Document ID: SEC-2010-1324-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: NASDAQ OMX PHLX, Inc.
Posted Date: 2010-08-31T04:00Z

[Federal Register: August 31, 2010 (Volume 75, Number 168)]
[Notices]               
[Page 53366-53368]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr31au10-126]                         

-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-62766; File No. SR-Phlx-2010-117]

 
Self-Regulatory Organizations; NASDAQ OMX PHLX, Inc.; Notice of 
Filing and Immediate Effectiveness of Proposed Rule Change Relating to 
Routing Fees, the Monthly Cap and Electronic Auctions

August 25, 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 August 23, 2010, NASDAQ OMX PHLX, Inc. (``Phlx'' or ``Exchange'') 
filed with the Securities and Exchange Commission (``SEC'' or 
``Commission'') the proposed rule change as described in Items I, II,

[[Page 53367]]

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.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------

I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to amend its fees as follows: (i) Amend the 
pricing for Exchange members using the Phlx XL II system,\3\ for 
routing standardized equity and index option customer and professional 
orders to away markets for execution; (ii) amend the Monthly Cap on 
equity option transaction fees; and (iii) clarify language relating to 
electronic auctions in the Rebates and Fees for Adding and Removing 
Liquidity in Select Symbols.
---------------------------------------------------------------------------

    \3\ For a complete description of Phlx XL II, see Securities 
Exchange Act Release No. 59995 (May 28, 2009), 74 FR 26750 (June 3, 
2009) (SR-Phlx-2009-32). The instant proposed fees will apply only 
to option orders entered into, and routed by, the Phlx XL II system.
---------------------------------------------------------------------------

    While changes to the Exchange's Fee Schedule pursuant to this 
proposal are effective upon filing, the Exchange has designated this 
proposal to be operative for trades settling on or after September 1, 
2010.
    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, 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 purpose of the proposed rule change is to recoup costs that the 
Exchange incurs for routing and executing Customer \4\ and Professional 
\5\ orders in equity and index options to away markets, specifically 
the NASDAQ Options Market (``NOM'').
---------------------------------------------------------------------------

    \4\ The term Customer applies to a transaction that is 
identified by a member or member organization for clearing in the 
Customer range at The Options Clearing Corporation 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).
    \5\ The Exchange defines a ``professional'' as 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) 
(hereinafter ``Professional''). See 1000(b)14.
---------------------------------------------------------------------------

    In May 2009, the Exchange adopted Rule 1080(m)(iii)(A) to establish 
Nasdaq Options Services LLC (``NOS''), a member of the Exchange, as the 
Exchange's exclusive order router.\6\ NOS is utilized by the Phlx XL II 
system solely to route orders in options listed and open for trading on 
the Phlx XL II system to destination markets.
---------------------------------------------------------------------------

    \6\ See Securities Exchange Act Release No. 59995 (May 28, 
2009), 74 FR 26750 (June 3, 2009) (SR-Phlx-2009-32).
---------------------------------------------------------------------------

    Currently, the Exchange's Fee Schedule includes Routing Fees for 
both Customer and Professional orders. The Exchange currently assesses 
a Routing Fee of $.46 per contract in all Customer and Professional 
option orders that are routed to NOM.
    The Exchange proposes to amend the current fee of $.46 per contract 
that is assessed for routing Customer and Professional orders to NOM in 
all options to $.49 per contract. The Exchange is proposing this 
amendment in order to recoup clearing and transaction charges which are 
incurred by the Exchange when orders are routed to NOM. Each 
destination market's transaction charge varies and there is a standard 
clearing charge for each transaction incurred by the Exchange. The 
Exchange proposes this fee change to account for an increase in cost 
for routing to NOM.\7\
---------------------------------------------------------------------------

    \7\ See SR-NASDAQ-2010-105.
---------------------------------------------------------------------------

    The Exchange also proposes to amend its Monthly Cap assessed on 
Registered Options Traders (``ROTs'') \8\ and Specialists \9\ for 
equity options transactions. The Exchange currently provides ROTs and 
Specialists a Monthly Cap of $650,000. The Exchange is proposing to 
reduce that Monthly Cap to $600,000.\10\ The Exchange believes that by 
reducing the Monthly Cap, a greater number of members may benefit from 
the Monthly Cap and the Exchange will attract additional order flow.
---------------------------------------------------------------------------

