Document ID: SEC-2010-1024-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: NASDAQ OMX PHLX, Inc.
Posted Date: 2010-07-08T04:00Z

[Federal Register: July 8, 2010 (Volume 75, Number 130)]
[Notices]               
[Page 39301-39303]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr08jy10-132]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 62403; File No. SR-Phlx-2010-80]

 
Self-Regulatory Organizations; Notice of Filing and Immediate 
Effectiveness of Proposed Rule Change by NASDAQ OMX PHLX, Inc. Relating 
to the Options Floor Broker Subsidy

June 30, 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 June 25, 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 amend: (i) The threshold volume 
requirements related to the Options Floor Broker Subsidy; and (ii) the 
Per Contract Average Daily Volume Subsidy Payment. The Exchange also 
proposes correcting a typographical error.
    While changes to the Exchange's Fee Schedule pursuant to this 
proposal are effective upon filing, the Exchange has designated this 
proposal to be effective for trades settling on or after July 1, 2010.
    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 decrease the 
threshold volume requirements related to the Options Floor Broker 
Subsidy and amend the per contract average daily volume subsidy payment 
fees. The Exchange believes that by eliminating certain threshold 
requirements additional members may be attracted to the Options Floor 
Broker Subsidy. Also, the Exchange believes that the proposed rate 
changes could provide enhanced benefits to current and future member 
organizations who participate in the Options Floor Broker Subsidy 
because the Exchange is increasing the per contract rate on the Tier II 
and Tier III levels. The Exchange still continues to afford the members 
[sic] organizations who transact volume in Tier I a benefit as well.

Amending the Thresholds

    The Exchange currently pays an Options Floor Broker Subsidy to 
member organizations with Exchange registered floor brokers for 
eligible contracts that are entered into the Exchange's Floor Broker 
Management System (``FBMS'').\3\ To qualify for the per contract 
subsidy, a member organization with Exchange registered floor brokers 
must have: (1) More than an average of 100,000 executed contracts per 
day in the applicable month; and (2) at least 40,000 executed contracts 
or more per day for at least eight trading days during that same 
month.\4\ Only the floor broker volume from orders entered into FBMS 
and subsequently executed on the Exchange are counted. The 100,000 
contract and 40,000 contract thresholds, as described above, are 
calculated per member organization floor brokerage unit. In the event 
that two or more member organizations with Exchange registered floor 
brokers each entered one side of a transaction into FBMS, then the 
executed contracts is [sic] divided among each qualifying member 
organization that participates in that transaction.\5\
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    \3\ 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. See Exchange Rule 
1080, commentary .06.
    \4\ For purposes of calculating the 100,000 and 40,000 
thresholds, customer-to-customer transactions, customer-to-non-
customer transactions, and non-customer-to-non-customer transactions 
would be included.
    \5\ When computing the threshold amounts, the Exchange would 
first count all customer-to-customer transactions and then all other 
customer-to-non-customer transactions. See also Securities Exchange 
Act Release No. 57253 (February 1, 2008), 73 FR 7352 (February 7, 
2008) (SR-Phlx-2008-08) (adopting a tiered per contract floor broker 
options subsidy payable to member organization with Exchange 
registered floor brokers).
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    The Exchange proposes amending the threshold volume requirements 
related to the Option Floor Broker Subsidy so that in order to qualify 
for the per contract subsidy a member organization

[[Page 39302]]

with Exchange registered floor brokers would only require more than an 
average of 100,000 executed contracts per day in the applicable month. 
The Exchange is proposing to delete the second threshold requirement, 
``* * * at least 40,000 executed contracts or more per day for at least 
eight trading days during that same month.''
    Customer-to-customer transactions would continue to count towards 
reaching the 100,000 contract thresholds, but a per contract subsidy 
would not be paid on any customer-to-customer transactions. Dividend, 
merger and short stock interest strategies would continue to be 
excluded from all threshold volume calculations, and no per contract 
subsidy would be paid on these transactions. The per contract subsidy 
would be paid based on the average daily contract volume for that 
month, which are customer-to-non-customer transactions and are in 
excess of 100,000 contracts. Payments would be made at the stated rate 
for each tier for those contracts that fall within that tier. These 
contracts may include customer-to-customer transactions for the 
purposes of reaching a tier, but as stated above, a per contract 
subsidy would not be paid on these executions.
    In connection with amending the threshold volume requirements, the 
Exchange also proposes amending the corresponding eligible contract 
requirements to reflect the elimination of the second threshold.

