Document ID: SEC-2010-1415-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: NASDAQ OMX PHLX, Inc.
Posted Date: 2010-09-16T04:00Z

[Federal Register: September 16, 2010 (Volume 75, Number 179)]
[Notices]               
[Page 56624-56627]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr16se10-107]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-62876; File No. SR-Phlx-2010-120]

 
Self-Regulatory Organizations; Notice of Filing and Immediate 
Effectiveness of Proposed Rule Change by NASDAQ OMX PHLX, Inc. To 
Establish Fees for NASDAQ OMX PSX

September 9, 2010.
    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 August 31, 2010, 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 adopt new fees in connection with the 
trading of NMS stocks through the new NASDAQ OMX PSX system (``PSX''). 
The text of the proposed rule change is available on the Exchange's Web 
site at http://nasdaqtrader.com/micro.aspx?id=PHLXfilings, on the 
Commission's Web site at http://www.sec.gov, 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
    Shortly after its acquisition by The NASDAQ OMX Group, Inc. 
(``NASDAQ OMX'') in 2008, the Exchange ceased operation of XLE, its 
former system for trading NMS stocks.\3\ Earlier this year, the 
Exchange filed a proposed rule change to resume trading NMS stocks 
through a new electronic platform known as NASDAQ OMX PSX.\4\ In 
anticipation of approval and launch of PSX, the Exchange is filing this 
proposed rule change to establish fees, dues, and other charges 
applicable to PSX. The proposed fees are structurally similar to those 
of the Exchange's affiliated exchanges, The NASDAQ Stock Market LLC 
(the ``NASDAQ Exchange'') and NASDAQ OMX BX, Inc. (``BX''), but with 
the omission of fees that are not pertinent to the Exchange's planned 
business and with differences in the level of certain fees.
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    \3\ Securities Exchange Act Release No. 58613 (September 22, 
2008), 73 FR 57181 (October 1, 2008) (SR-PHLX-2008-65).
    \4\ Securities Exchange Act Release No. 62519 (July 16, 2010), 
75 FR 43597 (July 26, 2010) (SR-PHLX-2010-79).
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Order Execution Fees
    Order execution fees will be uniform for all types of securities 
and member organizations. Specifically, for securities executed at 
prices of $1 or more, the Exchange will charge $0.0013 per share 
executed and pay a liquidity provider rebate of $0.0020 per share 
executed. For executions below $1, the execution fee will be 0.2% of 
the total transaction cost, and the rebate will be $0. The Exchange 
proposes this ``inverted'' pricing structure as a temporary promotional 
mechanism to attract liquidity to PSX. Other exchanges and trading 
venues have adopted inverted pricing in the past as a means to promote 
the development of a new market entrant.\5\
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    \5\ See, e.g., Securities Exchange Act Release No. 59452 
(February 25, 2009), 74 FR 9456 (March 4, 2009) (SR-BX-2009-012) 
(temporarily decreasing order execution fee to a level below 
prevailing liquidity provider rebate); BATS ECN Unveils Ultra-
Aggressive January Pricing Special (December 19, 2006) (available at 
http://www.batstrading.com/resources/press_releases/
BATS%20ECN%20Unveils%20Ultra-
Aggressive%20January%20Pricing%20Special.pdf).
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PSX TotalView
    The Exchange proposes to establish fees for its PSX TotalView data 
product. Like NASDAQ TotalView and BX TotalView, PSX TotalView will 
provide all Displayed Orders in the market at every price level.\6\ In 
recognition of the start-up nature of the new market, the data feed 
will be provided free of charge to subscribers and distributors for a 
period ending on the last day of the twelfth full calendar month of 
PSX's operation. Thus, if PSX commences operations on September 27, 
2010, PSX TotalView fees will be waived until October 1, 2011.
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    \6\ In contrast with the NASDAQ Exchange and BX, however, all 
orders designated as Displayed Orders will be displayed without 
attribution to the entering market participant.
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    After the initial free period, the Exchange will offer users a 
range of pricing options. In general, charges will be assessed to 
distributors of PSX Total View on a per distributor basis, with 
additional charges assessed on a per subscriber basis for each 
subscriber receiving the data from a distributor. A ``distributor'' is 
defined as any entity that receives a feed or data file of Exchange 
data directly from the Exchange (a ``direct distributor'') or 
indirectly through another entity (an ``indirect distributor'') and 
then distributes the data either internally (within that entity) or 
externally (outside that entity). Distributors of PSX TotalView will 
pay a $1,000 monthly fee to receive the data directly from the Exchange 
(including from the Exchange through an extranet); indirect 
distributors would not pay this charge. Distributors will also pay 
either a $500 monthly fee to distribute the data feed internally (i.e., 
to employees) or a $1,250 monthly fee to distribute to external 
customers (as well as internally, if applicable). All of the foregoing 
fees will be waived during the initial free period. Finally, 
distributors receiving any PSX TotalView or any other PSX data feed 
will be charged an annual administrative fee: either $500 for delayed 
distribution of data, or $1,000 for real-time distribution.\7\ The 
administrative fees, which are assessed annually, will be charged at 
the beginning of the first calendar year after the launch of PSX, 
rather than being subject to the one-year free period applicable to 
other data fees. If, as the Exchange expects, PSX launches in