    \8\ 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. 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).
    \9\ A Specialist is an Exchange member who is registered as an 
options specialist pursuant to Rule 1020(a).
    \10\ In calculating the Monthly Cap, the trading activity of 
separate ROTs and Specialist member organizations are aggregated if 
there is at least 75% common ownership between the member 
organizations.
---------------------------------------------------------------------------

    Finally, the Exchange proposes to clarify certain language in the 
Rebates and Fees for Adding and Removing Liquidity in Select Symbols, 
which was added in a previous rule change that [sic] relating to 
electronic auctions.\11\ The Exchange previously filed a rule change 
concerning the applicability of fees in electronic auctions.\12\ These 
fees are contained in Section I of the Fee Schedule and titled Rebates 
and Fees for Adding and Removing Liquidity in Select Symbols. In that 
rule change, the Exchange specified that a Specialist and an ROT, 
including an SQT and RSQT, would not receive a rebate for adding 
liquidity in an electronic auction. In that filing the Exchange noted 
that it is unable to calculate the rebates for Specialists and ROTs, 
including SQTs and RSQTs, in an electronic auction. The Exchange 
proposes to further clarify that Customers, Professionals and Directed 
Participants \13\ would also not receive a rebate for adding liquidity 
in an electronic auction.
---------------------------------------------------------------------------

    \11\ Electronic auctions include, without limitation, the 
Complex Order Live Auction (``COLA''), and Quote and Market Exhaust 
auctions.
    \12\ Electronic auctions include, without limitation, the 
Complex Order Live Auction (``COLA''), and Quote and Market Exhaust 
auctions.
    \13\ See Exchange Rule 1080(l), ``* * * The term `Directed 
Specialist, RSQT, or SQT' means a specialist, RSQT, or SQT that 
receives a Directed Order.'' A Directed Participant has a higher 
quoting requirement as compared with a specialist, SQT or RSQT who 
is not acting as a Directed Participant. See Exchange Rule 1014.
---------------------------------------------------------------------------

    The Exchange inadvertently did not include Customers, Professionals 
and Directed Participants in that earlier amendment. As with the other 
market participants, the Exchange is currently unable to determine when 
a Customer, Professional or Directed Participant is adding liquidity in 
electronic auctions for purposes of applying the rebates. The Exchange 
proposes to clarify the language in the Fee Schedule to add Customers, 
Professionals and Directed Participants to the existing language. The 
Exchange's proposal would add language to the Fee Schedule to state 
that with respect to electronic auctions, Customers, Professionals and 
Directed Participants would not receive a rebate, which language is 
consistent with the Exchange's current practice.
    While changes to the Exchange's Fee Schedule pursuant to this 
proposal are

[[Page 53368]]

effective upon filing, the Exchange has designated this proposal to be 
operative for trades settling on or after September 1, 2010.
2. Statutory Basis
    The Exchange believes that its proposal to amend its Fee Schedule 
is consistent with Section 6(b) of the Act \14\ in general, and 
furthers the objectives of Section 6(b)(4) of the Act \15\ in 
particular, in that it is an equitable allocation of reasonable fees 
and other charges among Exchange members and other persons using its 
facilities.
---------------------------------------------------------------------------

    \14\ 15 U.S.C. 78f(b).
    \15\ 15 U.S.C. 78f(b)(4).
---------------------------------------------------------------------------

    The Exchange believes that the increase to the NOM Routing Fee is 
both equitable and reasonable because the Exchange is seeking to recoup 
the costs incurred by the Exchange to route Customer and Professional 
orders to NOM on behalf of its members.
    The Exchange believes that it is both equitable and reasonable to 
lower the Monthly Cap. By lowering the Monthly Cap, the Exchange 
believes a greater number of ROTs and Specialists will benefit from 
such a Monthly Cap.
    Finally, the Exchange believes that clarifying the applicability of 
the rebates for adding liquidity in an electronic auction is equitable 
and reasonable because it clearly states when the rebate is applicable 
to certain transactions. Currently, Customers, Professionals and 
Directed Participants do not receive rebates for adding liquidity in an 
electronic auction.

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.\16\ 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.
---------------------------------------------------------------------------

    \16\ 15 U.S.C. 78s(b)(3)(A)(ii).
---------------------------------------------------------------------------

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-2010-117 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-2010-117. 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-2010-117 and should be 
submitted on or before September 21, 2010.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\17\
---------------------------------------------------------------------------

    \17\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Florence E. Harmon,
Deputy Secretary.
[FR Doc. 2010-21631 Filed 8-30-10; 8:45 am]
BILLING CODE 8010-01-P