Document ID: SEC-2012-0594-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; NASDAQ OMX PHLX LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change Relating to Routing Fees
Posted Date: 2012-04-12T04:00Z

[Federal Register Volume 77, Number 71 (Thursday, April 12, 2012)]
[Notices]
[Pages 22037-22039]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2012-8779]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-66755; File No. SR-Phlx-2012-42]

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

April 6, 2012.
    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 March 28, 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 certain Customer Routing Fees to 
recoup costs incurred by the Exchange in routing to away markets and 
also create a new category of Routing Fees entitled ``Firm/Broker-
Dealer/Market Maker'' fees.
    While changes to the Pricing Schedule pursuant to this proposal are 
effective upon filing, the Exchange has designated the proposed 
amendment to the ISE Select Symbols Customer Routing Fee to be 
operative on April 2, 2012. In addition, the Exchange has designated 
the new category ``Firm/Broker-Dealer/Market Maker'' to be operative on 
the same date that SR-Phlx-2012-41 becomes operative.
    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, 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 the 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The purpose of this filing is to recoup costs that the Exchange 
incurs for routing and executing certain Customer orders in equity and 
index options to the International Securities Exchange, LLC (``ISE'') 
and also to recoup costs related to a new category of Routing Fees 
entitled ``Firm/Broker-Dealer/Market Maker'' fees. The Exchange's 
Pricing Schedule at Section V, currently includes the following Routing 
Fees for

[[Page 22038]]

routing Customer and Professional orders to away markets:

------------------------------------------------------------------------
                Exchange                     Customer      Professional
------------------------------------------------------------------------
NYSE AMEX...............................           $0.11           $0.31
BATS....................................            0.55            0.55
BOX.....................................            0.11            0.11
CBOE....................................            0.11            0.31
CBOE orders greater than 99 contracts in            0.29            0.31
 RUT, RMN, NDX, MNX, ETFs, ETNs and
 HOLDRs.................................
C2......................................            0.55            0.56
ISE.....................................            0.11            0.29
ISE Select Symbols*.....................            0.23            0.39
NYSE ARCA (Penny Pilot).................            0.55            0.55
NYSE ARCA (Standard)....................            0.11            0.11
NOM.....................................            0.54            0.54
NOM (NDX and MNX).......................            0.56            0.56
------------------------------------------------------------------------
* These fees are applicable to orders routed to ISE that are subject to
  Rebates and Fees for Adding and Removing Liquidity in Select Symbols.
  See ISE's Schedule of Fees for the complete list of symbols that are
  subject to these fees.