[[Page 56625]]

2010, the fees would therefore be charged in January 2011.\8\
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    \7\ These annual administrative fees may be waived for colleges 
and universities receiving the data for research and educational 
purposes.
    \8\ The administrative fees will also cover distribution of any 
other PSX data feeds, including free data feeds such as the PSX Last 
Sale Data Feeds described later in this proposed rule change, and 
other free or fee-liable feeds that the Exchange offers in the 
future.
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    In addition to the distributor fees, the Exchange will also charge 
subscriber fees for controlled accesses to the TotalView data feed. 
``Subscriber'' is defined with reference to instances of access to the 
data on computer equipment that can receive the data. Specifically, a 
``subscriber'' is defined as any access that a distributor provides to 
(i) access the information in the PSX TotalView entitlement package, or 
(ii) communicate with a distributor so as to cause the distributor to 
access the information in the entitlement package. If a distributor 
provides its customers or employees an option to use or not to use PSX 
TotalView data on their computers, and the data is not actually used on 
a specific computer that has access to it, then the computer in 
question would not be charged as a subscriber. However, the burden is 
on the distributor to demonstrate that a particular computer with 
access is not using the data.
    Following the initial one-year free period, the Exchange will 
assess a monthly charge for each subscriber. The fee for each 
professional PSX TotalView subscriber is $40 per month.\9\ 
Alternatively, market participants using the data internally on non-
display controlled devices may purchase an enterprise license at a rate 
of $16,000 per month for internal use on an unlimited number of non-
display devices within the firm, and thereby avoid individual 
subscription charges for these devices.\10\
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    \9\ The fee is comparable to the corresponding fee on BX, but BX 
bifurcates the product between a version of the product covering 
NASDAQ Exchange-listed securities and a version covering securities 
listed on other exchanges, charging $20 per subscriber per month for 
each version. PSX TotalView will provide data about orders for all 
securities for a fee of $40 per subscriber per month.
    \10\ A non-display device uses data from the PSX TotalView for 
calculations and routing decisions but does not provide means to 
display the information on a screen.
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    In addition to the foregoing fees, which apply to professional 
users of PSX TotalView, the Exchange will also allow distributors to 
provide PSX TotalView to non-professional subscribers at a reduced 
rate. A ``non-professional'' is defined as a natural person who is 
neither (i) registered with the Commission, the Commodities Futures 
Trading Commission, a state securities agency, a securities exchange or 
securities association, or a commodities or futures contract market or 
association; (ii) engaged as an investment advisor as defined in 
Section 202(a)(11) of the Investment Advisors Act of 1940 \11\ (the 
``1940 Act'') (whether or not the person is registered or qualified 
under the 1940 Act); nor (iii) employed by a bank or other organization 
exempt from registration under federal or state securities laws to 
perform functions that would require registration or qualification if 
performed for another organization. The non-professional fee is $1 per 
subscriber per month. This fee will also be waived until the end of the 
twelfth full calendar month following PSX's launch.
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    \11\ 15 U.S.C. 80b-2(a)(11).
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    After the expiration of the one-year introductory period, the 
Exchange will allow distributors to provide PSX TotalView to new 
subscribers receiving PSX TotalView for the first time free of charge 
