Document ID: SEC-2011-1961-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: NASDAQ OMX PHLX LLC
Posted Date: 2011-12-16T05:00Z

[Federal Register Volume 76, Number 242 (Friday, December 16, 2011)]
[Notices]
[Pages 78322-78325]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2011-32220]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-65940; File No. SR-Phlx-2011-162]

Self-Regulatory Organizations; NASDAQ OMX PHLX LLC; Notice of 
Filing and Immediate Effectiveness of Proposed Rule Change Relating to 
Rebates and Fees for Adding and Removing Liquidity in Select Symbols

December 12, 2011.
    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 December 1, 2011, 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 the single contra-side order Rebates 
and Fees for Adding and Removing Liquidity in Select Symbols in Section 
I, Part A of the Exchange's Fee Schedule. The Exchange also proposes to 
amend the rebates and fees applicable to electronic auctions and the 
opening process.
    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, on the Commission's Web site at 
http://www.sec.gov 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 the proposed rule change is to amend Section I of 
the Fee Schedule, entitled ``Rebates and Fees for Adding and Removing 
Liquidity in Select Symbols,'' at Part A, entitled ``Single contra-side 
orders,'' to amend certain Rebates for Adding Liquidity and Fees for 
Removing Liquidity to both attract additional order flow to the 
Exchange and recoup costs for offering certain rebates to attract 
liquidity.
    Currently, Section I of the Fee Schedule applies to certain select 
symbols.\3\ Section I is comprised of a Part A, single contra-side 
order fees, and a Part B, Complex Order fees.\4\ By way of example of 
the application of Parts A and B, if one component of a Complex Order 
is a buy order that trades with a sell order, the sell order is a 
``simple'' or non-Complex Order subject to the fees in Part A of 
Section I of the Fee Schedule and the buy order is a Complex Order 
subject to the fees in Part B of Section I of the Fee Schedule.
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    \3\ Select symbols shall be defined as options overlying the 
following symbols: AA, AAPL, ABX, AIG, ALL, AMD, AMR, AMZN, AXP, 
BAC, BRCD, C, CAT, CIEN, CSCO, DELL, DIA, DRYS, EBAY, EK, F, FAS, 
FAZ, FXI, GDX, GE, GLD, GLW, GS, HAL, IBM, INTC, IWM, JPM, LVS, MGM, 
MSFT, MU, NEM, NOK, NVDA, ORCL, PFE, PG, POT, QCOM, QQQ, RIG, RIMM, 
RMBS, SBUX, SDS, SIRI, SKF, SLV, SLW, SMH, SNDK, SPY, T, TBT, TZA, 
UAL, UNG, USO, UUP, UYG, V, VALE, VXX, VZ, WYNN, X, XLF, XOM, XOP, 
XRX and YHOO (``Select Symbols''). These symbols are Multiply-
Listed.
    \4\ The Rebates and Fees for Adding and Removing Liquidity in 
Select Symbols will continue to apply only to electronic orders.
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    The Exchange is also proposing to amend the rebates and fees for 
electronic auctions and the opening process by defining the electronic 
auctions and the opening process as either Complex or non-Complex and 
applying Part B rebates and fees to the Complex electronic auctions and 
Part A rebates and fees to the non-Complex electronic auctions, 
including the opening process. The Exchange proposes these amendments 
to align the fees for electronic auctions and the opening process with 
other rebates and fees, as either Complex or non-Complex. The Exchange 
is not proposing to amend the Complex Order fees in Part B, but does 
propose a technical amendment to Part B as described below.
    There are currently several categories of market participants: 
Customers, Directed Participants,\5\ Specialists,\6\ Registered Options 
Traders,\7\ SQTs,\8\ RSQTs,\9\ Broker-Dealers, Firms and

[[Page 78323]]

Professional.\10\ Currently, the following rebates and fees apply to 
Single contra-side orders:
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    \5\ A Directed Participant is a Specialist, SQT, or RSQT that 
executes a customer order that is directed to them by an Order Flow 
Provider and is executed electronically on PHLX XL II.
    \6\ A Specialist is an Exchange member who is registered as an 
options specialist pursuant to Rule 1020(a).
    \7\ A Registered Options Trader (``ROT'') includes a Streaming 
Quote Trader (``SQT''), a Remote Streaming Quote Trader (``RSQT'') 
and a Non-SQT ROT, which by definition is neither a SQT or a RSQT. A 
ROT 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. See Exchange Rule 1014 (b)(i) and 
(ii).
    \8\ An SQT 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 in options to which such SQT is 
assigned.
    \9\ An RSQT 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 in options to 
which such RSQT has been assigned. An RSQT may only submit such 
quotations electronically from off the floor of the Exchange.
    \10\ 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'').

