Document ID: SEC-2008-1449-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: NASDAQ OMX PHLX, Inc.
Posted Date: 2008-10-22T04:00Z

[Federal Register: October 22, 2008 (Volume 73, Number 205)]
[Notices]               
[Page 63037-63039]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr22oc08-110]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-58772; File No. SR-Phlx-2008-72]

 
Self-Regulatory Organizations; Notice of Filing and Immediate 
Effectiveness of Proposed Rule Change and Amendment No. 1 Thereto by 
the NASDAQ OMX PHLX, Inc. Relating to a Surcharge Fee

October 10, 2008.
    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 October 1, 2008, NASDAQ OMX PHLX, Inc. (``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. On 
October 7, 2008, the Exchange filed Amendment No. 1 to the proposal.\3\ 
The Commission is publishing this notice to solicit comments on the 
proposed rule change, as amended, from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ Amendment No. 1 fixed typographical errors in the rule text 
of the original filing that were not being changed in this proposed 
rule change to match the current rule text.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange, pursuant to section 19(b)(1) of the Act \4\ and Rule 
19b-4 thereunder,\5\ proposes to assess a surcharge fee \6\ of $0.10 
per contract side on firm/proprietary, firm/proprietary facilitation, 
Registered Option Trader (on-floor), specialist, and broker/dealer 
(AUTOM and non-AUTOM delivered) equity option transactions in the 
following products: (1) Options on the one-tenth of the value of the 
Nasdaq 100 Index (the ``Mini Nasdaq 100 Index'' or ``MNX''); (2) 
options on the full value of the Nasdaq 100 Index \7\ (the ``Full-size 
Nasdaq 100 Index'' or ``NDX''); (3) options on the Russell 2000[supreg] 
Index (the ``Full Value Russell Index'' or ``RUT''), and (4) options on 
the one-tenth value

[[Page 63038]]