for an individual one-month trial period. The free trial period applies 
to individual subscribers receiving the data on a per-subscriber basis, 
and to broker-dealers that opt to receive the data under an enterprise 
license. The fee waiver would be applied to the first full month of 
charges following the date on which a new subscriber is first entitled 
by a distributor to receive access to PSX TotalView.
    The foregoing fee structure is similar to the structure for NASDAQ 
TotalView and BX TotalView, but the overall level of fees will be lower 
than for NASDAQ TotalView and comparable to those for BX TotalView. 
These fee levels reflect the start-up nature of the Exchange's new 
equities trading platform, and will help to promote competition among 
exchanges with respect to the quoting and trading services. 
Specifically, the Exchange believes that the fees it sets for PSX 
TotalView will help to attract order flow to the Exchange. At 
inception, the Exchange will have zero market share and therefore must 
set its fees, including data fees, with a view to attracting order 
flow. Moreover, the alternatives that exist for market participants to 
determine market depth--such as other depth of book products that may 
be associated with markets with more liquidity, or order routing 
strategies designed to ascertain market depth--provide incentives for 
the Exchange to ensure that its fees for PSX TotalView are set 
reasonably. Accordingly, the Exchange will charge no fee at all for a 
period of more than twelve months, and thereafter will charge fees 
comparable to those already established for BX.
    The fees are not unreasonably discriminatory. The fees for 
subscribers are uniform for all subscribers, except with respect to 
reasonable and well-established distinctions between fees for 
professional and non-professional subscribers. These distinctions, 
previously approved by the Commission for the NASDAQ Exchange and BX, 
are designed to promote more widespread distribution to non-
professional users. Similarly, the fees for distributors are uniform 
except with respect to reasonable and well-established distinctions 
between internal and external distribution and direct and indirect 
receipt of data. These distinctions, also previously approved by the 
Commission for the NASDAQ Exchange and BX, are designed to charge lower 
fees to distributors whose activities do not require the Exchange to 
establish and maintain direct connections to the distributor, and to 
distributors that do not establish and maintain external distribution 
networks requiring more extensive procedures to monitor subscriber 
usage. The fees are fair and reasonable in that they compare favorably 
to fees charged by other exchanges for comparable products.
TradeInfo PSX
    TradeInfo PSX is an order and execution management tool, similar to 
comparable products offered by the NASDAQ Exchange and BX. TradeInfo 
PSX allows users to manage their order flow and mitigate risk by giving 
them the ability to view their orders and executions, as well as the 
ability to perform cancels at the port level. It also allows users to 
download records of their orders and executions for record-keeping 
purposes. It will be available to PSX participants for a fee of $95 per 
user per month, which is the same as the fee for the comparable 
products of the NASDAQ Exchange and BX.
Testing
    The Exchange proposes to establish fees for its testing facility, 
to be set at levels identical to the fees for the NASDAQ Exchange's and 
BX's testing facilities. In general, the Exchange will charge $285 per 
hour for an active connection during the facility's normal operating 
hours and $333 per hour for an active connection at other times. The 
fees are waived for testing of new, enhanced, or modified services and/
or software offered by the Exchange, as well as for modifications 
initiated by the Exchange and for a 30-day period for new subscribers 
to existing services. In addition, all testing fees will be waived for 
the period ending on the last day of the sixth full calendar month 
following the launch of PSX. Thereafter, as provided in the rule, the 
fees will be

