Document ID: SEC-2012-0857-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: NASDAQ OMX PHLX LLC
Posted Date: 2012-05-31T04:00Z

[Federal Register Volume 77, Number 105 (Thursday, May 31, 2012)]
[Notices]
[Pages 32165-32167]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2012-13144]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-67047; File No. SR-Phlx-2012-70]

Self-Regulatory Organizations; NASDAQ OMX PHLX LLC; Notice of 
Filing and Immediate Effectiveness of Proposed Rule Change Relating to 
Reversal and Conversion Strategies

May 23, 2012.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ and Rule 19b-4 \2\ thereunder, notice is hereby given 
that, on May 16, 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, 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 a fee cap on equity options 
transactions on certain reversals \3\ and conversion \4\ strategies in 
Section II, entitled ``Equity Options Fees.'' \5\ The Exchange also 
proposes to make technical amendments to the Pricing Schedule.
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    \3\ Reversals are established by combining a short stock 
position with a short put and a long call position that shares the 
same strike and expiration.
    \4\ Conversions are established by combining a long position in 
the underlying security with a long put and a short call position 
that shares the same strike and expiration.
    \5\ Section II Equity Options Fees include options overlying 
equities, ETFs, ETNs, indexes and HOLDRS which are Multiply Listed.
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    The text of the proposed rule change is available on the Exchange's 
Web site at http://www.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 
applicability of a fee cap relating to reversal and conversion 
strategies in Section II of the Pricing Schedule to conform the 
applicability of that cap to that of the dividend,\6\ merger \7\ and 
short stock interest \8\ strategies cap. The Exchange believes that all 
strategy caps should be applied in the same manner, in this case

[[Page 32166]]

only when such members are trading in their own proprietary accounts.
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    \6\ A dividend strategy is defined as transactions done to 
achieve a dividend arbitrage involving the purchase, sale and 
exercise of in-the-money options of the same class, executed the 
first business day prior to the date on which the underlying stock 
goes ex-dividend.
    \7\ A merger strategy is defined as transactions done to achieve 
a merger arbitrage involving the purchase, sale and exercise of 
options of the same class and expiration date, executed the first 
business day prior to the date on which shareholders of record are 
required to elect their respective form of consideration, i.e., cash 
or stock.
    \8\ A short stock interest strategy is defined as transactions 
done to achieve a short stock interest arbitrage involving the 
purchase, sale and exercise of in-the-money options of the same 
class.
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    Currently, Market Maker,\9\ Professional,\10\ Firm and Broker-
Dealer equity option transaction fees are capped at $1,000 for 
dividend, merger and short stock interest strategies executed on the 
same trading day in the same options class when such members are 
trading in their own proprietary accounts.\11\ The Exchange also 
currently has a cap for reversal and conversion strategies wherein 
Market Maker, Professional, Firm and Broker-Dealer options transaction 
fees in Multiply Listed Options are capped at $500 per day for reversal 
and conversion strategies executed on the same trading day in the same 
options class (``Reversal and Conversion Cap'').\12\ The Exchange 
proposes to further qualify the Reversal and Conversion Cap by applying 
the cap only when such members are trading in their own proprietary 
accounts, similar to dividend, merger and short stock interest 
strategies.
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    \9\ The Exchange market maker category includes Specialists (see 
Rule 1020) and Registered Options Traders (see Rule 1014(b)(i) and 
(ii), which includes Streaming Quote Traders (``SQTs'') (see Rule 
1014(b)(ii)(A)) and Remote Streaming Quote Traders (``RSQTs'') (see 
Rule 1014(b)(ii)(B)). This would also include Directed Participants. 
The term ``Directed Participant'' applies to transactions for the 
account of a Specialist, SQT or RSQT 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.
    \10\ 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'').
    \11\ Equity option transaction fees for dividend, merger and 
short stock interest strategies combined will be further capped at 
the greater of $10,000 per member or $25,000 per member 
organization.
    \12\ The Reversal and Conversion Cap applies to executions 
occurring on either of the two days preceding the standard options 
expiration date, which is typically the third Thursday and Friday of 
every month.
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    Additionally, the Exchange proposes to make certain technical 
amendments to the Pricing Schedule. The Exchange recently amended the 
title of the Pricing Schedule from a ``Fee Schedule'' to a ``Pricing 
Schedule.'' \13\ There are a few places in the Pricing Schedule, namely 
in Section III, Part A (Other Transaction Fees, PIXL Pricing) and 
Section VII ((NASDAQ OMX PSX Fees, Other Requests for Data) that still 
refer to a Fee Schedule. The Exchange is proposing to amend those 
references from ``Fee Schedule'' to a ``Pricing Schedule.'' The 
Exchange is also proposing to remove a reference in Section I (Rebates 
and Fees for Adding and Removing Liquidity in Select Symbols) to the 
Market Exhaust auction. The Exchange recently filed a rule change to 
discontinue the Market Exhaust functionality, a feature of the 
Exchange's PHLX XL[supreg] automated trading system.\14\ The reference 
to Market Exhaust was deleted from Rule 1080(c). This functionality was 
discontinued as of January 31, 2012. The Exchange proposes to remove a 
reference to Market Exhaust in Section I of the Pricing Schedule. 
Finally, the Exchange purposes to replace certain reference symbols 
with numbers for clarity in various sections of the Pricing 
Schedule.\15\
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    \13\ See Securities Exchange Act Release No. 66668 (March 28, 
2012), 77 FR 20090 (April 3, 2012) (SR-PhlX-2012-35).
    \14\ See Securities Exchange Act Release No. 66087 (January 3, 
2012), 77 FR 1095 (January 9, 2012) (SR-Phlx-2011-182).
    \15\ For example, various symbols such as ``[infin],'' ``+'' and 
other symbols that are non-numeric, while be replaced with numbers.
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2. Statutory Basis
    The Exchange believes that its proposal to amend its Pricing 
Schedule is consistent with Section 6(b) of the Act \16\ in general, 
and furthers the objectives of Section 6(b)(4) of the Act \17\ in 
particular, in that it is an equitable allocation of reasonable fees 
and other charges among Exchange members and other persons using its 
facilities.
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    \16\ 15 U.S.C. 78f(b).
    \17\ 15 U.S.C. 78f(b)(4).
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    The Exchange believes that the proposed amendment to the 
applicability of the Reversal and Conversion Cap is reasonable because 
the Exchange is proposing to apply the cap only when such members are 
trading in their own proprietary account, which is the case today for 
dividend, merger and short stock interest strategies. All members would 
continue to be offered an opportunity to reduce option transaction fees 
in Multiply Listed options for reversals and conversions.\18\ The 
Exchange also believes that the proposed amendment to the applicability 
of the Reversal and Conversion Cap is equitable and not unfairly 
discriminatory because the Exchange would uniformly apply the reversal 
cap to all members.
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    \18\ Customers are not subject to the Reversal and Conversion 
Cap because they do not pay option transaction charges for reversal 
and conversion strategies.
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    The Exchange believes that the technical amendments are reasonable, 
equitable and not unfairly discriminatory because the Exchange intends 
to amend the Pricing Schedule to conform the text to recent rule 
amendments which eliminated and/or replaced certain references.

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.\19\ 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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    \19\ 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-2012-70 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-2012-70. 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

[[Page 32167]]

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-2012-70 and should be submitted on 
or before June 21, 2012.

    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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Elizabeth M. Murphy,
Secretary.
[FR Doc. 2012-13144 Filed 5-30-12; 8:45 am]
BILLING CODE 8011-01-P