Document ID: SEC-2009-1262-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: NASDAQ OMX PHLX Inc.
Posted Date: 2009-09-03T04:00Z

[Federal Register: September 3, 2009 (Volume 74, Number 170)]
[Notices]               
[Page 45666-45668]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr03se09-81]                         

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

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-60578; File No. SR-Phlx-2009-72]

 
Self-Regulatory Organizations; Notice of Filing and Immediate 
Effectiveness of Proposed Rule Change by NASDAQ OMX PHLX, Inc. Relating 
to the Option Floor Broker Subsidy and Other Clarifying Changes to the 
Fee Schedule

August 27, 2009.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 
1934,\1\ notice is hereby given that on August 25, 2009, NASDAQ OMX 
PHLX, Inc. (``Phlx'' or the ``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 Phlx. The Commission is publishing this notice to solicit 
comments on the proposed rule change from interested parties.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
---------------------------------------------------------------------------

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

    The Exchange proposes to amend the calculation for the Options 
Floor Broker Subsidy with respect to waiver of transaction fees for 
firm facilitation transactions.
    Additionally, the Exchange proposes to make other clarifying 
changes to the fee schedule.
    While changes to the Exchange's fee schedule pursuant to this 
proposal are effective upon filing, the Exchange has designated this 
proposal to be effective for trades settling on or after September 1, 
2009.
    The text of the proposed rule change is available on the Exchange's 
Web site at http://nasdaqomxphlx.cchwallstreet.com/NASDAQOMXPHLX/
Filings/, 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, Phlx 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 Phlx 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 attract additional 
order flow to the Exchange. The Exchange proposes to modify the Options 
Floor Broker Subsidy calculation. The Exchange currently pays an 
Options Floor Broker Subsidy to member organizations with Exchange 
registered floor brokers for eligible contracts that are entered into 
the Exchange's Options Floor Broker Management System (``FBMS'').\2\ To 
qualify for the per contract subsidy, a member organization with 
Exchange registered floor brokers must have: (1) More than an average 
of 100,000 executed contracts per day in the applicable month; and (2) 
at least 40,000 executed contracts or more per day for at least eight 
trading days during that same month.\3\ Only the floor broker volume 
from orders entered into FBMS and subsequently executed on the Exchange 
would be counted. The 100,000 contract and 40,000 contract thresholds, 
as described above, would be calculated per member organization floor 
brokerage unit. In the event that two or more member organizations with 
Exchange registered floor brokers each entered one side of a 
transaction into FBMS, then the executed contracts would be divided 
among each

[[Page 45667]]

qualifying member organization that participates in that transaction. 
In order to be eligible for the Options Floor Broker Subsidy, the 
member organization must have an average daily volume in a particular 
calendar month as follows:
---------------------------------------------------------------------------

    \2\ 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.
    \3\ For purposes of calculating the 100,000 and 40,000 
thresholds, customer-to-customer transactions, customer-to-non-
customer transactions, and non-customer-to-non-customer transactions 
would be included.

            Per Contract Average Daily Volume Subsidy Payment
------------------------------------------------------------------------
             Tier I                     Tier II            Tier III
------------------------------------------------------------------------
100,001 to 200,000..............  200,001 to 300,000  300,001 and
                                                       greater.
$0.04 per contract..............  $0.05 per contract  $0.06 per
                                                       contract.
------------------------------------------------------------------------

    Currently, the following types of transactions apply to calculating 
the Options Floor Broker Subsidy:
     Customer-to-customer executions will count towards 
reaching the 100,000 contract and 40,000 contract thresholds, but a per 
contract subsidy will not be paid on any customer-to-customer 
executions.
     Orders entered through FBMS but executed away through 
Linkage, as well as dividend, merger and short stock interest 
strategies will not count towards the 100,000 contract or the 40,000 
contract thresholds nor will a per contract subsidy be paid on these 
transactions.
     Only the largest component of a Complex Order (i.e., the 
component that includes the greatest number of contracts) will count 
towards the 100,000 contract and the 40,000 contract thresholds. The 
Options Floor Broker Subsidy does not apply to any contracts that are 
executed as part of a Complex Order.
    For the purposes of calculating the Options Floor Broker Subsidy, 
the Exchange proposes to treat firm facilitation transactions, executed 
pursuant to Exchange Rule 1064,\4\ in the same manner as fees are 
assessed for customer-to-customer executions. The Exchange believes 
that this amendment to the Options Floor Broker subsidy calculation is 
consistent with the recent waiver of the Firm Proprietary Options 
Transaction Charge on firm facilitation transactions.\5\ The volume for 
firm facilitation transactions would count toward reaching the 100,000 
and 40,000 contract thresholds, but a per contract subsidy will not be 
paid on any firm facilitation transaction. 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.\6\
---------------------------------------------------------------------------

