Document ID: SEC-2009-0834-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; NASDAQ OMX PHLX, Inc.; Notice of Filing and Immediate Effectiveness of Proposed Rule Change Relating to Order Routing Fees
Posted Date: 2009-06-19T04:00Z

[Federal Register: June 19, 2009 (Volume 74, Number 117)]
[Notices]               
[Page 29252-29254]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr19jn09-131]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-60103; File No. SR-Phlx-2009-47]

 
Self-Regulatory Organizations; NASDAQ OMX PHLX, Inc.; Notice of 
Filing and Immediate Effectiveness of Proposed Rule Change Relating to 
Order Routing Fees

June 11, 2009.
    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 June 5, 2009, NASDAQ OMX PHLX, Inc. (``Phlx'' or ``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 substantially 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 adopt fees governing pricing for Phlx 
members using the Phlx XL II system,\3\ for routing standardized equity 
and index options to away markets for execution.
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    \3\ For a complete description of Phlx XL II, see Securities 
Exchange Act Release No. 59995 (May 28, 2009), 74 FR 26750 (June 3, 
2009) (SR-Phlx-2009-32). The instant proposed fees will apply only 
to options entered into, and routed by, the Phlx XL II system.
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    The text of the proposed rule change is available on the Exchange's 
Web site at http://nasdaqomxphlx.cchwallstreet.com/NASDAQOMXPHLX/
Filings/, 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 adopt fees for 
executions of options orders entered into the Exchange's enhanced 
electronic trading platform for options, Phlx XL II but routed to away 
markets. The Exchange proposes a routing fee based upon the cost to the 
Exchange of executing such orders at those markets. In order to reflect 
the Exchange's cost of execution at away markets, the fees will be 
separated as applicable, depending on the away market's fee schedule, 
by type of option (penny pilot, equity/non-penny pilot, ETF or HLDS/
non-penny pilot, and Index) and vary depending upon whether the order 
is being routed for a customer, a member firm, a market maker (which 
includes a specialist, a Registered Options Trader, a Streaming Quote 
Trader (``SQT''),\4\ and a Remote Streaming Quote Trader 
(``RSQT'')),\5\ or by a Floor Broker. Initially, the Phlx XL II system 
will only route customer orders.\6\ The Table reflects that routing 
fees are currently not applicable to firms and market makers, since 
their order will not be routed by the Phlx XL II system. In the event 
that the Exchange determines to route firm and market maker orders, 
membership will be notified by an Options Trader Alert (``OTA'') of any 
applicable routing fees, and the Table will be updated to reflect such 
fees.
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    \4\ An SQT is an Exchange Registered Options Trader (``ROT'') 
who has received permission from the Exchange to generate and submit 
option quotations electronically through AUTOM in eligible options 
to which such SQT is assigned. An SQT may only submit such 
quotations while such SQT is physically present on the floor of the 
Exchange. See Exchange Rule 1014(b)(ii)(A).
    \5\ An RSQT is 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 through AUTOM in eligible options to which such RSQT 
has been assigned. An RSQT may only submit such quotations 
electronically from off the floor of the Exchange. See Exchange Rule 
1014(b)(ii)(B).
    \6\ See supra note 3.
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    The Exchange proposes to pass through to Exchange members the 
actual transaction fees (including surcharges/license fees if 
applicable) assessed by away markets plus the clearing fees for the 
execution of orders routed from the Phlx XL II system. The Exchange has 
collected and organized in table format the fees to be assessed for 
routing to each destination exchange.\7\
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    \7\ See Exhibit 3 to the proposed rule change. See also infra 
note 9
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    The Exchange recently adopted Rule 1080(m)(iii)(A) to establish 
Nasdaq Options Services LLC (``NOS''), a member of the Exchange, as the 
Exchange's exclusive order router.\8\ The sole use of NOS by the Phlx 
XL II system will be to route orders in options listed and open for 
trading on the Phlx XL II system to destination markets. A particular 
destination market would charge NOS their applicable transaction fees, 
which would then be passed through to Phlx, and ultimately to the 
initiating member under this proposal. Similarly, clearing fees charged 
to NOS by the Options Clearing Corporation

[[Page 29253]]

