Document ID: SEC-2011-0691-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: NASDAQ OMX PHLX LLC
Posted Date: 2011-05-13T04:00Z

[Federal Register Volume 76, Number 93 (Friday, May 13, 2011)]
[Notices]
[Pages 28106-28108]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2011-11764]

[[Page 28106]]

=======================================================================
-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-64447; File No. SR-Phlx-2011-63]

 Self-Regulatory Organizations; Notice of Filing and Immediate 
Effectiveness of Proposed Rule Change by NASDAQ OMX PHLX LLC Relating 
to Rebates and Fees for Adding and Removing Liquidity

May 9, 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 April 29, 2011, NASDAQ OMX PHLX LLC (``Phlx'' or ``Exchange'') 
filed with the Securities and Exchange Commission (``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 its Complex Order \3\ Fees in 
Section I of its Fee Schedule titled ``Rebates and Fees for Adding and 
Removing Liquidity in Select Symbols.
---------------------------------------------------------------------------

    \3\ A Complex Order is any order involving the simultaneous 
purchase and/or sale of two or more different options series in the 
same underlying security, priced at a net debit or credit based on 
the relative prices of the individual components, for the same 
account, for the purpose of executing a particular investment 
strategy. Furthermore, a Complex Order can also be a stock-option 
order, which is an order to buy or sell a stated number of units of 
an underlying stock or ETF coupled with the purchase or sale of 
options contract(s). See Exchange Rule 1080, Commentary .08(a)(i).
---------------------------------------------------------------------------

    While changes to the Fee Schedule pursuant to this proposal are 
effective upon filing, the Exchange has designated these changes to be 
operative on May 2, 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, 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 purpose of the proposed rule change is to amend Section I, Part 
B of the Exchange's Fee Schedule, entitled ``Complex Order.'' 
Currently, the Fees for Removing Liquidity are assessed based upon the 
options class and the type of market participant order that removes 
liquidity: Customer, Directed Participants, Specialists,\4\ Registered 
Options Traders,\5\ SQTs,\6\ RSQTs,\7\ Broker-Dealers, Firms and 
Professional.\8\ The Exchange is proposing to increase fees for five of 
those categories; the Broker-Dealer category (which currently pays the 
highest fee) and the Customer category are unaffected by this proposal.
---------------------------------------------------------------------------

    \4\ A Specialist is an Exchange member who is registered as an 
options specialist pursuant to Rule 1020(a).
    \5\ A Registered Options Trader (``ROT'') includes a Streaming 
Quote Trader (``SQT''), a Remote Streaming Quote Trader (``RSQT'') 
and a Non-SQT ROT, which by definition is neither a SQT or 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).
    \6\ 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.
    \7\ An RSQT is defined in Exchange Rule as elsewhere 
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.
    \8\ 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'').
---------------------------------------------------------------------------

    Specifically, the Exchange proposes to amend the Complex Order Fees 
for Removing Liquidity in all Select Symbols including SPY, QQQ, IWM 
and AAPL. The Exchange proposes to assess the following complex order 
fees:

--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                           Directed     Specialist, ROT,
                                                           Customer       participant     SQT and RSQT         Firm        Broker-Dealer   Professional
--------------------------------------------------------------------------------------------------------------------------------------------------------
Fee for Removing Liquidity in all Select Symbols                 $0.25           $0.27             $0.29           $0.30           $0.35           $0.30
 except SPY, QQQ, IWM and AAPL........................
Fee for Removing Liquidity for SPY, QQQ, IWM and AAPL.            0.00            0.27              0.29            0.30            0.35            0.30
--------------------------------------------------------------------------------------------------------------------------------------------------------

Currently, the Exchange assesses the following Complex Order Fees for 
Removing Liquidity:

--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                           Directed     Specialist, ROT,
                                                           Customer       participant     SQT and RSQT         Firm        Broker-Dealer   Professional
--------------------------------------------------------------------------------------------------------------------------------------------------------
Fee for Removing Liquidity in all Select Symbols                 $0.25           $0.25             $0.27           $0.28           $0.35           $0.28
 except SPY, QQQ, IWM and AAPL........................

[[Page 28107]]

 
Fee for Removing Liquidity for SPY, QQQ, IWM and AAPL.            0.00            0.25              0.27            0.28            0.35            0.28
--------------------------------------------------------------------------------------------------------------------------------------------------------

    The Exchange is proposing to amend the Complex Order Fees for 
Removing Liquidity in all Select Symbols including SPY, QQQ, IWM and 
AAPL for Directed Participants, Specialists, ROTs, SQTs, RSQTs, Firms, 
and Professionals. The Complex Order Fees for Removing Liquidity in all 
Select Symbols for Customers and Broker-Dealers will remain the same.
    Additionally, the Exchange proposes to continue to assess Directed 
Participants a Fee for Removing Liquidity of $0.25 per contract during 
the Exchange's opening process. The Exchange proposes to continue to 
assess Specialists, ROTs, SQTs and RSQTs a Complex Order Fee of 
Removing Liquidity of $0.27 per contract during the Exchange's opening 
process.\9\ The Exchange believes that these proposed fees will 
continue to encourage these market participants to transact orders 
during the opening process.
---------------------------------------------------------------------------

    \9\ Currently, Professionals, Directed Participants, Firms, 
Broker-Dealers, Specialists, ROTs, SQTs and RSQTs are assessed the 
Fees for Removing Liquidity in Part B on transactions resulting 
during the Exchange's opening process. Professionals, Firms and 
Broker-Dealers would continue to be assessed the Fees for Removing 
Liquidity in Part B to transactions resulting during the Exchange's 
opening process.
---------------------------------------------------------------------------

