Document ID: SEC-2013-0329-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: NASDAQ OMX PHLX LLC
Posted Date: 2013-02-14T05:00Z

[Federal Register Volume 78, Number 31 (Thursday, February 14, 2013)]
[Notices]
[Pages 10664-10666]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2013-03390]

[[Page 10664]]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-68880; File No. SR-Phlx-2013-10]

Self-Regulatory Organizations; NASDAQ OMX PHLX LLC; Notice of 
Filing and Immediate Effectiveness of Proposed Rule Change To Amend 
Certain Fees in Section II of the Pricing Schedule

February 8, 2013.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ and Rule 19b-4 \2\ thereunder, notice is hereby given 
that on January 25, 2013, NASDAQ OMX PHLX LLC (``Phlx'' or 
``Exchange'') filed with the Securities and Exchange Commission 
(``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 Section II of the Pricing Schedule 
entitled ``Multiply Listed Options Fees'' \3\ to amend fees applicable 
to a Firm. The Exchange also proposes to make a technical amendment to 
Section VI entitled ``Membership Fees.''
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    \3\ Multiply Listed Options includes options overlying equities, 
ETFs, ETNs and indexes which are Multiply Listed.
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    While changes to the Pricing Schedule pursuant to this proposal are 
effective upon filing, the Exchange has designated the proposed 
amendment to be operative on February 1, 2013.
    The text of the proposed rule change is provided in Exhibit 5. The 
text of the proposed rule change is also available on the Exchange's 
Web site at http://nasdaqomxphlx.cchwallstreet.com/, 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 this filing is to increase certain fees applicable 
to Firms in Section II of the Pricing Schedule to more closely align 
the electronic Firm Penny Pilot Options \4\ Transaction Charge with 
other fees in Sections II of the Pricing Schedule.
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    \4\ The Penny Pilot was established in January 2007; and in 
October 2009, it was expanded and extended through June 30, 2013. 
See Securities Exchange Act Release Nos. 55153 (January 23, 2007), 
72 FR 4553 (January 31, 2007) (SR-Phlx-2006-74) (notice of filing 
and approval order establishing Penny Pilot); 60873 (October 23, 
2009), 74 FR 56675 (November 2, 2009) (SR-Phlx-2009-91) (notice of 
filing and immediate effectiveness expanding and extending Penny 
Pilot); 60966 (November 9, 2009), 74 FR 59331 (November 17, 2009) 
(SR-Phlx-2009-94) (notice of filing and immediate effectiveness 
adding seventy-five classes to Penny Pilot); 61454 (February 1, 
2010), 75 FR 6233 (February 8, 2010) (SR-Phlx-2010-12) (notice of 
filing and immediate effectiveness adding seventy-five classes to 
Penny Pilot); 62028 (May 4, 2010), 75 FR 25890 (May 10, 2010) (SR-
Phlx-2010-65) (notice of filing and immediate effectiveness adding 
seventy-five classes to Penny Pilot); 62616 (July 30, 2010), 75 FR 
47664 (August 6, 2010) (SR-Phlx-2010-103) (notice of filing and 
immediate effectiveness adding seventy-five classes to Penny Pilot); 
63395 (November 30, 2010), 75 FR 76062 (December 7, 2010) (SR-Phlx-
2010-167) (notice of filing and immediate effectiveness extending 
the Penny Pilot); 65976 (December 15, 2011), 76 FR 79247 (December 
21, 2011) (SR-Phlx-2011-172) (notice of filing and immediate 
effectiveness extending the Penny Pilot); 67326 (June 29, 2012), 77 
FR 40126 (July 6, 2012) (SR-Phlx-2012-86) (notice of filing and 
immediate effectiveness extending the Penny Pilot); and 68534 
(December 21, 2012), 77 FR 77174 (December 31, 2012) (notice of 
filing and immediate effectiveness extending the Penny Pilot). See 
