Document ID: SEC-2011-1762-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: NASDAQ OMX PHLX LLC
Posted Date: 2011-11-16T05:00Z

[Federal Register Volume 76, Number 221 (Wednesday, November 16, 2011)]
[Notices]
[Pages 71102-71105]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2011-29509]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-65719; File No. SR-Phlx-2011-148]

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

November 9, 2011.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ and Rule 19b-4 thereunder,\2\

[[Page 71103]]

notice is hereby given that on November 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 its Fee Schedule to adopt a rebate 
related to electronic Qualified Contingent Cross orders (``eQCC 
Orders'').\3\
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    \3\ A QCC Order is comprised of an order to buy or sell at least 
1000 contracts that is identified as being part of a qualified 
contingent trade, as that term is defined in Rule 1080(o)(3), 
coupled with a contra-side order to buy or sell an equal number of 
contracts. The QCC Order must be executed at a price at or between 
the National Best Bid and Offer and be rejected if a Customer order 
is resting on the Exchange book at the same price. A QCC Order shall 
only be submitted electronically from off the floor to the PHLX XL 
II System. See Rule 1080(o). See also Securities Exchange Act 
Release No. 64249 (April 7, 2011), 76 FR 20773 (April 13, 2011) (SR-
Phlx-2011-47) (a rule change to establish a QCC Order to facilitate 
the execution of stock/option Qualified Contingent Trades (``QCTs'') 
that satisfy the requirements of the trade through exemption in 
connection with Rule 611(d) of the Regulation NMS).
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    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 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The purpose of the proposed rule change is to amend Section II of 
the Exchange's Fee Schedule entitled ``Equity Options Fees'' \4\ to 
adopt a $0.05 per contract rebate to encourage members to submit a 
greater number of eQCC Orders. The proposed $0.05 per contract rebate 
will be paid to members entering electronically executed eQCC 
Orders.\5\ The Exchange believes that this rebate will further 
incentivize market participants to execute eQCC Orders on the Exchange 
in Multiply Listed Securities.\6\
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    \4\ Section II includes options overlying equities, ETFs, ETNs, 
indexes and HOLDRS which are Multiply Listed.
    \5\ Members will be required to contact the Exchange and obtain 
an ``R'' account in order to identify these eQCC Orders as orders 
entered by the member for the purposes of applying the rebate. The 
Exchange intends to issue an Options Trader Alert to members 
describing the steps that need to be taken to obtain an ``R'' 
account.
    \6\ Multiply Listed Securities include those symbols which are 
subject to rebates and fees in Section I, Rebates and Fees for 
Adding and Removing Liquidity in Select Symbols, and Section II, 
Equity Options Fees.
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    The rebate will not apply to Floor Qualified Contingent Cross 
Orders (``Floor QCC Orders'').\7\ QCC Transaction Fees for a 
Specialist,\8\ Registered Options Trader,\9\ SQT,\10\ RSQT,\11\ 
Professional,\12\ Firm and Broker-Dealer are $0.20 per contract.\13\
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    \7\ A Floor QCC Order must: (i) Be for at least 1,000 contracts, 
(ii) meet the six requirements of Rule 1080(o)(3) which are modeled 
on the QCT Exemption, (iii) be executed at a price at or between the 
National Best Bid and Offer (``NBBO''); and (iv) be rejected if a 
Customer order is resting on the Exchange book at the same price. In 
order to satisfy the 1,000-contract requirement, a Floor QCC Order 
must be for 1,000 contracts and could not be, for example, two 500-
contract orders or two 500-contract legs. See Rule 1064(e). See also 
Securities Exchange Act Release No. 64688 (June 16, 2011) (SR-Phlx-
2011-56).
    \8\ A Specialist is an Exchange member who is registered as an 
options specialist pursuant to Rule 1020(a).
    \9\ A Registered Options Trader (``ROT'') includes a SQT, a RSQT 
and a Non-SQT ROT, which by definition is neither a SQT nor 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).
    \10\ 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.
    \11\ 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.
    \12\ 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'').
    \13\ QCC Transaction Fees apply to QCC Orders, as defined in 
Exchange Rule 1080(o), and Floor QCC Orders, as defined in 1064(e). 
The QCC Transaction Fees, defined in Section II, are applicable to 
Section I entitled ``Rebates and Fees for Adding and Removing 
Liquidity in Select Symbols.''
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    The Exchange also proposes to amend Section I of the Fee Schedule 
entitled ``Rebates and Fees for Adding and Removing Liquidity in Select 
Symbols'' to include a reference to the proposed rebate.
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. The Exchange also believes 
that there is an equitable allocation of reasonable rebates among 
Exchange members.
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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 it is reasonable to incentivize members 
to transact eQCC Orders in Multiply Listed securities \16\ by paying a 
$0.05 per contract rebate to all members entering such orders. The 
Exchange believes that paying a rebate of $0.05 will sufficiently 
incentivize its members to send eQCC Orders to the Exchange. 
Furthermore, the $0.05 rebate is within the range of rebates paid by 
other exchanges and balances the Exchange's desire to incentivize its 
members to send order flow to the Exchange while considering the costs 
attributable to offering such rebates. The Exchange also believes that 
the $0.05 rebate is reasonable because every eQCC Order is entitled to 
the rebate and therefore all members are equally eligible to receive 
the rebate without limitation.
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    \16\ The rebate does not apply to Singly Listed Securities. For 
purposes of this filing, a Singly Listed Option means an option that 
is only listed on the Exchange and is not listed by any other 
national securities exchange. See Section III of the Exchange's Fee 
Schedule entitled Singly Listed Options.
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    The Exchange is not proposing to pay this rebate for Floor QCC 
Orders. A

