Document ID: SEC-2009-1746-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Notice of Filing and Immediate Effectiveness of Proposed Rule Change by NASDAQ OMX PHLX, Inc. Relating to Dividend, Merger and Short Stock Interest Strategies
Posted Date: 2009-12-10T05:00Z

[Federal Register: December 10, 2009 (Volume 74, Number 236)]
[Notices]               
[Page 65571-65573]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr10de09-91]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-61115; File No. SR-Phlx-2009-97]

 
Self-Regulatory Organizations; Notice of Filing and Immediate 
Effectiveness of Proposed Rule Change by NASDAQ OMX PHLX, Inc. Relating 
to Dividend, Merger and Short Stock Interest Strategies

December 4, 2009.
    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 23, 2009, NASDAQ OMX PHLX, Inc. (``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 the fee caps on equity option 
transaction charges on dividend,\3\ merger,\4\ and short stock interest 
\5\ strategies, which fee caps are currently set at $1,000 and $25,000 
on equity option transaction charges on dividend, merger, and short 
stock interest strategies, to expand these fee caps to apply to equity 
options transaction fees assessed on all Registered Options Traders 
(on-floor) (``ROTs''), specialists, firms and broker-dealers, when such 
members are trading in their own proprietary account.
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    \3\ For purposes of this proposal, the Exchange defines a 
``dividend strategy'' as transactions done to achieve a dividend 
arbitrage involving the purchase, sale and exercise of in-the-money 
options of the same class, executed prior to the date on which the 
underlying stock goes ex-dividend. See e.g., Securities Exchange Act 
Release No. 54174 (July 19, 2006), 71 FR 42156 (July 25, 2006) (SR-
Phlx-2006-40).
    \4\ For purposes of this proposal, the Exchange defines a 
``merger strategy'' as transactions done to achieve a merger 
arbitrage involving the purchase, sale and exercise of options of 
the same class and expiration date, executed prior to the date on 
which shareholders of record are required to elect their respective 
form of consideration, i.e., cash or stock.
    \5\ For purposes of this proposal, the Exchange defines a 
``short stock interest strategy'' 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.
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    While changes to the Exchange's Fee Schedule pursuant to this 
proposal are effective upon filing, the Exchange has designated this 
proposal to be effective for trades settling on or after December 1, 
2009.
    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 amend the transaction 
charge for dividend, merger and short stock strategies to apply to all 
member organizations trading in their own proprietary account to 
encourage member organizations to trade on the Exchange. The Exchange 
believes that offering the cap to all member organizations will 
continue to attract additional liquidity and order flow to the Exchange 
and allow the Exchange to remain competitive with other options 
exchanges in connection with these types of options strategies.
    Currently, equity options transaction charges assessed to 
specialists and ROTs are capped at $1,000 for dividend, merger and 
short stock interest strategies executed on the same trading day in the 
same options class. In addition, there is a $25,000 per member 
organization fee cap on equity option transaction charges incurred in 
one month for dividend, merger and short stock interest strategies 
combined. The

[[Page 65572]]

