Document ID: SEC-2011-1288-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: NASDAQ OMX PHLX LLC
Posted Date: 2011-08-26T04:00Z

[Federal Register Volume 76, Number 166 (Friday, August 26, 2011)]
[Notices]
[Pages 53506-53507]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2011-21852]

[[Page 53506]]

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

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-65174; File No. SR-Phlx-2011-115]

Self-Regulatory Organizations; NASDAQ OMX PHLX LLC; Notice of 
Filing and Immediate Effectiveness To Establish and Adopt Fees for the 
New PSX Pre-Trade Risk Management Service

August 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 August 16, 2011, NASDAQ OMX PHLX LLC (the ``Exchange'') filed 
with the Securities and Exchange Commission (``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.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------

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

    The Exchange proposes to establish and adopt fees for the new PSX 
Pre-Trade Risk Management Service (``PRM''). The Exchange will 
implement the fee effective September 1, 2011.
    The text of the proposed rule change is available at the principal 
office of the Exchange, at the Commission's Public Reference Room, and 
at the Commission's Web site at http://www.sec.gov.

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 Exchange is proposing to amend Chapter VIII of its fee schedule 
to adopt PSX Pre-trade Risk Management and its related fees. PRM 
provides member firms with the ability to set a wide range of 
parameters for orders to facilitate pre-trade protection by creating a 
PRM module defined to represent checks desired. Using PRM, member firms 
can increase controls on their trading activity and the trading 
activity of their clients and customers at the order level, including 
the opportunity to prevent potentially erroneous transactions. PRM 
validates orders entered on PRM-enabled ports prior to allowing those 
orders into its matching engine and, using parameters set by the 
subscriber, determines if the order should be sent for fulfillment. If 
PRM rejects an order, it alerts the member firm and provides it with 
clearly-defined reasons for the rejection.\3\ These alerts are sent on 
Execution and Order/Message DROP copy lines/reports. The Exchange 
believes that PRM will be a useful tool to assist members in complying 
with the Commission's new market access rule \4\ and related Exchange 
requirements.
---------------------------------------------------------------------------

    \3\ For example, PRM provides a ``Fat Finger Check,'' which 
allows a user to compare price
    instructions on incoming orders against the current displayed 
size and price in the market. If the order is not in line with the 
displayed price and size, the order will be rejected before it can 
execute. Users can set order limits at several levels to ensure that 
clearly erroneous orders never execute.
    \4\ 17 CFR 240.15c3-5. See Securities Exchange Act Release No. 
63241 (November 3, 2010), 75 FR 69792 (November 15, 2010).
---------------------------------------------------------------------------

    PRM users may choose to set PRM Order Checks, Aggregate Total 
Checks within a PRM Module, and subscribe to PRM Workstation Add-ons to 
an existing Workstation or WeblinkACT 2.0. PRM manages risk by checking 
each order, before it is accepted into the system, against certain 
parameters pre-specified by the user within a module, such as maximum 
order size or value, order type restrictions, market session 
restrictions (pre/post market), security restrictions, including per-
security limits, restricted stock list, and certain other criteria. 
These checks are in addition to the Fat Finger Check, which is 
available for all orders submitted through a RASH/FIX PRM-enabled 
port.\5\ In order for a member firm to subscribe, at least one PRM 
Module per market participant ID (``MPID'') is required, but a user may 
have multiple PRM Module subscriptions per MPID, depending on the type 
and number of ports designated as PRM ports.\6\ A PRM Module is created 
to validate individual orders against pre-specified parameters. 
Aggregate Total Checks allow users to limit overall daily trading 
activity based on Buy, Sell, and/or Net trading limits. These daily 
trading activity limits may be established at an aggregate limit and/or 
security specific limit per PRM Module. Member firms may subscribe to 
the PRM Workstation Add-on to an existing Workstation or WeblinkACT 2.0 
for a fee.
---------------------------------------------------------------------------

    \5\ Id.
    \6\ A member firm using FIX or Rash ports can configure its PRM 
Module to pre-trade-manage a subscriber's order flow for a specified 
MPID and PRM-enabled port, or for an account within an MPID. A 
member using OUCH ports can configure its PRM Module to pre-trade-
manage a subscriber's order flow for a specified port.
---------------------------------------------------------------------------

