Document ID: SEC-2012-0659-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: NASDAQ OMX Phlx LLC
Posted Date: 2012-04-26T04:00Z

[Federal Register Volume 77, Number 81 (Thursday, April 26, 2012)]
[Notices]
[Pages 24997-24999]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2012-10025]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-66838; File No. SR-Phlx-2012-50]

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

April 20, 2012.
    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 April 11, 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 Routing Fees to recoup costs 
incurred by the Exchange in routing to BATS Exchange, Inc. (``BATS'').
    The Exchange intends for these amendments to be effective upon 
filing, except with respect to the amendments related to the Firm/
Broker-Dealer/Market Maker category, which Routing Fees will be 
operative on April 27, 2012 when SR-Phlx-2012-41 becomes operative.\3\
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    \3\ See Securities and Exchange Act Release No. 66754 (April 6, 
2012) (SR-Phlx-2012-41) which filing is immediately effective and 
will become operative on April 27, 2012.
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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, 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 filing is to recoup costs that the Exchange 
incurs for routing and executing certain orders in equity and index 
options to BATS. The Exchange's Pricing Schedule at Section V currently 
includes the following Routing Fees for routing Customer, Professional, 
Firm, Broker-Dealer and Market Maker orders to away markets.\4\
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    \4\ The Exchange recently amended its Pricing Schedule to adopt 
a ``Firm/Broker-Dealer/Market Maker'' Routing Fee category. See 
Securities and Exchange Act Release No. 66755 (April 6, 2012) (SR-
Phlx-2012-42). The pricing change was filed for immediate 
effectiveness with an operative date of April 27, 2012.

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                                                                                                  Firm/broker-
                          Exchange                                Customer       Professional    dealer/ market
                                                                                                      maker
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NYSE AMEX...................................................           $0.11            $0.31             $0.55
BATS........................................................            0.55             0.55              0.55
BOX.........................................................            0.11             0.11              0.55
CBOE........................................................            0.11             0.31              0.55
CBOE orders greater than 99 contracts in RUT, RMN, NDX, MNX,            0.29             0.31              0.55
 ETFs, ETNs and HOLDRs......................................
C2..........................................................            0.55             0.56              0.55
ISE.........................................................            0.11             0.29              0.55
ISE Select Symbols*.........................................            0.31             0.39              0.55
NYSE ARCA (Penny Pilot).....................................            0.55             0.55              0.55
NYSE ARCA (Standard)........................................            0.11             0.11              0.55
NOM.........................................................            0.54             0.54              0.55
NOM (NDX and MNX)...........................................            0.56             0.56              0.55
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* These fees are applicable to orders routed to ISE that are subject to Rebates and Fees for Adding and Removing
  Liquidity in Select Symbols. See ISE's Schedule of Fees for the complete list of symbols that are subject to
  these fees.

    The Exchange is proposing to amend the current BATS Routing Fees by 
renaming those fees as ``BATS Penny.'' \5\ The Exchange is not 
proposing to amend the current rate of $0.55 per contract for 
Customers, Professionals, Firms, Broker-Dealers, and Market Makers, but 
proposes to apply those fees solely to Penny options routed to BATS.
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    \5\ BATS defines Penny options as those issues that are quoted 
pursuant to BATS Rule 21.5, Interpretation and Policy .01.
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    The Exchange proposes to create new Routing Fees to BATS for non-
Penny options. BATS recently adopted a $0.75 per contract non-Penny fee 
for customers that remove liquidity from the BATS Options order book 
and a $0.80 per contract non-Penny fee for professionals, firms and 
market makers that remove liquidity from the BATS Options order 
book.\6\ The Exchange is proposing to adopt BATS non-Penny Routing Fees 
to account for the new

[[Page 24998]]

BATS fees for removing liquidity and other routing costs incurred by 
the Exchange when routing to BATS, as follows:
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    \6\ See SR-BATS-2012-015.

