Document ID: SEC-2010-1076-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: NASDAQ OMX PHLX, Inc.
Posted Date: 2010-07-15T04:00Z

[Federal Register: July 15, 2010 (Volume 75, Number 135)]
[Notices]               
[Page 41250-41252]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr15jy10-105]                         

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

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-62472; File No. SR-Phlx-2010-94]

 
Self-Regulatory Organizations; NASDAQ OMX PHLX, Inc.; Notice of 
Filing and Immediate Effectiveness of a Proposed Rule Change Relating 
to the Fees and Rebates for Adding and Removing Liquidity

July 8, 2010.
    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 June 29, 2010, NASDAQ OMX PHLX, Inc. (``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 amend the fees and rebates for adding and 
removing liquidity for options overlying various select symbols.
    While changes to the Fee Schedule pursuant to this proposal are 
effective upon filing, the Exchange has designated these changes to be 
operative for transactions settling on or after July 1, 2010.
    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, at the Commission's Public Reference 
Room, and on the Commission's Web site at http://www.sec.gov.

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 its current fees and rebates for 
adding and removing liquidity by implementing a fee for adding 
liquidity. Specifically, the Exchange proposes to assess a $0.05 per 
contract fee for Firms and Broker-Dealers who add liquidity in select 
symbols.\3\ The Exchange is proposing these fees in order to support 
increased bandwidth usage.
---------------------------------------------------------------------------

    \3\ The fees and rebates for adding and removing liquidity are 
applicable to executions in options overlying AA, AAPL, ABK, ABX, 
AIG, ALL, AMD, AMR, AMZN, ARIA, AXP, BAC, BRCD, C, CAT, CIEN, CIGX, 
CSCO, DELL, DIA, DNDN, DRYS, EBAY, EK, F, FAS, FAZ, GDX, GE, GLD, 
GLW, GS, HAL, IBM, INTC, IWM, IYR, JPM, LVS, MGM, MOT, MSFT, MU, 
NEM, NOK, NVDA, ONNN, ORCL, PALM, PFE, POT, QCOM, QID, QQQQ, RIG, 
RIMM, RMBS, SBUX, SDS, SIRI, SKF, SLV, SMH, SNDK, SPY, T, TBT, TZA, 
UAUA, UNG, USO, UYG, V, VALE, VZ, WYNN, X, XHB, XLF, XRX and YHOO 
(``Symbols'').
---------------------------------------------------------------------------

    The Exchange currently assesses a per-contract transaction charge 
in various select Symbols on six different categories of market 
participants that submit orders and/or quotes that remove, or ``take,'' 
liquidity from the Exchange: (i) Specialists,\4\ Registered Options 
Traders (``ROTs''),\5\ Streaming Quote Traders (``SQTs'') \6\ and 
Remote Streaming Quote Traders (``RSQTs''); \7\ (ii) customers; \8\ 
(iii) specialists, SQTs and RSQTs that receive Directed Orders 
(``Directed Participants'' \9\ or ``Directed Specialists, RSQTs, or 
SQTs'' \10\); (iv) Firms; (v) broker-dealers; and (vi) 
Professionals.\11\ The current per-contract transaction charge depends 
on the category of market participant submitting an order or quote to 
the Exchange that removes liquidity.
---------------------------------------------------------------------------