[[Page 56626]]

waived for a 30-day period for each new market participant.
Other Fees
    Other fee rules relate to installation, removal or relocation of 
equipment at a subscriber's premises,\12\ administrative reports,\13\ 
special data requests,\14\ and partial month charges \15\ and are 
comparable to corresponding fees of the NASDAQ Exchange and BX. Fee 
language governing the aggregation of the activity of affiliated 
Exchange member organizations for purposes of volume pricing discounts 
would not be immediately operative, since the Exchange will not 
initially offer such discounts, but is being adopted at this time to 
address any such discounts adopted in the future.
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    \12\ This provision allows the Exchange to pass through any 
costs it incurs.
    \13\ An administrative report is prepared at a member 
organization's request regarding its activities to assist the firm 
in activities such as auditing its internal systems, verifying back-
office processing, or projecting monthly costs. The fee is $25 per 
month.
    \14\ This provision allows the Exchange to recoup costs 
associated with responding to ad hoc requests for market data, such 
as requests that may be made by news reporters or academic 
researchers.
    \15\ This provision provides that market data distributors may 
elect to be billed on a prorated basis during the month of 
initiation or termination of service.
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Non-Fee Liable Data
    The Exchange also proposes to make certain data feeds and other 
data products available without assessing any distributor or subscriber 
fees.\16\ If the Exchange opts to charge a fee for these feeds or 
products at a later date, it will file a proposed rule change under 
Section 19 of the Act to establish the fee.
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    \16\ The Exchange will assess the annual administrative fee 
described above to all distributors receiving a data feed, including 
non-fee-liable feeds. The Exchange reserves the right to impose 
distributor and/or subscriber fees for these products at a later 
date by submitting a proposed rule change under Section 19 of the 
Act. 15 U.S.C. 78s.
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    The feeds are comparable to corresponding feeds offered by BX. 
First, the Exchange will offer PSX Last Sale Data Feeds, which will 
provide real-time last sale information, including execution price, 
volume, and time for executions occurring within PSX. The Exchange 
believes that these data feeds will increase transparency and the 
efficiency of executions by enabling vendors to provide additional 
market data in a cost-efficient manner. The Exchange will offer the PSX 
Last Sale for NASDAQ and the PSX Last Sale for NYSE/Amex feeds, 
providing information for (i) NASDAQ Exchange-listed securities, and 
(ii) securities listed on the New York Stock Exchange (``NYSE''), NYSE 
Amex, and other exchanges.
    Second, the Exchange will offer real-time data feeds of PSX's Best 
Bid and Offer (``BBO''). The Exchange will offer three different feeds, 
one providing the BBO for NASDAQ Exchange-listed securities, a second 
for NYSE-listed securities, and a third for NYSE Amex-listed 
securities.
    Third, the Exchange will offer the PSX Ouch BBO Feed, a data feed 
that will represent PSX's internal view of the best bid and offer among 
all market centers other than PSX. The PSX Ouch BBO Feed will be 
available to all PSX market participants equally at no charge, and will 
offer all firms transparent, real-time data concerning the Exchange's 
internal view of the BBO. This data feed reflects the Exchange's view 
of the BBO, at any given time, based on orders executed on PSX and 
updated quote information from the SIPs. PSX will make the PSX Ouch BBO 
Feed available to all market participants via subscription through an 
established connection to PSX.
    The PSX Ouch BBO Feed will contain the following data elements: 
Symbol, bid price, and ask price.\17\ Unlike the PSX TotalView feed, 
the Ouch BBO feed will not contain information about individual orders, 
either those residing within the PSX system or those executed or routed 
by PSX. Unlike the SIP feeds containing the National Best Bid and Offer 
(``NBBO''), the PSX Ouch BBO Feed will not identify either the market 
center quoting the BBO or the size of the BBO quotes. It merely 
contains the symbol and bid and offer prices.
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    \17\ PSX also provides a time stamp and message type field for 
reference.
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    By making the PSX Ouch BBO Feed data available, the Exchange will 
enhance market transparency and foster competition among orders and 
markets. Member organizations may use the PSX Ouch BBO Feed to more 
accurately price their orders based on PSX's view of what the BBO is at 
any point in time, which may not be reflected in the official NBBO due 
to latencies inherent in the NBBO's dissemination. As a consequence, 
firms may more accurately price their orders on PSX, thus avoiding 
price adjustments by PSX based on a quote that is no longer available. 
Additionally, market participants can price orders more aggressively to 
narrow the NBBO and provide better reference prices for investors.
    Fourth, the Exchange will make a version of NASDAQ OMX's Weblink 
ACT product available for use by PSX participants. For PSX 
participants, Weblink Act will provide a convenient system for member 
organizations to access comprehensive records of their own trades in 
PSX. Weblink ACT will be provided free of charge at the time of PSX's 
launch. Users will have the option of receiving the Weblink ACT service 
for PSX as a standalone product, or in addition to Weblink ACT for the 
NASDAQ Exchange service that they may already be receiving. In either 
case, the Exchange will not charge a fee for the PSX version.
    Finally, the PSX Trading and Compliance Data Package will provide 
PSX Participants with historical data reports containing trade-
reporting information about the Participant's own trades in PSX, for 
delivery on an end-of-day or T+1 basis. The Exchange may modify the 
contents of the PSX Trading and Compliance Data Package from time to 
time based on subscriber interest. Users will have the option to 
request and download these reports as a standalone product, and 
subscribers to the existing NASDAQ Exchange Trading and Compliance Data 
package who are PSX Participants will also have the option to request 
PSX reports through their existing service. In either case, the 
Exchange will not charge a fee for the PSX version at this time.
2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with the provisions of Section 6 of the Act,\18\ in general and with 
Section 6(b)(4) of the Act,\19\ in particular, in that it provides an 
equitable allocation of reasonable dues, fees, and other charges among 
its members and other persons using its facilities. The Exchange makes 
all services and products subject to these fees available on a non-
discriminatory basis to similarly situated recipients. All fees are 
structured in manner comparable to corresponding fees of the NASDAQ 
Exchange or BX already in effect, and are set at levels equal to or 
lower than the levels of the comparable NASDAQ Exchange and BX fees. 
Most of the proposed fees, including transaction execution and testing 
fees, are uniform for all customers and are therefore equitably 
allocated based on usage of PSX services. The proposed fees for PSX 
TotalView are equitably allocated since the fees vary solely based on 
reasonable and well-established distinctions with respect to 
professional and non-professional users, internal and external 
distribution, and direct and indirect

