Document ID: SEC-2011-1611-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: NASDAQ OMX PHLX LLC
Posted Date: 2011-10-20T04:00Z

[Federal Register Volume 76, Number 203 (Thursday, October 20, 2011)]
[Notices]
[Pages 65228-65230]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2011-27199]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-65574; File No. SR-Phlx-2011-134]

Self-Regulatory Organizations; NASDAQ OMX PHLX LLC; Notice of 
Filing and Immediate Effectiveness of Proposed Rule Change Relating To 
the Permit Fee and the Inactive Nominee Fee

October 14, 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 October 3, 2011, 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 the applicability of the Permit Fee 
and also proposes to amend the Inactive Nominee Fee.
    While changes to the Fee Schedule pursuant to this proposal are 
effective upon filing, the Exchange has designated these changes to be 
operative on November 1, 2011.
    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, on the Commission's Web site at 
http://www.sec.gov/ 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 the 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The purpose of the proposed rule change is to: (i) Amend the 
applicability of the Permit Fee for members and member organizations 
transacting an options business; and (ii) amend the Inactive Nominee 
Fee. The Exchange desires to automate its billing processes further and 
therefore proposes to require members and member organizations to 
transact business using an assigned Phlx house account. In addition, 
the Exchange proposes to allow affiliated member organizations the 
opportunity to benefit from each other's transactions for purposes of 
assessing the Permit Fee. Also, the Exchange proposes to increase the 
Inactive Nominee Fee from $500 each six months to $100 a month for the 
applicable six month period. Assessing the Inactive Nominee Fee on a 
monthly basis enables member organizations the ability to terminate an 
Inactive Nominee prior to the six month period and avoid paying the 
$100 for the remaining months.
Permit Fee
    Currently, the Exchange assesses a Permit Fee of $1,100 for members 
and member organizations who transact business on the Exchange and 
$7,500 for members and member organizations who do not transact 
business on the Exchange. Further, the $7,500 Permit Fee is assessed 
only if that member is (i) not a PSX \3\ Only Participant; or (ii) not 
engaged in an options business at Phlx in a particular month.\4\
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    \3\ PSX is the Exchange's cash equities market electronic 
trading platform.
    \4\ A member or member organization will pay an additional 
permit fee for each sponsored options participant. See Exchange Rule 
1094 titled Sponsored Participants. A Sponsored Participant may 
obtain authorized access to the Exchange only if such access is 
authorized in advance by one or more Sponsoring Member 
Organizations. Sponsored Participants must enter into and maintain 
participant agreements with one or more Sponsoring Member 
Organizations establishing a proper relationship(s) and account(s) 
through which the Sponsored Participant may trade on the Exchange.
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    The Exchange proposes two amendments to the eligibility of the

[[Page 65229]]

