Document ID: SEC-2013-0047-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: NASDAQ OMX PHLX LLC
Posted Date: 2013-01-09T05:00Z

[Federal Register Volume 78, Number 6 (Wednesday, January 9, 2013)]
[Notices]
[Pages 1898-1901]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2013-00256]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-68577; File No. SR-Phlx-2012-141]

Self-Regulatory Organizations; Notice of Filing and Immediate 
Effectiveness of Proposed Rule Change by NASDAQ OMX PHLX LLC Relating 
to Professional Options Transaction Charges

January 3, 2013.
    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 21, 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 electronic Professional \3\ 
Options

[[Page 1899]]

Transaction Charges in Section II \4\ of the Exchange's Pricing 
Schedule entitled ``Multiply Listed Options.''
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    \3\ The term ``Professional'' means 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). See Rule 
1000(b)(14).
    \4\ Section II of the Pricing Schedule includes options 
overlying equities, ETFs, ETNs, and indexes which are Multiply 
Listed.
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    While changes to the Pricing Schedule pursuant to this proposal are 
effective upon filing, the Exchange has designated the proposed 
amendment to be operative on January 2, 2013.
    The text of the proposed rule change is available on the Exchange's 
Web site at http://nasdaqomxphlx.cchwallstreet.com/, 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 Exchange proposes to amend Section II of the Exchange's Pricing 
Schedule to increase the electronic Professional Options Transaction 
Charges for both Penny Pilot Options \5\ and non-Penny Pilot 
Options.\6\ The Exchange believes that increasing the electronic 
Professional Options Transaction Charges in Penny Pilot and non-Penny 
Pilot Options will allow the Exchange to compete more effectively. The 
Exchange also believes that the proposed fees will operate to assist 
the Exchange in recouping increased costs generally tied to supporting 
a larger number of options classes, option series and overall 
transaction volume.
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    \5\ The Penny Pilot was established in January 2007; and in 
October 2009, it was expanded and extended through June 30, 2012. 
See Securities Exchange Act Release Nos. 55153 (January 23, 2007), 
72 FR 4553 (January 31, 2007) (SR-Phlx-2006-74) (notice of filing 
and approval order establishing Penny Pilot); 60873 (October 23, 
2009), 74 FR 56675 (November 2, 2009) (SR-Phlx-2009-91) (notice of 
filing and immediate effectiveness expanding and extending Penny 
Pilot); 60966 (November 9, 2009), 74 FR 59331 (November 17, 2009) 
(SR-Phlx-2009-94) (notice of filing and immediate effectiveness 
adding seventy-five classes to Penny Pilot); 61454 (February 1, 
2010), 75 FR 6233 (February 8, 2010) (SR-Phlx-2010-12) (notice of 
filing and immediate effectiveness adding seventy-five classes to 
Penny Pilot); 62028 (May 4, 2010), 75 FR 25890 (May 10, 2010) (SR-
Phlx-2010-65) (notice of filing and immediate effectiveness adding 
seventy-five classes to Penny Pilot); 62616 (July 30, 2010), 75 FR 
47664 (August 6, 2010) (SR-Phlx-2010-103) (notice of filing and 
immediate effectiveness adding seventy-five classes to Penny Pilot); 
63395 (November 30, 2010), 75 FR 76062 (December 7, 2010) (SR-Phlx-
2010-167) (notice of filing and immediate effectiveness extending 
the Penny Pilot); 65976 (December 15, 2011), 76 FR 79247 (December 
21, 2011) (SR-Phlx-2011-172) (notice of filing and immediate 
effectiveness extending the Penny Pilot); and 67326 (June 29, 2012), 
77 FR 40126 (July 6, 2012) (SR-Phlx-2012-86) (notice of filing and 
immediate effectiveness extending the Penny Pilot). See also 
Exchange Rule 1034.
    \6\ Non-Penny Pilot refers to options classes not in the Penny 
Pilot.
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    Specifically, the Exchange proposes to increase the electronic 
Professional Options Transaction Charges for both Penny Pilot Options 
and non-Penny Pilot Options from $0.25 to $0.30 per contract. The 
Exchange is not proposing to increase the floor Professional Options 
Transaction Charges or any other electronic Professional transaction 
charges.
    The Exchange also proposes to amend its Pricing Schedule at Section 
