``NEM'' (collectively, ``Proposed Deleted 
Symbols''). These Proposed Deleted Symbols would be subject to the 
rebates and fees in Section II of the Pricing Schedule entitled 
``Multiply Listed Options Fees.'' The Exchange believes that by adding 
and removing the above-referenced symbols in Section I of the Pricing 
Schedule the Exchange will continue to attract order flow to the 
Exchange.
Complex Order Fees
    The Exchange is proposing to increase the Complex Order Rebates for 
Adding Liquidity from $0.00 to $0.10 for Specialists,\7\ Market 
Makers,\8\ Firms, Broker-Dealers and Professionals.\9\ Additionally, 
the Exchange is proposing to eliminate Complex Order Fees for Adding 
Liquidity. The Exchange believes that these fees are no longer 
necessary and proposes to uniformly eliminate them for all market 
participants. The Exchange believes that the increase to the Complex 
Order Rebates for Adding Liquidity coupled with the elimination of the 
Complex Order Fees for Adding Liquidity will incentivize market 
participants to transact additional Complex Order flow on the Exchange.
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    \7\ A Specialist is an Exchange member who is registered as an 
options specialist pursuant to Rule 1020(a).
    \8\ A ``Market Maker'' includes Registered Options Traders 
(``ROTs'') (Rule 1014(b)(i) and (ii), which includes Streaming Quote 
Traders (``SQTs'') (See Rule 1014(b)(ii)(A)) and Remote Streaming 
Quote Traders (``RSQTs'') (See Rule 1014(b)(ii)(B)).
    \9\ The term ``professional'' means 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). See Rule 
1000(b)(14).
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    The Exchange also is proposing to increase the Complex Order Fees 
for Removing Liquidity from $0.36 to $0.39 per contract for Specialists 
and Market Makers, and to increase the Complex Order Fees for Removing 
Liquidity from $0.38 to $0.39 per contract for Firms, Broker-Dealers, 
and Professionals in Select Symbols. The Exchange is proposing to 
increase these fees in order that it may offer additional rebates for 
Customer Complex Orders as described below.
Eliminating SPY Discount
    The Exchange is proposing to remove the additional incentive for 
Customers who transact Complex Orders in SPY. The Exchange currently 
pays a Customer Complex Order Rebate for Adding Liquidity of $0.32 per 
contract and a Customer Complex Order Rebate for Removing Liquidity of 
$0.06 per contract, but specifies that the Exchange will increase the 
Customer Complex Order Rebates for Adding and Removing Liquidity by 
$0.01 per contract for transactions in SPY. Therefore, with this 
change, Customer Complex Orders that add liquidity in SPY would receive 
a rebate of $0.32 per contract and Customer Complex Orders that remove 
liquidity in SPY receive a rebate of $0.06 per contract. The Exchange 
is eliminating the discount in lieu of offering a higher rebate for 
Customer Complex Orders as described below.
Technical Amendments
    The Exchange also is proposing to make technical corrections in 
Section I, Parts A and B, by replacing ``$0.00'' with ``N/A'' for 
several categories. This is not a change to these fees, but a technical 
amendment since in these instances ``N/A'' better reflects that a fee 
is not relevant for this category rather than ``$0.00'' which simply 
reflects that no fee is currently being charged for this category.
Section II Amendments
Firm Volume Discount
    The Exchange desires to continue to incentivize Firms to transact 
electronic orders, by providing Firms with an opportunity to pay lower 
fees in Section II of the Pricing Schedule by offering a lower 
threshold in order for Firms to receive a reduction of electronic 
Options Transaction Charges in Penny Pilot and non-Penny Pilot Options. 
Currently, Firms must have a volume greater than 750,000 electronically 
delivered contracts in a month to obtain