    \4\ A Floor Broker holding an options order for a public 
customer and a contraside order may cross such orders in accordance 
with paragraph (a) above or may execute such orders as a 
facilitation cross in the following manner: (i) The Floor Broker or 
his employees must enter the appropriate notation onto the Options 
Floor Broker Management System for the public customer's order, 
together with all of the terms of the order, including any 
contingency involving other options or the underlying or related 
securities. (ii) The Floor Broker shall request markets for the 
execution of all options components of the order. After providing an 
opportunity for such markets to be made, the Floor Broker shall 
announce that he holds an order subject to facilitation and shall 
bid (or offer) in between the market for each options component and 
disclose all terms and conditions of the order including all 
securities which are components of the order. (iii) After all market 
participants in the crowd are given a reasonable opportunity to 
accept all terms and conditions made on behalf of the public 
customer whose order is subject to facilitation, the Floor Broker 
may immediately thereafter cross all or any remaining part of such 
order and the facilitation order at each customer's bid or offer by 
announcing by public outcry that he is crossing and by stating the 
quantity and price(s). Once a Floor Broker has announced an order as 
subject to facilitation and has established a bid (or offer) in 
between the market for the option(s) to be facilitated, the order 
cannot be broken up by a subsequent superior bid or offer for just 
one component to the facilitated order. See Exchange Rule 1064(b).
    \5\ See Securities Exchange Act Release No. 60477 (August 11, 
2009), 74 FR 41777 (August 18, 2009) (SR-Phlx-2009-67).
    \6\ See Exchange Rule 1064.
---------------------------------------------------------------------------

    The Exchange also proposes other clarifying technical amendments to 
the fee schedule. The Exchange recently updated the fee schedule \7\ 
and amended certain footnotes in the fee schedule and replaced them 
with endnotes. It was previously noted in the fee schedule that payment 
for order flow fees would be assessed on transactions resulting from 
customer orders and are available to be disbursed by the Exchange 
according to the instructions of the specialist units/specialists or 
Directed ROTs to order flow providers who are members or member 
organizations, who submit, as agent, customer orders to the Exchange or 
non-members or non-member organizations who submit, as agent, customer 
orders to the Exchange through a member or member organization who is 
acting as agent for those customer orders. This language was 
inadvertently removed from the previous fee schedule when the fee 
schedule was reformatted,\8\ however, payment for order flow fees have 
and continue to be assessed on transactions resulting from customer 
orders.\9\ The Exchange proposes adding the following language back 
into the fee schedule to further clarify the payment for order flow 
fees: ``Payment for order flow fees will be assessed on transactions 
resulting from customer orders.'' Also, for purposes of consistency, 
the Exchange proposes amending all references to Phlx in the fee 
schedule to be ``PHLX'' and adding appropriate trademark references.
---------------------------------------------------------------------------

    \7\ See Securities Exchange Act Release No. 59402 (February 13, 
2009), 74 FR 8134 (February 23, 2009) (SR-Phlx-2009-08) (amending 
and reformatting the existing NASDAQ OMX PHLX Fee Schedule).
    \8\ See Securities Exchange Act Release No. 59402 (February 13, 
2009), 74 FR 8134 (February 23, 2009) (SR-Phlx-2009-08).
    \9\ The program took effect on July 1, 2005. See e.g., 
Securities Exchange Act Release Nos.; 57851 (May 22, 2008), 73 FR 
31177 (May 30, 2008) (SR-Phlx-2008-38); 55891 (June 11, 2007), 72 FR 
333271 (June 15, 2007) (SR-Phlx-2007-39); 53754 (May 3, 2006), 71 FR 
27301 (May 10, 2006) (SR-Phlx-2006-25); 53078 (January 9, 2006), 71 
FR 2289 (January 13, 2006) (SR-Phlx-2005-88); 52568 (October 6, 
2005), 70 FR 60120 (October 14, 2005) (SR-Phlx-2005-58); and 52114 
(July 22, 2005), 70 FR 44138 (August 1, 2005) (SR-Phlx-2005-44).
---------------------------------------------------------------------------

2. Statutory Basis
    The Exchange believes that its proposal to amend its schedule of 
fees is consistent with Section 6(b) of the Act \10\ in general, and 
furthers the objectives of Section 6(b)(4) of the Act \11\ in 
particular, in that it is an equitable allocation of reasonable fees 
and other charges among Exchange members. Pursuant to this proposal, 
all member organizations registered as floor brokers are offered the 
continued opportunity to receive a subsidy. By allowing for a subsidy, 
the Exchange believes that floor brokers will be encouraged to send 
additional orders to the Exchange for execution. The Exchange also 
proposes a few technical changes to clarify the language in the fee 
schedule.
---------------------------------------------------------------------------

    \10\ 15 U.S.C. 78f(b).
    \11\ 15 U.S.C. 78f(b)(4).
---------------------------------------------------------------------------

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

    Because the foregoing rule change establishes or changes a due, 
fee, or other charge imposed by the Exchange, it has become effective 
pursuant to Section 19(b)(3)(A) of the Act \12\ and subparagraph (f)(2) 
of Rule 19b-4 \13\

[[Page 45668]]

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.
---------------------------------------------------------------------------

    \12\ 15 U.S.C. 78s(b)(3)(A).
    \13\ 17 CFR 240.19b-4(f)(2).
---------------------------------------------------------------------------

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-2009-72 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-2009-72. 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, 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 Phlx. 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-2009-72 and should be submitted on 
or before September 24, 2009.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\14\
---------------------------------------------------------------------------

    \14\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Florence E. Harmon,
Deputy Secretary.
[FR Doc. E9-21222 Filed 9-2-09; 8:45 am]

BILLING CODE 8010-01-P