Document ID: SEC-2010-0784-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: NASDAQ OMX PHLX, Inc.
Posted Date: 2010-05-27T04:00Z

[Federal Register: May 27, 2010 (Volume 75, Number 102)]
[Notices]               
[Page 29788-29790]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr27my10-95]                         

[[Page 29788]]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-62140; File No. SR-Phlx-2010-69]

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

May 20, 2010.
    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 April 30, 2010, 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. Phlx has designated this 
proposal as one establishing or changing a member due, fee, or other 
charge imposed under Section 19(b)(3)(A)(ii) of the Act \3\ and Rule 
19b-4(f)(2) thereunder,\4\ which renders the proposal effective upon 
filing with the Commission. 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.
    \3\ 15 U.S.C. 78s(b)(3)(A)(ii).
    \4\ 17 CFR 240.19b-4(f)(2).
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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 its Fee Schedule by adding language 
at the beginning of the Fee Schedule to describe with more specificity 
the applicability of fees to transactions. It is also making certain 
additional wording changes to the Fee Schedule for purposes of clarity 
and to conform the Fee Schedule to the Exchange's current billing 
practices.
    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, at the Commission's Public Reference 
Room, and on 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 currently charges its members certain transaction-
related fees for options trades. These fees are assessed at differing 
rates that depend on the option contract and on the characteristics of 
the particular trade. Category I of the Fee Schedule sets forth fees 
assessed in connection with rebates for adding and fees for removing 
liquidity in certain specific option contracts identified in the first 
bullet point of Category I.\5\ Category II identifies fees assessed 
with respect to transactions in the other equity options traded on the 
Exchange as well as ETFs, HOLDRS, RUT, RMN, MNX and NDX (together, 
these Category II fees are the ``Equity Options Fees''). Categories III 
and IV set forth fees assessed with respect to transactions in the 
Exchange's sector index options and U.S. dollar-settled foreign 
currency options, respectively.
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    \5\ Category I also sets forth certain rebates for adding 
liquidity. The rebates apply as set forth within the various 
subcategories that also apply to fees within Category I.
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    The six subcategories of transaction fees within Category I, the 
rebates for adding and fees for removing liquidity are (1) Customer, 
(2) Directed Participant, (3) Specialist, ROT, SQT and RSQT, (4) Firm, 
(5) Professional and (6) Broker-Dealer. Within Category II, there are 
five fee subcategories, identified as (1) Customer Executions, (2) 
Professional (3) Registered Options Traders (on-floor) and Specialists, 
(4) Firm, and (5) Broker-Dealer. Categories III and IV each contain the 
following six subcategories: (1) Customer Executions, (2) Professional 
(3) Registered Options Traders (on-floor), (4) Specialist, (5) Firm, 
and (6) Broker-Dealer.
    As a preliminary matter, the Exchange is deleting the word 
``Executions'' from the caption of the ``Customer Executions'' 
subcategory within Categories II, III and IV of the Fee Schedule as 
unnecessary and potentially confusing. Hereafter, this proposed rule 
change will refer to the ``Customer Executions'' subcategories as 
simply the ``Customer'' subcategories. Similarly, the Exchange is 
proposing to delete references to the term ``Firm Proprietary'' 
wherever they appear in Categories II, III and IV. Currently, the Fee 
Schedule uses the terms ``Firm'' and ``Firm Proprietary'' to refer to 
the same types of transactions. The Exchange is proposing to delete the 
words ``Firm Proprietary'' and instead use the term ``Firm'' 
consistently in the Fee Schedule. A conforming change is also made to 
endnote 5.
    The Exchange proposes to add language to the beginning of the Fee 
Schedule in a preface immediately preceding Category I to address the 
applicability of its fees to certain transactions. The Exchange is 
proposing to add this text to the Fee Schedule to clarify the below 
terms for purposes of assessing fees.
    The term ``Customer'' applies to any transaction that is identified 
by a member or member organization for clearing in the Customer range 
at The Options Clearing Corporation (``OCC'') which is not for the 
account of broker or dealer or for the account of a ``Professional'' 
(as that term is defined in Rule 1000(b)(14)).\6\
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    \6\ Rule 1000(b)(14) provides in relevant part: ``The term 
``professional'' means any person or entity that (i) is not a broker 
or dealer in securities, and (ii) places more than 390 orders in 
listed options per day on average during a calendar month for its 
own beneficial account(s).
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    The term ``Directed Participant'' applies to transactions for the 
account of a Specialist, \7\ Streaming Quote Trader \8\ (an ``SQT'') or 
Remote Streaming Quote Trader \9\ (an ``RSQT'') resulting from a 
Customer order that is (1) directed to it by an order flow provider, 
\10\ and (2) executed by it electronically on Phlx XL II.\11\
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    \7\ A Specialist is an Exchange member who is registered as an 
options specialist pursuant to Rule 1020(a).
    \8\ A Streaming Quote Trader is defined in Exchange Rule 
1014(b)(ii)(A) as an 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.
    \9\ A Remote Streaming Quote Trader is defined Exchange Rule in 
1014(b)(ii)(B) as 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.
    \10\ An Order Flow Provider is defined in Exchange Rule 
1080(l)(1)(B) as ``any member or member organization that submits, 
as agent, customer orders to the Exchange.''
    \11\ A ROT includes a SQT, a RSQT and a Non-SQT, which by 
definition is neither a SQT nor a RSQT. See Exchange Rule 1014 
(b)(i) and (ii).
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    The term ``Specialist, ROT, SQT and RSQT'' applies to transactions 
for the accounts of Specialists, Registered