Russell 2000[supreg] Index \8\ (the ``Reduced Value Russell Index'' or 
``RMN'').\9\ A surcharge fee will not apply to customer 
transactions.\10\
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    \4\ 15 U.S.C. 78s(b)(1).
    \5\ 17 CFR 240.19b-4.
    \6\ The Exchange now proposes to refer to ``license fees'' as 
``surcharge fees'' on its fee schedule.
    \7\ NASDAQ[supreg], NASDAQ-100[supreg] and NASDAQ-100 
Index[supreg] are registered trademarks of The NASDAQ OMX Group, 
Inc. (which with its affiliates are the ``Corporations'') and are 
licensed for use by the NASDAQ OMX PHLX, Inc. in connection with the 
trading of options products based on the NASDAQ-100 Index[supreg].
    \8\ Russell 2000[supreg] is a trademark and service mark of the 
Frank Russell Company, used under license. Neither Frank Russell 
Company's publication of the Russell Indexes nor its licensing of 
its trademarks for use in connection with securities or other 
financial products derived from a Russell Index in any way suggests 
or implies a representation or opinion by Frank Russell Company as 
to the attractiveness of investment in any securities or other 
financial products based upon or derived from any Russell Index. 
Frank Russell Company is not the issuer of any such securities or 
other financial products and makes no express or implied warranties 
of merchantability or fitness for any particular purpose with 
respect to any Russell Index or any data included or reflected 
therein, nor as to results to be obtained by any person or any 
entity from the use of the Russell Index or any data included or 
reflected therein.
    \9\ Currently, a $0.10 per contract side license fee is assessed 
on MNX and NDX products and a $0.15 per contract side surcharge fee 
is assessed on RUT and RMN products after the $60,000 ``Firm 
Related'' Equity Option and Index Option Cap fee cap is reached. 
(Equity option and index option ``firm'' transactions are comprised 
of equity option firm/proprietary comparison transactions, equity 
option firm/proprietary transactions, equity option firm/proprietary 
facilitation transactions, index option firm (proprietary and 
customer executions) comparison transactions, index option firm/
proprietary transactions and index option firm/proprietary 
facilitation transaction charges (collectively ``firm-related 
charges'')). See e.g. Securities Exchange Act Release Nos. 54981 
(December 20, 2006), 71 FR 78251 (December 28, 2006); and 53287 
(February 14, 2006), 71 FR 9186 (February 22, 2006).
    \10\ Currently the Exchange does not charge equity option 
transaction charges for customer executions, but charges a $0.12 per 
contract equity option transaction charge for customer executions in 
MNX and NDX.
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    The surcharge fees would be assessed on the applicable equity 
option transactions, regardless of whether any fee caps relating to 
comparison or transaction charges are imposed.
    The Exchange also proposes to credit equity option specialist units 
any applicable surcharge fee that is assessed in connection with 
customer orders that are delivered to the limit order book via Phlx XL 
\11\ or via the Exchange's Options Floor Broker Management System 
(``FBMS'') \12\ and subsequently executed via the Intermarket Option 
Linkage \13\ as a Principal Acting as Agent (``P/A'') order.\14\
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    \11\ Phlx XL, formerly referred to as AUTOM, is the Exchange's 
electronic trading platform. See Exchange Rule 1080.
    \12\ 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, such that the audit 
trail provides an accurate, time-sequenced record of electronic and 
other orders, quotations and transactions on the Exchange, beginning 
with the receipt of an order by the Exchange, and further 
documenting the life of the order through the process of execution, 
partial execution, or cancellation of that order. See Exchange Rule 
1080, Commentary.06.
    \13\ Linkage is governed by the Options Linkage Authority under 
the conditions set forth under the Plan for the Purpose of Creating 
and Operating an Intermarket Option Linkage (the ``Plan'') approved 
by the Securities and Exchange Commission (``SEC''). The registered 
U.S. options markets are linked together on a real-time basis 
through a network capable of transporting orders and messages to and 
from each market.
    \14\ A P/A order is an order for the principal account of a 
specialist (or equivalent entity on another participant exchange 
that is authorized to represent public customer orders), reflecting 
the terms of a related unexecuted public customer order for which 
the specialist is acting as agent. See Linkage Plan section 2(16)(a) 
and Exchange Rule 1083.
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    In addition, the Exchange proposes to delete certain license fees 
from its fee schedule.
    The text of the proposed rule change is available on the Exchange's 
Web site at http://www.phlx.com/regulatory/reg_rulefilings.aspx.

