Document ID: SEC-2012-0914-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: NASDAQ OMX PHLX LLC
Posted Date: 2012-06-11T04:00Z

[Federal Register Volume 77, Number 112 (Monday, June 11, 2012)]
[Notices]
[Pages 34420-34421]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2012-14079]

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

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-67121; File No. SR-Phlx-2012-73]

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

June 5, 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 May 25, 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.
---------------------------------------------------------------------------

    \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 clarify the information that is required 
by the Exchange when executing dividend,\3\ merger,\4\ short stock 
interest \5\ and reversals \6\ and conversion \7\ strategies.
---------------------------------------------------------------------------

    \3\ A dividend strategy is a transaction done to achieve a 
dividend arbitrage involving the purchase, sale and exercise of in-
the-money options of the same class, executed the first business day 
prior to the date on which the underlying stock goes ex-dividend.
    \4\ A merger strategy is a transaction done to achieve a merger 
arbitrage involving the purchase, sale and exercise of options of 
the same class and expiration date, executed the first business day 
prior to the date on which shareholders of record are required to 
elect their respective form of consideration, i.e., cash or stock.
    \5\ A short stock interest strategy is a transaction done to 
achieve a short stock interest arbitrage involving the purchase, 
sale and exercise of in-the-money options of the same class.
    \6\ Reversals are established by combining a short stock 
position with a short put and a long call position that shares the 
same strike and expiration.
    \7\ Conversions are established by combining a long position in 
the underlying security with a long put and a short call position 
that shares the same strike and expiration.
---------------------------------------------------------------------------

    While the changes proposed herein are effective upon filing, the 
Exchange has designated these changes to be operative on June 1, 2012.
    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 purpose of the proposed rule change is to clarify the 
Exchange's requirements for members transacting strategies on the 
Exchange. The Exchange originally required members to submit a written 
rebate request form along with supporting documentation when 
transacting strategies to receive a rebate. On June 28, 2007, the 
Exchange eliminated its manual rebate process and replaced it with an 
automated process.\8\ The Exchange modified its trade tickets to allow 
for members to designate on the trade ticket whether the trade involved 
a dividend, merger, or short stock interest strategy.\9\ The Exchange 
later stated that in order to capture the necessary information 
electronically, it would require members to designate on the trade 
ticket whether the trade involved a dividend, merger, short stock 
interest or reversal and conversion strategy (``Strategy Trade''). 
Today, members are required to enter the proper code on the trading 
ticket \10\ and into the system, or directly into the Floor Broker 
Management System \11\ (``FBMS'').\12\
---------------------------------------------------------------------------

    \8\ See Securities Exchange Act Release No. 55972 (June 28, 
2007), 72 FR 37069 (July 6, 2007) (SR-Phlx-2007-47) (notice of 
filing and immediate effectiveness of proposed rule change relating 
to automating the rebate request process for dividend, merger and 
short stock interest strategies).
    \9\ Id.
    \10\ The Exchange has designated ``Z1'' for dividend strategies, 
``Z2'' for merger strategies, ``Z3'' for short stock interest 
strategies and ``Z4'' for reversal and conversion strategies.
    \11\ FBMS is designed to enable Floor Brokers and/or their 
employees to enter, route and report transactions stemming from 
options orders received on the Exchange. FBMS also is designed to 
establish an electronic audit trail for options orders represented 
and executed by Floor Brokers on the Exchange, such that the audit 
trail provides an accurate, time-sequenced record of electronic and 
other orders, quotations and transactions on the Exchange, beginning 
with the receipt of an order by the Exchange, and further 
documenting the life of the order through the process of execution, 
partial execution, or cancellation of that order. See Exchange Rule 
1080, Commentary .06.
    \12\ See Securities Exchange Act Release No. 65228 (August 30, 
2011), 76 FR 55453 (September 7, 2011) (SR-Phlx-2011-119) (notice of 
filing and immediate effectiveness of proposed rule change relating 
to reversal and conversion strategies).
---------------------------------------------------------------------------