    The Exchange is proposing to amend the ``ISE Select Symbols'' \3\ 
Customer Routing Fee from $0.23 per contract to $0.31 per contract. ISE 
recently amended its ``taker'' fee for regular, or non-complex, 
Priority Customer orders in the Select Symbols, regardless of size, 
from $0.15 per contract to $0.20 per contract.\4\ In addition to the 
ISE taker fee, the Exchange also incurs other routing costs which it 
seeks to recoup.
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    \3\ See ISE's Schedule of Fees for the complete list of symbols 
that are subject to these fees.
    \4\ See ISE's Schedule of Fees. See also Securities Exchange Act 
Release No. 66597 (March 14, 2012), 77 FR 16295 (March 20, 2012) 
(SR-ISE-2012-17).
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    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.\5\ NOS is utilized by the Exchange's 
fully automated options trading system, PHLX XL[supreg],\6\ solely to 
route orders in options listed and open for trading on the PHLX XL 
system to destination markets. Each time NOS routes to away markets NOS 
is charged a $0.06 clearing fee and, in the case of certain exchanges, 
a transaction fee is also charged in certain symbols, which fees are 
passed through to the Exchange. The Exchange currently recoups clearing 
and transaction charges incurred by the Exchange as well as certain 
other costs incurred by the Exchange when routing to away markets, such 
as administrative and technical costs associated with operating NOS, 
membership fees at away markets, and technical costs associated with 
routing.\7\ While changes to the Pricing Schedule pursuant to this 
proposal are effective upon filing, the Exchange has designated these 
changes to be operative on April 2, 2012.
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    \5\ See Securities Exchange Act Release No. 59995 (May 28, 
2009), 74 FR 26750 (June 3, 2009) (SR-Phlx-2009-32).
    \6\ See SR-Phlx-2012-41. This proposal refers to ``PHLX XL'' as 
the Exchange's automated options trading system. In May 2009 the 
Exchange enhanced the system and adopted corresponding rules 
referring to the system as ``Phlx XL II.'' See Securities Exchange 
Act Release No. 59995 (May 28, 2009), 74 FR 26750 (June 3, 2009) 
(SR-Phlx-2009-32). The Exchange intends to submit a separate 
technical proposed rule change that would change all references to 
the system from ``Phlx XL II'' to ``PHLX XL'' for branding purposes.
    \7\ The Exchange is therefore increasing the ISE Select Symbols 
Customer Routing Fee to $0.31 per contract to account for the $0.20 
ISE taker fee, the $0.06 clearing cost and another $0.05 per 
contract associated with administrative and technical costs 
associated with operating NOS.
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    The Exchange is also proposing to create a new category of Routing 
Fees entitled ``Firm/Broker-Dealer/Market Maker'' fees. The Exchange 
recently filed a rule change to expand the routing capabilities of 
certain options orders that are eligible for electronic routing to 
other market centers by PHLX XL. Currently, Rule 1080(m) states that 
PHLX XL will route only Customer \8\ FIND \9\ and SRCH \10\ orders to 
away markets. The rule change seeks to add non-customer FIND orders as 
a new category of orders that are eligible for routing.\11\ This 
amendment to Exchange Rule 1080(m) would permit Firm, Broker-Dealer and 
Market Maker orders to be eligible for routing to other market centers 
when the Exchange cannot execute such orders at the National Best Bid 
or Offer (``NBBO'').\12\
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    \8\ SR-Phlx-2012-41 defined the term ``customer'' as a person or 
entity that is neither a broker-dealer nor a direct or indirect 
affiliate of a broker-dealer. The rule filing specifically states 
that the term ``customer'' includes a ``professional'' as defined in 
Exchange Rule 1000(b)(14).
    \9\ A FIND order is currently defined as an order that is 
routable upon receipt. A FIND order received during open trading 
that is not marketable against the PHLX best Bid/Offer ``PBBO'' or 
the Away Best Bid/Offer (``ABBO'') will be entered into the limit 
order book at its limit price. The FIND order will not be eligible 
for routing until the next time the option series is subject to a 
new Opening Process. See Exchange Rule 1080(m)(iv)(B).
    \10\ A SRCH order is an order that is routable at any time. A 
SRCH order received during open trading that is not marketable 
against the PBBO or the ABBO will be entered into the Phlx XLII 
book. Once on the book, the SRCH order is eligible for routing if it 
is locked or crossed by an away market. See Exchange Rule 
1080(m)(iv)(C).
    \11\ See SR-Phlx-2012-41.
    \12\ Under the proposal, non-customer FIND orders would be 
treated in the same manner as customer FIND orders, except that non-
customer FIND orders would not be eligible for routing during the 
Opening Process. The proposed Routing Fees would apply to all orders 
that are routed to an away market and would not apply to orders not 
eligible for routing.
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    Specifically, the Exchange proposes to amend Section V of the 
Pricing Schedule to add a new category ``Firm/Broker-Dealer/Market 
Maker'' to correspond to the non-customer FIND orders that would be 
eligible for Routing upon the effectiveness of SR-Phlx-2012-41 and its 
proposed amendments to Rule 1080(m). The Exchange proposes to assess a 
fixed Routing Fee of $0.55 per contract applicable to all away markets. 
The Exchange has designated the new category ``Firm/Broker-Dealer/
Market Maker'' to be operative on the same date that SR-Phlx-2012-41 
becomes operative.
    As with all fees, the Exchange may adjust these Routing Fees in 
response to competitive conditions by filing a new proposed rule 
change.
2. Statutory Basis
    The Exchange believes that its proposal to amend its Pricing 
Schedule is consistent with Section 6(b) of the Act \13\ in general, 
and furthers the objectives of Section 6(b)(4) of the Act \14\ in 
particular, in that it is an equitable allocation of reasonable fees 
and other charges among Exchange members.
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    \13\ 15 U.S.C. 78f(b).
    \14\ 15 U.S.C. 78f(b)(4).
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    The Exchange believes that the proposed ISE Customer Routing Fee 
for Select Symbols is reasonable because it seeks to recoup costs that 
are incurred by the Exchange when routing certain