[[Page 29789]]

Option Traders \12\ (``ROTs''), Streaming Quote Traders, and Remote 
Streaming Quote Traders, unless the Directed Participant transaction 
fee applies.
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    \12\ A Registered Option Trader is defined in Exchange Rule 
1014(b) as a regular member or a foreign currency options 
participant of the Exchange located on the trading floor who has 
received permission from the Exchange to trade in options for his 
own account.
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    The term ``Firm'' applies to any transaction that is identified by 
a member or member organization for clearing in the Firm range at OCC. 
For purposes of clarity, these trades are received by the Exchange with 
an origin type of ``F'' and are billed the Firm rate.
    The term ``Professional'' applies to transactions for the accounts 
of Professionals (as defined in Exchange Rule 1000(b)(14)).
    The term ``Broker-Dealer'' applies to any transaction which is not 
subject to any of the other transaction fees applicable within a 
particular category. Thus, for example, ``Broker-Dealer'' transaction 
fees do not apply to rebates and fees for adding and removing liquidity 
which are subject to ``Customer'', ``Directed Participant'', 
``Specialist, ROT, SQT and RSQT'', ``Firm'', or ``Professional'' 
transaction fees. For example, the Broker-Dealer fee would be 
applicable to transactions by away market makers or broker dealers 
clearing in the customer range.
    The Fee Schedule currently refers to ``Registered Options Traders 
(on floor) and Specialists'' in Category II, the equity option fees. 
These fees, which are referred to as ``Registered Options Traders (on 
floor) and Specialists'', apply only to transactions for the accounts 
of ROTs and Specialists. Likewise the Fee Schedule refers to 
``Registered Options Traders (on-floor)'' in Categories III and IV, 
sector index options and U.S. dollar-settled options. These fees, which 
are referred to as ``Registered Options Traders (on-floor)'', apply 
only to transactions for the accounts of ROTs. Finally the Fee Schedule 
refers to ``Specialist'' in Categories III and IV, sector index options 
and U.S. dollar-settled options. These fees, which are referred to as 
``Specialist'', apply only to transactions for the accounts of 
Specialists. The Exchange proposes to replace these three fee terms 
with the broader term ``Specialist, ROT, SQT and RSQT'' for clarity. 
The Exchange defines a ROT as a SQT, a RSQT and a non-SQT. The Exchange 
is proposing to change the title of certain fees for ease of reference. 
This category is the Exchange's market maker category and will not 
impact the fees as Specialists, ROTs, SQTs and RSQTs are charged the 
same rate.
    The Exchange is deleting the second bullet point under Category I 
as unnecessary and duplicative of language in the new Preface. 
Clarifying changes are made to the seventh and eight bullet points in 
Category I, the rebates for adding and fees for removing liquidity.\13\
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    \13\ In addition, the current Fee Schedule states that 
``Customer, Professional, Directed Participant and Specialist, ROT, 
SQT and RSQT fees for removing liquidity will not apply to 
transactions resulting from electronic auctions. Electronic auctions 
include, without limitation, the Complex Order Live Auction 
(``COLA''), and Quote and Market Exhaust auctions. Firm and Broker-
Dealer fees for removing liquidity will, however apply to 
transactions resulting from electronic auctions.'' The Exchange 
proposes to make clear that a Specialist, ROT, SQT and RSQT do not 
receive a rebate for adding liquidity in an electronic auction. The 
Exchange proposes to file a separate 19b-4 to that effect shortly. 
See E-mail from Angela S. Dunn, Assistant General Counsel, Phlx, to 
Johnna B. Dumler, Special Counsel, Commission, and Andrew Madar, 
Special Counsel, Commission, dated May 17, 2010. The exchange also 
requested that paragraph 17 of the 19b-4 and exhibit 1 to the 19b-4 
be deleted because it was inadvertently included in the filing and 
was not applicable. See id.
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    Endnote (C) is proposed to be amended to more clearly identify the 
transaction charges that are subject to the cap described in that 
endnote. No change in meaning is intended.
    Additionally, the Exchange proposes to delete endnote (15) from the 
Fee Schedule. Currently, endnote (15) states that the Broker-Dealer 
``charge applies to members for transactions, received from other than 
the floor of the Exchange for any account (i) in which the holder of 
beneficial interest is a member or non-member broker-dealer or (ii) in 
which the holder of beneficial interest is a person associated with or 
employed by a member or non-member broker-dealer. This includes 
transactions for the account of an ROT entered from off the floor. The 
Exchange proposes to delete endnote (15) and instead clarify what fees 