    At this time, the Exchange proposes to amend the process by which 
members may input a Strategy Trade by adopting a process to allow 
members to request Exchange staff on the trading floor to input a code 
into the system.\13\ The Exchange realizes that there are situations 
where a floor broker may

[[Page 34421]]

inadvertently forget to properly mark a trade as a Strategy Trade when 
that order is entered into FBMS.\14\ The Exchange believes that 
providing members the ability to request Exchange staff to mark a 
Strategy Trade on the day the strategy is executed would provide 
members with a means to ensure the Strategy Trade is properly marked 
for purposes of pricing. The Exchange would require that members 
executing Strategy Trades either: (1) Enter a code on the trading 
ticket and into the system; (2) enter a code directly into FBMS; or (3) 
request that the information be inputted into the system by Exchange 
staff on the trading floor, on the day the order was executed, to take 
advantage of certain pricing caps for which they may qualify. The 
Exchange intends to issue an Options Trader Alert to members concerning 
the process to request Exchange staff to mark Strategy Trades.
---------------------------------------------------------------------------

    \13\ The system refers to PHLX XL[supreg], the Exchange's 
automated trading system.
    \14\ A floor broker has the ability to enter an order directly 
into FBMS. If, for example, a Marker Maker executed an order with a 
floor broker on the trading floor, the floor broker would enter the 
executed order into FBMS.
---------------------------------------------------------------------------

    While the changes proposed herein are effective upon filing, the 
Exchange has designated these changes to be operative on June 1, 2012.
2. Statutory Basis
    The Exchange believes that its proposal to amend its Pricing 
Schedule is consistent with Section 6(b) of the Act \15\ in general, 
and furthers the objectives of Section 6(b)(4) of the Act \16\ in 
particular, in that it is an equitable allocation of reasonable fees 
and other charges among Exchange members and other persons using its 
facilities.
---------------------------------------------------------------------------

    \15\ 15 U.S.C. 78f(b).
    \16\ 15 U.S.C. 78f(b)(4).
---------------------------------------------------------------------------

    The Exchange believes that the proposed amendment clarifying the 
various methods in which a member may mark Strategy Trades is 
reasonable because the Exchange would provide members with a means to 
ensure that they are able to mark a Strategy Trade in an effort to take 
advantage of certain caps available to them.\17\
---------------------------------------------------------------------------

    \17\ Market Makers, Professionals, Firms and Broker-Dealers 
equity option transaction fees are capped at $1,000 for dividend, 
merger and short stock interest strategies executed on the same 
trading day in the same options class when such members are trading 
in their own proprietary accounts. The Exchange also currently has a 
cap for reversal and conversion strategies wherein Market Maker, 
Professional, Firm and Broker-Dealer options transaction fees in 
Multiply Listed Options are capped at $500 per day for reversal and 
conversion strategies executed on the same trading day in the same 
options class when such members are trading in their own proprietary 
accounts.
---------------------------------------------------------------------------

    The Exchange believes that the proposed amendment clarifying the 
various methods in which a member may mark Strategy Trades is equitable 
and not unfairly discriminatory because all members would be afforded 
the same opportunity to mark Strategy Trades by one of the methods 
described herein and take advantage of certain pricing caps for which 
they may qualify. The Exchange's policy with respect to marking 
Strategy Trades would be uniformly applied to members.

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.\18\ 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.
---------------------------------------------------------------------------

    \18\ 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 email to rule-comments@sec.gov. Please include 
File Number SR-Phlx-2012-73 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-2012-73. 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 
10:00 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-2012-73 and should be 
submitted on or before July 2, 2012.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\19\
---------------------------------------------------------------------------

    \19\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2012-14079 Filed 6-8-12; 8:45 am]
BILLING CODE 8011-01-P