Document ID: SEC-2011-1823-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: NASDAQ OMX PHLX LLC
Posted Date: 2011-11-25T05:00Z

[Federal Register Volume 76, Number 227 (Friday, November 25, 2011)]
[Notices]
[Pages 72744-72745]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2011-30322]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-65790; File No. SR-Phlx-2011-150]

Self-Regulatory Organizations; NASDAQ OMX PHLX LLC; Notice of 
Filing and Immediate Effectiveness of a Proposed Rule Change To Reduce 
Transaction Fees for Members Engaging in Certain Accommodation 
Transactions

November 18, 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 November 7, 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.
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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 its Fee Schedule to adopt a 
transaction fee for members transacting certain Accommodation 
Transactions, specifically cabinet trading.\3\
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    \3\ An ``accommodation'' or ``cabinet'' trade refers to trades 
in listed options on the Exchange that are worthless or not actively 
traded. Cabinet trading is generally conducted in accordance with 
Exchange Rules, except as provided in Exchange Rule 1059 entitled 
``Accommodation Trading'', which sets forth specific procedures for 
engaging in cabinet trading below $1 per option contract.
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    While changes to the Fee Schedule pursuant to this proposal are 
effective upon filing, the Exchange has designated these changes to be 
operative on December 1, 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, 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 create a new fee for 
equity options transactions executed pursuant to Exchange Rule 1059 
entitled ``Accommodation Trading.'' Cabinet or accommodation trading of 
option contracts is intended to accommodate persons wishing to effect 
closing transactions in those series of options dealt in on the 
Exchange for which there is no auction market.\4\ Currently, the fees 
which members are assessed when transacting cabinet trades are the 
standard equity option fees.\5\ The Exchange believes that the proposed 
fee reduction will encourage members to transact cabinet trades on the 
Exchange.
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    \4\ On December 30, 2010, the Exchange extended a pilot program 
through December 1, 2011 to allow cabinet transactions to take place 
in open outcry at a price of at least $0 but less than $1 per option 
contract. These lower priced transactions are traded pursuant to the 
same procedures applicable to $1 cabinet trades, except that 
pursuant to the pilot program (i) bids and offers for opening 
transactions are only permitted to accommodate closing transactions 
in order to limit use of the procedure to liquidations of existing 
positions, and (ii) the procedures are also made available for 
trading in options participating in the Penny Pilot Program. See 
Securities Exchange Act Release No. 64571 (May 31, 2011), 76 FR 
32385 (June 6, 2011) (SR-Phlx-2011-72).
    \5\ The equity options fees are in Section II of the Fee 
Schedule.
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    The Exchange is proposing to reduce transaction fees to $.10 per 
contract for Cabinet Trades which occur pursuant to Rule 1059, for all 
participants, except Customers.\6\ Specifically, the Exchange proposes 
to assess a $.10 per contract transaction charge on Professionals,\7\ 
Specialists,\8\ Registered Options Traders,\9\ SQTs,\10\ RSQTs,\11\ 
Broker-Dealers and Firms. Customers would continue to remain free of 
charge when transacting cabinet trades. Additionally, the Exchange 
currently waives the Firm equity options transaction fees for members 
executing facilitation orders pursuant to Exchange Rule 1064 when such 
members are trading in their own proprietary account.\12\ Similar to 
the equity option fees, which are currently subject to the 
aforementioned waiver, the Exchange would continue to apply the waiver 
to members executing facilitation orders pursuant to Exchange Rule 1064 
to cabinet trade equity option transactions.
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    \6\ The Exchange is not proposing to otherwise amend its equity 
option fees.
    \7\ The term ``professional'' means 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). See Rule 
1000(b)(14).
    \8\ A Specialist is an Exchange member who is registered as an 
options specialist pursuant to Rule 1020(a).
    \9\ A Registered Options Trader (``ROT'') includes a Streaming 
Quote Trader (``SQT''), a Remote Streaming Quote Trader (``RSQT'') 
and a Non-SQT, which by definition is neither a SQT or a RSQT. 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. See 
Exchange Rule 1014 (b)(i) and (ii).
    \10\ 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.
    \11\ An RSQT is defined Exchange Rule in 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.
    \12\ The waiver does not apply to orders where a member is 
acting as agent on behalf of a non-member. See Securities Exchange 
Act Release No. 60477 (August 11, 2009), 74 FR 41777 (August 18, 
2009) (SR-Phlx-2009-67).
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    In order to capture the necessary information electronically, the 
Exchange requires members to designate on the trade ticket that the 
option trade is a cabinet trade by entering the code, ``Z5'', on the 
trading ticket and into the system, or directly into the Floor Broker 
Management System (``FBMS'').\13\
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    \13\ FBMS is designed to enable Floor Brokers and/or their 
employees to enter, route and report transactions stemming from 
options orders received on the Exchange. FBMS also is designed to 
establish an electronic audit trail for options orders represented 
and executed by Floor Brokers on the Exchange, such that the audit 
trail provides an accurate, time-sequenced record of electronic and 
other orders, quotations and transactions on the Exchange, beginning 
with the receipt of an order by the Exchange, and further 
documenting the life of the order through the process of execution, 
partial execution, or cancellation of that order. See Exchange Rule 
1080, Commentary .06.
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    While changes to the Fee Schedule pursuant to this proposal are 
effective upon filing, the Exchange has

[[Page 72745]]

designated these changes to be operative on December 1, 2011.
2. Statutory Basis
    The Exchange believes that its proposal to amend its Fee Schedule 
is consistent with Section 6(b) of the Act \14\ in general, and 
furthers the objectives of Section 6(b)(4) of the Act \15\ in 
particular, in that it is an equitable allocation of reasonable fees 
and other charges among Exchange members.
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    \14\ 15 U.S.C. 78f(b).
    \15\ 15 U.S.C. 78f(b)(4).
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    The Exchange believes that it is reasonable to lower the fees for 
cabinet trades to incentivize members to transact cabinet trades. The 
proposed fees for cabinet trades would be lower for all market 
participants, except Customers who will remain free of charge. The 
Exchange believes that it is reasonable, equitable and not unfairly 
discriminatory to not assess Customers a fee for transacting cabinet 
trades because Customer order flow attracts liquidity to the Exchange 
which in turn benefits of all market participants. The Exchange 
believes that it is equitable and not unfairly discriminatory to amend 
and lower fees for cabinet trades because all market participants will 
be assessed a uniform transaction fee, with the exception of Customers 
who will not be assessed a fee. The Chicago Board Options Exchange, 
Incorporated assesses fees for cabinet trading that are within the 
range of fees proposed by the Exchange.\16\
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    \16\ See Securities Exchange Act Release No. 61295 (January 6, 
2010), 75 FR 2166 (January 14, 2010) (SR-CBOE-2009-098) (A rule 
change to assess equity option transaction fees for cabinet trades).
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    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 proposed fee must be 
competitive with fees offered 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.

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 Number SR-Phlx-2011-150 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-2011-150. 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 publicly available. All 
submissions should refer to File Number SR-Phlx-2011-150 and should be 
submitted on or before December 16, 2011.
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    \18\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\18\
Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2011-30322 Filed 11-23-11; 8:45 am]
BILLING CODE 8011-01-P