Document ID: SEC-2011-0412-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: NASDAQ OMX PHLX LLC
Posted Date: 2011-03-29T04:00Z

[Federal Register Volume 76, Number 60 (Tuesday, March 29, 2011)]
[Notices]
[Pages 17468-17470]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2011-7282]

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

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-64113; File No. SR-Phlx-2011-36]

Self-Regulatory Organizations; Notice of Filing and Immediate 
Effectiveness of Proposed Rule Change by NASDAQ OMX PHLX LLC Relating 
to the Equity Options Monthly Cap

March 23, 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 March 17, 2011, 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, 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 the Exchange's Fee Schedule to lower 
the monthly cap applicable to Registered Options Traders (``ROTs'') \3\ 
and Specialists \4\ for equity options transactions. The Exchange also 
proposes to assess a $0.05 per contract fee on ROTs and Specialists in 
certain circumstances when they have reached the monthly cap.
---------------------------------------------------------------------------

    \3\ 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).
    \4\ A Specialist is an Exchange member who is registered as an 
options specialist pursuant to Rule 1020(a).
---------------------------------------------------------------------------

    While changes to the Fee Schedule pursuant to this proposal are 
effective upon filing, the Exchange has designated these changes to be 
operative on April 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.

[[Page 17469]]

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 this rule change is to reduce the monthly 
transaction fee cap applicable to ROTs and Specialists for equity 
options transactions (``Monthly Cap''). The Exchange believes that by 
reducing the Monthly Cap, a greater number of members may benefit from 
the Monthly Cap and the Exchange will attract additional order flow. In 
addition, another purpose of this proposed rule change is to establish 
a $0.05 per contract transaction fee when ROTs and Specialists 
participate as the contra-side of a Customer complex order \5\ 
execution after they have reached the maximum Monthly Cap. The Exchange 
proposes this amendment to defray the cost of paying Customer complex 
order rebates, which attracts additional Customer order flow to the 
Exchange.
---------------------------------------------------------------------------

    \5\ 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 exchange-traded fund (``ETF'') coupled with 
the purchase or sale of options contract(s). See Exchange Rule 1080, 
Commentary .08(a)(i).
---------------------------------------------------------------------------

    The Exchange currently applies a Monthly Cap of $600,000 on equity 
option transaction fees to ROTs and Specialists, as set forth in 
Section II of the Exchange's Fee Schedule titled ``Equity Options 
Fees.'' The Exchange is proposing to reduce the Monthly Cap from 
$600,000 to $550,000.\6\
---------------------------------------------------------------------------

    \6\ The trading activity of separate ROTs and Specialist member 
organizations are aggregated in calculating the Monthly Cap if there 
is at least 75% common ownership between the member organizations.
---------------------------------------------------------------------------

    The Exchange is also proposing to assess ROTs and Specialists a 
$0.05 per contract transaction fee when such ROTs and Specialists: (i) 
participate as the contra-side of a Customer complex order; and (ii) 
have reached the maximum Monthly Cap, which is proposed to be $550,000. 
The Exchange currently pays a rebate of $0.05 per contract for Customer 
complex orders that are electronically-delivered and executed against a 
non-Customer such as a Specialist, ROT, SQT,\7\ RSQT,\8\ 
Professional,\9\ Firm or Broker-Dealer, contra-side complex order or if 
any of the components of such Customer complex order are executed 
against a non-Customer individual order or quote.\10\ The Exchange 
proposes this fee to defray the cost of the aforementioned rebate. The 
$.05 per contract transaction fee would only apply to those contracts 
that are executed after the affected ROT or Specialist has reached the 
Monthly Cap. For example, when a ROT or Specialist exceeds the proposed 
$550,000 Monthly Cap, a $0.05 per contract fee would be added to the 
Monthly Cap over those trades that were counted in reaching the 
$550,000 Monthly Cap, when such ROT or Specialist is on the contra-side 
of a Customer complex order. The ROT or Specialist would not be 
assessed the $0.05 per contract fee until the Monthly Cap is exceeded. 
The Exchange proposes to amend the current language in the Fee Schedule 
at Section II to reflect the proposal. The Exchange also proposes to 
make certain typographical and conforming changes to Section II of the 
Fee Schedule to make the language consistent in that section.
---------------------------------------------------------------------------

    \7\ 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.
    \8\ A RSQT is defined in 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.
    \9\ 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'').
    \10\ See Exchange's Fee Schedule at Section II, Equity Options 
Fees.
---------------------------------------------------------------------------

2. Statutory Basis
    The Exchange believes that its proposal to amend its Fee Schedule 
is consistent with Section 6(b) of the Act \11\ in general, and 
furthers the objectives of Section 6(b)(4) of the Act \12\ in 
particular, in that it is an equitable allocation of reasonable fees 
and other charges among Exchange members and other persons using its 
facilities.
---------------------------------------------------------------------------

    \11\ 15 U.S.C. 78f(b).
    \12\ 15 U.S.C. 78f(b)(4).
---------------------------------------------------------------------------

    The Exchange believes that the proposal to lower the Monthly Cap is 
reasonable because it lowers potential transaction fees for ROTs and 
Specialist providing liquidity on the Exchange.
    The Exchange believes that the proposal to lower the Monthly Cap is 
equitable because it would uniformly apply to all ROTs and Specialists 
transacting equity options.
    The Exchange believes that assessing a $0.05 per contract fee on 
ROTs and Specialists who have reached the Monthly Cap and are on the 
contra-side of a Customer complex order is reasonable because it would 
serve to defray the cost of paying the Customer complex order rebate, 
which is offered in certain circumstances. The Customer complex order 
rebate serves to attract Customer order flow to the Exchange, thereby 
benefiting all market participants.
    The Exchange believes that assessing a $0.05 per contract fee on 
ROTs and Specialists who have reached the Monthly Cap and are on the 
contra-side of a Customer complex order is equitable because this fee 
would only be assessed once the Monthly Cap is reached and will 
uniformly apply to all ROTs and Specialists that have reached the 
Monthly Cap. In addition, this proposed transaction fee is based upon 
the $0.05 per contract fee that the Exchange currently assesses Firms 
who have reached the Firm Related Equity Option Cap and are on the 
contra-side of a Customer complex order.\13\
---------------------------------------------------------------------------

    \13\ See Securities Exchange Act Release No. 62518 (July 16, 
2010), 75 FR 43219 (July 23, 2010) (SR-Phlx-2010-90). See also the 
Exchange's Fee Schedule at Section II, Equity Options Fees.
---------------------------------------------------------------------------

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

[[Page 17470]]

19(b)(3)(A)(ii) of the Act.\14\ 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.
---------------------------------------------------------------------------

    \14\ 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-2011-36 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-2011-36. 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-
2011-36 and should be submitted on or before April 19, 2011.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\15\
---------------------------------------------------------------------------

    \15\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Cathy H. Ahn,
Deputy Secretary.
[FR Doc. 2011-7282 Filed 3-28-11; 8:45 am]
BILLING CODE 8011-01-P