also Exchange Rule 1034.
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    Currently, the Exchange assesses Firm Options Transaction Charges 
in Penny Pilot Options as follows: $0.40 per contract for an electronic 
order and $0.25 per contract for an order originating from the Exchange 
floor. The Exchange assesses Firm Options Transaction Charges in non-
Penny Pilot Options \5\ as follows: $0.45 per contract for an 
electronic order and $0.25 per contract for an order originating from 
the Exchange floor. The Exchange proposes to increase the electronic 
Firm Options Transaction Charge in Penny Pilot Options from $0.40 to 
$0.44 per contract.
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    \5\ Non-Penny Pilot refers to options classes not in the Penny 
Pilot.
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    Currently, the Exchange reduces electronic Firm Options Transaction 
Charges in Penny Pilot and non-Penny Pilot Options to $0.13 per 
contract and $0.00 per contract for electronic Complex Orders that add 
liquidity for a given month provided that a Firm has volume greater 
than 600,000 electronically-delivered contracts in a month 
(``Electronic Firm Fee Discount''). The Exchange proposes to reduce 
electronic Firm Options Transaction Charges in Penny Pilot and non-
Penny Pilot Options, including electronic Complex Orders that add 
liquidity,\6\ to $0.17 per contract \7\ if a Firm meets the volume 
requirement of the Electronic Firm Fee Discount. Finally, the Exchange 
proposes to amend the Firm volume requirement for the Electronic Firm 
Fee Discount by lowering it from 600,000 electronically-delivered 
contracts to 500,000 electronically-delivered contracts.
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    \6\ Today, a Firm that qualifies for the Electronic Firm Fee 
Discount would not be assessed an Options Transaction Charge for 
electronic Complex Orders that add liquidity because they are 
entitled to a fee reduction to $0.00 per contract.
    \7\ Today, a Firm that qualifies for the Electronic Firm Fee 
Discount would not be assessed a charge for electronic Complex 
Orders that add liquidity. Pursuant to this proposal, a Firm would 
be assessed $0.17 per contract for electronic Complex Orders that 
add liquidity.
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    The Exchange also proposes to amend Section VI, Part A of the 
Pricing Schedule entitled ``Permit and Registration Fees'' to make a 
technical amendment to correct the text of the Pricing Schedule. The 
Exchange amended the Permit Fees on January 2, 2013 to increase the 
Permit Fee for Phlx Members transacting business on Phlx from $2,000 to 
$2,100 per month.\8\ At that time, the Exchange inadvertently did not 
also update the paragraph explaining how a member qualifies for the 
lower Permit Fee. The Exchange proposes to update the Pricing Schedule 
to reflect the Permit Fee for Phlx Members transacting business on Phlx 
is $2,100 in note 15 which accompanies the Permit Fee to update and 
clarify the Pricing Schedule.
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    \8\ See Securities Exchange Act Release No. 68473 (December 19, 
2012), 77 FR 76128 (December 19, 2012) (SR-Phlx-2012-140).
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2. Statutory Basis
    The Exchange believes that its proposal to amend its Pricing 
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.
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    \9\ 15 U.S.C. 78f(b).
    \10\ 15 U.S.C. 78f(b)(4).
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    The Exchange believes that increasing the Firm Options Transaction 
Charge from $0.40 to $0.44 per contract is

