Document ID: SEC-2009-0222-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: NASDAQ OMX PHLX, Inc.
Posted Date: 2009-02-19T05:00Z

[Federal Register: February 19, 2009 (Volume 74, Number 32)]
[Notices]               
[Page 7721-7722]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr19fe09-88]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-59393; File No. SR-PHLX-2009-12]

 
Self-Regulatory Organizations; Notice of Filing and Immediate 
Effectiveness of Proposed Rule Change and Amendment No. 1 Thereto by 
NASDAQ OMX PHLX, Inc. To Amend the Exchange's Fee Schedule

February 11, 2009.
    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 February 2, 2009, 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. On February 9, 2009, the Exchange filed Amendment No. 1 to 
the proposed rule change. The Commission is publishing this notice to 
solicit comments on the proposed rule change, as amended, 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 the Exchange's Fee Schedule (``Fee 
Schedule'') to: (i) Eliminate the Firm Proprietary Facilitation 
category of fees from the Equity Options Fees, Index Options Fees and 
U.S. Dollar-Settled Foreign Currency Option Fees; (ii) redefine what 
constitutes a firm proprietary order; and (iii) increase the Firm-
Related Equity Option and Index Option Cap to $75,000 and exclude JBO 
participants (as defined below).
    The Exchange has designated these changes to be operative for 
transactions settling on or after February 2, 2009.
    The text of the proposed rule change is available on the Exchange's 
Website at http://www.nasdaqtrader.com/micro.aspx?id=PHLXRulefilings, 
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 Exchange proposes to eliminate the Firm Proprietary 
Facilitation \3\ category from the Fee Schedule in order to create a 
single category of Firm Proprietary Fees.\4\ It currently applies to 
Member Organizations for orders in a proprietary account of a Member or 
non-member broker-dealer that derives more than 35% of its annual, 
gross revenues from commissions and principal transactions with 
customers (``35% customer revenue threshold''). The result of 
eliminating the Firm Proprietary Facilitation category is that all Firm 
Proprietary transactions will be charged $.24 per contract, which 
results in a $.10 increase over the current Firm Proprietary 
Facilitation Option Transaction Charges, as the current charge for 
those types of transaction is currently $.14. This increase should 
raise revenue for the Exchange, and, at the same time, simplify the 
fees applicable to firm proprietary transactions.
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    \3\ A facilitation occurs when a floor broker holds an options 
order for a public customer and a contra-side order for the same 
option series and, after providing an opportunity for all persons in 
the trading crowd to participate in the transaction, executes both 
orders as a facilitation cross. See Exchange Rule 1064.
    \4\ The Exchange currently assesses the applicable Firm 
Proprietary and Firm Proprietary Facilitation transaction charges on 
Phlx members.
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    In addition, the Exchange proposes to redefine what constitutes a 
firm proprietary order. The Exchange proposes to delete the 35% 
customer revenue threshold language from the current language in 
endnote 5 on the Fee Schedule and replace it with the following 
language: ``Firm Proprietary Options Transaction Charge applies to firm 
proprietary orders (``F''account type) in all products.'' The purpose 
of the 35% threshold was to limit the fees to a certain category of 
firm trade, namely Firm Proprietary trades. Now, all orders with ``F'' 
account types are subject to firm proprietary charges, which is easier 
to administer from a billing perspective. As a result, the requirement 
for member organizations to verify the amount to the Exchange

[[Page 7722]]

regarding the threshold is no longer necessary.
    The Exchange also proposes to increase the Firm-Related Equity 
Option and Index Option Cap (``Monthly Firm Cap'') \5\, which is set at 
$65,000 per month per firm, to $75,000 per month per firm. This is 
intended to raise additional revenue for the Exchange and create an 
incentive for Member Organizations to continue to send order flow to 
the Exchange. This Monthly Firm Cap would now apply to all Firm 
Proprietary orders that are (``F'' account type) in all products, 
except for orders of joint back-office (``JBO'') participants.\6\ 
Accordingly, JBO participant orders may employ the F-account type and 
qualify for the firm proprietary charge, but would not be eligible for 
the Monthly Firm Cap.\7\
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    \5\ See e.g. Securities Exchange Act Release Nos. 54981 
(December 20, 2006), 71 FR 78251 (December 28, 2006); 53287 
(February 14, 2006), 71 FR 9186 (February 22, 2006); and 56437 
(September 13, 2007), 72 FR 53616 (September 19, 2007) (SR-Phlx-
2007-65).
    \6\ A JBO participant is a Member, Member Organization or non-
member organization that maintains a JBO arrangement with a clearing 
broker-dealer (``JBO Broker'') subject to the requirements of 
Regulation T Section 220.7 of the Federal Reserve System. See also 
Exchange Rule 703. For purpose of the Monthly Firm Cap, JBO 
participant orders are excluded because the Exchange is unable to 
differentiate orders of a JBO participant from orders of its JBO 
Broker and therefore is unable to aggregate the JBO participant's 
orders.
    \7\ This proposal is similar to a proposed rule change filed by 
the Chicago Board Options Exchange, Incorporated (``CBOE''). CBOE 
adopted a Firm Proprietary Sliding Scale based on the number of 
contracts the firm trades in a month. The sliding scale applies to 
firm proprietary orders in all products, except for orders of joint 
back-office (``JBO'') participants. See Securities Exchange Act 
Release No. 57191 (January 24, 2008), 73 FR 5611 (January 30, 2008) 
(SR-CBOE-2007-150).
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2. Statutory Basis
    The Exchange believes that its proposal to amend its schedule of 
fees is consistent with Section 6(b) of the Act \8\ in general, and 
furthers the objectives of Section 6(b)(4) of the Act \9\ in 
particular, in that it is an equitable allocation of reasonable fees 
and other charges among Exchange members. Eliminating the Firm 
Proprietary Facilitation category is equitable and reasonable, because 
it applies to all such orders and results in a reasonable increase over 
the current charge applicable to firm proprietary facilitation trades. 
The Exchange also believes that the Monthly Firm Cap is equitable, even 
though it is not available to JBO participants, because the Exchange 
intends to compete for non-JBO firm business with the CBOE, who 
excludes JBO participants from its sliding scale, for the same reason 
as the Exchange, which is that each is unable to identify these orders 
from a billing standpoint to bill them correctly.\10\
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    \8\ 15 U.S.C. 78f(b).
    \9\ 15 U.S.C. 78f(b)(4).
    \10\ See supra notes 6 and 7.
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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 \11\ and paragraph (f)(2) of Rule 19b-4 \12\ 
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.\13\
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    \11\ 15 U.S.C. 78s(b)(3)(A)(ii).
    \12\ 17 CFR 240.19b-4(f)(2).
    \13\ For purposes of calculating the 60-day period within which 
the Commission may summarily abrogate the proposed rule change under 
Section 19(b)(3)(C) of the Act, the Commission considers the period 
to commence on February 9, 2009, the date on which the Exchange 
submitted Amendment No. 1. See 15 U.S.C. 78s(b)(3)(C).
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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-2009-12 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-2009-12. 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 inspection and 
copying 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 will also be available for 
inspection and copying at the principal office of the self-regulatory 
organization. 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-2009-12 and should be submitted on or before March 12, 2009.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\14\
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    \14\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
[FR Doc. E9-3464 Filed 2-18-09; 8:45 am]

BILLING CODE 8011-01-P