Document ID: SEC-2012-1717-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: NASDAQ OMX PHLX LLC
Posted Date: 2012-10-18T04:00Z

[Federal Register Volume 77, Number 202 (Thursday, October 18, 2012)]
[Notices]
[Pages 64170-64173]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2012-25654]

-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-68052; File No. SR-PHLX-2012-119]

Self-Regulatory Organizations; NASDAQ OMX PHLX LLC; Notice of 
Filing and Immediate Effectiveness of Proposed Rule Change To Modify 
Phlx's Fee Schedule Governing Order Execution on Its NASDAQ OMX PSX 
Facility

October 12, 2012.
    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, 2012, NASDAQ OMX PHLX LLC (``Phlx'' or the ``Exchange'') 
filed with the Securities and Exchange Commission (``Commission'') a 
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.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------

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

    Phlx proposes to a modify Phlx's fee schedule governing order 
execution and routing through its NASDAQ OMX PSX (``PSX'') facility. 
Phlx will implement the proposed change on October 1, 2012. The text of 
the proposed rule change is available at http://nasdaqomxphlx.cchwallstreet.com/nasdaqomxphlx/phlx/, at Phlx's 
principal office, 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 self-regulatory organization 
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 those 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 parts of such statements.

A. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    Phlx is proposing to modify its fee schedule governing order 
execution and routing on PSX. The general purposes of the fee changes 
are to (i) encourage greater provision of liquidity through PSX by 
instituting an increase in the rebates paid with respect to liquidity-
providing orders, (ii) make certain increases to the fees for accessing 
liquidity and routing orders, and (iii) increase fees for routing 
orders to the New York Stock Exchange (``NYSE'') to reflect an 
announced price increase by that exchange.\3\ All of the changes 
pertain to securities priced at $1 or more per share. Phlx is, however, 
moving the fees governing execution and routing of orders for 
securities priced at less than $1 per share to a new paragraph of the 
fee schedule.
---------------------------------------------------------------------------

    \3\ See SR-NYSE-2012-50 (September 26, 2012).
---------------------------------------------------------------------------

    Under the change, PSX will pay a rebate of $0.0028 per share 
executed for displayed orders entered through a NASDAQ OMX PSX market 
participant identifier (``MPID'') through which a member organization 
provides shares of liquidity that represent more than 0.10% of the 
total consolidated volume reported to all consolidated transaction 
reporting plans by all exchanges and trade reporting facilities 
(``Consolidated Volume'') during the month. In addition, in recognition 
of the convergence of trading in which

[[Page 64171]]

member organizations simultaneously trade different asset classes, Phlx 
is introducing a pricing incentive to encourage market participants 
that are active in the Phlx Options Market also to trade on PSX.\4\ 
Specifically, Phlx will also pay a rebate of $0.0028 per share executed 
with respect to displayed orders entered through a NASDAQ OMX PSX MPID 
through which the member organization provides shares of liquidity that 
represent more than 0.05% of Consolidated Volume during the month; 
provided that the member organization and any affiliated member 
organizations \5\ also have an average daily volume during the month of 
1,000 or more electronically-delivered and executed customer contracts 
that add liquidity on Phlx's Options Market. Phlx will pay a rebate of 
$0.0026 per share executed with respect to all other displayed orders 
that provide liquidity, and will pay a rebate of $0.0010 per share 
executed with respect to non-displayed orders that provide liquidity. 
These new rebate provisions replace provisions under which Phlx paid a 
maximum rebate of $0.0026 per share executed with respect to minimum 
life orders and displayed orders with an original size of 2,000 shares 
or more, but lower rebates with respect to orders for securities listed 
on NYSE, displayed orders with a smaller size, and non-displayed 
orders. Under the proposed change, the rebate paid with respect to both 
displayed and non-displayed orders that provide liquidity will equal or 
exceed currently available rebates in all cases.
---------------------------------------------------------------------------

    \4\ The incentive is similar to pricing incentives in place at 
the NASDAQ Stock Market with respect to its members that are also 
active in the NASDAQ Options Market. See NASDAQ Rule 7018.
    \5\ For this purpose, member organizations are deemed affiliates 
if there is at least 75% common ownership of the member 
organizations. This standard corresponds to standards currently used 
under the NASDAQ OMX PHLX Pricing Schedule for options. See, e.g., 
NASDAQ OMX PHLX Pricing Schedule, Chapter II (Multiply Listed 
Options Fees (Includes options overlying equities, ETFs, ETNs, 
indexes and HOLDRS which are Multiply Listed)) (``Specialists and 
Market Makers are subject to a `Monthly Market Maker Cap' of 
$550,000 for equity option transaction fees and QCC Transaction 
Fees, as defined in this section above. The trading activity of 
separate Specialist and Market Maker member organizations will be 
aggregated in calculating the Monthly Market Maker Cap if there is 
at least 75% common ownership between the member organizations.'').
---------------------------------------------------------------------------

