Document ID: SEC-2011-0736-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: NASDAQ OMX PHLX LLC
Posted Date: 2011-05-24T04:00Z

[Federal Register Volume 76, Number 100 (Tuesday, May 24, 2011)]
[Notices]
[Pages 30223-30224]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2011-12759]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-64520; File No. SR-Phlx-2011-66]

Self-Regulatory Organizations; Notice of Filing and Immediate 
Effectiveness of Proposed Rule Change by NASDAQ OMX PHLX LLC Relating 
to Qualified Contingent Cross Fees

May 19, 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 13, 2011, 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 its Fee Schedule to adopt fees 
applicable to a Qualified Contingent Cross Order (``QCC Order'') for 
execution in the Phlx XL II System.\3\
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    \3\ A QCC Order is comprised of an order to buy or sell at least 
1000 contracts that is identified as being part of a qualified 
contingent trade, as that term is defined in Rule 1080(o)(3), 
coupled with a contra-side order to buy or sell an equal number of 
contracts. The QCC Order must be executed at a price at or between 
the National Best Bid and Offer and be rejected if a Customer order 
is resting on the Exchange book at the same price. A QCC Order shall 
only be submitted electronically from off the floor to the PHLX XL 
II System. See Rule 1080(o). See also Securities Exchange Act 
Release No. 64249 (April 7, 2011), 76 FR 20773 (April 13, 2011) (SR-
Phlx-2011-47) (a rule change to establish a QCC Order to facilitate 
the execution of stock/option Qualified Contingent Trades that 
satisfy the requirements of the trade through exemption in 
connection with Rule 611(d) of the Regulation NMS).
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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 May 16, 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 Sections I and 
II, of the Exchange's Fee Schedule, entitled ``Rebates and Fees for 
Adding and Removing Liquidity in Select Symbols'' \4\ and ``Equity 
Options Fees'' \5\ to establish fees for a new order type called 
Qualified Contingent Cross.\6\
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    \4\ Section I fees and rebates are applicable to certain select 
symbols which are defined in Section I (``Select Symbols'').
    \5\ Section II includes options overlying equities, ETFs, ETNs, 
indexes and HOLDRS which are Multiply Listed.
    \6\ The Qualified Contingent Cross functionality will be 
operative on May 16, 2011.
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    There are currently several categories of market participants: 
Customers, Directed Participants,\7\ Specialists,\8\ Registered Options 
Traders,\9\ SQTs,\10\ RSQTs,\11\ Broker-Dealers, Firms and 
Professional.\12\ The Exchange proposes to adopt pricing for QCC Orders 
for the above categories applicable to both Sections I and II. QCC 
Transaction Fees will apply to the Select Symbols listed in Section I 
and the symbols applicable to Section II. The Exchange proposes to 
assess Directed Participants, Specialists, ROTs, SQTs, RSQTs, 
Professionals, Firms and Broker-Dealers a $0.20 per contract QCC 
transaction fee (``QCC Transaction Fees''). A Customer would not be 
assessed a QCC Fee.
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    \7\ A Directed Participant is a Specialist, SQT, or RSQT that 
executes a customer order that is directed to them by an Order Flow 
Provider and is executed electronically on PHLX XL II.
    \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 Exchange Rule in 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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    As mentioned, the proposed QCC Fees would apply to Sections I and 
II of the Fee Schedule and would be subject to the Firm Related Equity 
Option Cap and the Monthly Cap. The Firm Related Equity Option Cap is 
currently $75,000.\13\ ROTs and Specialists are currently subject to a 
Monthly Cap of $550,000.\14\
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    \13\ Firm equity option transaction charges, 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. 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 Securities Exchange Act 
Release No. 63780 (January 26, 2011), 76 FR 5846 (February 2, 2011) 
(SR-Phlx-2011-07).
    \14\ The trading activity of separate ROTs and Specialist member 
organizations will be aggregated in calculating the Monthly Cap if 
there is at least 75% common ownership between the member 
organizations. In addition, ROTs and Specialists that (i) are on the 
contra-side of an electronically-delivered and executed Customer 
complex order; and (ii) have reached the Monthly Cap will be 
assessed a $0.05 per contract fee. See Securities Exchange Act 
Release No. 64113 (March 23, 2011), 76 FR 17468 (March 29, 2011) 
(SR-Phlx-2011-36).
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    The Exchange also proposes additional text to Sections I and II of 
the Fee Schedule to describe the applicability of both the Firm Related 
Equity Option Cap and the Monthly Cap to those sections of the Fee 
Schedule.
    While changes to the Fee Schedule pursuant to this proposal are 
effective upon filing, the Exchange has designated these changes to be 
operative on May 16, 2011.
2. Statutory Basis
    The Exchange believes that its proposal to amend its Fee Schedule 
is

[[Page 30224]]

consistent with Section 6(b) of the Act \15\ in general, and furthers 
the objectives of Section 6(b)(4) of the Act \16\ in particular, in 
that it is an equitable allocation of reasonable fees and other charges 
among Exchange members.
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    \15\ 15 U.S.C. 78f(b).
    \16\ 15 U.S.C. 78f(b)(4).
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    The Exchange believes that the proposed fees are equitable because 
the fees are within the range of fees currently assessed in Section II 
for Multiply Listed equity options. Customers are not assessed a fee 
for options overlying equities which are Multiply Listed. Other market 
participants are assessed transaction fees which range from $.20 per 
contract to $.25 per contract, generally.\17\ In addition, the Exchange 
is proposing to assess the same fee on all market participants 
uniformly, with the exception of Customers. The Exchange believes that 
its proposal to not assess Customers QCC Transaction Fees is not 
unfairly discriminatory because the Exchange is seeking to incentivize 
Broker-Dealers and Professionals to execute Customer QCC Orders on the 
Exchange.
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    \17\ A Broker-Dealer is the one exception to this range. A 
Broker-Dealer is assessed $.45 per contract for electronically 
submitted transactions in Penny Pilot and non-Penny Pilot options.
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    The Exchange believes that the proposed fees are reasonable because 
the fees are comparable to the Exchange's fees, as stated above, and 
because the fees are within the range of fees assessed by the 
International Securities Exchange, LLC (``ISE'') for qualified 
contingent cross orders. ISE assesses $0.20 per contract for qualified 
contingent cross orders to all market participants \18\ except the 
priority customer.\19\
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    \18\ The fee for an ISE market maker is either $.18 or $.20 per 
contract, depending on the product. See ISE's Fee Schedule. See also 
SR-ISE-2011-14.
    \19\ An ISE priority customer is not assessed a fee. See ISE's 
Fee Schedule.
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    The Exchange operates in a highly competitive market comprised of 
nine U.S. options exchanges in which sophisticated and knowledgeable 
market participants readily can, and do, send order flow to competing 
exchanges if they deem fee levels at a particular exchange to be 
excessive. The Exchange believes that the proposed QCC Fees it assesses 
must be competitive with fees assessed on other options exchanges. The 
Exchange believes that this competitive marketplace impacts the fees 
present on the Exchange today and influences the proposals set forth 
above.

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.\20\ 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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    \20\ 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-2011-66 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-2011-66. 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-2011-66 and should be 
submitted on or before June 14, 2011.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\21\
Cathy H. Ahn,
Deputy Secretary.
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    \21\ 17 CFR 200.30-3(a)(12).
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[FR Doc. 2011-12759 Filed 5-23-11; 8:45 am]
BILLING CODE 8011-01-P