Document ID: SEC-2009-1446-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; NASDAQ OMX PHLX, Inc.; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Prohibit Options Specialist Commission Charges
Posted Date: 2009-10-09T04:00Z

[Federal Register: October 9, 2009 (Volume 74, Number 195)]
[Notices]               
[Page 52283-52285]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr09oc09-119]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-60784; File No. SR-Phlx-2009-69]

 
Self-Regulatory Organizations; NASDAQ OMX PHLX, Inc.; Notice of 
Filing and Immediate Effectiveness of Proposed Rule Change To Prohibit 
Options Specialist Commission Charges

October 2, 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 October 1, 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 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 Rule 1014, Commentary .10 to 
establish that options specialists on the Exchange are prohibited from 
charging commissions.
    The text of the proposed rule change is available on the Exchange's 
Web site at http://www.nasdaqtrader.com/micro.aspx?id=PHLXRulefilings, 
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

[[Page 52284]]

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 eliminate arbitrary 
and potentially excessive costs for trading options on the Exchange. 
The Exchange believes that this prohibition should provide clarity to 
member organizations and options investors on this topic by stating the 
current position of the Exchange. Specifically, the Exchange proposes 
to adopt a rule prohibiting specialist commission charges. In effect, 
the rules prohibit the specialist \3\ from charging a commission for 
any trade in which he participated, whether acting as agent or 
principal. In addition, the rules prohibit a specialist from charging a 
commission or fee for the handling, execution or processing of an order 
delivered through the Exchange's automated trading system, Phlx XL 
II,\4\ whether the specialist is acting as principal or agent for the 
order. The agency responsibilities of a specialist have virtually been 
eliminated, as the Exchange's trading systems have become increasingly 
automated, particularly with the completed roll-out of Phlx XL II, the 
Exchange's new, enhanced options trading system.\5\
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    \3\ The term ``specialist'' is used interchangeably with 
``specialist unit.''
    \4\ See Rule 1080.
    \5\ See e.g., Rule 1080(m), which covers the Exchange's routing 
of orders to other markets, which was previously done by 
specialists.
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    The Exchange's By-Laws give broad authority for the Exchange to 
impose and regulate fees.\6\ Given market developments and changes in 
market structure, the Exchange believes that it is inappropriate for 
specialists to be charging commissions and fees; specialists occupy an 
important status in the Exchange's options marketplace and the Exchange 
believes that it is not good market practice for specialists to charge 
commissions in connection with specialist functions. The Exchange feels 
that it is necessary to file this proposed rule change to eliminate any 
ambiguity with respect to its position on the topic. Adoption of this 
rule should not be interpreted to mean that any specialist fee or 
commission charged before the adoption was valid or permitted.
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    \6\ See Exchange By-Law Article XIV, Section 14-1(a) and Article 
XII, Section 12-6(b).
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2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act \7\ in general, and furthers the objectives of Section 
6(b)(5) of the Act \8\ in particular, in that it is designed to promote 
just and equitable principles of trade, to remove impediments to and 
perfect the mechanism of a free and open market and a national market 
system, and, in general to protect investors and the public interest, 
because specialist commissions increase the cost of doing business on 
the Exchange, which, in turn, weakens the Exchange's competitive 
position and potentially increase the cost of options trading for 
investors. For these same reasons, the Exchange also believes that the 
proposed rule change is consistent with Section 11(A)(a)(1)(C) of the 
Act,\9\ which states that it is in the public interest and appropriate 
for the protection of investors and the maintenance of fair and orderly 
markets to assure, among other things, economically efficient execution 
of securities transactions, and fair competition among brokers and 
dealers, among exchange markets, and between exchange markets and 
markets other than exchange markets.
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    \7\ 15 U.S.C. 78f(b).
    \8\ 15 U.S.C. 78f(b)(5).
    \9\ 15 U.S.C. 78K-1(a)(1)(C).
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    In addition, the Exchange believes that the proposal is consistent 
with Section 6(e)(1) of the Act,\10\ because it is not designed to 
permit unfair discrimination between customers, issuers, brokers and 
dealers, or to impose any schedule or fix rates of commissions, 
allowances, discounts, or other fees to be charged by its members. 
Section 6(e) of the Act \11\ was adopted by Congress in 1975 to 
statutorily prohibit the fixed minimum commission rate system. The 
fixed minimum commission rate system allowed exchanges to set minimum 
commission rates that their members had to charge their customers, but 
allowed members to charge more. The Exchange's proposal, by contrast, 
does not establish a minimum commission rate, but instead prohibits the 
Exchange's specialists from charging a commission for handling an 
order, as part of their responsibilities as a specialist. Accordingly, 
the Exchange does not believe that this proposed rule constitutes 
fixing commissions, allowances, discounts, or other fees for purposes 
of Section 6(e)(1) of the Act.\12\ Indeed, the Commission has 
previously noted that limits on fees that specialists may charge apply 
only to members who choose to be specialists, and that, by limiting 
fees, an exchange is merely imposing a condition, which is consistent 
with the Act, on a member's appointment as a specialist.\13\
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    \10\ 15 U.S.C. 78f(e)(1).
    \11\ 15 U.S.C. 78f(e).
    \12\ 15 U.S.C. 78f(e)(1).
    \13\ See text preceding note 27 in Securities Exchange Act 
Release No. 55913 (June 15, 2007), 72 FR 34323 (June 21, 2007) (SR-
Amex-2007-13).
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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

    Pursuant to Section 19(b)(3)(A) of the Act \14\ and Rule 19b-
4(f)(6) \15\ thereunder, the Exchange has designated this proposal as 
one that effects a change that: (i) Does not significantly affect the 
protection of investors or the public interest; (ii) does not impose 
any significant burden on competition; and (iii) by its terms, does not 
become operative for 30 days after the date of the filing, or such 
shorter time as the Commission may designate if consistent with the 
protection of investors and the public interest.
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    \14\ 15 U.S.C. 78s(b)(3)(A).
    \15\ 17 CFR 240.19b-4(f)(6).
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    Rule 19b-4(f)(6) requires a self-regulatory organization to give 
the Commission written notice of its intent to file 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. Furthermore, a 
proposed rule change filed pursuant to Rule 19b-4(f)(6) under the Act 
\16\ normally does not become operative for 30 days after the date of 
its filing.
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    \16\ 17 CFR 240.19b-4(f)(6).
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    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.

[[Page 52285]]

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-2009-69 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-2009-69. 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 
am and 3 pm. 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 Number SR-Phlx-2009-69 and should be 
submitted on or before October 30, 2009.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\17\
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    \17\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
[FR Doc. E9-24355 Filed 10-8-09; 8:45 am]

BILLING CODE 8011-01-P