    In order to offset the cost of these higher rebates, Phlx is making 
corresponding changes to the fees charged for accessing liquidity. 
Specifically, PSX will charge $0.0028 per share executed for orders 
entered through a NASDAQ OMX PSX MPID through which a member 
organization provides shares of liquidity that represent more than 
0.10% of Consolidated Volume during the month. PSX will also charge 
$0.0028 per share executed with respect to the execution on PSX of any 
order that is designated as eligible for routing, and $0.0030 per share 
executed for all other orders that execute on PSX. The discount for 
routable orders, as compared with non-routable orders, is designed to 
provide incentives for member organizations to make use of PSX's 
routing services. By contrast, PSX had previously charged $0.0019 per 
share executed for orders in securities listed on NSYE and $0.0027 per 
share executed for other orders. The increases are necessary to ensure 
that Phlx covers the costs associated with the increased rebates it is 
offering.
    With respect to fees for executions on other markets of routed 
orders, PSX is adopting minor increases in the fees charged for certain 
orders that execute on the other trading venues. Thus, with respect to 
PSTG and PSCN orders that execute on venues other than NYSE or NASDAQ 
OMX BX, and with respect to PTFY and PCRT orders that execute at the 
NASDAQ Stock Market, Phlx is increasing the fee from $0.0027 per share 
executed to $0.0028 per share executed. These changes will ensure that 
routable orders that execute at other venues pay a fee that is 
consistent with the fee paid with respect to such orders when they 
execute at PSX.
    Finally, to reflect recent increases in the fees charged by NYSE 
with respect to orders routed to it by PSX, Phlx is raising the fee for 
PSTG and PSCN orders routed to NYSE from $0.0023 per share executed to 
$0.0025 per share executed; the fee for PMOP orders routed to NYSE from 
$0.0025 per share executed to $0.0027 per share executed; and the fee 
for PTFY orders routed to NYSE from $0.0022 per share executed to 
$0.0024 per share executed.
2. Statutory Basis
    Phlx believes that the proposed rule change is consistent with the 
provisions of Section 6 of the Act,\6\ in general, and with Sections 
6(b)(4) and (5) of the Act,\7\ in particular, in that it provides for 
the equitable allocation of reasonable dues, fees and other charges 
among members and issuers and other persons using any facility or 
system which Phlx operates or controls, and is not designed to permit 
unfair discrimination between customers, issuers, brokers or dealers. 
All similarly situated member organizations are subject to the same fee 
structure, and access to Phlx is offered on fair and non-discriminatory 
terms.
---------------------------------------------------------------------------

    \6\ 15 U.S.C. 78f.
    \7\ 15 U.S.C. 78f(b)(4) and (5).
---------------------------------------------------------------------------

    The Exchange believes that the proposed fees for accessing 
liquidity are reasonable because they are consistent with the 
limitations imposed by SEC Rule 610 \8\ on access fees. The Exchange 
further believes that the proposed access fees are consistent with an 
equitable allocation of fees, in that they are set at levels that allow 
the Exchange to pay a credit to liquidity providers. Because the 
payment of such credits encourages liquidity providers to post orders 
in PSX, they also benefit liquidity accessors by increasing the 
likelihood of execution at or near the inside market. Phlx further 
believes that the discounted access fees for orders entered through 
MPIDs that satisfy a volume requirement are not unreasonably 
discriminatory because they are designed to provide incentives to 
member organizations to increase their participation in PSX and are 
consistent in their purpose with similar volume-based pricing 
incentives offered by numerous other exchanges. Similarly, Phlx 
believes that the discounted fee for orders that are eligible for 
routing is not unreasonably discriminatory because it is a reasonable 
means of encouraging member organizations to make use of PSX's routing 
services but does not differ to a great extent from the fees otherwise 
charged for order execution. Finally, PSX believes that these discounts 
are consistent with an equitable allocation of fees because they are 
designed to serve the appropriate purposes of encouraging greater use 
of PSX's execution and routing facilities but do not deviate to an 
unreasonable extent from the access fee otherwise charged by PSX.
---------------------------------------------------------------------------

