Document ID: SEC-2011-0782-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: NASDAQ OMX PHLX LLC
Posted Date: 2011-06-07T04:00Z

[Federal Register Volume 76, Number 109 (Tuesday, June 7, 2011)]
[Notices]
[Pages 33015-33017]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2011-13940]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-64580; File No. SR-Phlx-2011-73]

Self-Regulatory Organizations; Notice of Filing and Immediate 
Effectiveness of Proposed Rule Change by NASDAQ OMX PHLX LLC Relating 
to Customer Complex Orders

June 1, 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 24, 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 amend its Complex Order \3\ Fees in 
Section I of its Fee Schedule entitled ``Rebates and Fees for Adding 
and Removing Liquidity in Select Symbols'' and Section II entitled 
``Equity Options Fees.''
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    \3\ 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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    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, at the Commission's Public Reference 
Room, and on the Commission's Web site at http://www.sec.gov.

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 amend certain Complex 
Order Fees in Section I, Part C of the Exchange's Fee Schedule \4\ as 
well as in Section II. The Exchange proposes the fee changes to create 
additional incentives for market participants to execute Customer 
Complex Orders on the Exchange.
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    \4\ Section I applies to certain symbols defined in Section I as 
``Select Symbols.''
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    The Exchange proposes to amend Section I, Part C which currently 
provides, ``[a] Customer Complex Order will receive a Rebate for Adding 
Liquidity (as set forth in Part B) in an electronic auction and during 
the Exchange's opening process, except when such Customer order is 
contra to another Customer order.'' The Exchange is proposing to amend 
this provision as it relates to electronic auctions, specifically a 
Complex Order Live Auction (``COLA'').\5\ The Exchange is not amending 
the Rebate for Adding Liquidity as it applies to all other electronic 
auctions, including the Exchange's opening process (collectively 
``Other Auctions'').
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    \5\ COLA is the automated Complex Order Live Auction process. A 
COLA may take place upon identification of the existence of a COLA-
eligible order either: (1) Following a COOP, or (2) during normal 
trading if the Phlx XL system receives a Complex Order that improves 
the cPBBO. See Exchange Rule 1080.
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    First, the Exchange would offer a Rebate for Adding Liquidity for a 
Customer Complex Order in a COLA, regardless of the contra-party. The 
contra-party restriction is being

[[Page 33016]]