(``OCC'') would be passed through in this manner.
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    \8\ See Securities Exchange Act Release No. 59995 (May 28, 
2009), 74 FR 26750 (June 3, 2009) (SR-Phlx-2009-32).
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    The fees listed in the NASDAQ OMX PHLX Table of Routing Fees (the 
``Table'') will be updated as necessary to reflect changes in fees on 
destination exchanges. The Table generally should be accurate; however 
there may be instances in which a destination exchange submits a 
proposed rule change to amend its fee schedule on an immediately 
effective basis. In such a circumstance there may be a short time lag 
between such change to the destination market's fee schedule and a 
corresponding change to the Table. Accordingly, members should review 
the fees that were imposed on the destination market at the time an 
order was routed to ensure that they are aware of the actual fees that 
were passed through to them.
    The Exchange believes that it is impractical to reflect and 
maintain in its fee schedule the table of fees assessed by each of the 
six competing away options markets. Because transaction and clearing 
costs are subject to frequent change on all of the options markets, the 
Exchange expects that maintaining an updated and accurate fee schedule 
would require it to file up to six changes or more each month in order 
to accurately reflect the changing fees for all six away markets.
    Accordingly, under the current proposed rule change, the Exchange 
will assess pass-through transaction and clearing fees for executions 
on away markets but, rather than reflect the actual fees in its fee 
schedule, the Exchange will cross-reference a location on its primary 
Web site for members, NasdaqTrader.com, where it will maintain the 
Table, setting forth fees applicable to options executions at away 
markets.\9\ The Exchange will maintain a current Table as well as an 
historical record of fees applicable on prior trading days in order to 
permit members to understand and evaluate their invoices from the 
Exchange.
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    \9\ The Commission notes that the following link to this table 
is included in the proposed rule text: http://www.nasdaqtrader.com/
Micro.aspx?id=phlxpricing.
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    The Exchange believes that these routing fees and the proposed 
approach to displaying them are competitive, fair and reasonable, and 
non-discriminatory in that they replicate the fees assessed by away 
markets executing orders routed from the Exchange. The Exchange 
believes that displaying its fees on a well-publicized and accessible 
web site and maintaining an historical record of fee changes will 
provide sufficient transparency for Exchange members that voluntarily 
choose to use the Phlx XL II system to route orders in standardized 
options.
    The Exchange believes that these routing fees are inherently 
competitive, fair and reasonable, and non-discriminatory in that they 
replicate the fees assessed by away markets executing orders routed 
from the Phlx XL II system. As with all fees, the Exchange may adjust 
these routing fees in response to competitive conditions by filing a 
new proposed rule change.
    This proposal is scheduled to become operative for option trades 
routed by the Phlx XL II system that settle on or after the initial 
date of deployment of the Phlx XL II system. The roll-out of the Phlx 
XL II system began on June 5, 2009. Members will be notified of the 
date of deployment and the commencement of the imposition of the 
proposed fees by way of an Options Trader Alert (``OTA'') posted on the 
Exchange's Web site.
2. Statutory Basis
    The Exchange believes that its proposal to amend its schedule of 
fees is consistent with Section 6(b) of the Act \10\ in general, and 
furthers the objectives of Section 6(b)(4) of the Act \11\ in 
particular, in that it is an equitable allocation of reasonable fees 
and other charges among Exchange members. The Phlx is one of seven 
options markets in the national market system for standardized options. 
Joining Phlx and electing to trade options is entirely voluntary. Under 
these circumstances, Phlx's fees must be competitive and low in order 
for Phlx to attract order flow, execute orders, and grow as a market. 
The various exchanges have filed these fees with the Commission and it 
is reasonable for Phlx to pass those fees through to its members. As 
such, Phlx believes that its fees are fair and reasonable and 
consistent with the Act.
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    \10\ 15 U.S.C. 78f(b).
    \11\ 15 U.S.C. 78f(b)(4).
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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 \12\ and paragraph (f)(2) of Rule 19b-4 \13\ 
thereunder. At any time within 60 days of the filing of the proposed 
rule change, the Commission may summarily abrogate 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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    \12\ 15 U.S.C. 78s(b)(3)(A)(ii).
    \13\ 17 CFR 240.19b-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-2009-47 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-2009-47. 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 inspection and 
copying in the Commission's Public Reference Room, 100 F Street, NE., 
Washington, DC 20549, on official business days

[[Page 29254]]

between the hours of 10 a.m. and 3 p.m. Copies of the filing will also 
be available for inspection and copying at the principal office of the 
self-regulatory organization. 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-2009-47 and should be submitted on or before July 
10, 2009.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\14\
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    \14\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
[FR Doc. E9-14353 Filed 6-18-09; 8:45 am]

BILLING CODE 8010-01-P