Exchange proposes to apply these fee caps on the equity options 
transaction fees assessed to ROTs, specialists, Firms and Broker-
Dealers, when such members are trading in their own proprietary 
account.
    In order to capture the necessary information electronically, the 
Exchange has modified the Floor Broker Management System (FBMS) \6\ to 
allow for members to designate on the trade ticket whether the trade 
involves a dividend, merger, or short stock interest strategy \7\.
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    \6\ FBMS is designed to enable Floor Brokers and/or their 
employees to enter, route and report transactions stemming from 
options orders received on the Exchange. FBMS also is designed to 
establish an electronic audit trail for options orders represented 
and executed by Floor Brokers on the Exchange, such that the audit 
trail provides an accurate, time-sequenced record of electronic and 
other orders, quotations and transactions on the Exchange, beginning 
with the receipt of an order by the Exchange, and further 
documenting the life of the order through the process of execution, 
partial execution, or cancellation of that order. See Exchange Rule 
1080, Commentary .06.
    \7\ The Exchange eliminated its manual rebate process and 
modified certain trading tickets on June 28, 2007. See Securities 
Exchange Release No. 55972 (March 6, 2009), 74 FR 10980 (March 13, 
2009) (SR-Phlx-2007-47) [sic].
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2. Statutory Basis
    The Exchange believes that its proposal to amend its schedule of 
fees is consistent with Section 6(b) of the Act \8\ in general, and 
furthers the objectives of Section 6(b)(4) of the Act \9\ in 
particular, in that it is an equitable allocation of reasonable fees 
and other charges among Exchange members. The Exchange believes that 
expanding the dividend, merger and short stock interest strategy fee 
caps to apply equity transaction charges assessed to all member 
organizations is equitable because it uniformly applies to all member 
organizations. The Exchange's proposal to limit the fee cap to 
transactions occurring in the member's proprietary account is 
consistent with the current fee schedule and industry fee assessments 
of member firms that allow for different rates to be charged for 
different order types originated by dissimilarly classified market 
participants.\10\ For example, the Exchange assesses different 
transaction fees applicable to the execution of Principal Acting as 
Agent Orders (``P/A Orders'') \11\ and Principal Orders (``P Orders'') 
\12\ sent to the Exchange via the Intermarket Option Linkage 
(``Linkage'') under the Plan for the Purpose of Creating and Operating 
an Intermarket Option Linkage (the ``Plan''). The Exchange charges 
$0.45 per option contract for P Orders sent to the Exchange and $.30 
per contract for P/A Orders.\13\ Also, the Exchange recently amended 
its fee schedule to assess a different transaction fee when waiving the 
Firm Proprietary Options Transaction Charge for members executing 
facilitation orders.\14\ The Exchange believes that applying dividend, 
merger and short stock interest strategy fee caps to all member 
organizations, when such members are trading in their own accounts, is 
consistent with rate differentials that exist in the current fee 
schedule and serves to encourage members to facilitate customer order 
flow.
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    \8\ 15 U.S.C. 78f(b).
    \9\ 15 U.S.C. 78f(b)(4).
    \10\ NYSE Amex currently charges different rates to different 
market participants in assessing its firm facilitation fee. See 
Securities Exchange Act Release No. 60378 (July 23, 2009), 74 FR 
38245 (July 31, 2009) (SR-NYSEAmex-2009-38).
    \11\ A P/A order is an order for the principal account of a 
specialist (or equivalent entity on another participant exchange 
that is authorized to represent public customer orders), reflecting 
the terms of a related unexecuted Public Customer order for which 
the specialist is acting as agent. See Exchange Rule 1083(k)(i) 
[sic].
    \12\ A Principal Order is an order for the principal account of 
an Eligible Market Maker and is not a P/A Order. See Exchange Rule 
1083(k)(ii) [sic].
    \13\ See Securities Exchange Act Release No. 60210 (July 1, 
2009), 74 FR 32989 (July 9, 2009) (SR-Phlx-2009-53).
    \14\ See Securities Exchange Act Release No. 60477 (August 11, 
2009), 74 FR 41777 (August 18, 2009) (SR-Phlx-2009-67).
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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 \15\ and paragraph (f)(2) of Rule 19b-4 \16\ 
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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    \15\ 15 U.S.C. 78s(b)(3)(A)(ii).
    \16\ 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-2009-97 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-2009-97. 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 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-2009-97 and 
should be submitted on or before December 31, 2009.
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    \17\ 17 CFR 200.30-3(a)(12).

[[Page 65573]]

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    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\17\
Florence E. Harmon,
Deputy Secretary.
[FR Doc. E9-29422 Filed 12-9-09; 8:45 am]

BILLING CODE 8011-01-P