    \8\ 17 CFR 242.610.
---------------------------------------------------------------------------

    Phlx further believes that the proposed rebates for liquidity 
providers are reasonable because they are set at levels that are equal 
to or higher than the rebates currently offered, and are designed to 
attract greater numbers of liquidity-providing orders to PSX. In 
addition, Phlx believes that the proposed rebates reflect an equitable 
allocation of fees because they are set at levels that do not deviate 
significantly from the access fees charged by PSX. Phlx further 
believes that the proposed higher rebates for displayed liquidity 
provided through MPIDs that satisfy a volume requirement are not 
unreasonably discriminatory because they are designed to provide 
incentives to member organizations to increase their participation in 
PSX and are consistent in their purpose with similar

[[Page 64172]]

volume-based pricing incentives offered by numerous other exchanges. 
Similarly, Phlx believes that the proposed higher rebate with respect 
to displayed liquidity provided by certain member organizations that 
are active in both PSX and Phlx's Options Market is not unreasonably 
discriminatory because it is responsive to the convergence of trading 
in which member organization [sic] simultaneously trade different asset 
classes within a single strategy. Phlx also notes that cash equities 
and options markets are linked, with liquidity and trading patterns on 
one market affecting those on the other. Accordingly, pricing 
incentives that encourage market participant activity in both markets 
recognize that activity in the options markets may also support price 
discovery and liquidity provision in PSX. This proposed rebate is also 
not unreasonably discriminatory because the Exchange is offering an 
alternative means of earning an identical rebate that does not require 
participation in Phlx's Options Market. Phlx further believes that the 
proposal to pay higher rebates with respect to displayed orders than 
with respect to non-displayed orders is not unreasonably discriminatory 
because Phlx believes that it is reasonable to use pricing incentives 
to encourage the use of displayed orders, which contribute more to 
price discovery and market transparency, than non-displayed orders.
    The proposed changes to fees for routing orders to NYSE are 
reasonable because they reflect the increase in the fee that will be 
charged by NYSE to Phlx with respect to such orders. The change is 
consistent with an equitable allocation of fees because it will bring 
the economic attributes of routing orders to NYSE in line with the cost 
of executing orders there. Finally, the change is not unfairly 
discriminatory because it solely applies to member organizations that 
opt to route orders to NYSE.
    The other proposed increases in routing fees are reasonable because 
they are very small in magnitude ($0.0001 per share executed for 
affected orders). The changes are consistent with an equitable 
allocation of fees because the resulting fees are consistent with the 
fee charged for the execution of routable orders at PSX. Thus, member 
organizations are encouraged to use routable orders through a favorable 
execution rate and the increased likelihood of finding liquidity at PSX 
that may be promoted through the higher liquidity provider rebates 
adopted through the proposal. Phlx believes that it is equitable under 
these circumstances to charge a fee for routing the orders to other 
venues that is more consistent with PSX's own execution fee. Finally, 
the change is not unreasonably discriminatory because it applies solely 
to member organizations that opt to use the routing strategies subject 
to the price change.
    Phlx also notes that it operates in a highly competitive market in 
which market participants can readily favor competing venues if they 
deem fee levels at a particular venue to be excessive. In such an 
environment, Phlx must continually adjust its fees to remain 
competitive with other exchanges and with alternative trading systems 
that have been exempted from compliance with the statutory standards 
applicable to exchanges. Phlx believes that the proposed rule change 
reflects this competitive environment because it is designed to create 
pricing incentives for greater use of PSX's trading and routing 
services.

B. Self-Regulatory Organization's Statement on Burden on Competition

    Phlx does not believe that the proposed rule change will result in 
any burden on competition that is not necessary or appropriate in 
furtherance of the purposes of the Act, as amended. Because the market 
for order execution is extremely competitive, member organizations may 
readily opt to disfavor Phlx's execution and routing services if they 
believe that alternatives offer them better value. The proposed change 
is designed to enhance competition by using pricing incentives to 
encourage greater use of PSX's trading and routing services.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants, or Others

    Written comments were neither solicited nor 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.\9\ 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.
---------------------------------------------------------------------------

    \9\ 15 U.S.C. 78s(b)(3)(a)(ii).
---------------------------------------------------------------------------

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-2012-119 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-2012-119. 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 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 offices 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-2012-119, and should be submitted on or before 
November 8, 2012.

[[Page 64173]]

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\10\
---------------------------------------------------------------------------

    \10\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2012-25654 Filed 10-17-12; 8:45 am]
BILLING CODE 8011-01-P