Document ID: SEC-2012-2039-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: NASDAQ OMX PHLX LLC
Posted Date: 2012-12-12T05:00Z

[Federal Register Volume 77, Number 239 (Wednesday, December 12, 2012)]
[Notices]
[Pages 74039-74041]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2012-29965]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-68376; File No. SR-Phlx-2012-139]

Self-Regulatory Organizations; NASDAQ OMX PHLX LLC; Notice of 
Filing and Immediate Effectiveness of Proposed Rule Change Relating to 
Complex Orders

December 6, 2012.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ and Rule 19b-4 \2\ thereunder, notice is hereby given 
that, on December 3, 2012, 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 Section I, Part B of the Exchange's 
Pricing Schedule entitled ``Rebates and Fees for Adding and Removing 
Liquidity in Select Symbols'' to apply a fee differential approved by 
the Commission.
    The text of the proposed rule change is available on the Exchange's 
Web site at http://www.nasdaqtrader.com/micro.aspx?id=PHLXfilings, 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 Exchange filed two immediately effective rule changes, SR-Phlx-
2012-27 and SR-Phlx-2012-54,\3\ to amend certain fees and rebates in 
Section I, which filings were temporarily suspended by the Commission 
as of April 30, 2012 (``Suspension Order'').\4\ On November 9, 2012, 
the Commission approved SR-Phlx-2012-27 and SR-Phlx-2012-54, as 
modified by Amendment No. 1, on a one-year pilot basis, with such fees 
being operative on December 3, 2012 (``Approval Order'').\5\
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    \3\ See Securities Exchange Act Release Nos. 66551 (March 9, 
2012), 77 FR 15400 (March 15, 2012) (SR-Phlx-2012-27) and 66883 
(April 30, 2012), 77 FR 26591 (May 4, 2012) (SR-Phlx-2012-54).
    \4\ By order dated April 30, 2012, the Commission suspended SR-
Phlx-2012-27 and SR-Phlx-2012-54. See Securities Exchange Release 
No. 66884 (April 30, 2012), 77 FR 26595 (May 4, 2012) (SR-Phlx-2012-
27and SR-Phlx-2012-54).
    \5\ See Securities Exchange Act Release No. 68202 (November 9, 
2012), 77 FR 68856 (November 16, 2012) (SR-Phlx-2012-27 and SR-Phlx-
2012-54).
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    The Approval Order approved certain fees that were proposed by the 
Exchange in SR-Phlx-2012-27.\6\ The Exchange proposes, pursuant to the 
Approval Order, to reinstate the Complex Order pricing differential 
that was suspended on April 30, 2012. In SR-Phlx-2012-27, the Exchange 
filed to amend various fees.\7\ The fees for execution of Complex 
Orders by Directed Participants and Market Makers became the subject of 
the Suspension Order. Specifically, the Exchange filed to amend the 
Directed Participant Complex Order Fee for Removing Liquidity from 
$0.30 to $0.32 per contract and the Marker Maker Complex Order Fee for 
Removing Liquidity from $0.32 to $0.37 per contract.\8\ On April 30, 
2012, the Commission suspended both SR-Phlx-2012-27 and a related 
filing SR-Phlx-2012-54 and instituted proceedings to determine whether 
the Exchange's proposed rule changes should be approved or 
disapproved.\9\ The proposed $0.05 per contract Complex Order 
