Document ID: SEC-2011-1967-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: NASDAQ OMX PHLX LLC
Posted Date: 2011-12-19T05:00Z

[Federal Register Volume 76, Number 243 (Monday, December 19, 2011)]
[Notices]
[Pages 78710-78712]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2011-32409]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-65946; File No. SR-Phlx-2011-168]

Self-Regulatory Organizations; NASDAQ OMX PHLX LLC; Notice of 
Filing and Immediate Effectiveness of Proposed Rule Change Relating to 
the Option Floor Broker Subsidy

 December 13, 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 November

[[Page 78711]]

30, 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.
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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 eliminate Section VII of its Fee Schedule 
entitled the ``Options Floor Broker Subsidy.''
    While changes to the Fee Schedule pursuant to this proposal are 
effective upon filing, the Exchange has designated these changes to be 
operative on December 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, on the Commission's Web site at 
http://www.sec.gov, 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 eliminate the Options 
Floor Broker Subsidy (``Subsidy''). The Exchange is seeking to 
incentivize Floor Brokers in other ways, such as offering rebates for 
certain orders.\3\ The Exchange believes that the Subsidy is no longer 
necessary as a means to incentivize Floor Brokers and proposes to 
eliminate the Subsidy.
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    \3\ See SR-Phlx-2011-169 [sic] (a proposed rule change to amend 
and adopt rebates applicable to both electronic QCC Orders and Floor 
QCC Orders with some exceptions and also amend and adopt a Service 
Fee).
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    The Exchange currently pays a Subsidy to member organizations with 
Exchange registered floor brokers that enter eligible contracts into 
the Exchange's Floor Broker Management System (``FBMS'').\4\ The 
Subsidy is paid based on the contract volume on Customer-to-non-
Customer as well as non-Customer-to-non-Customer transactions for that 
month. Only the volume from orders entered by floor brokers into FBMS 
and subsequently executed on the Exchange qualifies. The Exchange pays 
a Subsidy based on a monthly total of all eligible contracts as 
follows:
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    \4\ 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.

                              Per Eligible Contract Monthly Volume Subsidy Payment
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              Tier I                      Tier II               Tier III                     Tier IV
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0 to 1,250,000...................  1,250,001 to           2,250,001 to          5,250,001 and greater.
                                    2,250,000.             5,250,000.
$0.00 per contract...............  $0.03 per contract...  $0.05 per contract..  $0.09 per contract.
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    In computing the monthly eligible contracts, the Exchange currently 
excludes: (i) Customer-to-Customer executions; (ii) Firm-to-Customer 
executions where the Firm has reached the Firm Related Equity Option 
cap (``Cap'') (see Section II); (iii) Firm-to-Firm executions, where 
both sides have reached the Cap; (iv) dividend,\5\ merger \6\ and short 
stock interest \7\ strategies; and (v) firm facilitation 
transactions.\8\ The Subsidy applies to contracts that are executed as 
part of a Complex Order.\9\ Where two or more member organizations with 
Exchange registered floor brokers each enter one side of a transaction 
into FBMS, the executed contracts are divided equally among qualifying 
member organizations that participate in that transaction.
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    \5\ 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. See Section II of the Fee Schedule.
    \6\ 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. See Section II of the Fee Schedule.
    \7\ 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. See Section II of the Fee Schedule.
    \8\ 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.
    \9\ 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 ETF coupled with the purchase or sale of 
options contract(s). See Exchange Rule 1080, Commentary .08(a)(i).
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    The Exchange also proposes to eliminate other references to the 
Subsidy in the Fee Schedule at Section I entitled ``Rebates and Fees 
for Adding and Removing Liquidity in Select Symbols'' and in the Table 
of Contents.
    The Exchange proposes to eliminate this Subsidy on December 1, 
2011. The Exchange has provided notification to its Floor Brokers of 
its intent to eliminate the Subsidy.
2. Statutory Basis
    The Exchange believes that its proposal to amend its Fee Schedule 
is consistent with Section 6(b) of the Act \10\ in general, and 
furthers the objectives of Section 6(b)(4) of the Act \11\ in 
particular, in that it is an equitable allocation of reasonable fees 
and other charges among Exchange members.
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    \10\ 15 U.S.C. 78f(b).
    \11\ 15 U.S.C. 78f(b)(4).
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    The Exchange believes that the proposed elimination of the Subsidy 
is reasonable for various reasons. First, the Exchange believes that 
its purpose for offering Floor Brokers an incentive to transact certain 
eligible contracts through FBMS no longer exists. Second,

[[Page 78712]]

the Exchange is proposing to equalize the incentives provided to Floor 
Brokers and members entering electronic orders by offering a rebate on 
both electronic QCC Orders and Floor QCC Orders.\12\ Finally, in light 
of offering Floor Brokers a rebate on Floor QCC Orders, the Exchange no 
longer desires to incentivize Floor Brokers with the Subsidy.
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    \12\ The Exchange recently determined to offer a rebate to Floor 
Brokers for Floor QCC Orders as of December 1, 2011. See SR-Phlx-
2011-169 [sic].
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    The Exchange believes that eliminating the Subsidy is equitable and 
not unfairly discriminatory for various reasons. First, the Exchange 
will not offer the Subsidy to any Floor Broker. Second, members 
executing orders electronically are not being offered the Subsidy 
today, so eliminating the Subsidy will further equalize Floor Brokers 
and members entering electronic orders. Finally, unlike the Subsidy 
which is based on monthly volume, there is no volume requirement to 
obtain a rebate on either an electronic QCC Order or a Floor QCC Order. 
The rebate is paid on each contract for electronic QCC Orders and Floor 
QCC Orders. Therefore, all Floor Brokers are in an equal position to 
qualify for the rebate.

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.\13\ 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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    \13\ 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-2011-168 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-2011-168. 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 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 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-2011-168 and should be 
submitted on or before January 9, 2012.
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    \14\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\14\
Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2011-32409 Filed 12-16-11; 8:45 am]
BILLING CODE 8011-01-P