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 assessing a surcharge fee of $0.10 per contract side 
as set forth in this proposal is to remain competitive \15\ and to help 
offset the costs associated with the license fees that are incurred in 
connection with the trading of the RUT, RMN, MNX and NDX products. Due 
to competitive pressures in the industry, the Exchange proposes to 
continue excluding equity option customer transactions from the 
surcharge fee.
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    \15\ See e.g. Securities Exchange Act Release No. 57128 (January 
10, 2008), 73 FR 2969 (January 16, 2008).
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    The surcharge fees would be assessed on the applicable equity 
option transactions,\16\ regardless of whether any fee caps relating to 
comparison or transaction charges are imposed.\17\ The MNX, NDX, RUT 
and RMN surcharge fees that are assessed would not count towards the 
calculation of the $60,000 ``Firm Related'' Equity Option and Index 
Option cap. Additionally, consistent with current practice, the 
proposed $0.10 per contract surcharge fees would not be subject to the 
$1,000 daily or $25,000 monthly dividend, merger and short stock 
interest strategies transaction caps, nor would they count towards 
reaching the daily or monthly caps.\18\
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    \16\ Although they are index options, RUT, RMN, MNX and NDX are 
assessed fees pursuant to the Exchange's equity option charges fee 
schedule. See the Exchange's Summary of Equity Option, and MNX, NDX, 
RUT and RMN Charges fee schedule and Securities Exchange Act Release 
Nos. 58049 (June 27, 2008), 73 FR 38286 (July 3, 2008); and 55473 
(March 14, 2007), 72 FR 13338 (March 21, 2007).
    \17\ For example, the surcharge fee of $0.10 per contract side 
would be assessed on the MNX, NDX, RUT and RMN products, regardless 
of whether: (1) The ROT (on-floor) and specialist 4.5 million 
contract monthly cap; or (2) the 14,000 daily contract cap ROT 
transaction and comparison charges and specialist transaction 
charges when contra-party to non-AUTOM delivered customer orders is 
reached. The surcharge fee of $0.10 per contract side would also be 
assessed regardless of whether the $60,000 ``Firm Related'' Equity 
Option and Index Option Cap fee is reached.
    \18\ As a result of this proposal, the reference to the $0.05 
per contract side license fee for dividend strategies and short 
stock interest strategies would be deleted as it is no longer 
necessary because a $0.10 per contract side surcharge fee will apply 
and appear separately on the fee schedule.
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    The purpose of providing a $0.10 per contract surcharge fee credit 
to equity option specialist units is to help alleviate the potential 
economic burden of the surcharge fee imposed on Exchange specialist 
units in connection with routing Linkage charges, as described 
above.\19\ The Exchange believes that it is appropriate to assist 
specialist units in offsetting some of the costs that they incur in 
routing orders to other options exchanges in order to obtain the 
National Best Bid and Offer.
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    \19\ This is similar to an option transaction charge credit 
given to specialist units in connection with Linkage orders. See 
Securities Exchange Act Release No. 57434 (March 5, 2008), 73 FR 
13269 (March 12, 2008).
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    Additionally, the Exchange is deleting the current license fee on 
the KSX, KIX and HAI products because it no longer offers these 
products for trading. Additionally, the Exchange is deleting the 
current license fee on the BKX KRX, MFX products, which may, in turn, 
help to promote trading in these products.
2. Statutory Basis
    The Exchange believes that its proposal to amend its schedule of 
fees is consistent with section 6(b) of the Act \20\ in general, and 
furthers the objectives of section 6(b)(4) of the Act \21\ in 
particular, in that it is an equitable allocation of reasonable fees 
and other charges among Exchange members. The

[[Page 63039]]

Exchange believes that it is equitable for members who trade these 
products to pay the surcharge fee as the Exchange pays a license fee to 
trade these products. Additionally, the Exchange, due to competitive 
pressures in the industry, believes that it is equitable to continue to 
exclude equity option customer transactions from the surcharge fee. The 
Exchange also believes that it is equitable to provide a surcharge fee 
credit to assist specialist units in offsetting some of the costs that 
they incur in routing orders to other options exchanges in order to 
obtain the National Best Bid and Offer.
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    \20\ 15 U.S.C. 78f(b).
    \21\ 15 U.S.C. 78f(b)(4).
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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 \22\ and paragraph (f)(2) of Rule 19b-4 \23\ 
thereunder. At any time within 60 days of the filing of the proposed 
rule change, the Commission may summarily abrogate 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.\24\
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    \22\ 15 U.S.C. 78s(b)(3)(A)(ii).
    \23\ 17 CFR 240.19b-4(f)(2).
    \24\ For purposes of calculating the 60-day period within which 
the Commission may summarily abrogate the proposed rule change under 
section 19(b)(3)(C) of the Act, the Commission considers the period 
to commence on October 7, 2008, the date on which Phlx submitted 
Amendment No. 1. See 15 U.S.C. 78s(b)(3)(C).
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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-2008-72 on the subject line.

Paper Comments

     Send paper comments in triplicate to Secretary, Securities 
and Exchange Commission, 100 F Street, NE., Washington, DC 20549-1090.
All submissions should refer to File Number SR-Phlx-2008-72. 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 inspection and 
copying 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-2008-72 and should be submitted on or before November 12, 2008.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\25\
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    \25\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Acting Secretary.
 [FR Doc. E8-25030 Filed 10-21-08; 8:45 am]

BILLING CODE 8011-01-P