Document ID: SEC-2010-1570-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: NASDAQ OMX PHLX LLC
Posted Date: 2010-10-15T04:00Z

[Federal Register: October 15, 2010 (Volume 75, Number 199)]
[Notices]               
[Page 63526-63528]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr15oc10-149]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-63070; File No. SR-Phlx-2010-129]

 
Self-Regulatory Organizations; NASDAQ OMX PHLX LLC; Notice of 
Filing and Immediate Effectiveness of Proposed Rule Change Relating to 
Rebates and Fees for Adding and Removing Liquidity

October 8, 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 September 27, 2010, 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 Rebates and Fees for Adding and 
Removing Liquidity in Select Symbols to amend its current fees for 
removing liquidity and also add certain fees to apply to Complex 
Orders.
    While changes to the Exchange's Fee Schedule pursuant to this 
proposal are effective upon filing, the Exchange has designated this 
proposal to be effective for trades settling on or after October 1, 
2010.
    The text of the proposed rule change is available on the Exchange's 
Web site at http://www.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 incentivize Broker-
Dealers that route Customer orders to use the Exchange's enhanced 
automated opening system \3\ as well as to route Complex Order volume 
to the Exchange. The increased Customer volume should benefit market 
makers \4\ and other Broker-Dealers engaged in proprietary trading.
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    \3\ See Exchange Rule 1017(l).
    \4\ The Exchange market maker category includes Specialists (see 
Rule 1020) and Registered Options Traders (Rule 1014(b)(i) and (ii), 
which includes Streaming Quote Traders or SQTs (see Rule 
1014(b)(ii)(A)) and Remote Streaming Quote Traders or RSQTs (see 
Rule 1014(b)(ii)(B)).
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    The Exchange is proposing to amend its current Rebates and Fees for 
Adding and Removing Liquidity in Select

[[Page 63527]]

Symbols to apply only to single contra-side orders, which will now be 
part A of Section I of the Fee Schedule. The Select Symbols currently 
listed on the Fee Schedule will remain the same.\5\ The Exchange is 
proposing to increase the Directed Participant and Specialist, ROT, SQT 
and RSQT Fee for Removing Liquidity to $0.33 per contract. Currently, 
Directed Participants are assessed a $0.30 per contract Fee for 
Removing Liquidity and Specialists, ROTs, SQTs and RSQTs are assessed a 
$0.32 per contract Fee for Removing Liquidity.
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    \5\ The Rebates and Fees for Adding and Removing Liquidity in 
Select Symbols will continue to apply only to electronic orders.
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    The Exchange is also proposing to add separate Rebates and Fees for 
Adding and Removing Liquidity in Select Symbols for the electronically 
executed Complex Order \6\ side of any transaction as a new part B of 
Section I of the Fee Schedule. The Exchange is proposing to pay a 
Rebate for Adding Liquidity and assess a Fee for Removing Liquidity, 
which would apply only to the Complex Order side of a transaction. For 
example, one component of a Complex Order is a buy order that trades 
with a ``simple'' or non-Complex Order sell order, the sell order is 
subject to the fees in part A of Section I of the Fee Schedule and the 
buy order is subject to the fees in new part B of Section I of the Fee 
Schedule.
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    \6\ A complex order strategy means any Complex Order involving 
any option series which is priced at a net debit or credit (based on 
the relative prices of each component). The Exchange will calculate 
both a bid price and an offer price for each complex order strategy 
based on the current PBBO (as defined below) for each component of 
the Complex Order and the bid/ask differential for each component. 
See Exchange Rule 1080, Commentary .08(a)(ii).
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    The proposed fees are as follows:

----------------------------------------------------------------------------------------------------------------
                                                           Specialist,
                                Customer      Directed    ROT, SQT and      Firm         Broker-    Professional
                                             participant      RSQT                       dealer
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Rebate for Adding Liquidity.         $0.22         $0.25         $0.23         $0.10         $0.10         $0.20
Fee for Removing Liquidity..          0.25          0.25          0.27          0.27          0.35          0.27
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    The Exchange also proposes to apply these fees above as follows:
     Customer Complex Orders would receive the Rebate for 
Adding Liquidity when those orders are electronically executed against 
a [sic] \7\ Customer contra-side order with the same Complex Order 
strategy.
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    \7\ The Commission notes that the Exhibit 5 attached to the form 
19b-4 states that ``Customer Complex Orders will receive the Rebate 
for Adding Liquidity when electronically executed against a non-
Customer contra-side order with the same Complex Order Strategy.'' 
(Emphasis added).
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     Customer Complex Orders that are executed against a 
Customer contra-side order with the same Complex Order strategy would 
not be assessed the Fee for Removing Liquidity.
     A Professional, Directed Participant, Firm, Broker-Dealer 
and Specialist, ROT, SQT and RSQT would be assessed the Fees for 
Removing Liquidity when those orders are executed against a contra-side 
order with the same Complex Order strategy.
     A single contra-side order that is executed against the 
individual components of a Complex Order would be assessed the fees in 
Part A of this Section.
     The individual components of a Complex Order would be 
assessed the fees in Part B of this Section.
    The following would continue to apply to the fees designated as 
Parts A and B:
     The Monthly Cap on transaction fees that are currently 
applicable to ROTs and Specialists transacting equity options will not 
be applicable to the Select Symbols.
     The Firm Related Equity Option Cap will not be applicable 
to the Select Symbols.
     The Market Access Provider (``MAP'') Subsidy will not 
apply to electronic transactions in the Select Symbols.
     Payment for Order Flow fees will not be collected on 
transactions in the Select Symbols.
     The Options Floor Broker Subsidy will be applicable to 
qualifying transactions in the Select Symbols (see Options Floor Broker 
Subsidy Fees).
     The Cancellation Fee will continue to apply to the Select 
Symbols.
     Transactions in the Select Symbols executed via open 
outcry will be subject to the Equity Options Fees (see Equity Options 
Fees in Section II). However, if one side of the transaction is 
executed using the Options Floor Broker Management System and any other 
side of the trade was the result of an electronically submitted order 
or a quote, then these fees will apply to the FBMS contracts and 
contracts that are executed electronically on all sides of the 
transaction.
    The Exchange is removing the following language, which previously 
related to Complex Orders for fees in Section I: ``Regular Equity 
Option transaction fees will apply to Complex Orders that are 
electronically executed against a contra-side order with the same 
Complex Order Strategy.'' Also, the following language is proposed to 
be deleted: ``Single contra-side orders that are executed against the 
individual components of Complex Orders will be charged according to 
the above fees. The individual components of such a Complex Order will 
be charged according to the above fees.'' Because Complex Orders are 
now part B of this Fee Schedule, this language is no longer necessary.
    The Exchange is proposing to amend the application of the Rebates 
and Fees for Adding and Removing Liquidity in Select Symbols, Section 
I, to its opening and auction processes by adopting new part C. 
Currently, Section I does not apply to contracts executed during the 
Exchange's opening process,\8\ except for the Firm and the Broker-
Dealer Fee for Removing Liquidity. Also, currently, Customer, 
Professional, Directed Participant, and Specialist, ROT, SQT and RSQT 
Fees for Removing Liquidity do not apply to transactions resulting from 
electronic auctions.\9\ Firm and Broker-Dealer Fees for Removing 
Liquidity do apply to transactions resulting from electronic auctions. 
Customer, Professional, Directed Participant, and Specialist, ROT, SQT 
and RSQT Rebates for Adding Liquidity do not apply to transactions 
resulting from electronic auctions.
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    \8\ See Exchange Rule 1017, Openings in Options.
    \9\ Electronic auctions include, without limitation, the Complex 
Order Live Auction (``COLA''), and Quote and Market Exhaust 
auctions.
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    The Exchange is proposing to amend the fees that apply to all 
electronic auctions, including the Exchange's opening process. The 
Exchange proposes that a Customer would receive a Rebate for Adding 
Liquidity in an electronic auction and during the Exchange's opening 
process, except when such Customer order is contra to another Customer 
order. A Customer would not be assessed a Fee for Removing Liquidity in 
an electronic auction and during the Exchange's opening process. The 
Exchange also proposes that Professional, Directed

[[Page 63528]]

Participant, Firm, Broker-Dealer and Specialist, ROT, SQT and RSQT Fees 
for Removing Liquidity would apply to transactions resulting from 
electronic auctions and the Exchange's opening process.
    While changes to the Exchange's Fee Schedule pursuant to this 
proposal are effective upon filing, the Exchange has designated this 
proposal to be effective for trades settling on or after October 1, 
2010.
2. Statutory Basis
    The Exchange believes that its proposal to amend its schedule of 
fees 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 and other persons using its 
facilities. The Exchange's proposal to assess separate fees for Complex 
and non-Complex Orders in Section I of its Fee Schedule is consistent 
with industry fees that allow for different rates to be charged for 
different order types originated by dissimilarly classified market 
participants.\12\ The Exchange believes that this amendment to the fees 
is both reasonable and equitable because the fees are within the range 
assessed other market participants and are similar to fees being 
assessed by the International Securities Exchange, LLC (``ISE'') for 
complex order executions.\13\
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    \10\ 15 U.S.C. 78f(b).
    \11\ 15 U.S.C. 78f(b)(4).
    \12\ See Securities Exchange Act Release No. 62805 (August 31, 
2010), 75 FR 54682 (September 8, 2010) (SR-ISE-2010-90).
    \13\ See ISE's Schedule of Fees.
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    The Exchange proposes to pay a Rebate for Adding Liquidity to 
Customers when such transaction is contra to a non-Customer order 
during an electronic auction and opening processes. Similarly, the 
Exchange proposes to not assess a fee to a Customer during such 
processes. The Exchange also proposes to apply the Fee for Removing 
Liquidity to all non-Customer market participants equally during 
electronic auction or opening processes. The Exchange believes that 
these proposals are both reasonable and equitable because they should 
incentivize Customer orders and attract additional order flow to the 
Exchange. Also, all other participants are equally assessed the 
applicable Fees for Removing Liquidity.
    The Exchange operates in a highly competitive market in which 
market participants can readily direct order flow to competing venues 
if they deem fee levels at a particular venue to be excessive. The 
Exchange believes that the fees it charges for options overlying the 
various Select Symbols remain competitive with fees charged by other 
venues and therefore continue to be reasonable and equitably allocated 
to those members that opt to direct orders to the Exchange rather than 
competing venues.

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.\14\ 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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    \14\ 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-2010-129 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-2010-129. 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 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 No. SR-Phlx-2010-129 and should be 
submitted on or before November 5, 2010.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\15\
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    \15\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
[FR Doc. 2010-25984 Filed 10-14-10; 8:45 am]
BILLING CODE 8011-01-P