[[Page 49042]]

the lower fees.\10\ The Exchange proposes to lower the threshold volume 
from 750,000 to 600,000 electronically delivered contracts in a month. 
The Exchange believes that the lower threshold would enable a greater 
number of Firms to take advantage of lower fees.
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    \10\ Firm electronic Options Transaction Charges in Penny Pilot 
and non-Penny Pilot Options will be reduced to $0.13 per contract 
for a given month provided that a Firm has volume greater than 
600,000 electronically delivered contracts in a month (``Electronic 
Firm Fee Discount'').
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Customer Rebate Program
    The Exchange recently adopted a Customer Rebate Program to 
incentivize members to transact Customer orders on the Exchange. Such 
liquidity benefits all market participants through increased liquidity. 
At this time, the Exchange proposes to expand its Customer Rebate 
Program by adding another Category of orders eligible for rebates, 
``Category D.'' This new category will pay rebates to members executing 
electronically delivered Customer Complex Orders in Select Symbols that 
add liquidity.\11\ The Exchange proposes to pay the following rebates:
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    \11\ This rebate will be in addition to any rebate that the 
member receives in Section I of the Pricing Schedule.

----------------------------------------------------------------------------------------------------------------
                                                                  Rebate per contract categories
         Average daily volume threshold          ---------------------------------------------------------------
                                                    Category A      Category B      Category C      Category D
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0 to 49,999 contracts in a month................           $0.00           $0.00           $0.00           $0.00
50,000 to 99,999 contracts in a month...........            0.07            0.10            0.10            0.00
Over 100,000 contracts in a month...............            0.09            0.12            0.10            0.05
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    The Customer Rebate Program consists of three tiers. The first tier 
(0 to 49,999 contracts in a month) and the second tier (50,000 to 
99,999 contracts in a month) do not earn any rebates defined in 
Category D. The third tier (over 100,000 contracts in a month) pays a 
rebate as an additional incentive for member organizations to route 
Customer Complex Order flow to the Exchange for execution ($0.05 per 
contract). The $0.05 will be in addition to the Customer Complex Order 
Rebate for Adding Liquidity (currently $0.32 per contract) for a total 
rebate of $0.37 for Category D.
    As is currently the case with Category A, B, and C, each tier or 
``Threshold'' is calculated by totaling all applicable Multiply-Listed 
Options electronically delivered Customer Orders, except electronic 
Qualified Contingent Cross Orders (eQCC Orders). The Exchange proposes 
to amend the calculation of the Average Daily Volume Threshold by 
totaling Customer volume in Multiply Listed Options that are 
electronically delivered and executed, except QCC Orders as defined in 
Exchange Rule 1080(o), and including electronically delivered and 
executed Customer Complex Orders in Select Symbols (``Threshold 
Volume'').\12\ The Exchange is proposing to add the word ``executed'' 
for clarity and account for the Category D rebates in the Threshold 
Volume Calculation. The Exchange believes that the addition of Category 
D will attract additional Customer order flow to the Exchange for the 
benefit of all market participants.