$1,100 Permit Fee for those members transacting an options business. 
First, the Exchange proposes to require that transaction(s) executed on 
the Exchange be transacted in a Phlx house account assigned to the 
member or member organization by the Exchange. The Exchange will use 
the member's house account in its automated billing process to confirm 
a member's options trading activity for purposes of assessing them a 
Permit Fee. Currently members utilize house accounts as well as other 
accounts, such as accounts in the name of the member's clearing firm, 
to transact their options business. The Exchange assesses members the 
$1,100 Permit Fee today for transacting business in any of these 
accounts. This proposal will require members to transact business in a 
house account in order for the Exchange to identify the member's 
eligibility for the $1,100 Permit Fee.\5\ The Exchange's automated 
billing process will utilize the house account to determine the 
appropriate Permit Fee to be assessed each member. Members will be 
notified in advance in the form of an Options Trader Alert of the 
necessity to obtain a Phlx house account if they are not currently 
assigned such an account.\6\ Members will need to obtain such an 
account prior to November 1, 2011. The Exchange intends to provide its 
members ample notice to obtain such an account.
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    \5\ The Exchange will require at least one transaction occur in 
an assigned Phlx house account in order for the Exchange's automated 
billing system to identify that member's eligibility for the $1,100 
Permit Fee. If the member determines to transact some transactions 
in a non-Phlx house account, that will not impact the member's 
eligibility for the $1,100 Permit Fee as long as one trade was 
transacted in the assigned Phlx house account.
    \6\ The Exchange's Membership Department assigns Phlx house 
accounts to members and member organizations upon request. There is 
no fee to obtain a Phlx house account.
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    Second, the Exchange is proposing to amend the applicability of the 
$1,100 Permit Fee for members and member organizations transacting an 
options business by permitting a member organization under common 
ownership with another member organization, which transacts at least 
one options trade in an assigned Phlx house account, to be eligible for 
the $1,100 Permit Fee. For purposes of this Permit Fee, ``common 
ownership'' is defined as at least 75% common ownership between member 
organizations. In other words the transactions of member organizations 
under common ownership will be viewed together in assessing the Permit 
Fee. Each member organization under common ownership will continue to 
pay a Permit Fee of $1,100 each as long as one member has options 
trading activity recorded under their assigned Phlx house account 
number. The proposed amendments to the Permit Fee do not apply to 
members solely engaged in an equities business on PSX.
Inactive Nominee Fee
    Currently, the Exchange assesses a member organization an Inactive 
Nominee Fee of $500 for each of its inactive nominees \7\ for a six 
month period, as provided for in Exchange Rule 925.\8\ The member 
organization is required to pay a fee for the privilege of maintaining 
the inactive nominee status of an individual.\9\ An inactive nominee's 
status terminates after six months unless it has been reaffirmed in 
writing by the member organization or is terminated sooner.\10\ An 
inactive nominee is assessed the $500 fee every time the status is 
reaffirmed.\11\
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    \7\ An inactive nominee is also assessed the Application and 
Initiation Fees when such person applies to be an inactive nominee. 
Such fees are reassessed if there is a lapse in the inactive 
nominee's membership status. However, an inactive nominee would not 
be assessed the Application and Initiation Fees if such inactive 
nominee applied for membership without a lapse in that individual's 
association with a particular member organization. See Securities 
Exchange Act Release No. 63780 (January 26, 2011), 76 FR 5846 
(February 2, 2011) (SR-Phlx-2011-07). See also By-Law Article XII, 
Section 12 10.
    \8\ Pursuant to Exchange Rule 925, a member organization may 
designate an individual as an inactive nominee. To be eligible to be 
an inactive nominee an individual must be approved as eligible to 
hold a permit in accordance with the Exchange's By-Laws and Rules. 
An inactive nominee has no rights and privileges of a permit holder 
until the inactive nominee becomes an effective permit holder and 
all applicable Exchange fees are paid. See Exchange Rule 925.
    \9\ See Securities Exchange Act Release No. 39851 (April 10, 
1998), 63 FR 19282 (April 17, 1998) (SR-Phlx-97-35) (a rule change 
which subjected inactive nominees to the membership application 
process, including fees, including a fee for the privilege of 
maintaining an inactive nominee status).
    \10\ See By-Law Article XII, Section 12-10.
    \11\ An inactive nominee is also assessed the Application and 
Initiation Fees when such person applies to be an inactive nominee. 
Such fees are reassessed if there is a lapse in the inactive 
nominee's membership status. However, an inactive nominee would not 
be assessed the Application and Initiation Fees if such inactive 
nominee applied for membership without a lapse in that individual's 
association with a particular member organization. See Securities 
Exchange Act Release No. 63780 (January 26, 2011), 76 FR 5846 
(February 2, 2011) (SR-Phlx-2011-07). See also By-Law Article XII, 
Section 12-10.
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    The Exchange proposes to increase the Inactive Nominee Fee from 
$500 to $600 for the six month period described in Exchange Rule 925 
and assess the member organization an Inactive Nominee Fee of $100 per 
month for the applicable six month period as opposed to $500 upon 
notification or reaffirmation of the inactive nominee status for the 
applicable six month period. The proposal will allow member 
organizations to discontinue payment of the Inactive Nominee Fee in the 
next full month after notice of termination of the inactive nominee 
status as the fee will be assessed per month. The member organization 
is therefore required to provide the Exchange notice of its intent to 
terminate an inactive nominee before the end of the month in order to 
avoid an assessment of the $100 fee in the following month. For 
example, if on January 1, 2012 a member organization designated an 
individual as an inactive nominee, pursuant to Exchange Rule 925, and 
subsequently notified the Exchange on April 19, 2012 that the member 
organization desired to terminate the inactive nominee, the member 
organization would not be assessed the $100 Inactive Nominee Fee in May 
and June 2012 for that inactive nominee. The Exchange will not however 
retroactively reimburse any fees, but rather would allow a member 
organization to terminate the remaining full months.
    While changes to the Fee Schedule pursuant to this proposal are 
effective upon filing, the Exchange has designated these changes to be 
operative on November 1, 2011.
2. Statutory Basis
    The Exchange believes that its proposal to amend its Fee Schedule 
is consistent with Section 6(b) of the Act \12\ in general, and 
furthers the objectives of Section 6(b)(4) of the Act \13\ 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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    \12\ 15 U.S.C. 78f(b).
    \13\ 15 U.S.C. 78f(b)(4).
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    The Exchange believes that its proposal to require members 
transacting an options business to transact orders using an assigned 
Phlx house account is reasonable because the Exchange is transitioning 
permit billing to an automated billing process for its Permit Fees and 
this information will be utilized to more accurately ascertain if a 
member is transacting an options business in a particular month.
    The Exchange believes that its proposal to allow member 
organizations under common ownership to be assessed a $1,100 Permit Fee 
for transacting an options business on the Exchange, as long as one of 
the member organizations transacted an options trade in an assigned 
Phlx house account, is reasonable because the