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                                                                    Directed      Specialist, ROT,
                                                  Customer         participant      SQT and RSQT          Firm          Broker-Dealer     Professional
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Rebate for Adding Liquidity.................             $0.20             $0.25             $0.23             $0.00             $0.00             $0.20
Fees for Adding Liquidity...................              0.00              0.00              0.00              0.05              0.05              0.00
Fee for Removing Liquidity..................              0.25              0.33              0.33              0.45              0.45              0.40
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    The Exchange is proposing to amend the rebates and fees that apply 
to Single contra-side orders as follows:

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                                                                    Directed      Specialist, ROT,
                                                  Customer         participant      SQT and RSQT          Firm          Broker-Dealer     Professional
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Rebate for Adding Liquidity.................             $0.26             $0.23             $0.23             $0.00             $0.00             $0.26
Fees for Adding Liquidity...................              0.00              0.00              0.00              0.05              0.05              0.00
Fee for Removing Liquidity..................              0.29              0.35              0.37              0.45              0.45              0.45
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    In addition, the Exchange is proposing to amend its rebates and 
fees applicable to electronic auctions and the opening process. To add 
clarity to the rebates and fees surrounding electronic auctions and the 
opening process, the Exchange proposes to amend the text of the Fee 
Schedule to define ``Complex electronic auctions'' and ``non-Complex 
electronic auctions.'' The Exchange proposes to define a ``Complex 
electronic auction'' as one that includes, but is not limited to COLA. 
The Exchange proposes to define a ``non-Complex electronic auction'' as 
one that includes the Quote and Market Exhaust auction.\11\ The 
Exchange also proposes to include the opening process within the 
definition of ``non-Complex electronic auction'' for purposes of 
assessing the Rebate for Adding Liquidity and the Fees for Removing 
Liquidity. The Exchange proposes to delete the current text related to 
the applicability of the Customer Rebate for Adding Liquidity and the 
Fees for Removing Liquidity in Part C and instead replace that text 
with an explanation of the rebates and fees as it relates to Complex or 
non-Complex electronic auctions.
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    \11\ While PIXL is a non-Complex electronic auction, it is 
covered by a different pricing scheme. See Section IV of the 
Exchange's Fee Schedule.
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    Currently, a Customer Complex Order receives a Rebate for Adding 
Liquidity (as set forth in Part B) as part of a Complex Order Live 
Auction (''COLA''). Excluding COLA, during all other electronic 
auctions and the Exchange's opening process, a Customer Complex Order 
receives a Rebate for Adding Liquidity (as set forth in Part B) when 
such Customer Complex Order is executed against a non-Customer 
(Specialist, ROT, SQT, RSQT, Professional, Firm or Broker-Dealer) 
contra-side Complex Order, or a non-Customer individual order or quote. 
For Customer orders that are not Complex Orders, a Customer receives a 
Rebate for Adding Liquidity of $0.22 per contract for executions that 
occur as part of an electronic auction, including but not limited to 
the Exchange's opening process, except when contra to another Customer 
order. A Customer will not be assessed a Fee for Removing Liquidity in 
an electronic auction and during the Exchange's opening process. A 
Directed Participant is assessed a Fee for Removing Liquidity of $0.25 
per contract during the Exchange's opening process.
    The Exchange proposes to pay Customer executions that occur as part 
of a Complex electronic auction a Rebate for Adding Liquidity as set 
forth in Part B, as is the case today. Customer executions that occur 
as part of a non-Complex electronic auction would receive the Rebate 
for Adding Liquidity as set forth in Part A, except when contra to 
another Customer order. Today they receive a rebate of $.22 per 
contract. Customers will not be assessed a Fee for Removing Liquidity 
for transactions that occur in either Complex electronic auctions or 
non-Complex electronic auctions as is the case today.
    Currently, a Directed Participant is assessed a Fee for Removing 
Liquidity of $0.25 per contract during the Exchange's opening process. 
A Specialist, ROT, SQT and RSQT are assessed a Fee for Removing 
Liquidity of $0.27 per contract during the Exchange's opening process. 
Professional, Firm and Broker-Dealer Fees for Removing Liquidity (as 
set forth in Part B) apply to transactions resulting during the 
Exchange's opening process. The Exchange now proposes to assess the 
Fees for Removing Liquidity to all participants, except Customer, the 
fees in Part A for transactions during the opening process.\12\ Today, 
Professional, Directed Participant, Firm, Broker-Dealer and Specialist, 
ROT, SQT and RSQT Fees for Removing Liquidity (as set forth in Part B) 
will apply to transactions resulting from electronic auctions.\13\ The 
Exchange now proposes to assess Professionals, Directed Participants, 
Firms, Broker-Dealers and Specialists, ROTs, SQTs and RSQTs the Fees 
for Removing Liquidity in Part B