    The Exchange is proposing to assess a per-port fee for PRM under 
the proposed paragraph (a) of the fee schedule. This monthly port-based 
fee is tiered, decreasing as the number of PRM-enabled ports subscribed 
increase and the next tier is reached. The Exchange is also proposing 
to limit the fees assessed a member firm under the tiered fee structure 
to a total of $25,000 per month. Proposed paragraph (b) of the fee 
schedule sets forth fees assessed for PRM Modules and Aggregate Total 
Check, which will be available to subscribers at no cost, and a monthly 
fee of $100 per each PRM Workstation Add-on to an existing Workstation 
or WeblinkACT 2.0 per month.
    The NASDAQ Stock Market (``NASDAQ'') has offered Pre-trade Risk 
Management to its members for many years, and the Exchange is now 
proposing to offer member firms the identical service offered at the 
same fee levels.\7\ A member firm that is an existing subscriber of 
NASDAQ PRM, however, must subscribe separately to PSX PRM to receive 
the service for its Exchange order flow.
---------------------------------------------------------------------------

    \7\ The Exchange notes that NASDAQ recently amended the fees 
assessed for PRM and its services. See Securities Exchange Act 
Release No. 65020 (August 3, 2011), 76 FR 48193 (August 8, 2011) 
(SR-NASDAQ-2011-099).
---------------------------------------------------------------------------

2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with Section 6(b)(4) of the Act \8\ in that it provides for the 
equitable allocation of reasonable dues, fees and other charges among 
members and issuers and other persons using any facility or system 
which the Exchange operates or controls, and it does not unfairly 
discriminate between customers, issuers, brokers or dealers. The new 
PRM fee schedule applies to all

[[Page 53507]]

subscribers equally based on the number of ports subscribed. The 
proposed fees will cover the costs associated with separately offering 
the service, responding to customer requests, configuring Exchange 
systems, programming to user specifications, and administering the 
service, among other things, and may provide the Exchange with a profit 
to the extent costs are covered.
---------------------------------------------------------------------------

    \8\ 15 U.S.C. 78f(b)(4).
---------------------------------------------------------------------------

    The Exchange also believes that the proposed rule change is 
consistent with the provisions of Section 6(b)(5) of the Act \9\ 
because it is designed to prevent fraudulent and manipulative acts and 
practices, to promote just and equitable principles of trade, to foster 
cooperation and coordination with persons engaged in facilitating 
transactions in securities, and to remove impediments to and perfect 
the mechanism of a free and open market and a national market system. 
PRM is designed to assist member firms in avoiding entry of erroneous 
orders by screening out those that exceed pre-determined limits, which 
otherwise may harm both the member firm and the quality of the markets. 
As such, PRM is an important compliance tool that members may use to 
help maintain the regulatory integrity of the markets.
---------------------------------------------------------------------------

    \9\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange does not believe that the proposed rule change will 
result in any burden on competition that is not necessary or 
appropriate in furtherance of the purposes of the Act, as amended.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants, or Others

    Written comments were neither solicited nor received.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    Because the foregoing proposed rule change does not significantly 
affect the protection of investors or the public interest, does not 
impose any significant burden on competition, and, by its terms, does 
not become operative for 30 days from the date on which it was filed, 
or such shorter time as the Commission may designate, it has become 
effective pursuant to Section 19(b)(3)(A) of the Act \10\ and Rule 19b-
4(f)(6) thereunder.\11\
---------------------------------------------------------------------------

    \10\ 15 U.S.C. 78s(b)(3)(A).
    \11\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)(iii) 
requires the Exchange to give the Commission written notice of the 
Exchange's intent to file the proposed rule change, along with a 
brief description and text of the proposed rule change, at least 
five business days prior to the date of filing of the proposed rule 
change, or such shorter time as designated by the Commission. The 
Exchange has satisfied this requirement.
---------------------------------------------------------------------------

    The Exchange has requested that the Commission waive the 30-day 
operative delay. The Commission believes that waiver of the operative 
delay is consistent with the protection of investors and the public 
interest. Such a waiver will allow the Exchange to offer the PRM 
service, which a member may use as a tool that could assist compliance 
with certain regulatory obligations and enhance market integrity, as 
soon as possible. Accordingly, the Commission designates the proposal 
operative upon filing.\12\
---------------------------------------------------------------------------

    \12\ For purposes only of waiving the 30-day operative delay, 
the Commission has considered the proposed rule's impact on 
efficiency, competition, and capital formation. See 15 U.S.C. 
78c(f).
---------------------------------------------------------------------------

    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.

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-2011-115 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-2011-115. 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 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-2011-115 and should be 
submitted on or before September 16, 2011.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\13\
---------------------------------------------------------------------------

    \13\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Elizabeth M. Murphy,
Secretary.
[FR Doc. 2011-21852 Filed 8-25-11; 8:45 am]
BILLING CODE 8011-01-P