[[Page 10665]]

reasonable because this fee is within the range of other fees in 
Section II of the Pricing Schedule. The Exchange currently assesses an 
electronic Firm Options Transaction Charge in non-Penny Pilot Options 
of $0.45 per contract and an electronic Broker-Dealer Options 
Transaction Charge in Penny Pilot Options of $0.45 per contract. The 
Exchange generally assesses lower fees for Penny Pilot Options as 
compared to non-Penny Pilot Option because those securities are among 
the most actively traded and liquid options. This is the case today for 
Specialist, Market Maker and Broker-Dealer Fees.\11\
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    \11\ The Exchange assesses an electronic Specialist and Market 
Maker Options Transaction Charge in Penny Pilot Options of $0.22 per 
contract as compared to an electronic Specialist and Market Maker 
Options Transaction Charge in non-Penny Pilot Options of $0.23 per 
contract. The Exchange assesses an electronic Broker Dealer Options 
Transaction Charge in Penny Pilot Options of $0.45 per contract as 
compared to an electronic Broker Dealer Options Transaction Charge 
in non-Penny Pilot Options of $0.60 per contract.
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    The Exchange believes that increasing the Firm Options Transaction 
Charge from $0.40 to $0.44 per contract is equitable and not unfairly 
discriminatory for the reasons which follow. Firms will continue to be 
assessed a higher fee than a Customer who pays no fee to transact 
electronic Penny Pilot Options. Customer order flow brings unique 
benefits to the market which benefits all market participants through 
increased liquidity. Similarly, Firms will continue to be assessed 
higher fees than Specialists \12\ and Market Makers \13\ in electronic 
Penny Pilot Options \14\ because Specialists and Market Makers have 
obligations to the market and regulatory requirements,\15\ which 
normally do not apply to other market participants. They have 
obligations to make continuous markets, engage in a course of dealings 
reasonably calculated to contribute to the maintenance of a fair and 
orderly market, and not make bids or offers or enter into transactions 
that are inconsistent with a course of dealings. The proposed 
differentiation as between Customers, Specialists and Market Makers and 
other market participants recognizes the differing contributions made 
to the liquidity and trading environment on the Exchange by these 
market participants, as well as the differing mix of orders entered. 
Broker-Dealers and Firms today pay higher fees as compared to a 
Professional \16\ for electronic Penny Pilot Options transactions and 
this would not change. With respect to Professionals, they have access 
to more information and technological advantages as compared to 
Customers and Professionals do not bear the obligations of Specialists 
or Market Makers. Also, Professionals engage in trading activity 
similar to that conducted by Specialists or Market Makers. For example, 
Professionals continue to join bids and offers on the Exchange and thus 
compete for incoming order flow. For these reasons, the Exchange 
believes that Professionals may be priced higher than a Customer and 
may be priced equal to or higher than a Specialist or Market Maker. 
Finally, the Firm will continue to be assessed a lower fee as compared 
to a Broker-Dealer. The Exchange believes that increasing the Firm 
electronic Penny Pilot Options Transaction Charge to $0.44 per contract 
does not misalign the current rate differentials between a Broker-
Dealer and a Firm because the Exchange is narrowing the differential to 
$.01 per contract. Further, the Exchange is increasing the discounted 
fee for Firms that qualify for the Electronic Firm Fee Discount for all 
electronic orders, including electronic Complex Orders that add 
liquidity, to $0.17 per contract. This will also serve to further align 
the rate differentials as between a Broker-Dealer and a Firm.
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    \12\ A ``Specialist'' is an Exchange member who is registered as 
an options specialist pursuant to Rule 1020(a).
    \13\ A ``Market Maker'' includes Registered Options Traders 
(Rule 1014(b)(i) and (ii)), which includes Streaming Quote Traders 
(see Rule 1014(b)(ii)(A)) and Remote Streaming Quote Traders (see 
Rule 1014(b)(ii)(B)). Directed Participants are also market makers.
    \14\ Specialists and Market Maker pay $0.22 per contract to 
transact electronic Penny Pilot Options.
    \15\ See Rule 1014 titled ``Obligations and Restrictions 
Applicable to Specialists and Registered Options Traders.''
    \16\ The term ``Professional'' means 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). See Rule 
1000(b)(14).
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    The Exchange believes that it is reasonable to decrease the 
Electronic Firm Fee Discount for electronic Options Transaction Charges 
in Penny Pilot and non-Penny Pilot Options from $0.13 to $0.17 per 
contract, decrease the fee deduction for Firm electronic Complex Orders 
that add liquidity from no fee to $0.17 per contract and decrease the 
Firm volume requirement from 600,000 to 500,000 electronically-
delivered contracts because the Exchange is continuing to offer Firms 
discounts if they qualify for the Electronic Firm Fee Discount. By 
decreasing the Firm volume requirement from 600,000 to 500,000 
electronically-delivered contracts, the Exchange believes that 
additional market participants transacting Firm orders would be able to 
qualify for the discount. Despite the increase to the Firm electronic 
Penny Pilot Options Transaction Charge, the Exchange believes the 
amendments to the Electronic Firm Fee Discount should continue to 
attract electronic Firm volume to the Exchange.
    The Exchange believes that it is equitable and not unfairly 
discriminatory to decrease the Electronic Firm Fee Discount for 
electronic Options Transaction Charges in Penny Pilot and non-Penny 
Pilot Options from $0.13 to $0.17 per contract, decrease the fee 
deduction for Firm electronic Complex Orders that add liquidity from no 
fee to $0.17 per contract and decrease the Firm volume requirement from 
600,000 to 500,000 electronically-delivered contracts for the 
Electronic Firm Fee Discount because all Firms will continue to have an 
opportunity to qualify for this incentive as they do today, provided 
they achieve the requisite volume. The Exchange also believes that the 
increased opportunity to obtain the Electronic Firm Fee Discount, 
because of the reduced volume requirement, will assist Firms to offset 
the increased Firm fee proposed herein. While the Exchange is 
decreasing the discount (from no charge to $0.17 per contract) on Firm 
electronic Complex Orders that add liquidity, the Exchange believes 
that reducing the discount for all Firm electronic Penny Pilot and non-
Penny Pilot Options Transaction Charges by the same amount is equitable 
and not unfairly discriminatory.
    Finally, the Exchange believes that the technical amendment to 
Section VI of the Pricing Schedule to amend the reference to the Permit 
Fee for Phlx Members transacting business on Phlx is reasonable, 
equitable and not unfairly discriminatory because the proposed 
amendment should clarify the incorrect text on the Pricing Schedule and 
provide consistent information in that section of the Pricing Schedule.