[[Page 56627]]

receipt of data. The fees are fair and reasonable in that they compare 
favorably to fees charged by other exchanges for comparable products.
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    \18\ 15 U.S.C. 78f.
    \19\ 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 
result in any burden on competition that is not necessary or 
appropriate in furtherance of the purposes of the Act, as amended. 
Despite its long history, the Exchange will effectively be entering the 
highly competitive markets for trading NMS stocks as a start-up 
venture. Accordingly, its fees must be set at a level that will promote 
competition in these markets, or potential users of its services will 
simply continue to obtain services from the Exchange's multiple 
competitors. If the Exchange sets fees at inappropriately high levels, 
market participants will seek to avoid using the Exchange. Thus, the 
products and services introduced by the Exchange will promote 
competition if they succeed in providing market participants with 
viable and cost-effective alternatives to existing competitors. 
Conversely, they will impose no burden on competition if they fail to 
provide such alternatives.

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.\20\ 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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    \20\ 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 proposal 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 No. SR-Phlx-2010-120 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-2010-120. 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 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 will also 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-2010-120 and should be 
submitted on or before October 7, 2010.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\21\
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    \21\ 17 CFR 200.30-3(a)(12).
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Elizabeth M. Murphy,
Secretary.
[FR Doc. 2010-23103 Filed 9-15-10; 8:45 am]
BILLING CODE 8010-01-P