Document ID: SEC-2009-0787-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; NASDAQ OMX PHLX, Inc.; Notice of Filing and Immediate Effectiveness of Proposed Rule Change Relating to the Cancellation Fee
Posted Date: 2009-06-12T04:00Z

[Federal Register: June 12, 2009 (Volume 74, Number 112)]
[Notices]               
[Page 28083-28085]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr12jn09-108]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-60046; File No. SR-Phlx--2009-44]

 
Self-Regulatory Organizations; NASDAQ OMX PHLX, Inc.; Notice of 
Filing and Immediate Effectiveness of Proposed Rule Change Relating to 
the Cancellation Fee

June 4, 2009.
    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 1, 2009, 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.
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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: (i) Increase the Cancellation Fee from 
$1.10 per order to $2.10 per order; (ii) modify the Cancellation Fee by 
limiting its applicability to cancelled AUTOM-delivered customer orders 
instead of all cancelled AUTOM-delivered orders; and (iii) specify the 
types of order activity that are exempt from the Cancellation Fee. The 
Exchange also proposes to amend an endnote to reflect recently approved 
Exchange By-Laws and a Rule.
    The text of the proposed rule change is available on the Exchange's 
Web site at http://nasdaqomxphlx.cchwallstreet.com/NASDAQOMXPHLX/
Filings/, 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 purpose of the proposed rule change is to amend the 
Cancellation Fee to assist the Exchange in recouping costs associated 
with a large number of order cancellations. Specifically, the costs 
arise from increased bandwidth and capacity concerns related to 
increased message traffic.
    The Exchange proposes to increase the Cancellation Fee from $1.10 
per order for each cancelled AUTOM-delivered \3\ order in excess of the 
number of orders executed on the Exchange by a member organization in a 
given month to $2.10 per order. The Exchange believes this increase 
will cover costs to the Exchange associated with system congestion 
resulting from a rising number of cancellation orders.
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    \3\ AUTOM is the Exchange's electronic order delivery, routing, 
execution and reporting system, which provides for the automatic 
entry and routing of equity option and index option orders to the 
Exchange trading floor. See Exchange Rule 1080. See also proposed 
rule change SR-Phlx-2009-32 which proposes to amend Rule 1080 to 
state, ``AUTOM and AUTO-X were replaced by the Phlx XL System, such 
that references to both terms refer to Phlx XL.'' Therefore, in 
light of proposed rule change SR-Phlx-2009-32, references throughout 
this rule filing to AUTOM-delivered orders would be referenced as 
electronically delivered orders upon the approval of SR-Phlx-2009-
32.
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    Currently, the Exchange assesses a Cancellation Fee of $ 1.10 per 
order on member organizations for each cancelled AUTOM-delivered order 
in excess of the number of orders executed on the Exchange by that 
member organization in a given month. The Exchange calculates the 
Cancellation Fee by aggregating all orders and cancels received by the 
Exchange and totaling those orders by member organization. At least 500 
cancellations must be made in a given month by a member organization in 
order for a member organization to be assessed the Cancellation Fee. 
The Cancellation Fee is not assessed in a month in which fewer than 500 
AUTOM-delivered orders are cancelled. Simple cancels and cancel-
replacement orders are the types of orders that are counted when 
calculating the number of AUTOM-delivered orders.\4\ Also, pre-market 
cancellations \5\ are not included in the calculation of the 
Cancellation Fee as well as Complex Orders \6\ that are submitted 
electronically.
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    \4\ A cancel-replacement order is a contingency order consisting 
of two or more parts which require the immediate cancellation of a 
previously received order prior to the replacement of a new order 
with new terms and conditions. If the previously placed order is 
already filled partially or in its entirety the replacement order is 
automatically canceled or reduced by such number. See Exchange Rule 
1066(c)(7).
    \5\ See Securities Exchange Act Release Nos. 53226 (February 3, 
2006), 71 FR 7602 (February 13, 2006) (SR-Phlx-2005-92); and 53670 
(April 18, 2006), 71 FR 21087 (April 24, 2006) (SR-Phlx-2006-21).
    \6\ A Complex Order is composed of two or more option components 
and is priced as a single order (a ``Complex Order Strategy'') on a 
net debit or net credit basis.
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    The Exchange proposes to modify the Cancellation Fee to limit its 
applicability to cancelled AUTOM-delivered customer \7\ orders instead 
of all cancelled AUTOM-delivered orders. This proposal would assess the 
$2.10