II to add another column to the Professional fees to differentiate 
electronic and floor fees as it does today with other market 
participants.\7\ The Exchange also proposes a technical amendment to 
the Specialist,\8\ Market Maker,\9\ Broker-Dealer \10\ and Firm \11\ 
transaction fees to correct the Pricing Schedule to note an ``N/A'' for 
electronic FLEX \12\ and Cabinet \13\ Options pricing instead of $0.10 
per contract. While the $0.10 per contract fee is noted on the Pricing 
Schedule, no market participant has been assessed that fee because FLEX 
and Cabinet Options are transacted on the Exchange's trading floor and 
are not transacted electronically.\14\ The Exchange proposes to note 
``N/A'' for those electronic fees because these types of transactions 
are not able to be executed electronically on the Exchange and this 
would correct the Pricing Schedule to reflect no fee is being assessed.
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    \7\ Today, the Specialist, Market Maker, Broker-Dealer and Firm 
fees are differentiated between electronic and firm fees.
    \8\ A ``Specialist'' is an Exchange member who is registered as 
an options specialist pursuant to Rule 1020(a).
    \9\ A ``Market Maker'' includes Registered Options Traders (Rule 
1014(b)(i) and (ii)), which includes Streaming Quote Traders (see 
Rule 1014(b)(ii)(A)) and Remote Streaming Quote Traders (see Rule 
1014(b)(ii)(B)). Directed Participants are also market makers.
    \10\ Broker-Dealers are assessed a Penny Pilot Options 
Transaction Charge of $0.45 per contract for electronic orders and a 
non-Penny Pilot Options Transaction Charge of $0.60 for electronic 
orders.
    \11\ Firms are assessed a Penny Pilot Options Transaction Charge 
of $0.40 per contract for electronic orders and a non-Penny Pilot 
Options Transaction Charge of $0.45 for electronic orders.
    \12\ A FLEX option is a customized option that provides parties 
to the transaction with the ability to fix terms including the 
exercise style, expiration date, and certain exercise prices. See 
Exchange Rule 1079. FLEX Options are a trademark of the Chicago 
Board Options Exchange.
    \13\ An ``accommodation'' or ``cabinet'' trade refers to trades 
in listed options on the Exchange that are worthless or not actively 
traded. Cabinet trading is generally conducted in accordance with 
Exchange Rules, except as provided in Exchange Rule 1059 entitled 
``Accommodation Trading'', which sets forth specific procedures for 
engaging in cabinet trading below $1 per option contract. Cabinet or 
accommodation trading of option contracts is intended to accommodate 
persons wishing to effect closing transactions in those series of 
options dealt in on the Exchange for which there is no auction 
market.
    \14\ The Exchange's systems do not allow for FLEX or Cabinet 
transactions to be executed electronically.
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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.
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    \15\ 15 U.S.C. 78f(b).
    \16\ 15 U.S.C. 78f(b)(4).
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    The Exchange's proposal to increase the electronic Professional 
Options Transaction Charges in both Penny Pilot and non-Penny Pilot 
Options is reasonable because of the greater costs incurred by the 
Exchange associated with supporting a larger number of options classes, 
option series and overall transaction volume. Also, the Exchange 
believes increasing the electronic Professional Options Transaction 
Charges in both Penny Pilot and non-Penny Pilot Options from $0.25 to 
$0.30 per contract is reasonable because the $0.05 per contract 
increase would allow the Exchange to recoup the aforementioned costs 
while also continuing to assess a Professional a rate that is lower 
than Broker-Dealer and Firm electronic rates. Also, the increased 
Professional fees are comparable with electronic Professional fees at 
other options exchanges.\17\
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    \17\ The Chicago Board Options Exchange Incorporated (``CBOE'') 
assesses professionals and voluntary professionals a $0.30 per 
contract transaction fee for electronic orders. See CBOE's Fees 
Schedule. See also NYSE Amex LLC's (``NYSE Amex'') Fee Schedule, 
which assesses Professional Customers a $0.32 per contract fee for 
electronic orders which take liquidity from 1 to 16,999 contracts.