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                                                                                                   Firm/broker-
                            Exchange                                Customer      Professional    dealer/market
                                                                                                      maker
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BATS non-Penny.................................................           $0.86           $0.91            $0.91
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    In May 2009, the Exchange adopted Rule 1080(m)(iii)(A) to establish 
Nasdaq Options Services LLC (``NOS''), a member of the Exchange, as the 
Exchange's exclusive order router.\7\ NOS is utilized by the Exchange's 
fully automated options trading system, PHLX XL[supreg],\8\ solely to 
route orders in options listed and open for trading on the PHLX XL 
system to destination markets. Each time NOS routes to away markets NOS 
is charged a $0.06 clearing fee and, in the case of certain exchanges, 
a transaction fee is also charged in certain symbols, which fees are 
passed through to the Exchange. The Exchange currently recoups clearing 
and transaction charges incurred by the Exchange as well as certain 
other costs incurred by the Exchange when routing to away markets, such 
as administrative and technical costs associated with operating NOS, 
membership fees at away markets, and technical costs associated with 
routing.\9\
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    \7\ See Securities Exchange Act Release No. 59995 (May 28, 
2009), 74 FR 26750 (June 3, 2009) (SR-Phlx-2009-32).
    \8\ This proposal refers to ``PHLX XL'' as the Exchange's 
automated options trading system. In May 2009 the Exchange enhanced 
the system and adopted corresponding rules referring to the system 
as ``Phlx XL II.'' See Securities Exchange Act Release No. 59995 
(May 28, 2009), 74 FR 26750 (June 3, 2009) (SR-Phlx-2009-32). The 
Exchange intends to submit a separate technical proposed rule change 
that would change all references to the system from ``Phlx XL II'' 
to ``PHLX XL'' for branding purposes.
    \9\ The Exchange is therefore adopting BATS non-Penny Routing 
Fees to account for the BATS fees of $0.75 per contract for customer 
orders and $0.80 per contract for professional, firm and market 
maker orders, the $0.06 clearing cost and another $0.05 per contract 
associated with administrative and technical costs associated with 
operating NOS.
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    The Exchange intends for these amendments to be effective upon 
filing, except with respect to the amendments related to the Firm/
Broker-Dealer/Market Maker category, which Routing Fees will be 
operative on April 27, 2012 when SR-Phlx-2012-41 becomes operative.\10\
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    \10\ The Exchange recently filed a rule change to expand the 
routing capabilities of certain options orders that are eligible for 
electronic routing to other market centers by PHLX XL. See 
Securities and Exchange Act Release No. 66754 (April 6, 2012) (SR-
Phlx-2012-41). Specifically, Exchange Rule 1080(m) was amended to 
permit Firm, Broker-Dealer and Market Maker orders to be eligible 
for routing to other market centers when the Exchange cannot execute 
such orders at the National Best Bid or Offer. SR-Phlx-2012-[sic]. 
The rule change is immediately effective and will be operative on 
April 27, 2012.
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    As with all fees, the Exchange may adjust these Routing Fees in 
response to competitive conditions by filing a new proposed rule 
change.
2. Statutory Basis
    The Exchange believes that its proposal to amend its Pricing 
Schedule is consistent with Section 6(b) of the Act \11\ in general, 
and furthers the objectives of Section 6(b)(4) of the Act \12\ in 
particular, in that it is an equitable allocation of reasonable fees 
and other charges among Exchange members.
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    \11\ 15 U.S.C. 78f(b).
    \12\ 15 U.S.C. 78f(b)(4).
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    The Exchange believes that the proposed amendment to the current 
BATS Routing Fees to rename those fees as ``BATS Penny'' and apply 
those fees to Penny options routed to BATS and adopt separate Routing 
Fees for non-Penny options routed to BATS is reasonable because the two 
separate categories take into account the different fees for removing 
liquidity assessed by BATS for non-Penny versus Penny options. The 
Exchange seeks to recoup costs incurred when routing orders to BATS on 
behalf of its members.
    The Exchange believes that the proposed amendment to the current 
BATS Routing Fees to rename those fees as ``BATS Penny'' and apply 
those fees to Penny options routed to BATS and adopt separate Routing 
Fees for non-Penny options routed to BATS is equitable and not unfairly 
discriminatory because the Exchange will uniformly apply the BATS Penny 
as well as BATS non-Penny Routing Fees to its members based on the type 
of options orders routed to BATS.\13\
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    \13\ See note 5.
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    The proposed BATS non-Penny Routing Fees are reasonable because 
they seek to recoup costs that are incurred by the Exchange when 
routing Customer, Professional, Firm, Broker-Dealer and Market Maker 
orders to BATS on behalf of members. Each destination market's 
transaction charge varies and there is a standard clearing charge for 
each transaction incurred by the Exchange along with other 
administrative and technical costs that are incurred by the Exchange. 
The Exchange believes that the proposed Routing Fees would enable the 
Exchange to recover the remove fees assessed by BATS for non-Penny 
options, plus clearing and other administrative and technical fees for 
the execution of such orders when routed to BATS. The Exchange also 
believes that the proposed BATS non-Penny Routing Fees are equitable 
and not unfairly discriminatory because they would be uniformly applied 
to all non-Penny orders that are routed to BATS.
    With respect to the Firm/Broker-Dealer/Market Maker category, the 
Exchange recently adopted those fees and proposed to assess a fixed 
Routing Fee of $0.55 per contract applicable to all away markets.\14\ 
The Exchange noted in that rule change that pricing on the various 
options exchanges varies significantly from exchange to exchange for 
non-Customer orders. Accordingly, the Exchange proposed a $0.55 per 
contract side Routing Fee in order to capture the majority of the 
transaction and clearing fees for Firm, Broker-Dealer and Market Maker 
orders, while making the Exchange's Routing Fees easier to calculate 
and predict for members whose proprietary orders are routed away. In 
addition, fixed Routing Fees are easier to comprehend by the members 
whose orders are routed away. Further, predicting, calculating and 
charging back ``pass-through'' fees is an unduly burdensome, expensive 
and complicated task for members whose orders are routed away. The 
Exchange noted that fixed Routing Fees for Firm, Broker-Dealer and 
Market Maker orders should ease the burden, expense and complexity of 
this task. Furthermore, fixed fees are easier to manage and maintain 
for the Exchange, ensuring accurate billing and accounting. The 
Exchange believes its proposal to increase the BATS non-Penny Customer 
Routing Fee from $0.55 per contract to $0.86 per contract and the 
Professional, Firm, Broker-Dealer and Market Maker Routing Fees from 
$0.55 per contract to $0.91 per contract is reasonable because the fees 
proposed by BATS are not within the range of fees assessed by other 
exchanges since the recent