[[Page 28084]]

proposed Cancellation Fee on cancelled customer orders that are in 
excess of the number of customer orders executed on the Exchange by a 
member organization in a given month. The Exchange believes that by 
modifying the cancellation calculation to customer orders, the Exchange 
would be able to fairly allocate costs among members according to 
system use.
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    \7\ See e.g. Exchange Rule 1080(b)(i)(A) ``* * * is any order 
entered on behalf of a public customer, and does not include any 
order entered for the account of a broker-dealer, or any account in 
which a broker-dealer or an associated person of a broker-dealer has 
any direct or indirect interest.''
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    The Exchange also proposes to amend the types of order activity 
that are exempt from the Cancellation Fee. As previously stated, 
currently the Cancellation Fee is not assessed in a month in which 
fewer than 500 AUTOM-delivered orders are cancelled; only simple 
cancels and cancel-replacement orders are the types of orders that are 
counted when calculating the number of AUTOM-delivered orders. Also, 
currently pre-market cancellations and Complex Orders that are 
submitted electronically are not included in the calculation of the 
Cancellation Fee.
    The Exchange proposes to continue to exempt fewer than 500 AUTOM-
delivered orders that are cancelled, but proposes to amend that 
provision to state that it will exempt fewer than 500 AUTOM-delivered 
customer orders that are cancelled in a month. Additionally, the 
Exchange proposes to exempt unfilled Immediate-or-Cancel \8\ customer 
orders and cancelled customer orders that improved the Exchange's 
prevailing bid or offer (PBBO) market at the time the customer orders 
were received by the Exchange. The Exchange believes that these types 
of order activity should be exempt from the Cancellation Fee because 
the activity does not contribute excessively to system congestion. The 
pre-market cancellations and Complex Orders that are submitted 
electronically will continue to not be included in the calculation of 
the Cancellation Fee.
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    \8\ An Immediate-or-Cancel (IOC) order is a limit order that is 
to be executed in whole or in part upon receipt. Any portion not so 
executed shall be cancelled.
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    As previously stated, the Exchange currently exempts these types of 
order activities. However, the Exchange proposes to specifically 
mention the pre-market cancellation exemption in the Fee Schedule by 
noting that pre-market cancellations are exempt.\9\ The Exchange 
inadvertently excluded such language from the Fee Schedule in the past 
and believes that the addition of such language will clarify the Fee 
Schedule. Similarly, the Exchange still believes that the pre-market 
cancellation and Complex Order activity do not excessively contribute 
to increased order flow traffic.
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    \9\ The Complex Order exemption is currently specified in the 
Fee Schedule.
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    Finally, the Exchange proposes to amend endnote 70 to reflect the 
recently approved changes to proposed rules SR-Phlx-2009-23 \10\ and 
SR-Phlx-2009-17,\11\ which amended Exchange By-Law Article VI, Sections 
11-1 and 11-3 and Exchange Rule 960.9 to rename certain standing 
committees and eliminate reference to a Hearing Officer. These proposed 
amendments to endnote 70 will conform the endnote to the Exchange's 
current By-Laws and Rules.
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    \10\ See Securities Exchange Act Release No. 59924 (May 14, 
2009), 74 FR 23759 (May 20, 2009) (SR-Phlx-2009-23).
    \11\ See Securities Exchange Act Release No. 59794 (April 20, 
2009), 74 FR 18761 (April 24, 2009) (SR-Phlx-2009-17).
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2. Statutory Basis
    The Exchange believes that its proposal to amend its schedule of 
fees 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 Exchange believes that 
the proposed amendments to the Cancellation Fee will continue to fairly 
allocate costs among members according to system use as well as ease 
system congestion.
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    \12\ 15 U.S.C. 78f(b).
    \13\ 15 U.S.C. 78f(b)(4).
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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 \14\ and paragraph (f)(2) of Rule 19b-4 \15\ 
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.
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    \14\ 15 U.S.C. 78s(b)(3)(A)(ii).
    \15\ 17 CFR 240.19b-4(f)(2).
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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 e-mail to rule-comments@sec.gov. Please include 
File Number SR-Phlx-2009-44 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-2009-44. 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 inspection and 
copying 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-2009-44 and should be 
submitted on or before July 6, 2009.

[[Page 28085]]

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\16\
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    \16\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
[FR Doc. E9-13809 Filed 6-11-09; 8:45 am]

BILLING CODE 8010-01-P