differential as between Directed Participants and Market Makers was 
suspended and the $0.02 fee differential was reinstated as of April 30, 
2012.\10\ The subsequent Approval Order approved the fees related to 
Complex Orders on a one-year pilot basis operative on December 3, 
2012.\11\ Since the date of the Suspension Order, the Exchange has 
filed amendments to Section I of its Pricing Schedule which amended 
certain fees and also the categories of market participants.\12\
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    \6\ Specifically, SR-Phlx-2012-27 proposed, among other things, 
to: (1) Increase the Customer Complex Order Rebate for Adding 
Liquidity from $0.30 to $0.32 per contract, (2) create a new Complex 
Order Rebate for Removing Liquidity and specifically pay a Customer 
a $0.06 Complex Order Rebate for Removing Liquidity, and (3) 
increase the Complex Order Fees for Removing Liquidity for Firms, 
Broker-Dealers and Professionals from $0.35 per contract to $0.38 
per contract.
    \7\ See Securities Exchange Act Release No. 66551 (March 9, 
2012), 77 FR 15400 (March 15, 2012) (SR-Phlx-2012-27).
    \8\ Id.
    \9\ The Commission noted in the Suspension Order that it ``* * * 
believes it is appropriate to further evaluate the potential effect 
of the proposed rule changes on competition among different types of 
market participants and on market quality, particularly with respect 
to the fee differential between Directed Participants and Market 
Makers, and the basis for such differential put forth by the 
Exchange.'' See Securities Exchange Release No. 66884 (April 30, 
2012), 77 FR 26595, 26596 (May 4, 2012) (SR-Phlx-2012-27and SR-Phlx-
2012-54).
    \10\ By order dated April 30, 2012, the Commission suspended SR-
Phlx-2012-27 and SR-Phlx-2012-54. See Securities Exchange Release 
No. 66884 (April 30, 2012), 77 FR 26595 (May 4, 2012) (SR-Phlx-2012-
27 and SR-Phlx-2012-54).
    \11\ See Securities Exchange Act Release No. 68202 (November 9, 
2012), 77 FR 68856 (November 16, 2012) (SR-Phlx-2012-27 and SR-Phlx-
2012-54).
    \12\ See Securities Exchange Act Release Nos. 67189 (June 12, 
2012), 77 FR 36310 (June 18, 2012) (SR-Phlx-2012-77) (an immediately 
effective rule filing which, among other things, amended the Complex 
Order Directed Participant fee from $0.34 to $0.36 per contract and 
noted that the Complex Order fee for Removing Liquidity, applicable 
to Specialists and Market Makers, will be decreased by $0.02 per 
contract when the Specialist or Market Maker transacts against a 
Customer order directed to them. This filing also established the 
category of Specialist); and 67633 (August 9, 2012), 77 FR 49040 
(August 15, 2012) (SR-Phlx-2012-104) (an immediately effective rule 
filing, which, among other things, amended the Complex Order 
Specialist and Market Maker fees from $0.36 to $0.39 per contract).
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    The Exchange amended its categories of market participants to 
specifically define a Specialist \13\ separate and apart from other 
Market Makers.\14\ At the time of the Suspension Order, the Exchange 
defined a Market Maker to include Specialists and Registered Options 
Traders.\15\ The Exchange redefined a