[[Page 22039]]

Customer orders to ISE on behalf of its members. Each destination 
market's transaction charge varies and there is a standard clearing 
charge for each transaction incurred by the Exchange along with other 
administrative and technical costs that are incurred by the Exchange. 
The Exchange believes that the proposed Routing Fee would enable the 
Exchange to recover the customer taker fees assessed by ISE, plus 
clearing and other administrative and technical fees for the execution 
of Customer orders routed to ISE. The Exchange also believes that the 
proposed Routing Fee is equitable and not unfairly discriminatory 
because it would be uniformly applied to all Customer orders that are 
routed to ISE and part of ISE's Select Symbols.
    The Exchange believes that the proposed new category of Routing Fee 
``Firm/Broker-Dealer/Market Maker'' and the fixed $0.55 per contract 
Routing Fee are reasonable because other options exchanges charge fees 
for non-Customer orders such as Firm, Broker-Dealer and Market Maker 
orders and these fees are consistently higher than fees for Customer 
orders.\15\ The pricing on the various options exchanges for such 
orders varies significantly from exchange to exchange, with much more 
variation than for Customer orders. Accordingly, the Exchange is 
proposing a $0.55 per contract side Routing Fee in order to capture the 
majority of the transaction and clearing fees for Firm, Broker-Dealer 
and Market Maker orders, while making the Exchange's Routing Fees 
easier to calculate and predict for members whose proprietary orders 
are routed away. In addition, fixed Routing Fees are easier to 
comprehend by the members whose orders are routed away. There is no 
uncertainty and it is simpler for members acting as agent for other 
members to pass-through fees to its Customer. Currently, predicting, 
calculating and charging back ``pass-through'' fees is an unduly 
burdensome, expensive and complicated task for Exchange members whose 
orders are routed away. The fixed Routing Fees for Firm, Broker-Dealer 
and Market Maker orders should ease the burden, expense and complexity 
of this task. Furthermore, fixed fees are easier to manage and maintain 
for the Exchange, ensuring accurate billing and accounting. The 
Exchange believes that the proposed new category of Routing Fee ``Firm/
Broker-Dealer/Market Maker'' and the fixed $0.55 per contract Routing 
Fees are equitable and not unfairly discriminatory because the Exchange 
would assess all Firm, Broker-Dealer and Market Maker orders, eligible 
for routing to any away market, the same fee.\16\
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    \15\ The NASDAQ Options Market LLC (``NOM'') assesses a fixed 
Routing Fee to its Firms and Market Makers of $0.55 per contract. 
See Chapter V, Section (2) of The NASDAQ Stock Market LLC's Rules. 
In addition, the Chicago Board Options Exchange Incorporated 
(``CBOE'') assesses non-customer orders, including voluntary 
professionals and professionals, routing fees of $0.50 per contract 
in addition to the customary CBOE execution charges. See CBOE's Fees 
Schedule.
    \16\ A market participant may mark an order ``DNR'' for do not 
route and therefore would not be subject to the fees noted herein. 
See Rules 1066(h) and 1080(m).
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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

    The foregoing rule change has become effective pursuant to Section 
19(b)(3)(A)(ii) of the Act.\17\ 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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    \17\ 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 No. SR-Phlx-2012-42 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 No. SR-Phlx-2012-42. 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 
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-2012-42 and should be 
submitted on or before May 3, 2012.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\18\
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    \18\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2012-8779 Filed 4-11-12; 8:45 am]
BILLING CODE 8011-01-P