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[[Page 1900]]

    The Exchange's proposal to increase the electronic Professional 
Options Transaction Charges in both Penny Pilot and non-Penny Pilot 
Options is equitable and not unfairly discriminatory because 
Professionals would continue to be assessed lower fees as compared to 
Broker-Dealers and Firms with respect to electronic options 
transactions charges. Market Makers and Specialists would be assessed 
lower fees, both electronic and floor, as compared to Professionals, 
because Market Makers and Specialists have burdensome quoting 
obligations \18\ to the market which do not apply to Professionals, 
Customers, Firms and Broker-Dealers. Customers are not assessed Options 
Transactions Charges in either Penny Pilot or non-Penny Pilot Options 
because Customer order flow brings liquidity to the market, which in 
turn benefits all market participants. Broker-Dealers and Firms today 
pay higher fees as compared to a Professional for electronic 
transactions and this is not changing. The Professional Options 
Transaction Charges in both Penny Pilot and non-Penny Pilot Options for 
non-electronic transactions or floor transactions would remain 
unchanged.
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    \18\ See Exchange Rule 1014 entitled ``Obligations and 
Restrictions Applicable to Specialists and Registered Options 
Traders.''
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    The Exchange believes that assessing higher electronic Options 
Transaction Charges in both Penny Pilot and non-Penny Pilot Options of 
$0.30 per contract as compared to a floor Options Transaction Charge in 
both Penny Pilot and non-Penny Pilot Options of $0.25 per contract is 
reasonable, equitable and not unfairly discriminatory because these 
fees recognize the distinction between the floor order entry model and 
the electronic model and the proposed fees respond to competition along 
the same lines.\19\ Floor participants incur costs associated with 
accessing the floor, i.e. need for a floor broker, and other costs 
which are not born by electronic members. Today, the Exchange assesses 
different fees for electronic as compared to floor transactions for 
Firms, Broker-Dealers, Specialists and Market Makers in Section II of 
the Pricing Schedule. The Exchange is proposing to likewise distinguish 
electronic and floor Professional Options Transactions Charges in both 
Penny and non-Penny Pilot Options. Other options exchanges likewise 
distinguish floor and electronic fees for Professionals.\20\ The 
Exchange believes that the proposed fees are in line with similar fees 
offered on other exchanges.
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    \19\ A transaction resulting from an order that was 
electronically delivered utilizes Phlx XL II. See Exchange Rules 
1014 and 1080. Electronically delivered orders do not include orders 
transacted on the Exchange floor. A transaction resulting from an 
order that is non-electronically-delivered is represented on the 
trading floor by a floor broker. See Exchange Rule 1063. All orders 
will be either electronically or non-electronically delivered.
    \20\ CBOE assesses a Professional and Voluntary Professional a 
$0.25 per contract manual fee in Penny and Non-Penny Classes and 
assesses a $0.45 per contract electronic fee in Penny and a $0.60 
per contract electronic fee in Non-Penny Pilot Options. NYSE Amex 
assesses a $0.25 per contract fee for manual Professional Customer 
transactions and a tiered electronic Professional Customer rate 
starting at $.32 per contract for electronic orders which take 
liquidity from 1 to 16,999 contracts.
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    The Exchange operates in a highly competitive market, comprised of 
eleven exchanges, in which market participants can easily and readily 
direct order flow to competing venues if they deem fee and rebate 
levels at a particular venue to be excessive.

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. The Exchange believes that the 
proposed electronic Professional Options Transaction Charges in Penny 
and non-Penny Pilot Options remain competitive with fees at other 
options exchanges. The Exchange believes that the proposed fees are 
competitive and do not misalign the differentials currently assessed 
with respect to other market participants. Market participants can 
easily and readily direct order flow to competing venues if they deem 
fee and rebate levels at a particular venue to be excessive. 
Accordingly, the fees that are assessed and the rebates paid by the 
Exchange must remain competitive with fees charged and rebates paid by 
other venues and therefore must continue to be reasonable and equitably 
allocated to those members that opt to direct orders to the Exchange 
rather than competing venues.

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-2012-141 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-2012-141. 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

[[Page 1901]]

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-2012-141 and 
should be submitted on or before January 30, 2013.

    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. 2013-00256 Filed 1-8-13; 8:45 am]
BILLING CODE 8011-01-P