Document ID: SEC-2011-1024-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: NASDAQ OMX PHLX LLC
Posted Date: 2011-07-18T04:00Z

[Federal Register Volume 76, Number 137 (Monday, July 18, 2011)]
[Notices]
[Pages 42143-42145]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2011-17911]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-64863; File No. SR-Phlx-2011-94]

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

July 12, 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 June 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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[[Page 42144]]

I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to amend Section VII of its Fee Schedule 
entitled the ``Options Floor Broker Subsidy.''
    The Exchange also proposes to make an amendment to Section III of 
the Fee Schedule entitled ``Singly Listed Options.''
    While changes to the Fee Schedule pursuant to this proposal are 
effective upon filing, the Exchange has designated these changes to be 
operative on July 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 amend the computation 
for eligible contracts. The Exchange proposes to amend the eligible 
contract computation to limit the eligible contracts where a Firm is 
also obtaining the benefit of the Firm Related Equity Option Cap 
(``Cap'').\3\ The Exchange believes that the benefit of the Cap should 
be taken into account in the eligible contract computation.
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    \3\ The Firm Related Equity Option Cap is currently $75,000. 
Firm equity option transaction charges and QCC Transaction Fees, in 
the aggregate, for one billing month will not exceed the Firm 
Related Equity Option Cap per member organization when such members 
are trading in their own proprietary account. The Firm equity 
options transaction charges will be waived for members executing 
facilitation orders pursuant to Exchange Rule 1064 when such members 
are trading in their own proprietary account. Members and member 
organizations must notify the Exchange in writing of all accounts in 
which the member is not trading in its own proprietary account. The 
Exchange will not make adjustments to billing invoices where 
transactions are commingled in accounts which are not subject to the 
Firm Related Equity Option Cap. In addition, Firms that (i) Are on 
the contra-side of an electronically-delivered and executed Customer 
complex order; and (ii) have reached the Firm Related Equity Option 
Cap will be assessed a $0.05 per contract fee. See Section II of the 
Exchange's Fee Schedule.
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    The Exchange currently pays an Options Floor Broker Subsidy 
(``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 2,250,000.  2,250,001 to 5,250,000.  5,250,001 and greater.
$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) dividend,\5\ merger 
\6\ and short stock interest \7\ strategies; and (iii) 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 is proposing to amend the computation of eligible 
contracts to also exclude: (i) Firm-to-Customer executions, where the 
Firm has reached the Cap; and (ii) Firm-to-Firm executions, where both 
sides have reached the Cap. The Exchange also proposes to amend Section 
VII to capitalize the word ``Customer'' and make other technical 
amendments.
    Additionally, the Exchange is proposing to amend Section III of the 
Fee Schedule entitled ``Singly Listed Options.'' Specifically, the 
Exchange proposes to remove the list of Alpha Index Options symbols 
(``Alpha Symbols''). The Alpha Symbols are subject to change.\10\ The 
Exchange provides a list of Alpha Symbols, which are subject to the 
Alpha Index Options Fee, at http://

[[Page 42145]]

www.nasdaqomxtrader.com/Micro.aspx?id=Alpha.
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    \10\ The Exchange would file a proposed rule change with the 
Commission each time it proposes to amend the Alpha Symbols which 
are subject to the Alpha Index Options Fee in Section III of the Fee 
Schedule.
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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 July 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 \11\ in general, and 
furthers the objectives of Section 6(b)(4) of the Act \12\ in 
particular, in that it is an equitable allocation of reasonable fees 
and other charges among Exchange members.
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    \11\ 15 U.S.C. 78f(b).
    \12\ 15 U.S.C. 78f(b)(4).
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    The Exchange believes that the proposed amendments to the Subsidy 
are equitable and reasonable because member organizations with Exchange 
registered floor brokers would continue to be provided an equal 
opportunity to receive a Subsidy. The Exchange believes that amending 
the computation to exclude Firm-to-Customer executions and Firm-to-Firm 
executions where the Firm sides have reached the Cap is reasonable 
because the Exchange would not be paying a Subsidy on executions that 
incur no transaction fees. In addition, the Exchange believes that 
amending the computation to exclude Firm-to-Customer executions and 
Firm-to-Firm executions where the Firm sides have reached the Firm 
Related Equity Option Cap is equitable because the exclusions apply 
uniformly to all member organizations. Finally, the Exchange does not 
believe that this Subsidy is unreasonable or discriminatory because any 
floor broker is afforded the opportunity of meeting the volume 
criteria.
    The Exchange believes that its proposal to amend Section III of the 
Fee Schedule to remove the list of Alpha Symbols is both reasonable and 
equitable because the list of symbols is readily available on the 
Exchange's Web site. Since the Alpha Symbols are subject to change, the 
Exchange believes that the list of current symbols on the Exchange's 
Web site is the most appropriate and current source of information for 
the complete list of Alpha Symbols subject to the Alpha Index Options 
Fee.\13\
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    \13\ This list is kept up to date and current with any rule 
changes that are filed with the Commission.
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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.

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-2011-94 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-2011-94. 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-2011-94 and 
should be submitted on or before August 8, 2011.

    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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Cathy H. Ahn,
Deputy Secretary.
[FR Doc. 2011-17911 Filed 7-15-11; 8:45 am]
BILLING CODE 8011-01-P