Document ID: SEC-2010-1308-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: NASDAQ OMX PHLX, Inc.
Posted Date: 2010-08-26T04:00Z

[Federal Register: August 26, 2010 (Volume 75, Number 165)]
[Notices]               
[Page 52560-52562]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr26au10-99]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-62745; File No. SR-Phlx-2010-113]

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

August 19, 2010.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(the ``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given 
that on August 17, 2010, NASDAQ OMX PHLX, Inc. (``Phlx'' or 
``Exchange'') filed with the Securities and Exchange Commission 
(``Commission'') the proposed rule change as described in Items I and 
II 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 modify the 
current method of calculating the minimum number of orders submitted by 
a member organization and subsequently cancelled that is required to 
assess a Cancellation Fee on electronically delivered Customer orders, 
and Professional\3\ all-or-none (``AON'') orders that are submitted by 
the member.
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    \3\ Rule 1000(b)(14) provides in relevant part: ``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).
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    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 amend the manner in 
which the Cancellation Fee is assessed on member organizations. 
Currently, the Exchange assesses the Cancellation Fee on member 
organizations that submit Customer orders and Professional AON orders 
if the aggregate number of Customer orders and Professional AON orders 
submitted by such members and then cancelled totals 500 orders or more 
in a particular calendar month (the ``500 Order Threshold'').
    The Exchange proposes to modify the calculation of the 500 Order 
Threshold by creating two separate Cancellation Fee calculations, one 
applicable to Customer orders and one applicable to AON orders that are 
submitted by a Professional.\4\ Under the proposal, the 500 Order 
Threshold would be calculated for Customer orders and Professional AON 
orders separately, and would not be aggregated.\5\ The Exchange 
proposes this rule change to simplify the calculation of the 500 Order 
Threshold.
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    \4\ Currently, a Professional is treated in the same manner as 
an off-floor broker-dealer for purposes of Rules 1014(g) (except 
with respect to AON orders, which will be treated like Customer 
orders), 1033(e), 1064.02 (except professional orders will be 
considered Customer orders subject to facilitation), and 1080.08 as 
well as Options Floor Procedure Advices B-6, B-11 and F-5. Member 
organizations must indicate whether orders are for professionals.
    \5\ The Cancellation Fee [sic] to member organizations that 
submit a minimum of 500 Customer orders in a given month, and to 
Professionals that submit a minimum of 500 AON orders in a given 
month. For purposes of assessing the Cancellation Fee, Customer or 
Professional AON orders from the same member organization in the 
same series on the same side of the market that are executed at the 
same price within a 300 second period will be aggregated and counted 
as one executed option order.
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    The Exchange recently amended the Cancellation Fee to include 
Professional AON orders in the computation of the 500 Order Threshold 
for the application of the Cancellation Fee.\6\ Currently, the Exchange 
assesses a Cancellation Fee of $2.10 per Customer order and $1.10 per 
Professional AON order for each cancelled electronically delivered \7\ 
Customer order or Professional AON order that exceeds the aggregate 
number of Customer and Professional AON

[[Page 52561]]

