Document ID: SEC-2009-1159-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: NASDAQ OMX PHLX, Inc.
Posted Date: 2009-08-17T04:00Z

[Federal Register: August 17, 2009 (Volume 74, Number 157)]
[Notices]               
[Page 41472-41474]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr17au09-121]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-60461; File No. SR-Phlx-2009-66]

 
Self-Regulatory Organizations; NASDAQ OMX PHLX, Inc.; Notice of 
Filing and Immediate Effectiveness of Proposed Rule Change Relating to 
Fee Waivers

August 7, 2009.
    Pursuant to Section 19(b)(1) \1\ of the Securities Exchange Act of 
1934 (the ``Act'') \2\ and Rule 19b-4 thereunder,\3\ notice is hereby 
given that, on July 31, 2009, NASDAQ OMX PHLX, Inc. (``Phlx'' or the 
``Exchange'') filed with the Securities and Exchange Commission (the 
``Commission'') the proposed rule change as described in Items I, II, 
and III below, which Items have been prepared by the self-regulatory 
organization. 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\ 15 U.S.C. 78a.
    \3\ 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 NASDAQ OMX PHLX Fee Schedule to 
adopt, on a pilot basis, a waiver of the Phlx XL II Options Routing 
Pass-Through Fees for customer orders that are routed by the Exchange's 
enhanced electronic trading platform for options, Phlx XL II to away 
markets for execution.
    The proposed fee waiver pilot would apply to transactions settling 
on or after July 1, 2009, and extend through December 31, 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

[[Page 41473]]

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 NASDAQ OMX 
PHLX Fee Schedule to adopt, on a pilot basis, a waiver of the Phlx XL 
II Options Routing Pass-Through Fee (the ``fee'').\4\ The Exchange 
recently adopted the fee for executions of options orders entered into 
the Phlx XL II system that are routed to away markets.\5\ The Exchange 
now proposes to waive the fee entirely for Phlx members and member 
organizations using the Phlx XL II system for routing standardized 
equity and index options to away markets for execution. The pilot would 
apply to transactions settling on or after July 1, 2009, and extend 
through December 31, 2009.
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    \4\ See e-mail from Richard S. Rudolph, Assistant General 
Counsel, NASDAQ OMX, to Christopher Chow, Special Counsel, 
Commission, dated August 5, 2009.
    \5\ See Securities Exchange Act Release No. 60103 (June 11, 
2009), 74 FR 29252 (June 19, 2009) (SR-Phlx 2009-47).
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    In the filing that adopted the fee, the Exchange stated its belief 
that these routing fees are inherently competitive, fair and 
reasonable, and non-discriminatory in that they replicate the fees 
assessed by away markets executing orders routed from the Phlx XL II 
system. As with all fees, the Exchange may adjust these routing fees in 
response to competitive conditions by filing a new proposed rule 
change. This proposal represents such a response.

Competitive Conditions

    The routing fee applies today when the Phlx XL II system receives 
an order and there is a better bid or offer on an away market that the 
system can access for the execution of such order. The order is routed 
via Nasdaq Options Services LLC (``NOS''), a member of the Exchange, as 
the Exchange's exclusive order router. The sole use of NOS by the Phlx 
XL II system is to route orders in options listed and open for trading 
on the Phlx XL II system to destination markets. A particular 
destination market would charge NOS their applicable transaction fees, 
which are then passed through to Phlx, and ultimately to the initiating 
member. Similarly, clearing fees charged to NOS by the Options Clearing 
Corporation (``OCC'') are passed through in this manner.
    The Exchange is aware of at least one competing U.S options 
exchange that does not pass through away market transaction and routing 
fees to the originating member. The Exchange believes that, absent a 
waiver of its current fee, it could lose valuable option order flow, 
due to the fact that a competing exchange currently does not charge 
such a fee.
    The competition among the seven U.S options exchanges to attract 
order flow from market participants is fierce. In order to maintain its 
share of trading volume, the Exchange must be competitive in setting 
its fees for all services provided, including routing of options to 
better-priced away markets. In fact, the market participants that will 
pay routing pass-through fees often will be the same market 
participants from whom the Exchange must attract order flow. These 
market participants include broker-dealers that control the handling of 
a large volume of customer order flow. Given the portability of order 
flow from one exchange to another, an exchange that would charge 
routing fees, while at least one other competing market does not, would 
risk alienating many of the same market participants on whose orders it 
depends for competitive survival.
    The Exchange believes therefore that the proposed waiver of the fee 
is competitive, fair and reasonable, and non-discriminatory in that 
such waiver replicates the practice of at least one competing options 
exchange respecting routing pass-through fees.

Applicability of Fee Waiver

    The proposal would apply on a pilot basis for transactions settling 
on or after July 1, 2009, and extending through December 31, 2009, at 
which time the pilot would expire. The purpose of the pilot is to give 
the Exchange the opportunity to review and analyze its competitive 
position and market share to determine the effectiveness of the fee 
waiver.
    The proposed waiver would apply to transactions that have taken 
place during the month of July, 2009. As of the filing of this 
proposal, the Exchange's billing cycle for July, 2009 is not complete, 
and pass-through routing fees that would ordinarily be charged may 
still be waived before the July billing cycle expires. Therefore, the 
exchange believes that it is fair, reasonable and non-discriminatory to 
apply the fee waiver to transactions settling on or after July 1, 2009, 
and extending through the proposed December 31, 2009 pilot expiration.
    Members will be notified of the fee waiver by way of an Options 
Trader Alert (``OTA'') posted on the Exchange's Web site.
2. Statutory Basis
    The Exchange believes that its proposal to amend its schedule of 
fees is consistent with Section 6(b) of the Act \6\ in general, and 
furthers the objectives of Section 6(b)(4) of the Act \7\ in 
particular, in that it is an equitable allocation of reasonable fees 
and other charges among Exchange members. The Phlx is one of seven 
options markets in the national market system for standardized options. 
Joining Phlx and electing to trade options is entirely voluntary. Under 
these circumstances, Phlx's fees must be competitive and low in order 
for Phlx to attract order flow, execute orders, and grow as a market. 
At least one competing market does not charge these fees and it is 
reasonable for Phlx to waive its pass-through routing fees as described 
above. As such, Phlx believes that its fees are fair and reasonable and 
consistent with the Act.
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    \6\ 15 U.S.C. 78f(b).
    \7\ 15 U.S.C. 78f(b)(4).
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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 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 \8\ and paragraph

[[Page 41474]]

(f)(2) of Rule 19b-4 \9\ 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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    \8\ 15 U.S.C. 78s(b)(3)(A)(ii).
    \9\ 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-2009-66 on the subject line.

Paper Comments

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

All submissions should refer to File Number SR-Phlx-2009-66. 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 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 Number SR-
Phlx-2009-66 and should be submitted on or before September 8, 2009.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\10\
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    \10\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
[FR Doc. E9-19572 Filed 8-14-09; 8:45 am]

BILLING CODE 8010-01-P