Document ID: SEC-2010-0132-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Notice of Filing and Immediate Effectiveness of Proposed Rule Change by NASDAQ OMX PHLX, Inc. Relating to Routing Fees
Posted Date: 2010-01-26T05:00Z

[Federal Register: January 26, 2010 (Volume 75, Number 16)]
[Notices]               
[Page 4123-4124]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr26ja10-106]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-61374; File No. SR-Phlx-2010-01]

 
Self-Regulatory Organizations; Notice of Filing and Immediate 
Effectiveness of Proposed Rule Change by NASDAQ OMX PHLX, Inc. Relating 
to Routing Fees

January 19, 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 December 31, 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. 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 to [sic] adopt fees governing pricing for 
Exchange members using the Phlx XL II system,\3\ for routing 
standardized equity and index options to away markets for execution. 
These fees would replace the current Options Routing Pass-Through Fees, 
which the Exchange proposes to eliminate.
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    \3\ For a complete description of Phlx XL II, see Securities 
Exchange Act Release No. 59995 (May 28, 2009), 74 FR 26750 (June 3, 
2009) (SR-Phlx-2009-32). The instant proposed fees will apply only 
to options entered into, and routed by, the Phlx XL II system.
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    While changes to the Exchange's Fee Schedule pursuant to this 
proposal are effective upon filing, the Exchange has designated this 
proposal to be operative effective for trades settling on or after 
January 4, 2010.
    The text of the proposed rule change is available on the Exchange's 
Web site 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 purpose of the proposed rule change is to recoup costs that the 
Exchange incurs for routing and executing orders in equity and index 
options to certain better-priced away markets.
    In May, 2009, the Exchange adopted Rule 1080(m)(iii)(A) to 
establish Nasdaq Options Services LLC (``NOS''), a member of the 
Exchange, as the Exchange's exclusive order router.\4\ NOS is utilized 
by the Phlx XL II system solely to route orders in options listed and 
open for trading on the Phlx XL II system to destination markets.
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    \4\ See Securities Exchange Act Release No. 59995 (May 28, 
2009), 74 FR 26750 (June 3, 2009) (SR-Phlx-2009-32).
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    Currently, the Exchange's Fee Schedule includes fees for executions 
of options orders entered into the Exchange's enhanced electronic 
trading platform for options, Phlx XL II, that are routed by NOS to 
away markets (``Phlx XL II Options Routing Pass-Through Fees''). The 
fees are dependent on: (i) The away market's fee schedule, and (ii) the 
type of option (options traded in increments of $0.01 (``penny 
options''), equity, index, ETF or HLDRS options). The Phlx XL II 
Options Routing Pass-Through Fees currently are not applicable to firms 
and market makers because their orders are not routed by Phlx XL II. 
The Exchange passes through the actual transaction fees to Exchange 
members (including surcharges and license fees, if applicable) which 
are assessed by away markets plus the clearing fees for the execution 
of orders routed from the Phlx XL II system.\5\ In August, 2009, the 
Exchange determined to waive these routing fees on a pilot basis.\6\ 
The pilot expires on December 31, 2009.\7\
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    \5\ See PHLX XL II Options Routing Pass-Through Fee located at: 
http://www.nasdaqtrader.com/Micro.aspx?id=phlxpricing.
    \6\ See Securities Exchange Act Release No. 60461 (August 7, 
2009), 74 FR 41472 (August 17, 2009) (SR-Phlx-2009-66).
    \7\ The pilot applies to transactions settling on or after July 
1, 2009 and extended through December 31, 2009. The Exchange does 
not plan to renew this pilot.
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    The Exchange proposes to eliminate entirely all current Phlx XL II 
Options Routing Pass-Through Fees and replace those fees with a Routing 
Fee of $0.50 per contract side for orders routed to NYSE Arca, Inc. 
(``NYSEArca'') in penny options for execution. There will be no routing 
fees for orders routed to away markets other than NYSEArca in penny 
options. Also, there will be no cost for executing orders at away 
markets in non-penny classes.
    The Exchange's total cost of routing penny options to NYSE Arca is 
significantly higher than the cost of routing penny options to the 
other five U.S. options markets. Based on its review of statistical and 
financial data, the Exchange believes that it regularly incurs the vast 
majority of its total monthly transaction and clearing costs in several 
symbols that are routed from the Exchange to NYSEArca. The Exchange 
further believes that some order flow providers, rather than sending 
orders directly to NYSE Arca for execution, route orders to the 
Exchange when it is not the National Best Bid/Offer (``NBBO'') so that 
the Exchange will route their orders to NYSE Arca. In such a situation, 
the Exchange incurs the cost of such routing, whereas the initiating 
order flow provider would incur the cost if it sent the order directly. 
Accordingly, the Exchange is proposing this fee to recoup transaction 
and clearing costs that it incurs in situations where orders in penny 
options are sent to the Exchange when it is not the NBBO, and those 
orders are routed by the Exchange to NYSEArca. The Exchange believes 
that the routing fees proposed will enable the Exchange to recover 
these costs.
    This proposal would assess members and member organizations a 
Routing Fee of $0.50 per contract side for orders in penny options that 
are routed through NOS and executed at NYSEArca. The Exchange believes 
that its proposal will allow the Exchange to recover costs it incurs as 
a result of routing option orders to NYSEArca.

[[Page 4124]]

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 because all members and member 
organizations would be assessed the same fee for penny options routed 
to and executed on NYSEArca. Further, the Exchange's proposal to 
eliminate the current Phlx XL II Options Routing Pass-Through Fees and 
instead assess the $0.50 Routing Fee for orders routed to NYSEArca 
would assist the Exchange in recouping costs incurred in executing 
orders for its members in penny classes at NYSEArca. The Exchange 
believes that this fee would enable it to recoup the majority of costs 
associated with routing customer orders on behalf of its members.
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    \8\ 15 U.S.C. 78f(b).
    \9\ 15 U.S.C. 78f(b)(4).
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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.
    As an initial matter, all members of the Exchange will be subject 
to the same fee for routing customer orders to NYSE Arca for execution.
    The Exchange's system will continue to route customer orders to 
better-priced away markets, including NYSEArca.\10\ The proposed fees 
are intended to recoup the unusually high cost of such routing, and 
will not have the effect of burdening competition. Currently, when the 
Exchange properly routes customer orders to NYSEArca, the burden falls 
on the Exchange to pay the high transaction and clearing costs 
associated therewith, while its competitor benefits wholly from the 
Exchange ensuring that it will not trade through its competitors' 
markets. As stated above, the costs associated with routing customer 
orders to NYSEArca for execution are burdensome. The proposed fee 
change is intended to remove that burden from the Exchange, will not 
have any effect at all on the Exchange's system in properly routing 
customer orders to all markets disseminating the NBBO, including 
NYSEArca, and thus is not unfairly discriminatory.
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    \10\ For a detailed description of the Exchange's Phlx XL II 
system, see Securities Exchange Act Release No. 59995 (May 28, 
2009), 74 FR 26750 (June 3, 2009) (SR-Phlx-2009-32).
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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.
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    \11\ 15 U.S.C. 78s(b)(3)(A)(ii).
    \12\ 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-2010-01 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-2010-01. 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,\13\ 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 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-2010-01 and should be 
submitted on or before February 16, 2010.
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    \13\ 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.\14\
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    \14\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
[FR Doc. 2010-1432 Filed 1-25-10; 8:45 am]
BILLING CODE 8011-01-P