[[Page 65230]]

Exchange believes that viewing commonly owned members together for 
purposes of billing the Permit Fee will provide an opportunity for an 
entity that has multiple operations to maintain reasonable expenses 
while maintaining multiple permits for various member organizations.
    The Exchange believes that it is equitable and not unfairly 
discriminatory to require members transacting an options business to 
transact orders using an assigned Phlx house account, because the 
Exchange is requiring all option members to utilize this process in 
order to increase the efficiency of identifying a member's eligibility 
for the $1,100 Permit Fee. This will allow the Exchange to readily 
determine a member's level of activity in a particular month.
    The Exchange believes that it is equitable and not unfairly 
discriminatory to consider together those transactions of member 
organizations under common ownership for purposes of assessing the 
Permit Fee because the Exchange will uniformly calculate the Permit Fee 
in this manner for all applicable member organizations under common 
ownership. Each member organization will continue to be assessed a 
Permit Fee of $1,100 in the event that a member organization under 
common ownership transacts one options transaction in an assigned Phlx 
house account each month. The Exchange believes that a member 
organization that has multiple operations should not incur greater 
expenses merely because it determined to conduct its business under 
separate legal structures. In addition, those members that are not 
under common ownership with another member can still qualify for the 
$1,100 Permit Fee by executing at least one trade in their assigned 
Phlx house account.
    The Exchange believes that increasing the Inactive Nominee Fee from 
$500 to $600 is reasonable because the Exchange incurs administrative 
costs with respect to its administration of inactive nominees. The 
Exchange believes that its proposal to assess the Inactive Fee on a 
monthly basis ($100 per month) is also reasonable because it will allow 
member organizations to discontinue payment of the Inactive Nominee Fee 
in the next full month after notice of termination of the inactive 
nominee status as the fee will be assessed per month.
    The Exchange believes that the amendments to the Inactive Nominee 
Fee are equitable and not unfairly discriminatory because these fee 
amendments will be uniformly applied in calculating Inactive Nominee 
Fees and assessing those fees on member organizations.

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.\14\ 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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    \14\ 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 No. SR-Phlx-2011-134 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 No. SR-Phlx-2011-134. 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 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 No. SR-Phlx-2011-134 and should be 
submitted on or before November 10, 2011.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\15\
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    \15\ 17 CFR 200.30-3(a)(12).
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Elizabeth M. Murphy,
Secretary.
[FR Doc. 2011-27199 Filed 10-19-11; 8:45 am]
BILLING CODE 8011-01-P