    \4\ A Specialist is an Exchange member who is registered as an 
options specialist pursuant to Rule 1020(a).
    \5\ A Registered Option Trader 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. A ROT includes a SQT, a RSQT and a Non-SQT, which by 
definition is neither a SQT or a RSQT. See Exchange Rule 1014 (b)(i) 
and (ii).
    \6\ An SQT is an Exchange Registered Options Trader (``ROT'') 
who has received permission from the Exchange to generate and submit 
option quotations electronically through an electronic interface 
with AUTOM via an Exchange approved proprietary electronic quoting 
device in eligible options to which such SQT is assigned. See 
Exchange Rule 1014(b)(ii)(A).
    \7\ An RSQT is 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 through AUTOM in eligible options to which such RSQT 
has been assigned. An RSQT may only submit such quotations 
electronically from off the floor of the Exchange. See Exchange Rule 
1014(b)(ii)(B).
    \8\ This applies to all customer orders, directed and non-
directed.
    \9\ For purposes of the fees and rebates related to adding and 
removing liquidity, 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.
    \10\ See Exchange Rule 1080(l), ``* * * The term `Directed 
Specialist, RSQT, or SQT' means a specialist, RSQT, or SQT that 
receives a Directed Order.'' A Directed Participant has a higher 
quoting requirement as compared with a specialist, SQT or RSQT who 
is not acting as a Directed Participant. See Exchange Rule 1014.
    \11\ 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'').
---------------------------------------------------------------------------

    The per-contract transaction charges that are currently assessed on 
participants who submit proprietary quotes and/or orders that remove 
liquidity in the applicable Symbols are, by category:

------------------------------------------------------------------------
             Category                              Charge
------------------------------------------------------------------------
Customer.........................  $0.25 per contract.
Directed Participants............  $0.30 per contract.

[[Page 41251]]

Specialist, ROT, SQT, RSQT.......  $0.32 per contract.
Firms............................  $0.45 per contract.
Broker-Dealers...................  $0.45 per contract.
Professional.....................  $0.40 per contract.
------------------------------------------------------------------------

    The Exchange also currently assesses a per-contract rebate relating 
to transaction charges for orders or quotations that add liquidity in 
the select Symbols. The amount of the rebate depends on the category of 
participant whose order or quote was executed as part of the Phlx Best 
Bid and Offer. Specifically, the per-contract rebates are, by category:

------------------------------------------------------------------------
             Category                              Rebate
------------------------------------------------------------------------
Customer.........................  $0.20 per contract.
Directed Participants............  $0.25 per contract.
Specialist, ROT, SQT, RSQT.......  $0.23 per contract.
Firms............................  $0.00 per contract.
Broker-Dealers...................  $0.00 per contract.
Professional.....................  $0.20 per contract.
------------------------------------------------------------------------

    The Exchange proposes to assess a $0.05 per contract fee for adding 
liquidity in the select Symbols for Firms and Broker-Dealers. Today, 
Firms and Broker-Dealers receive no rebate for adding liquidity, 
therefore the proposal constitutes a $0.05 fee increase for those 
participants.
    While changes to the Fee Schedule pursuant to this proposal are 
effective upon filing, the Exchange has designated these changes to be 
operative for transactions settling on or after July 1, 2010.
2. Statutory Basis
    The Exchange believes that its proposal to amend its Fee Schedule 
is consistent with Section 6(b) of the Act \12\ in general, and 
furthers the objectives of Section 6(b)(4) of the Act \13\ in 
particular, in that it is an equitable allocation of reasonable fees 
and other charges among Exchange members. The impact of the proposal 
upon the net fees paid by a particular market participant will depend 
on a number of variables, including its monthly volumes, the order 
types it uses, and the prices of its quotes and orders (i.e., its 
propensity to add or remove liquidity). The Exchange believes that its 
proposal to assess a $0.05 per contract for Firms and Broker-Dealers 
adding liquidity in the select Symbols is reasonable because the fee is 
within the range of fees assessed by other exchanges employing similar 
pricing schemes. For example, the proposed fees assessed to Firms and 
Broker-Dealers are comparable to rates assessed by the International 
Securities Exchange, Inc. (``ISE''). Currently, ISE assesses a fee of 
$0.10 for Firm Proprietary orders and a fee of $0.20 for Non-ISE Market 
maker (FARMM) orders for adding liquidity in certain symbols.\14\ In 
addition, the Exchange also believes that these fees are reasonable 
because the net differential between the proposed fee for adding 
liquidity and the proposed fee for removing liquidity is similar to the 
$0.30 net differential that exists today at ISE as between a Market 
Maker Plus receiving a $0.10 rebate and a Non-ISE Market Maker (FARMM) 
being assessed a $0.20 fee for adding liquidity.
---------------------------------------------------------------------------