removed except with regard to Other Auctions,\6\ including the opening 
process. Specifically, the Exchange is proposing to pay a Rebate for 
Adding Liquidity on Customer Complex Orders in a COLA, notwithstanding 
whether the Customer order is contra to another Customer order. The 
Exchange would continue to pay a Rebate for Adding Liquidity on 
Customer Complex Orders during Other Auctions, including the Exchange's 
opening process,\7\ in certain circumstances.
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    \6\ For purposes of this filing, Other Auctions include Quote 
and Market Exhaust auctions. Market Exhaust occurs when there are no 
Phlx XL II participant (specialist, SQT or RSQT) quotations in the 
Exchange's disseminated market for a particular series and an 
initiating order in the series is received. In such a circumstance, 
the Phlx XL II system, using Market Exhaust, will initiate a Market 
Exhaust auction for the initiating order. Under Market Exhaust, any 
order volume that is routed to away markets will be marked as an 
Intermarket Sweep Order or ``ISO.'' See Exchange Rule 1082. COLA 
auctions are discussed above and not included in the Other Auctions 
reference.
    \7\ See Exchange Rule 1017.
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    The Exchange is not amending the Rebate for Adding Liquidity as it 
applies to Other Auctions, including the Exchange's opening process. 
For Other Auctions, the Exchange would continue to pay a Rebate for 
Adding Liquidity (as set forth in Part B) when a Customer Complex Order 
is executed against a non-Customer (Specialist,\8\ Registered Options 
Trader,\9\ SQT,\10\ RSQT,\11\ Professional,\12\ Firm or Broker-Dealer) 
contra-side Complex Order, or a non-Customer individual order or quote. 
In other words, for Other Auctions, the Exchange would continue to not 
pay a Rebate for Adding Liquidity when such Customer Complex Order is 
contra to another Customer order.
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    \8\ A Specialist is an Exchange member who is registered as an 
options specialist pursuant to Rule 1020(a).
    \9\ A Registered Options Trader (``ROT'') includes a Streaming 
Quote Trader (``SQT''), a Remote Streaming Quote Trader (``RSQT'') 
and a Non-SQT ROT, which by definition is neither a SQT or a RSQT. A 
ROT is defined in Exchange Rule 1014(b) as a regular member or a 
foreign currency options participant of the Exchange located on the 
trading floor who has received permission from the Exchange to trade 
in options for his own account. See Exchange Rule 1014 (b)(i) and 
(ii).
    \10\ An SQT is defined in Exchange Rule 1014(b)(ii)(A) as an ROT 
who has received permission from the Exchange to generate and submit 
option quotations electronically in options to which such SQT is 
assigned.
    \11\ An RSQT is defined in Exchange Rule 1014(b)(ii)(B) as an 
ROT that is a member or member organization with no physical trading 
floor presence who has received permission from the Exchange to 
generate and submit option quotations electronically in options to 
which such RSQT has been assigned. An RSQT may only submit such 
quotations electronically from off the floor of the Exchange.
    \12\ The Exchange defines a ``professional'' as any person or 
entity that (i) Is not a broker or dealer in securities, and (ii) 
places more than 390 orders in listed options per day on average 
during a calendar month for its own beneficial account(s) 
(hereinafter ``Professional'').
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    Additionally, the Exchange is proposing to amend Section II of the 
Fee Schedule which currently states, ``[a] rebate of $0.05 per contract 
will be paid for Customer complex orders that are electronically-
delivered and executed against a non-Customer (Specialist, ROT, SQT, 
RSQT, Professional, Firm or Broker-Dealer) contra-side complex order, 
or a non-Customer individual order or quote.'' The Exchange is 
proposing to pay a $0.05 per contract rebate for Customer Complex 
Orders that are electronically delivered regardless of the contra-party 
(``Nickel Rebate''). The contra-party restriction is being removed. The 
Exchange would continue to pay a rebate on Customer Complex Orders 
notwithstanding whether the Customer order is executed against a non-
Customer contra-side Complex Order or a non-Customer individual order 
or quote. Section II applies to options overlying equities, exchange-
traded note (``ETN'') \13\ options, exchange-traded fund (``ETF'') 
options,\14\ indexes and HOLDRS,\15\ which are Multiply-Listed.\16\
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    \13\ ETNs are also known as ``Index-Linked Securities,'' which 
are designed for investors who desire to participate in a specific 
market segment by providing exposure to one or more identifiable 
underlying securities, commodities, currencies, derivative 
instruments or market indexes of the foregoing. Index-Linked 
Securities are the non-convertible debt of an issuer that have a 
term of at least one (1) year but not greater than thirty (30) 
years. Despite the fact that Index-Linked Securities are linked to 
an underlying index, each trade as a single, exchange-listed 
security. Accordingly, rules pertaining to the listing and trading 
of standard equity options apply to Index-Linked Securities.
    \14\ An ETF is an open-ended registered investment company under 
the Investment Company Act of 1940 that has received certain 
exemptive relief from the Commission to allow secondary market 
trading in the ETF shares. ETFs are generally index-based products, 
in that each ETF holds a portfolio of securities that is intended to 
provide investment results that, before fees and expenses, generally 
correspond to the price and yield performance of the underlying 
benchmark index.
    \15\ HOLDRS are Holding Company Depository Receipts.
    \16\ A Multiply Listed security means an option that is listed 
on more than one exchange.
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    The Exchange is proposing to make a grammatical change in Section 
II to capitalize the words ``complex order.'' The Exchange is also 
proposing to amend the definition of electronic auctions in the Fee 
Schedule to reference Rule 1082 for additional clarity.
    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.
2. Statutory Basis
    The Exchange believes that its proposal to amend its Fee Schedule 
is consistent with Section 6(b) of the Act \17\ in general, and 
furthers the objectives of Section 6(b)(4) of the Act \18\ in 
particular, in that it is an equitable allocation of reasonable fees 
and other charges among Exchange members. The Exchange believes that 
its proposal should continue to attract Customer order flow to the 
Exchange for the benefit of all market participants [sic].
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    \17\ 15 U.S.C. 78f(b).
    \18\ 15 U.S.C. 78f(b)(4).
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    The Exchange believes that its proposal is reasonable because the 
Exchange is continuing to pay the same Rebate for Adding Liquidity in a 
COLA electronic auction. The Exchange is seeking to increase the 
incentives for member organizations to send Customer Complex Order flow 
to the Exchange for execution by expanding the opportunity to earn a 
rebate. The Exchange believes that offering the Nickel Rebate on all 
Customer Complex Orders, executed in a non-Select Symbol, and 
electronically-delivered, regardless of the contra-party, is reasonable 
because the Nickel Rebate should incentivize additional Customer 
Complex Orders to be sent to the Exchange for execution.
    The Exchange believes that the proposal is equitable because the 
Exchange is seeking to expand the opportunity to earn a Rebate for 
Adding Liquidity during a COLA, which the Exchange believes acts as an 
incentive to increase Customer Complex Orders to be delivered to the 
Exchange for execution, which in turn benefits all market participants. 
The Exchange believes the same rationale applies to the Nickel Rebate. 
As stated above, the Exchange believes market participants benefit from 
improved liquidity and trading opportunities.
    The Exchange operates in a highly competitive market comprised of 
nine U.S. options exchanges in which knowledgeable and sophisticated 
market participants readily can, and do, send order flow to competing 
exchanges if they deem fee levels at a particular exchange to be 
excessive or economically unfavorable. The Exchange believes that the 
proposed modifications to the rebates paid for Customer Complex Orders 
must be competitive with rebates available on other options exchanges. 
The Exchange strongly believes that this competitive options 
marketplace impacts and influences the fees and rebates present on the 
Exchange today and affects the proposals set forth above.

[[Page 33017]]

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.\19\ 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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    \19\ 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 e-mail to rule-comments@sec.gov. Please include 
File Number SR-Phlx-2011-73 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-2011-73. 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 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-2011-73 and should be submitted on or before June 28, 2011.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\20\
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    \20\ 17 CFR 200.30-3(a)(12).
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Cathy H. Ahn,
Deputy Secretary.
[FR Doc. 2011-13940 Filed 6-6-11; 8:45 am]
BILLING CODE 8011-01-P