[[Page 71104]]

member conducting a floor brokerage business has a different business 
model as compared to members conducting an electronic business.\17\ The 
Exchange believes that it is reasonable to pay a rebate for only eQCC 
Orders in an attempt to incentivize members to transact eQCC Orders 
that are processed electronically. In addition, floor brokers, who are 
the only members that are eligible to enter Floor QCC Orders,\18\ which 
are done through the Exchange's Floor Broker Management System 
(``FBMS''), are also eligible to receive an Options Floor Broker 
Subsidy on Floor QCC volume and other executed volume.\19\ The Exchange 
believes that because any floor broker is capable of meeting the volume 
criteria for the subsidy offered by the Exchange, it is reasonable to 
offer the proposed rebate only to eQCC Orders, which are submitted 
electronically from off the floor.
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    \17\ For example, the types of orders that are handled by a 
floor broker may be larger in size or complex as compared to an 
order that is processed electronically.
    \18\ See the Exchange's Fee Schedule in Section VII for a list 
of eligible contracts.
    \19\ See Section VII of the Exchange's Fee Schedule entitled 
``Options Floor Broker Subsidy.'' A per contract subsidy is paid 
based on the contract volume on Customer-to-non-Customer as well as 
non-Customer-to-non-Customer transactions for that month.
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    The Exchange believes that utilizing a different rebate structure 
for eQCC and Floor QCC Orders is reasonable because of the different 
business models, described herein, that apply to a floor as compared to 
an electronic business. Furthermore, in assessing whether to offer 
rebates, the Exchange experiences different competitive pressures from 
other exchanges with respect to eQCC Orders. The Exchange does not 
experience the same competitive pressure with rebates for Floor QCC 
Orders. The Exchange also believes that paying a different rebate for 
eQCC and Floor QCC Orders is equitable and not unfairly discriminatory 
because other exchanges distinguish between delivery methods for 
certain market participants and pay different rebates depending on the 
method of delivery. This type of distinction is not novel and has long 
existed within the industry.
    The Exchange believes that it is equitable and not unfairly 
discriminatory to pay a $0.05 rebate for executed eQCC Orders to the 
executing member because all market participants, with the exception of 
floor brokers, as described above, that enter orders on an agency basis 
are uniformly eligible for the proposed rebate. Additionally, the 
proposed rebate is within the range of tiered rebates offered by the 
International Securities Exchange, LLC (``ISE'').\20\ The Exchange 
believes that it is equitable and not unfairly discriminatory to pay 
the $0.05 rebate for Multiply-Listed options as compared to Singly-
Listed options because all market participants are eligible to transact 
Multiply-Listed options.
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    \20\ See ISE's Schedule of Fees. ISE pays members using its 
qualified contingent cross and/or solicitation order types a rebate 
according to a table based on the number of originating contract 
sides. Once a member reaches a certain volume threshold in qualified 
contingent cross and/or solicitation orders during the month, ISE 
pays a rebate to that member entering a qualifying order for all 
qualified contingent cross and/or solicitation traded contracts for 
that month. For example, for 0-1,999,999 originating contract sides 
ISE pays no rebate; for 2,000,000 to 3,499,999 originating contract 
sides ISE pays $0.03 per contract; for 3,500,000 to 3,999,999 
originating contract sides ISE pays $0.05 per contract; and for 
4,000,000 or more originating contract sides ISE pays $0.07 per 
contract.
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    The Exchange operates in a highly competitive market comprised of 
nine U.S. options exchanges in which sophisticated and knowledgeable 
market participants readily can, and do, send order flow to competing 
exchanges if they deem fee levels at a particular exchange to be 
excessive. The Exchange believes that the proposed rebate for eQCC 
Orders must be competitive with rebates offered on other options 
exchanges. The Exchange believes that this competitive marketplace 
impacts the rebates present on the Exchange today and influences the 
proposals set forth above.

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 Number SR-Phlx-2011-148 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-2011-148. 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 Number SR-Phlx-2011-148 and should be 
submitted on or before December 7, 2011.

[[Page 71105]]

    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. 2011-29509 Filed 11-15-11; 8:45 am]
BILLING CODE 8011-01-P