[[Page 78324]]

for executions that occur as part of a Complex Order electronic 
auction. The Exchange proposes to assess Professionals, Directed 
Participants, Firms, Broker-Dealers and Specialists, ROTs, SQTs and 
RSQTs the Fees for Removing Liquidity in Part A for executions that 
occur as part of a non-Complex electronic auction.
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    \12\ The Exchange is defining the opening process as a non-
Complex Order auction.
    \13\ Today, electronic auctions include, without limitation, the 
Complex Order Live Auction (``COLA''), and Quote and Market Exhaust 
auctions. See Exchange Rules 1017 and 1082.
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    Finally, the Exchange proposes to remove language in Part B of the 
Section I. Specifically, the Exchange is removing ``in all Select 
Symbols'' language. The entire Part B applies to all Select Symbols and 
therefore the extra language is unnecessary.
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.
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    \14\ 15 U.S.C. 78f(b).
    \15\ 15 U.S.C. 78f(b)(4).
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    The Exchange believes that its proposal to increase the Rebate for 
Adding Liquidity for Customers is reasonable because the increase 
should incentivize Broker-Dealers to route Customer orders to the 
Exchange, which in turn should increase liquidity and benefit all 
market participants. The Exchange believes that the rate change is 
equitable and not unfairly discriminatory because it would apply 
uniformly to all Customers and also increase liquidity to the benefit 
of all participants. The Exchange believes it is reasonable, equitable 
and not unfairly discriminatory to increase the Rebate for Adding 
Liquidity for Professionals to a rate that is equal to that of 
Customer, which is also the highest rebate available for a Single 
contra-side order. While the Exchange is increasing the Professional 
rebate to $.26 per contract, it is also increasing the Professional Fee 
for Removing Liquidity to the highest fee assessed for a Single contra-
side order along with Firms and Broker-Dealers. The Exchange believes 
that it is reasonable to pay a lower rebate to Directed Participants 
because market makers \16\ should benefit from increased Customer 
volume as well as other Broker-Dealers engaged in proprietary trading. 
In addition, the Rebate for Adding Liquidity is equitable and not 
unfairly discriminatory for Directed Participants because it is the 
same for all market makers,\17\ $0.23 per contract.
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    \16\ The Exchange market maker category includes Specialists 
(see Rule 1020) and Registered Options Traders (Rule 1014(b)(i) and 
(ii), which includes Streaming Quote Traders or SQTs (see Rule 
1014(b)(ii)(A)) and Remote Streaming Quote Traders or RSQTs (see 
Rule 1014(b)(ii)(B)). 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\ The Exchange market maker category includes Specialists 
(see Rule 1020) and Registered Options Traders (Rule 1014(b)(i) and 
(ii), which includes Streaming Quote Traders or SQTs (see Rule 
1014(b)(ii)(A)) and Remote Streaming Quote Traders or RSQTs (see 
Rule 1014(b)(ii)(B)).
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    The Exchange believes that it is reasonable to increase the 
Customer Fee for Removing Liquidity because the Exchange is seeking to 
recoup the cost associated with paying an increased rebate to 
Customers. The Customer Fee for Removing Liquidity is also equitable 
and not unfairly discriminatory because it would remain at a lower rate 
as compared to other market participants. The Exchange believes that it 
is reasonable, equitable and not unfairly discriminatory to also 
increase the Fees for Removing Liquidity for Directed Participants and 
Specialists, ROTs, SQTs and RSQTs, to $0.35 and $0.37 respectively. The 
Exchange is not increasing the rebate for market makers even though it 
is increasing the fee because the Exchange does not believes that 
Specialists, ROTs SQTs and RQSTs need to be incentivized to add 
liquidity in the same way as a Directed Participant. As between these 
market makers, Directed Participants are being assessed the lower fee 
because Directed Participants, as compared to other market makers, have 
higher quoting obligations.\18\ The Exchange believes it is reasonable, 
equitable and not unfairly discriminatory to assess a Professional the 
same Fee to Remove Liquidity as Firms and Broker Dealers. The Exchange 
is increasing both the Professional Rebate to Add Liquidity and the Fee 
for Removing Liquidity in its proposal. Also, the Professional is 
obtaining a rebate while Firms and Broker-Dealers do not receive a 
rebate. This is the case with the Fee for Removing Liquidity in all 
Select Symbols for Complex Orders.\19\ In addition, the Exchange's Fees 
for Removing Liquidity are within the range of fees assessed by other 
options exchanges.\20\
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    \18\ See Exchange Rule 1014 titled ``Obligations and 
Restrictions Applicable to Specialists and Registered Options 
Traders.''
    \19\ See Section I, Part B of the Exchange's Fee Schedule.
    \20\ See NASDAQ Stock Market LLC Rule 7050. See also NYSE ARCA, 
Inc. Fee Schedule.
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    The Exchange is proposing to amend rebates and fees related to 
electronic auctions and the opening process in order that the 
applicability of the rebates and fees is consistent with whether the 
electronic auction or opening process involves a Complex Order. The 
Exchange proposes to pay rebates and assess fees for electronic 
auctions and the opening process by defining each electronic auction as 
either a Complex or a non-Complex electronic auction. Complex 
electronic auctions would be paid the rebates and assessed the fees in 
Part B and non-Complex electronic auctions would be paid the rebates 
and assessed the fees in Part A. The opening process will be defined 
for purposes of the fees and rebates as non-Complex and would be 
subject to the fees and rebates in Part A.
    Therefore, the Exchange's proposal to eliminate the $.22 rebate for 
single contra-side Customer executions that occur as part of an 
electronic auction, including but not limited to the opening process, 
except when contra to another Customer order and instead pay the 
increased Rebate for Adding Liquidity in Part A is reasonable because 
the Exchange will pay the rebate for a single contra-side order which 
is $.26 per contract. The proposal is also equitable and not unfairly 
discriminatory because the Customer currently does not pay a Fee for 
Removing Liquidity and would be awarded the highest rebate among all 
market participants so long as the transaction is not contra another 
Customer and this would continue to be the case. In the event that the 
transaction is contra to another Customer, the rebate would not be paid 
and also no fee would be assessed to remove liquidity.
    Similarly, the proposal to assess Professionals, Directed 
Participants, Firms, Broker-Dealers, Specialists, ROTs, SQTs and RSQTs 
for transactions that occur as part of an electronic auction, except 
for COLA, the fees in Part A, instead of Part B is reasonable because 
those auctions do not relate to Complex Orders and should therefore be 
assessed the fees in Part A for single contra-side orders. The Exchange 
believes that the proposal is also equitable and not unfairly 
discriminatory because all other market participants, other than 
Customers, will be assessed fees based on whether the auction involves 
a Complex Order. The Exchange's proposal to assess the fees in Part B 
for COLA is reasonable, equitable and not unfairly discriminatory 
because COLA is a Complex Order electronic auction and therefore the 
fees in Part B, which relate to Complex Orders, are consistent with the 
type of auction where the transactions take place. The Exchange also 
believes the same is true for Customers with respect to