Amending the Subsidy Payment

    Additionally, the Exchange is proposing to amend the per contract 
average daily volume subsidy payment fees. Currently, in order to be 
eligible for the Options Floor Broker Subsidy, the member organization 
must have an average daily volume in a particular calendar month as 
follows:

            Per Contract Average Daily Volume Subsidy Payment
------------------------------------------------------------------------
             Tier I                     Tier II            Tier III
------------------------------------------------------------------------
100,001 to 200,000..............  200,001 to 300,000  300,001 and
                                                       greater.
$0.04 per contract..............  $0.05 per contract  $0.06 per
                                                       contract.
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    The Exchange proposes amending the per contract fees as follows:

            Per Contract Average Daily Volume Subsidy Payment
------------------------------------------------------------------------
             Tier I                     Tier II            Tier III
------------------------------------------------------------------------
100,001 to 200,000..............  200,001 to 300,000  300,001 and
                                                       greater.
$0.02 per contract..............  $0.08 per contract  $0.09 per
                                                       contract.
------------------------------------------------------------------------

    The Exchange is also proposing to correct a typographical error in 
the Fee Schedule. Specifically, the spelling of the word facilitation 
is being corrected.
    While changes to the Exchange's Fee Schedule pursuant to this 
proposal are effective upon filing, the Exchange has designated this 
proposal to be effective for trades settling on or after July 1, 2010.
2. Statutory Basis
    The Exchange believes that its proposal to amend its Fee Schedule 
is consistent with Section 6(b) of the Act \6\ in general, and furthers 
the objectives of Section 6(b)(4) of the Act \7\ in particular, in that 
it is an equitable allocation of reasonable fees and other charges 
among Exchange members. The Exchange believes that the proposed 
amendments to the Options Floor Broker Subsidy are equitable, fair and 
reasonable because member organizations with Exchange registered floor 
brokers are provided an equal opportunity to receive a subsidy and any 
member organization is free to establish floor brokerage operations on 
the floor of the Exchange, and, as such, would be eligible to receive 
the Options Floor Broker Subsidy. Further, the Exchange believes that 
the changes to the subsidy payments are reasonable because the Exchange 
is continuing to offer to all members the ability to earn the Options 
Floor Broker Subsidy. Additionally, the Exchange is eliminating one of 
the two threshold volume requirements to receive the Options Floor 
Broker Subsidy and thereby creating additional opportunity for members 
to avail themselves of the subsidy. In summary, the Exchange is 
decreasing the payment for Tier I volumes and increasing the payments 
for Tier II and III volumes to create greater incentives and 
opportunities for member organizations with Exchange registered floor 
brokerage operations to earn additional payments for attracting 
additional order flow to the Exchange.
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    \6\ 15 U.S.C. 78f(b).
    \7\ 15 U.S.C. 78f(b)(4).
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    While the Exchange is decreasing the payments for Tier I volumes 
from $0.04 to $0.02, the Exchange believes this is reasonable because: 
(1) The Exchange is still continuing to pay members a subsidy for their 
volume; and (ii) the Exchange previously had a similar gap in its 
subsidy payment amounts.\8\ The Exchange does not believe that this 
subsidy is unreasonable or discriminatory because any floor broker is 
capable of meeting the volume criteria.
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    \8\ See Securities Exchange Act Release No. 57253 (February 1, 
2008), 73 FR 7352 (February 7, 2008) (SR-Phlx-2008-08).
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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 
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 \9\ and paragraph (f)(2) of Rule 19b-4 \10\ 
thereunder. At any time within 60 days of the filing of the proposed 
rule change, the Commission may summarily abrogate 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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    \9\ 15 U.S.C. 78s(b)(3)(A)(ii).
    \10\ 17 CFR 240.19b-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-2010-80 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.

[[Page 39303]]

All submissions should refer to File Number SR-Phlx-2010-80. 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,\11\ 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. 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-2010-80 and should be submitted on or before July 
29, 2010.
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    \11\ The text of the proposed rule change is available on the 
Commission's Web site at http://www.sec.gov.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\12\
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    \12\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
[FR Doc. 2010-16534 Filed 7-7-10; 8:45 am]
BILLING CODE 8010-01-P