    While changes to the Fee Schedule pursuant to this proposal are 
effective upon filing, the Exchange has designated these changes to be 
operative on May 2, 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. The impact of the proposal 
upon the net fees paid by a particular market participant will depend 
on a number of variables, most important of which will be its 
propensity to add or remove liquidity in options overlying the Select 
Symbols.
---------------------------------------------------------------------------

    \10\ 15 U.S.C. 78f(b).
    \11\ 15 U.S.C. 78f(b)(4).
---------------------------------------------------------------------------

    The Exchange believes that the proposed amendments to the Complex 
Order Fees to Remove Liquidity in all Select Symbols are equitable in 
that the Exchange currently differentiates between options classes and 
categories of market participants. The existing differentiation 
recognizes the differing contributions made to the liquidity and 
trading environment on the Exchange, as well as the differing mix of 
orders entered. In addition, some market participants have obligations 
pursuant to Exchange rules which the Exchange recognizes in its 
pricing. The Exchange believes that attracting additional order flow to 
the Exchange benefits all market participants and seeks to generate 
such order flow in setting its fees and rebates.
    Additionally, the proposal is equitable because the Exchange is 
proposing to increase the fees for all market participants by $0.02 per 
contract, except for Customers and Broker-Dealers. The Exchange 
believes that it is equitable and not unfairly discriminatory to 
continue to assess lower fees to Customers because all market 
participants benefit from Customer order flow. In addition, Broker-
Dealers are assessed a higher rate as compared to other market 
participants and the Exchange is not seeking to increase that rate 
further.\12\
---------------------------------------------------------------------------

    \12\ International Securities Exchange, LLC (``ISE'') assess its 
Non-ISE Market Marker (FARMM) a taker fee of $0.35 per contract fee 
as well. See ISE's Fee Schedule.
---------------------------------------------------------------------------

    The Exchange believes that continuing to differentiate between 
market makers \13\ as compared to Professionals, Firms and Broker-
Dealers is equitable because market makers have obligations to the 
market, which do not apply to Firms, Professionals and Broker-
Dealers.\14\ Obligations, such as quoting obligations, are critical to 
ensure there is sufficient liquidity. The proposed differential as 
between Directed Participants and other market makers is equitable 
because it is the same $0.02 per contract differential which exists 
today between those categories of market participants.
---------------------------------------------------------------------------

    \13\ The Exchange market maker category includes Specialists 
(see Rule 1020) and ROTs (Rule 1014(b)(i) and (ii), which includes 
SQTs (see Rule 1014(b)(ii)(A)) and RSQTs (see Rule 1014(b)(ii)(B)).
    \14\ See Exchange Rule 1014 titled ``Obligations and 
Restrictions Applicable to Specialists and Registered Options 
Traders.''
---------------------------------------------------------------------------

    The Exchange believes that the proposed fees are reasonable and 
equitable because they are within the range of fees or less than fees 
currently assessed by the Exchange for Single contra-side equity option 
orders.
    The Exchange also believes that the proposed fees are reasonable 
and equitable because they are within the range of fees assessed by 
exchanges with which the Exchange competes. Specifically, the proposed 
fees are similar to fees ISE assesses for complex orders.\15\ 
Additionally, the proposal would allow the Exchange to remain 
competitive with exchanges that employ a similar pricing scheme while 
maintaining a two cent differential that currently exists at options 
exchanges between fees charged for orders that take liquidity and 
directed complex orders. For example, ISE currently charges $0.28 per 
contract to market makers who remove liquidity from its complex order 
book by trading with orders that are preferenced to them compared to a 
$0.30 per contract for complex orders executed by market makers in 
select symbols. Finally, the Exchange believes the proposed fee 
increases are reasonable and equitable in that they apply equally to 
all market participants that were previously subject to these fees.
---------------------------------------------------------------------------

    \15\ See ISE's Schedule of Fees. See also Securities Exchange 
Act Release No. 64303 (April 15, 2011) (SR-ISE-2011-18).
---------------------------------------------------------------------------

    The Exchange's proposal to continue to assess Directed Participants 
a Fee for Removing Liquidity of $0.25 per contract and assess 
Specialists, ROTs, SQTs and RSQTs a Fee for Removing Liquidity of $0.27 
per contract, during the Exchange's opening process, is both equitable 
and reasonable because the Exchange is seeking to incentivize those 
market makers to continue to provide liquidity during the Exchange's 
opening process by assessing them a lower fee as compared to Firms, 
Broker-Dealers and Professionals.
    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 Complex Order Fees and 
opening process fees it assesses must be competitive with fees assessed 
on other options exchanges. The Exchange believes that this competitive 
marketplace impacts the fees present on the Exchange today and 
influences the proposals set forth above.

[[Page 28108]]

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.\16\ 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.
---------------------------------------------------------------------------

    \16\ 15 U.S.C. 78s(b)(3)(A)(ii).
---------------------------------------------------------------------------

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-2011-63 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-2011-63. 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 website 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 the 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-2011-63 and should be 
submitted on or before June 3, 2011.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\17\
---------------------------------------------------------------------------

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

Cathy H. Ahn,
Deputy Secretary.
[FR Doc. 2011-11764 Filed 5-12-11; 8:45 am]
BILLING CODE 8011-01-P