Document ID: SEC-2011-1921-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: NASDAQ OMX PHLX LLC
Posted Date: 2011-12-09T05:00Z

[Federal Register Volume 76, Number 237 (Friday, December 9, 2011)]
[Notices]
[Pages 77046-77048]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2011-31603]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-65888; File No. SR-Phlx-2011-160]

Self-Regulatory Organizations; NASDAQ OMX PHLX LLC; Notice of 
Filing and Immediate Effectiveness of Proposed Rule Change Relating to 
the Firm Related Equity Option Cap

December 5, 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 November 22, 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 Section II of the Fee Schedule 
entitled ``Equity Options Fees'' to apply the Firm Related Equity 
Option Cap to certain proprietary orders of affiliated member 
organizations.
    While fee changes pursuant to this proposal are effective upon 
filing, the Exchange has designated these changes to be operative on 
December 1, 2011.
    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 proposed rule change is to apply the Firm 
Related Equity Option Cap to proprietary orders of certain affiliates 
of member organizations. Currently, Firms are subject to a maximum fee 
of $75,000 (''Firm Related Equity Option Cap''). Firm equity option 
transaction fees and QCC Transaction Fees \3\, in the aggregate, for 
one billing month will not exceed the Firm Related Equity Option Cap 
per member organization when such members are trading in their own 
proprietary account.\4\ The Firm equity options transaction fees \5\ 
will be waived for members executing facilitation orders \6\ pursuant 
to Exchange Rule 1064 when such members are trading in their own 
proprietary account.\7\
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    \3\ QCC Transaction Fees apply to QCC Orders as defined in 
Exchange Rule 1080(o) and 1064(e). For QCC Orders as defined in 
Exchange Rule 1080(o), and Floor QCC Orders, as defined in 1064(e), 
a Service Fee of $0.05 per side will apply once a Firm has reached 
the Firm Related Equity Option Cap. This $0.05 Service Fee will 
apply to every contract side after a Firm has reached the Firm 
Related Equity Option Cap.
    \4\ Once Firms reach the Firm Related Equity Option Cap by 
incurring qualifying fees, they will not incur additional 
transaction fees beyond the $75,000 Firm Related Equity Option Cap 
for that month as long as those transactions occurred in their own 
proprietary account. Member organizations must notify the Exchange 
in writing of all accounts in which the member is not trading in its 
own proprietary account. The Exchange will not make adjustments to 
billing invoices where transactions are commingled in accounts which 
are not subject to the Firm Related Equity Option Cap.
    \5\ See Section II of the Exchange's Fee Schedule for equity 
option transaction fees.
    \6\ A facilitation occurs when a floor broker holds an options 
order for a public customer and a contra-side order for the same 
option series and, after providing an opportunity for all persons in 
the trading crowd to participate in the transaction, executes both 
orders as a facilitation cross. See Exchange Rule 1064 entitled 
``Crossing, Facilitation and Solicited Orders.''
    \7\ The waiver would not apply to orders where a member is 
acting as agent on behalf of a non-member.
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    The Exchange proposes to apply the Firm Related Equity Option Cap 
to proprietary orders effected for the purpose of hedging the 
proprietary over-the-counter trading of an affiliate of a member 
organization that qualifies for the Firm Related Equity Option Cap 
(``Qualifying Member Organization''). A Qualifying Member Organization 
would be a 100% wholly-owned affiliate or subsidiary of a member 
organization that is not a Phlx member organization and is registered 
as a United States or foreign broker-dealer. In other words, a 
Qualifying Member Organization must be either a wholly-owned subsidiary 
of a Phlx member organization or a wholly-owned subsidiary of the 
parent company of a Phlx member organization. These orders must clear 
in the customer range at The Options Clearing Corporation and be 
subject to the fees assessed to Broker-Dealers in order for the trade 
to be eligible for the Firm Related Equity Option Cap. The Exchange 
would aggregate the Qualifying Member Organization's fees in Multiply-
Listed options \8\ on the Exchange with the transaction fees of 
affiliated member organizations in Multiply-Listed options on the 
Exchange for purposes of determining whether the Qualifying Member 
Organization has reached the Firm Related Equity Option Cap.
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    \8\ 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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    A member organization would be required to certify the affiliate 
status of any Qualifying Member Organization whose trading activity it 
seeks to aggregate and to certify that the trades identified as 
eligible for the Firm Related Equity Option Cap were made for the 
purposes of hedging proprietary over-the county [sic] trading of the 
member organization or its affiliates. The member organization would be 
required to inform the Exchange immediately of any event that causes an 
entity to cease to be an affiliate. In addition, member organizations 
must notify the Exchange in writing of the account(s) designated for 
purposes of hedging the proprietary over-the-counter trading of the 
Qualifying Member Organization or its affiliates.\9\