orders executed on the Exchange by that member organization in a given 
month. The Cancellation Fee is not assessed in a month in which fewer 
than 500 electronically delivered Customer or Professional AON orders 
\8\ are cancelled.
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    \6\ See SR-Phlx-2010-105.
    \7\ Electronically delivered orders are delivered through the 
Exchange's options trading platform known as PHLX XL II.
    \8\ For purposes of assessing the Cancellation Fee, Customer or 
Professional AON orders from the same member organization in the 
same series on the same side of the market that are executed at the 
same price within a 300 second period will be aggregated and counted 
as one executed option order.
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    Further, simple cancels \9\ and cancel-replacement \10\ orders are 
types of orders that are counted when calculating the number of 
electronically delivered orders. The following order activity is exempt 
from the Cancellation Fee: (i) Pre-market cancellations; \11\ (ii) 
Complex Orders \12\ that are submitted electronically; (iii) unexecuted 
Immediate-or-Cancel \13\ Customer orders; and (iv) 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.
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    \9\ The designation ``simple cancel'' indicates that an order is 
to be cancelled.
    \10\ 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).
    \11\ 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). 
See also Securities Exchange Act Release No. 60046 (June 4, 2009), 
74 FR 28083 (June 12, 2009) (SR-Phlx-2009-44).
    \12\ A complex order is a spread, straddle, combination, ratio 
or collar order, all of which consist of more than one component, 
priced like a single order at a net debit or credit based on the 
prices of the individual components. See Exchange Rule 1080.08 
Commentary .08(a)(i).
    \13\ 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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    The Exchange proposes to amend its Cancellation Fee to separately 
compute a Customer Cancellation Fee and a Professional AON Cancellation 
Fee. Each fee will be separately aggregated and each 500 Order 
Threshold will be calculated separately. Therefore, a member 
organization will not be assessed a fee on the first 500 cancelled 
Customer orders which meet the criteria specified above for inclusion 
in the Cancellation Fee. Similarly, a member organization will not be 
assessed a fee on the first 500 cancelled Professional AON orders which 
meet the criteria specified above for inclusion in the Cancellation 
Fee. The Exchange is not amending the method by which the Cancellation 
Fee is calculated; it is simply creating two separate 500 Order 
Threshold calculations. This amendment allows member organizations 
additional latitude in cancelling both Customer and Professional AON 
orders before incurring a fee for such cancellation.
    The Exchange is also proposing to make minor technical amendments 
that are grammatical in nature to the language of the Fee Schedule, 
relating to the Cancellation Fee, solely for purposes of 
clarification.\14\
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    \14\ E-mail from Angela Saccomandi Dunn, Assistant General 
Counsel, Phlx to Ronesha A. Butler, Special Counsel, Division of 
Trading and Markets dated August 19, 2010.
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2. Statutory Basis
    The Exchange believes that its proposal to amend its Fee Schedule 
is consistent with Section 6(b) of the Act \15\ in general, and 
furthers the objectives of Section 6(b)(4) of the Act \16\ in 
particular, in that it is an equitable allocation of reasonable fees 
and other charges among Exchange members and other persons using its 
facilities. The Exchange believes that the proposed amendments to the 
Cancellation Fee are reasonable because they will continue to ease 
system congestion and allow the Exchange to recover costs associated 
with excessive order cancellation activity. The Exchange believes that 
by separately calculating Customer and Professional AON cancellations 
for purposes of the Cancellation Fee will simplify the calculation of 
this fee.
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    \15\ 15 U.S.C. 78f(b).
    \16\ 15 U.S.C. 78f(b)(4).
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    The Exchange believes that the amendment to the Cancellation Fee is 
equitable because it will afford member organizations the opportunity 
to cancel additional Customer and Professional AON orders before a fee 
is incurred by the member organization. The Exchange would continue to 
assess the Cancellation Fee only after the 500 Order Threshold is 
reached for both Customer and Professional AON cancelled orders.

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\ and Rule 19b-4(f)(2) \18\ thereunder. 
At any time within 60 days of the filing of such 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.
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    \17\ 15 U.S.C. 78s(b)(3)(A)(ii).
    \18\ 17 CFR 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-2010-113 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-2010-113. 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,\19\ 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

[[Page 52562]]

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-2010-113 and should be 
submitted on or before September 16, 2010.
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    \19\ The text of the proposed rule change is available on 
Exchange's Web site at http://nasdaqtrader.com/
micro.aspx?id=PHLXfilings, on the Commission's Web site at http://
www.sec.gov, at Phlx, and at the Commission's Public Reference Room.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\20\
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    \20\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
[FR Doc. 2010-21178 Filed 8-25-10; 8:45 am]
BILLING CODE 8010-01-P