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    \12\ Rebates will be paid on Threshold Volume in a given month, 
excluding electronically delivered Customer volume associated with 
PIXL as is the case today and Customer Complex Orders that remove 
liquidity.
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2. Statutory Basis
    The Exchange believes that its proposal to amend its Pricing 
Schedule is consistent with Section 6(b) of the Act \13\ in general, 
and furthers the objectives of Section 6(b)(4) of the Act \14\ in 
particular, in that it is an equitable allocation of reasonable fees 
and other charges among Exchange members and other persons using its 
facilities.
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    \13\ 15 U.S.C. 78f(b).
    \14\ 15 U.S.C. 78f(b)(4).
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Select Symbols
    The Exchange believes that it is reasonable to remove and add the 
proposed symbols from its list of Select Symbols to attract additional 
order flow to the Exchange. The Exchange believes that the fees and 
rebates in Section I will attract order flow for the newly added Select 
Symbol ARNA. Also, the Exchange believes that applying the fees in 
Section II of the Pricing Schedule to the Proposed Deleted Symbols, 
including the opportunity to receive payment for order flow, will 
attract order flow to the Exchange.
    The Exchange believes that it is equitable and not unfairly 
discriminatory to amend its list of Select Symbols to remove and add 
the proposed symbols because the list of Select Symbols would apply 
uniformly to all categories of participants in the same manner. All 
market participants who trade the Select Symbols would be subject to 
the rebates and fees in Section I of the Pricing Schedule, which would 
not include the proposed deleted symbols, but would include the 
proposed added symbol. Also, all market participants would be uniformly 
subject to the fees in Section II, which would include the Proposed 
Deleted Symbols, but would not include the proposed added symbol.
Complex Order Fees
    The Exchange believes its proposal to increase the Complex Order 
Rebates for Adding Liquidity from $0.00 to $0.10 for Specialists,\15\ 
Market Makers, Firms, Broker-Dealers, and Professionals is reasonable 
because the Exchange is proposing to incentivize market participants to 
transact additional order flow on the Exchange.
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    \15\ A Specialist is an Exchange member who is registered as an 
options specialist pursuant to Rule 1020(a).
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    The Exchange believes that its proposal to increase the Complex 
Order Rebate for Adding Liquidity is equitable and not unfairly 
discriminatory because the Exchange is proposing to uniformly increase 
the rebates among market participants, except Customers. Today, 
Customers receive a Complex Order Rebate for Adding Liquidity of $0.32 
per contract. Customers would continue to receive a higher rebate 
already because Customer order flow brings unique benefits to the 
market which benefits all participants through increased liquidity.
    The Exchange believes its proposal to eliminate Complex Order Fees 
for Adding Liquidity is reasonable because market participants would be 
incentivized to transact additional orders on the Exchange at no cost 
when adding liquidity. The Exchange believes its proposal to eliminate 
Complex Order Fees for Adding Liquidity is equitable and not unfairly 
discriminatory because no market participant would be assessed a 
Complex Order Fee for Adding Liquidity.
    The Exchange believes its proposal to increase the Complex Order 
Fees for Removing Liquidity from $0.36 to $0.39 per contract for 
Specialists and Market

