Document ID: SEC-2011-0753-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: NASDAQ OMX PHLX LLC
Posted Date: 2011-05-31T04:00Z

[Federal Register Volume 76, Number 104 (Tuesday, May 31, 2011)]
[Notices]
[Pages 31384-31385]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2011-13375]

-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-64539; File No. SR-Phlx-2011-68]

Self-Regulatory Organizations; Notice of Filing and Immediate 
Effectiveness of Proposed Rule Change by NASDAQ OMX PHLX LLC Relating 
to Market Access Provider Fee

May 24, 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 May 17, 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.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------

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 to 
eliminate the Market Access Provider Subsidy in Section VII of the Fee 
Schedule.
    While changes to the Fee Schedule pursuant to this proposal are 
effective upon filing, the Exchange has designated these changes to be 
operative on June 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, 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 Section 
VII, entitled ``Market Access Provider Subsidy'' from the Fee Schedule. 
The Market Access Provider Subsidy is a per contract fee payable by the 
Exchange to Eligible Market Access Providers \3\ for Eligible Contracts 
\4\ submitted by MAPs for execution on the Exchange. The Exchange does 
not desire to incentivize MAPs going forward by offering a subsidy.
---------------------------------------------------------------------------

    \3\ A Market Access Provider is an Exchange member organization 
that offers customers automated order routing systems and electronic 
market access to U.S. options markets (``Market Access Providers'' 
or ``MAPs'').
    \4\ ``Eligible Contracts'' means contracts that result from the 
execution on the Exchange of: (1) Equity option orders (other than 
crosses) sent electronically to an Eligible MAP (and routed to the 
Exchange electronically by the Eligible MAP) by its customers; and 
(2) MAP Routing Orders (other than crosses) sent electronically by 
the Eligible MAP. Contracts that are executed electronically as part 
of a Complex Order are not Eligible Contracts.
---------------------------------------------------------------------------

    In 2007, the Exchange began to offer MAPs a subsidy to route 
additional option orders to the Exchange.\5\ The subsidy is applicable 
to any Exchange member organization that qualifies as a MAP and elects 
to participate for that calendar month. The Exchange pays a per-
contract MAP Subsidy to any Exchange member organization that qualifies 
as a MAP (an ``Eligible MAP'') \6\ and elects to participate by 
submitting any application(s) and/or form(s) required by the Exchange, 
and complying with other conditions.\7\ The Exchange currently pays a 
monthly subsidy of $0.10 (the ``Subsidy Rate'') to Eligible MAPs for 
each Eligible Contract executed in the immediately preceding calendar 
month above the particular Eligible MAP's Baseline Order Flow.\8\
---------------------------------------------------------------------------

    \5\ See Securities Exchange Act Release No. 56274 (August 16, 
2007), 72 FR 48720 (August 24, 2007) (SR-Phlx-2007-54).
    \6\ Eligible MAP'' means a MAP eligible for the Market Access 
Provider Subsidy and who is required to: (1) Submit any required 
Exchange applications and/or forms for Exchange approval to 
participate as an Eligible MAP; (2) provide to its customers systems 
that enable the electronic routing of equity option orders to all of 
the U.S. options exchanges, including Phlx; (3) provide to its 
customers current consolidated market data from the U.S. options 
exchanges; (4) interface with Phlx's API to access the Exchange's 
electronic options trading platform, PHLX XL II; (5) offer to its 
customers a customized interface and routing functionality 
(including sweep function described below) such that: (A) Phlx will 
be the default destination for all equity option orders (whether 
marketable or not), provided that in the case of marketable orders, 
Phlx is at the national best bid or offer (``NBBO'') on the 
appropriate side of the market (i.e., the contra-side of the order 
that is routed to Phlx), regardless of size or time, up to Phlx's 
disseminated size; and (B) the MAP's option order routing 
functionality incorporates a feature that causes orders at a 
specified price to be routed simultaneously to multiple exchanges 
with a single click (a ``sweep function''), which is configured to 
route all such orders (or, if such orders are for a size larger than 
the size disseminated by the Phlx on the opposite side of the 
market, at least the portion of the order that corresponds to Phlx's 
disseminated size) to Phlx as the default destination for execution 
for a size up to the full size quoted on the Phlx, provided that, in 
the case of marketable orders, the Phlx disseminated price on the 
appropriate side of the market is at the NBBO; (6) configure its own 
option order routing functionality such that it is configured as 
described in sub-paragraph 5(A) and (B) above, with respect to all 
equity option orders as to which the MAP has discretion as to 
routing (``MAP Routing Orders''); (7) ensure that the customized 
functionality described in sub-paragraphs (5) and (6) above permits 
users submitting option orders through such system(s) to manually 
override the Phlx as the default destination on an order-by-order 
basis; and (8) enter into and maintain an agreement with the 
Exchange to function as an Eligible MAP and be in compliance with 
all terms thereof.
    \7\ The MAP must enter into a Priority Routing Covenant with the 
Exchange which is an agreement with Phlx to refrain from entering 
into arrangements with other exchanges or execution venues where 
such exchange or execution venue will have the same routing position 
as, or priority over, Phlx as the default destination for certain 
option orders, unless Phlx otherwise consents.
    \8\ ``Baseline Order Flow'' for an Eligible MAP means the higher 
of: (1) 500,000 contracts, or (2) the average contracts per month, 
calculated for the 3-month period immediately preceding the Eligible 
MAP entering into the agreement with Phlx, that resulted from the 
execution on the Phlx of equity option orders (other than crosses) 
routed to Phlx electronically by such Eligible MAP. Contracts that 
are executed electronically as part of a Complex Order are not 
included in the calculation of Baseline Order Flow.

---------------------------------------------------------------------------

[[Page 31385]]

    The Exchange is also proposing to make other technical amendments 
to the Fee Schedule to renumber Sections VIII through XI to account for 
the elimination of the Market Access Provider Subsidy section. The 
Exchange is proposing to eliminate the MAP Subsidy, and not offer any 
such subsidy as of June 1, 2011.
b. Statutory Basis
    The [sic] believes that its proposal to amend its Fee Schedule is 
consistent with Section 6(b) of the Act \9\ in general, and furthers 
the objectives of Section 6(b)(4) of the Act \10\ in particular, in 
that it is an equitable allocation of reasonable fees and other charges 
among Exchange members.
---------------------------------------------------------------------------

    \9\ 15 U.S.C. 78f(b).
    \10\ 15 U.S.C. 78f(b)(4).
---------------------------------------------------------------------------

    The MAP Subsidy was designed to allow MAPs to offer their customers 
a customized interface and provide those customers support for such an 
interface. The Exchange pays a MAP Subsidy to incentivize MAPs to bring 
order flow to the Exchange. The Exchange believes that eliminating the 
MAP Subsidy is reasonable because the Exchange no longer desires to 
incentivize member organizations by offering such a subsidy. The 
Exchange also believes the proposal is equitable because it would no 
longer offer such a MAP Subsidy to any market participant.

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\ 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.
---------------------------------------------------------------------------

    \11\ 15 U.S.C. 78s(b)(3)(A)(ii).
---------------------------------------------------------------------------

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-2011-68 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-2011-68. 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 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-2011-68 and should be 
submitted on or before June 21, 2011.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\12\
---------------------------------------------------------------------------

    \12\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Cathy H. Ahn,
Deputy Secretary.
[FR Doc. 2011-13375 Filed 5-27-11; 8:45 am]
BILLING CODE 8011-01-P