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. The Exchange believes that 
increasing the electronic Firm Penny Pilot Options Transaction Charge 
does not misalign the pricing in Section II as between the market 
participants. The Firm electronic Options Transaction Charges in Penny 
Pilot Options would continue to be higher than Customer fees, 
electronic Professional fees and electronic Specialist and Market Maker 
fees in

[[Page 10666]]

Penny Pilot Options. Additionally, the increased Firm fee narrows the 
differential as between Firms and Broker-Dealers. Further, the Exchange 
is offsetting the Firm fee increase with an increased opportunity to 
obtain the Electronic Firm Fee Discount of $0.17 per contract by 
decreasing the Firm volume requirement. The increased Firm discount of 
$0.17 per contract applies equally to all Firms. The Exchange does not 
believe that any of the proposed amendments impose a burden on 
competition as between market participants. The Exchange proposes to 
balance an increased fee applicable only to Firms with an increased 
opportunity for Firms to benefit from a discount.
    The Exchange operates in a highly competitive market, comprised of 
eleven exchanges, in which market participants can easily and readily 
direct order flow to competing venues if they deem fee levels at a 
particular venue to be excessive. Accordingly, the fees that are 
assessed by the Exchange must remain competitive with fees charged by 
other venues and therefore must continue to be reasonable and equitably 
allocated to those members that opt to direct orders to the Exchange 
rather than competing venues.

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.\17\ 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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    \17\ 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 email to rule-comments@sec.gov. Please include 
File Number SR-Phlx-2013-10 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-2013-10. This file 
number should be included on the subject line if email 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 
10:00 a.m. and 3:00 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-2013-10 and should be 
submitted on or before March 7, 2013.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\18\
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    \18\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2013-03390 Filed 2-13-13; 8:45 am]
BILLING CODE 8011-01-P