[[Page 49043]]

Makers, and to increase it from $0.38 to $0.39 per contract for Firms, 
Broker-Dealers, and Professionals in Select Symbols is reasonable 
because the Exchange is proposing to utilize these increased fees to 
fund the proposed new rebates in the Customer Rebate Program. The 
Exchange believes that the increased Complex Order Fees for Removing 
Liquidity are equitable and not unfairly discriminatory because all 
market participants, except Customers will be assessed a uniform fee to 
remove liquidity. The Exchange believes that it is reasonable, 
equitable, and not unfairly discriminatory to not assess Customers a 
Complex Order Fee to Remove Liquidity because Customer order flow 
brings unique benefits to the market. Also, Customers are not assessed 
a Complex Order Fee for Removing Liquidity, as is the case on competing 
exchanges.\16\
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    \16\ See the Chicago Board Options Exchange Incorporated's 
(``CBOE'') Fees Schedule.
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Eliminating SPY Discount
    In addition, the Exchange believes that removing the additional 
$0.01 per contract incentive, when transacting electronically delivered 
SPY orders, in addition to the Customer Complex Order Rebates for 
Adding and Removing Liquidity in SPY is reasonable because the Exchange 
is proposing to incentivize members to transact Customer Complex Orders 
by offering an incentive in the Customer Rebate Program. The Exchange 
believes that the elimination of the SPY discount is equitable and not 
unfairly discriminatory because no market participants would be 
entitled to this discount.
Technical Amendments
    The Exchange's proposal to make technical corrections in Section I, 
Parts A and B, by replacing ``$0.00'' with ``N/A'' for several 
categories is reasonable, equitable, and not unfairly discriminatory 
because this is not a change to these fees, but a clarification that in 
these instances ``N/A'' better reflects that a fee is not relevant for 
this category rather than using ``$0.00'' which simply reflects that no 
fee is currently being charged for this category.
Firm Volume Discount
    The Exchange's amendment to the volume threshold applicable to the 
Electronic Firm Fee Discount in Section II of the Pricing Schedule is 
reasonable because the Exchange believes that the lower threshold would 
allow a greater number of Firms to obtain the lower pricing when they 
meet the volume threshold.
    The Exchange's amendment to the volume threshold applicable to the 
Electronic Firm Fee Discount in Section II of the Pricing Schedule is 
equitable and not unfairly discriminatory because it provides all Firms 
with an opportunity to pay lower fees through the lower volume 
threshold of 600,000 electronically delivered contracts in a month 
rather than the current threshold of 750,000. Today Firms that transact 
750,000 electronically delivered contracts in a month are entitled to 
reduce their Firm electronic Options Transaction Charges in Penny Pilot 
($0.40 per contract) and non-Penny Pilot ($0.45 per contract) in a 
given month to $0.13 per contract.\17\ The reduction of the volume 
threshold from 750,000 electronically delivered contracts in a month to 
600,000 electronically delivered contracts in a month would enable 
firms to obtain the reduction of fees by transacting a lower number of 
contracts in a month.
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    \17\ The Electronic Firm Fee Discount applies per member 
organization when such members are trading in their own proprietary 
account.
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Customer Rebate Program
    The Exchange's amendment to the Customer Rebate Program is 
reasonable because it will provide members another manner in which to 
earn a rebate on the Exchange. This rebate will be in addition to any 
rebate that the member receives in Section I of the Pricing Schedule. 
The Exchange believes that offering the Category D rebate and including 
Customer Complex Order volume in Select Symbols in the Threshold 
Volume, will attract additional Customer order flow to the Exchange and 
benefit all market participants. The Exchange believes that 
incentivizing members executing electronically delivered Customer 
Complex Orders in Select Symbols to direct Customer order flow to the 
Exchange will benefit all market participants.
    The Exchange's amendment to the Customer Rebate Program is 
equitable and not unfairly discriminatory because all market 
participants are eligible to receive the new rebate provided they meet 
both the volume and order type requirement of Category D. Also, the 
Exchange believes it is equitable and not unfairly discriminatory to 
base rebates not only on volume but on the type of orders because the 
Exchange would uniformly apply the rebates to all market participants 
by order type. The Exchange currently offers no rebate under Category D 
for the first tier (between 0 and 49,999 contracts in a month) and the 
second tier (between 50,000 and 99,000 contracts in a month). It is 
only in the third tier (over 100,000 contracts in a month) that there 
is a rebate and it is $0.05 per contract to members that execute 
electronically delivered Customer Complex Orders in any Select Symbol 
that adds liquidity. Further, the concept of volume tiers and rebates 
based on tiers is not novel. Market participants entitled to Category 
A, B, or C rebates are subject to Section II of the Pricing Schedule, 
which has no rebates. Market participants entitled to Category D 
rebates are subject to Section I of the Pricing Schedule and also 
receive the Rebate for Adding Liquidity in Section I.
    The Exchange operates in a highly competitive market, comprised of 
ten exchanges, in which market participants can easily and readily 
direct order flow to competing venues if they deem fee and rebate 
levels at a particular venue to be excessive. Accordingly, the fees 
that are assessed and the rebates paid by the Exchange must remain 
competitive with fees charged and rebates paid by other venues and 
therefore must continue to be reasonable and equitably allocated to 
those members that opt to direct orders to the Exchange rather than 
competing venues.

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.\18\ 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

[[Page 49044]]

whether the proposed rule should be approved or disapproved.
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    \18\ 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-2012-104 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-2012-104. 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, 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-2012-104 and should be 
submitted on or before September 5, 2012.
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    \19\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\19\
Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2012-19984 Filed 8-14-12; 8:45 am]
BILLING CODE 8011-01-P