[[Page 77047]]

The Exchange would require member organizations to segregate other 
orders from that of its affiliates for those orders to be eligible for 
the Firm Related Equity Option Cap by placing such orders in a separate 
house account. If the member organization does not segregate the 
transactions into the specified house account which was designated by 
the member organization for the purpose of affiliated eligible 
transactions, the Exchange will not make any adjustments to the billing 
invoice to account for those transactions not placed in the specified 
account and those transactions will not be subject to the Firm Related 
Equity Option Cap. The Exchange believes that this practice would not 
create an undue burden on its member organizations and would ensure a 
more efficient billing process.
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    \9\ The Exchange assesses a $50 Account Fee for each account 
beyond the number of permits billed to the member organization.
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    The Exchange also proposes to rename the ``Firm Related Equity 
Option Cap'' as the ``Monthly Firm Fee Cap'' to more accurately 
describe the cap. The Exchange also proposes to amend a reference to 
``members and member organizations'' in Section II of the Fee Schedule 
as only ``member organizations'' for clarity.
    While fee changes pursuant to this proposal are effective upon 
filing, the Exchange has designated these changes to be operative on 
December 1, 2011.
2. Statutory Basis
    The Exchange believes that its proposal to amend its Fee Schedule 
is consistent with Section 6(b) of the Act \10\ in general, and 
furthers the objectives of Section 6(b)(4) of the Act \11\ in 
particular, in that it is an equitable allocation of reasonable fees 
and other charges among Exchange members.
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    \10\ 15 U.S.C. 78f(b).
    \11\ 15 U.S.C. 78f(b)(4).
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    Specifically, the Exchange believes the proposed rule change is 
reasonable because it would allow aggregation of the trading activity 
of a member organization and its Qualifying Member Organization for 
purposes of the Firm Related Equity Option Cap only in very narrow 
circumstances, namely, where the Qualifying Member Organization is an 
affiliate, as defined herein, and the trading activity of the 
Qualifying Member Organization, which would be included in the 
calculation of the Firm Related Equity Option Cap, is limited to 
proprietary orders of the Qualifying Member Organization effected for 
purposes of hedging the proprietary over-the-counter trading of the 
member organization or its affiliates. Furthermore, other exchanges 
have rules that permit the aggregation of the trading activity of 
affiliated entities for the purposes of calculating and assessing 
certain fees.\12\ The Exchange believes that it is reasonable to 
require member organizations to segregate these transactions in a 
separate account to create an effective way to account and bill for 
these transactions.
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    \12\ See the Chicago Board Options Exchange, Incorporated 
(``CBOE'') Fees Schedule (CBOE's application of its Fee Cap and 
Scale to order to certain non-Trading Permit Holder affiliates of a 
clearing trading permit holder). See also NASDAQ Stock Market LLC's 
(``NASDAQ'') Rule 7027 (a NASDAQ pricing rule which allows 
affiliated members to aggregate their activity under certain 
provision of NASDAQ's fee schedule that make fees dependent upon the 
volume of their activity). See also the Chicago Stock Exchange, Inc. 
(``CHX'') Fee Schedule at Section P entitled ``Aggregation of 
Activity of Affiliated Participants'' (CHX allows a participant to 
request the aggregation of its activity with the activity of its 
affiliates). See also the International Securities Exchange, LLC's 
(``ISE'') Fee Schedule at footnote 2 (ISE permits Non-ISE Market-
Maker transaction fees that are part of the originating or contra 
side of a crossing transaction to be included in the calculation of 
the monthly fee cap).
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    The Exchange believes that its proposal is equitable and not 
unfairly discriminatory because any member organization may request 
that the Exchange aggregate its trading activity with the trading 
activity of a Qualifying Member Organization for purposes of 
calculating the Firm Related Equity Option Cap. The Exchange believes 
that it is equitable and not unfairly discriminatory to require member 
organizations to segregate these transactions in a separate account as 
this requirement would apply to all member organizations.
    The Exchange also believes that the amendments to rename the Firm 
Related Equity Option Cap and change a reference from ``members and 
member organizations'' to ``member organizations'' are reasonable, 
equitable and not unfairly discriminatory because these amendments will 
more accurately describe the cap and the member that is being billed.

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.\13\ 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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    \13\ 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-2011-160 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-2011-160. 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

[[Page 77048]]

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-2011-160 and should be 
submitted on or before December 30, 2011.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\14\
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    \14\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2011-31603 Filed 12-8-11; 8:45 am]
BILLING CODE 8011-01-P