    \12\ 15 U.S.C. 78f(b).
    \13\ 15 U.S.C. 78f(b)(4).
    \14\ See ISE's Schedule of Fees. See also Securities and [sic] 
Exchange Act Release No. 61869 (April 7, 2010), 75 FR 19449 (April 
14, 2010) (SR-ISE-2010-25).
---------------------------------------------------------------------------

    The Exchange believes that the price differentiation between Firms 
and Brokers-Dealers and Specialists, ROTs, SQTs and RSQTs \15\ is 
justified in that the Specialists, ROTs, SQTs and RSQTs have 
obligations to the market, which do not apply to Firms and Broker-
Dealers.\16\ The concept of incenting market makers, who have quoting 
obligations, with a rebate is not novel.\17\ The Exchange believes that 
it is equitable to assess a $0.05 fee for adding liquidity on Firms and 
Broker-Dealers who have no such quoting requirements as do market 
makers. In addition, the Exchange believes that by not assessing a fee 
on customers for adding liquidity and providing a $.20 per contract 
rebate for adding liquidity incentivizes customer order flow to the 
Exchange. Moreover, the Exchange believes that the proposed fees are 
fair, equitable and not unfairly discriminatory because the proposed 
fees are consistent with price differentiation that exists today at all 
option exchanges.
---------------------------------------------------------------------------

    \15\ Specialists, ROTs, SQTs and RSQTs are the Exchange's market 
maker category.
    \16\ See Exchange Rule 1014 titled ``Obligations and 
Restrictions Applicable to Specialists and Registered Options 
Traders.''
    \17\ See Securities Exchange Act Release No. 62048 (May 6, 2010) 
75 FR 26830 (May 12, 2010) (SR-ISE-2010-43).
---------------------------------------------------------------------------

    Differentiated pricing is typical in mature, competitive markets 
and is generally understood to benefit purchasers. Simply put, investor 
protection is furthered by the lowering of prices and by robust 
competition, not by a regulatory paradigm that (contrary to current 
economic thought) enforces price rigidity and uniformity while looking 
askance at attempts to reduce prices. As Congress and the Commission 
both recognize, nothing is more important to fostering a national 
market system than competition--and few things are more important to 
competition than the ability to quickly alter prices or other terms to 
respond to competition or win a significant new customer. Price 
rigidity and uniformity are signs of a stagnant market, not a vibrant 
one; regulation of differential pricing should be reserved to anti-
competitive conduct that impedes the objectives of the securities laws.
    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 the proposal is an equitable allocation of fees and 
not unfairly discriminatory for the reasons stated 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.

[[Page 41252]]

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\ and paragraph (f)(2) of Rule 19b-4 \19\ 
thereunder. At any time within 60 days of the filing of the proposed 
rule change, the Commission may summarily abrogate 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.
---------------------------------------------------------------------------

    \18\ 15 U.S.C. 78s(b)(3)(A)(ii).
    \19\ 17 CFR 240.19b-4(f)(2).
---------------------------------------------------------------------------

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 e-mail to rule-comments@sec.gov. Please include 
File Number SR-Phlx-2010-94 on the subject line.

Paper Comments

     Send paper comments in triplicate to Elizabeth M. Murphy, 
Secretary, Securities and Exchange Commission, Station Place, 100 F 
Street, NE., Washington, DC 20549-1090.

All submissions should refer to File Number SR-Phlx-2010-94. This file 
number should be included on the subject line if e-mail 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 publicly available. All 
submissions should refer to File Number SR-Phlx-2010-94 and should be 
submitted on or before August 5, 2010.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\20\
---------------------------------------------------------------------------

    \20\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Florence E. Harmon,
Deputy Secretary.
[FR Doc. 2010-17193 Filed 7-14-10; 8:45 am]
BILLING CODE 8010-01-P