[[Page 24999]]

increase in the BATS fee to removing liquidity from $0.44 per contract 
to $0.75 per contract for customer non-Penny options and from $0.44 per 
contract to $0.80 for professionals, firms and market makers. The 
Exchange believes it is reasonable to recoup the BATS remove fees plus 
the clearing and other costs to recoup Routing Fees.\15\ The Exchange 
believes that the increase to the Firm/Broker-Dealer/Market Maker non-
Penny BATS Routing Fees are equitable and not unfairly discriminatory 
because, as previously mentioned, those fees would be similarly 
calculated for Customers, Professionals, Firms, Broker-Dealers and 
Market Makers.\16\ Additionally, the non-Penny BATS Routing Fees would 
be uniformly assessed for all non-Penny orders routed to BATS.
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    \14\ See note 4.
    \15\ See note 9.
    \16\ The Exchange's proposed non-Penny BATS Routing Fees are 
calculated similarly for all participants by adding the fee to 
remove liquidity assessed by BATS for the particular market 
participant plus a fee of $.11 per contract which represents 
clearing and other costs noted herein.
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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.\17\ 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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    \17\ 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-2012-50 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-2012-50. 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 No. SR-Phlx-2012-50 and should be 
submitted on or before May 17, 2012.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\18\
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    \18\ 17 CFR 200.30-3(a)(12).
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Elizabeth M. Murphy,
Secretary.
[FR Doc. 2012-10025 Filed 4-25-12; 8:45 am]
BILLING CODE 8011-01-P