will be assessed to a broker-dealer utilizing the proposed new term 
``Broker-Dealer'' as set forth in the preface. The Exchange will 
continue to assess members as defined in (i) and (ii) of current 
endnote (15) fees applicable to a broker-dealer.\14\
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    \14\ Id.
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    With respect to the last sentence of endnote (15), the Exchange 
notes that ROTs entering into transactions from off-floor include RSQTs 
because RSQTs are a subset of ROTs by definition.\15\ The Exchange 
proposes to assess transactions for the account of a ROT entered from 
off-floor the fees applicable to Specialists, ROTs, SQTs and RSQTs, as 
to the rebates and fees for adding and removing liquidity. With respect 
to the equity options, RSQTs are currently assessed at the ``Registered 
Options Traders (on-floor) and Specialists'' rate. With respect to 
sector index options and U.S. dollar-settled index options, RSQTs are 
currently assessed at the ``Registered Options Traders (on-floor)'' 
rate. These fee subcategories apply to ROTs generally, regardless of 
whether they are RSQTs and therefore are streaming quotes from off the 
trading floor. An off-floor ROT will be assessed fees applicable to the 
newly termed Specialist, ROT, SQT and RSQT category as opposed to the 
broker dealer category as is currently stated in endnote (15). The 
elimination of endnote (15) and adoption of the language explaining how 
a Specialist, ROT, SQT and RSQT are billed will conform the text of the 
Fee Schedule to the current billing practice.
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    \15\ A ROT includes a SQT, a RSQT and a Non-SQT, which by 
definition is neither a SQT or a RSQT. See Exchange Rule 1014 (b)(i) 
and (ii).
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    Additionally, the Exchange proposes to amend endnote 5. The 
proposed language discussed above to be added as a preface to the Fee 
Schedule will supersede the first sentence of endnote 5, which will 
therefore be deleted. The Exchange is also amending endnote 5 to 
replace current references to ``Firm Proprietary Options Transaction 
Charge'' with references to ``Firm equity options charges''. This 
change will not result in new or changed fees but is intended only to 
simplify the fee schedule by eliminating inconsistent references to the 
same fee.
2. Statutory Basis
    The Exchange believes that its proposal to amend its Fee Schedule 
is consistent with Section 6(b) of the Act \16\ in general, and 
furthers the objectives of Section 6(b)(4) of the Act \17\ in 
particular, in that it is an equitable allocation of reasonable fees 
and other charges among Exchange members and because it clarifies the 
applicability of various Exchange fees, to the benefit of market 
participants. Specifically, the Exchange believes that the added 
preface will provide its members guidance in understanding how the 
Exchange assesses fees.
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    \16\ 15 U.S.C. 78f(b).
    \17\ 15 U.S.C. 78f(b)(4).
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    The Exchange is amending its assessment of fees to broker dealer 
transactions. Specifically, the Exchange believes that it is reasonable 
to assess off-floor ROTs in the newly termed Specialist, ROT, SQT, RSQT 
category because the Exchange is proposing to assess all ROTs, on-floor 
and off-floor, the same rate. The Exchange believes that it is 
equitable to assess all Specialists, ROTs, SQT and RSQTs the same rate.

[[Page 29790]]

    Finally, the Exchange has made clarifying amendments to its 
terminology throughout the Fee Schedule to eliminate extraneous terms 
and outdated language. The Exchange believes that these amendments 
should simplify the Fee Schedule to the benefit of its members.

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 \18\ and paragraph (f)(2) of Rule 19b-4 \19\ 
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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    \18\ 15 U.S.C. 78s(b)(3)(A)(ii).
    \19\ 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-2010-69 on the subject line.

Paper Comments

     Send paper comments in triplicate to Elizabeth M. Murphy, 
Secretary, Securities and Exchange Commission, Station Place, 100 F 
Street, NE., Washington, DC 20549-1090.

All submissions should refer to File Number SR-Phlx-2010-69. 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 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 publicly available. All 
submissions should refer to File Number SR-Phlx-2010-69 and should be 
submitted on or before June 17, 2010.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\20\
Florence E. Harmon,
Deputy Secretary.
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    \20\ 17 CFR 200.30-3(a)(12).
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[FR Doc. 2010-12694 Filed 5-26-10; 8:45 am]
BILLING CODE 8010-01-P