[[Page 74040]]

Market Maker to include ROTs, SQTs and RSQTs. The Exchange eliminated 
the category ``Directed Participant'' \16\ from the categories of 
market participants, and instead added Specialists as a category of 
market participants.\17\
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    \13\ A ``Specialist'' is an Exchange member who is registered as 
an options specialist pursuant to Rule 1020(a).
    \14\ See Securities Exchange Act Release No. 67189 (June 12, 
2012), 77 FR 36310 (June 18, 2012) (SR-Phlx-2012-77).
    \15\ A Registered Options Trader (``ROT'') includes a Streaming 
Quote Trader (``SQT''), a Remote Streaming Quote Trader (``RSQT'') 
and a Non-SQT, which by definition is neither a SQT or a RSQT. A ROT 
is defined in Exchange Rule 1014(b) as a regular member of the 
Exchange located on the trading floor who has received permission 
from the Exchange to trade in options for his own account. See 
Exchange Rule 1014 (b)(i) and (ii).
    \16\ The term ``Directed Participant'' applies to transactions 
for the account of a Specialist, Streaming Quote Trader or Remote 
Streaming Quote Trader resulting from a Customer order that is (1) 
directed to it by an order flow provider, and (2) executed by it 
electronically on Phlx XL II.
    \17\ See Securities Exchange Act Release Nos. 67189 (June 12, 
2012), 77 FR 36310 (June 18, 2012) (SR-Phlx-2012-77).
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    The Exchange is therefore proposing to amend the Pricing Schedule 
to reflect the $0.05 fee differential between Market Makers and 
Specialists that execute directed Complex Orders and those that do not 
that was proposed in SR-Phlx-2012-27 and SR-Phlx-2012-54. The Exchange 
also proposes to state in the Pricing Schedule that the fee 
differential is subject to a one-year pilot. The Exchange proposes 
these amendments become operative on December 3, 2012 consistent with 
the Approval Order.\18\
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    \18\ See Securities Exchange Act Release No. 68202 (November 9, 
2012), 77 FR 68856 (November 16, 2012) (SR-Phlx-2012-27 and SR-Phlx-
2012-54).
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2. Statutory Basis
    The Exchange believes that its proposal to amend its Pricing 
Schedule is consistent with Section 6(b) of the Act \19\ in general, 
and furthers the objectives of Section 6(b)(4) of the Act \20\ 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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    \19\ 15 U.S.C. 78f(b).
    \20\ 15 U.S.C. 78f(b)(4).
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    The Exchange also believes that it is an equitable allocation of 
reasonable rebates among Exchange members and other persons using its 
facilities.
    On November 9, 2012, the Commission approved SR-Phlx-2012-27 and 
SR-Phlx-2012-54, as modified by Amendment No. 1, on a one-year pilot 
basis, with such fees being operative on December 3, 2012 (``Approval 
Order'').\21\ Pursuant to that Approval Order and the reasons 
articulated therein, the Exchange is modifying its Pricing Schedule to 
reflect the $0.05 per contract Complex Order fee differential that was 
proposed in SR-Phlx-2012-27 and SR-Phlx-2012-54 and approved. This 
filing incorporates the $0.05 per contract Complex Order fee 
differential that was recently approved by the Commission.\22\
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    \21\ See Securities Exchange Act Release No. 68202 (November 9, 
2012), 77 FR 68856 (November 16, 2012) (SR-Phlx-2012-27 and SR-Phlx-
2012-54).
    \22\ To the extent that the Approval Order modified the 
Exchange's Pricing Schedule by restoring a previous amendment which 
was not the subject of the Approval Order, the Exchange addresses 
those amendments in a separate rule change. See SR-Phlx-2012-137 
(not yet published).
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    This proposal does not amend the current pricing in Section I, Part 
B of the Pricing Schedule other than to offer discounted pricing to 
Market Makers and Specialists when the Market Maker or Specialist 
transacts against a Customer Order directed to them by increasing the 
Complex Order Fee for Removing Liquidity discount from $0.02 to $0.05 
per contract, consistent with the Approval Order.\23\
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    \23\ See Securities Exchange Act Release No. 68202 (November 9, 
2012), 77 FR 68856 (November 16, 2012) (SR-Phlx-2012-27 and SR-Phlx-
2012-54).
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    The Exchange believes that the proposed amendments are consistent 
with the Act because the proposal merely incorporates amendments 
approved by the Commission pursuant to an Approval Order.\24\
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    \24\ Id.
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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. Further, the Exchange notes 
that the Market Maker and Specialists Complex Order Fees for Removing 
Liquidity currently in place at the Exchange apply only to certain 
Select Symbols which are Multiply-Listed and highly liquid securities. 
As described herein, the Exchange's fees are comparable to and lower 
than other fee differentials today at other options exchanges. Given 
the highly competitive environment for options trading and the 
attendant benefits to investors, the Exchange believes that no exchange 
has market power sufficient to raise prices for competitively-traded 
options in an unreasonable or unfairly discriminatory manner in 
violation of the Exchange Act. In actuality, it is member firms that 
control the order flow that options markets compete to attract as 
evidenced by the large number of pricing-related rule changes and 
shifts of market share among options markets.

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.\25\ 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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    \25\ 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 email to rule-comments@sec.gov. Please include 
File Number SR-Phlx-2012-139 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-2012-139. This file 
number should be included on the subject line if email 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

[[Page 74041]]

printing in the Commission's Public Reference Room, 100 F Street NE., 
Washington, DC 20549, on official business days between the hours of 
10:00 a.m. and 3:00 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-2012-139 and should be 
submitted on or before January 2, 2013.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\26\
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    \26\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2012-29965 Filed 12-11-12; 8:45 am]
BILLING CODE 8011-01-P