[[Page 78325]]

distinguishing between Complex electronic auctions and non-Complex 
electronic auctions. In addition, the Exchange proposes to pay rebates 
and assess fees for the opening process as a non-Complex auction. The 
opening process would not involve a Complex Order and therefore would 
be paid rebates and assessed fees consistent with the Exchange's 
proposal to assess electronic auctions based on whether it relates to a 
Complex Order. The Exchange believes that it is reasonable, equitable 
and not unfairly discriminatory to pay the rebates and assess the fees 
in Part A, related to single contra-side orders, for the opening 
process.
    The Exchange believes that the technical amendments proposed herein 
are reasonable, equitable and not unfairly discriminatory because they 
would add clarity to the Fee Schedule.
    The Exchange operates in a highly competitive market in which 
market participants can readily direct order flow to competing venues 
if they deem fee levels at a particular venue to be excessive. The 
Exchange believes that the fees it charges and rebates it pays for 
options overlying the various Select Symbols remain competitive with 
fees and rebates charged/paid by other venues and therefore continue to 
be reasonable and equitably allocated to those members that opt to 
direct orders to the Exchange rather than competing venues.

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.\21\ 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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    \21\ 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-2011-162 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-2011-162. 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-2011-162 and should be 
submitted on or before January 6, 2012.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\22\
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    \22\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2011-32220 Filed 12-15-11; 8:45 am]
BILLING CODE 8011-01-P