Document ID: SEC-2012-0365-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: NASDAQ OMX PHLX LLC
Posted Date: 2012-03-05T05:00Z

[Federal Register Volume 77, Number 43 (Monday, March 5, 2012)]
[Notices]
[Pages 13162-13164]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2012-5206]

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

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-66484; File No. SR-Phlx-2012-24]

Self-Regulatory Organizations; Notice of Filing and Immediate 
Effectiveness of Proposed Rule Change by NASDAQ OMX PHLX LLC To Adopt 
an Administrative Fee for the Payment for Order Flow Program

February 28, 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 February 21, 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 and II 
below, which Items have been prepared by the Exchange. The Exchange has 
designated this proposal as one establishing or changing a due, fee, or 
other charge imposed by Phlx under Section 19(b)(3)(A)(ii) of the Act 
\3\ and Rule 19b-4(f)(2) thereunder,\4\ which renders the proposal 
effective upon filing with the Commission. 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.
    \3\ 15 U.S.C. 78s(b)(3)(A)(ii).
    \4\ 17 CFR 240.19b-4(f)(2).
---------------------------------------------------------------------------

I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to amend its payment for order flow program. 
Phlx proposes to amend Section II of its Fee Schedule to adopt an 
administrative fee, as described further below. While changes to the 
Fee Schedule pursuant to this proposal are effective upon filing, the 
Exchange has designated these changes to be operative on March 1, 2012. 
The text of the proposed rule change is available on the Exchange's Web 
site at http://www.nasdaqtrader.com/micro.aspx?id=PHLXRulefilings, 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 Exchange currently has a payment-for-order-flow (``PFOF'') 
program that helps its Specialists \5\ and Directed Registered Options 
Traders

[[Page 13163]]

(``Directed ROTs'') \6\ establish PFOF arrangements with an order flow 
provider in exchange for that order flow provider directing some or all 
of its order flow to that Specialist or Directed ROT. This program is 
funded through fees paid by Registered Options Traders (``ROTs''), 
Specialists and Directed ROTs and assessed on transactions resulting 
from customer orders (the ``PFOF Fees'').\7\
---------------------------------------------------------------------------

    \5\ A Specialist is an Exchange member who is registered as an 
options specialist pursuant to Rule 1020(a).
    \6\ A Registered Option Trader is defined in Exchange Rule 
1014(b) as a regular member 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). 
A ``Directed ROT'' is an ROT who is a Directed Participant. The term 
``Directed Participant'' applies to transactions for the account of 
a Specialist or ROT resulting from a customer order that is (1) 
directed to it by an order flow provider, and (2) executed by it 
electronically on Phlx XL II.
    \7\ See Securities Exchange Act Release No. 59841 (April 29, 
2009), 74 FR 21035 (May 6, 2009) (SR-Phlx-2009-38).
---------------------------------------------------------------------------

    These PFOF Fees are available to be disbursed by the Exchange 
according to the instructions of the Specialist units/Specialists or 
Directed ROTs to order flow providers who are members or member 
organizations who submit, as agent, customer orders to the Exchange 
through a member or member organization who is acting as agent for 
those customer orders. Any excess payment for order flow funds billed 
but not utilized by the Specialist or Directed ROT are carried forward 
unless the Directed ROT or Specialist elects to have those funds 
rebated to the applicable ROT, Directed ROT or Specialist on a pro rata 
basis, reflected as a credit on the monthly invoices. At the end of 
each calendar quarter, the Exchange calculates the amount of excess 
funds from the previous quarter and subsequently rebates excess funds 
on a pro-rata basis to the applicable ROT, Directed ROT or Specialist 
who paid into that pool of funds.
    The Exchange now proposes to adopt an administrative fee to offset 
its costs in administering the PFOF program. Specifically, Phlx 
proposes to assess an administrative fee of 0.45% of the total amount 
of PFOF Fees collected each month. Phlx will closely monitor the amount 
of funds raised by this administrative fee and amend the fee in the 
future if necessary, so that the fee provides sufficient funds to 
adequately offset Phlx's costs in administering the PFOF program.
    Phlx proposes to implement this fee beginning on March 1, 2012. 
Phlx is not making any other changes to its PFOF program.
2. Statutory Basis
    The Exchange believes that its proposal to amend its Fee Schedule 
is consistent with Section 6(b) of the Act \8\ in general, and furthers 
the objectives of Section 6(b)(4) of the Act \9\ in particular, in that 
it is an equitable allocation of reasonable fees and other charges 
among Exchange members and other persons using its facilities.
---------------------------------------------------------------------------

    \8\ 15 U.S.C. 78f(b).
    \9\ 15 U.S.C. 78f(b)(4).
---------------------------------------------------------------------------

    The Exchange believes that it is reasonable to assess the 
administrative fee in that it should permit the Exchange to offset its 
costs in administering the PFOF program. As noted above, the Exchange 
will closely monitor the amount of funds raised by this administrative 
fee and amend the fee in the future if necessary, so that the fee 
provides sufficient funds to adequately offset the Exchange's costs in 
administering the PFOF program.
    The Exchange believes that it is equitable and not unfairly 
discriminatory to assess the administrative fee because it would apply 
uniformly to all funds collected under the PFOF program as a means to 
offset costs of collecting and administering such funds.

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

    Because the foregoing proposed rule change establishes a due, fee, 
or other charge imposed by the Exchange, it has become effective 
pursuant to Section 19(b)(3)(A) of the Act \10\ and subparagraph (f)(2) 
of Rule 19b-4 \11\ thereunder. 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.
---------------------------------------------------------------------------

    \10\ 15 U.S.C. 78s(b)(3)(A).
    \11\ 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 email to rule-comments@sec.gov. Please include 
File Number SR-Phlx-2012-24 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-2012-24. 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 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-2012-24 and should be 
submitted on or before March 26, 2012.

[[Page 13164]]

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\12\
---------------------------------------------------------------------------

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

Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2012-5206 Filed 3-2-12; 8:45 am]
BILLING CODE 8011-01-P