Document ID: SEC-2009-1517-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; NASDAQ OMX PHLX, Inc.; Notice of Filing and Immediate Effectiveness of Proposed Rule Change Relating to Retroactively Waiving the Cancellation Fee
Posted Date: 2009-10-28T04:00Z

[Federal Register: October 28, 2009 (Volume 74, Number 207)]
[Notices]               
[Page 55594-55596]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr28oc09-123]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-60853; File No. SR-Phlx-2009-89]

 
Self-Regulatory Organizations; NASDAQ OMX PHLX, Inc.; Notice of 
Filing and Immediate Effectiveness of Proposed Rule Change Relating to 
Retroactively Waiving the Cancellation Fee

October 21, 2009.
    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 13, 2009, 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. 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 retroactively waive the Cancellation Fee 
for the months of August and September 2009 and issue a rebate to 
member organizations for Cancellation Fees that were assessed in those 
months.
    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, 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 rebate monies 
previously assessed for the Cancellation Fee in August and September 
2009 to all member organizations. During the months of August and 
September 2009, member organizations were assessed $2.10 per order for 
each cancelled electronically-delivered \3\ order in excess of the 
number of orders executed on the Exchange by a member organization in a 
given month.\4\ The Exchange calculates the Cancellation Fee by 
aggregating all orders and cancels received by the Exchange and 
totaling those orders by member organization. The Exchange aggregates 
and counts as one executed customer \5\ option order all customer 
orders from the same member organization that are executed in the same 
series on the same side of the market at the same price within a 300 
second period.\6\ The

[[Page 55595]]

following order activity is exempt from the Cancellation Fee: (i) Pre-
market cancellations; \7\ (ii) Complex Orders \8\ that are submitted 
electronically; (iii) unfilled Immediate-or-Cancel \9\ customer orders; 
and (iv) cancelled customer orders that improved the Exchange's 
prevailing bid or offer (PBBO) market at the time the customer orders 
were received by the Exchange.
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    \3\ See Exchange Rule 1080.
    \4\ See Securities Exchange Act Release No. 60046 (June 4, 
2009), 74 FR 28083 (June 12, 2009) (SR-Phlx-2009-44) (assessing 
$2.10 per order for each cancelled electronically-delivered order 
and limit the applicability of the Cancellation Fee to cancelled 
electronically delivered customer orders.)
    \5\ See e.g. Exchange Rule 1080(b)(i)(A) which defines customer 
order as [sic] ``* * * is any order entered on behalf of a public 
customer, and does not include any order entered for the account of 
a broker-dealer, or any account in which a broker-dealer or an 
associated person of a broker-dealer has any direct or indirect 
interest.''
    \6\ See Securities Exchange Act Release No. 60188 (June 29, 
2009), 74 FR 32986 (July 9, 2009) (SR-Phlx-2009-48) (aggregating 
options orders within a specified time period for the purpose of 
assessing the Cancellation Fee). At least 500 cancellations must be 
made in a given month by a member organization in order for a member 
organization to be assessed the Cancellation Fee. The Cancellation 
Fee is not assessed in a month in which fewer than 500 
electronically-delivered orders are cancelled. Simple cancels and 
cancel-replacement orders are the types of orders that are counted 
when calculating the number of electronically-delivered orders. (A 
cancel-replacement order is a contingency order consisting of two or 
more parts which require the immediate cancellation of a previously 
received order prior to the replacement of a new order with new 
terms and conditions. If the previously placed order is already 
filled partially or in its entirety the replacement order is 
automatically canceled or reduced by such number.) See Exchange Rule 
1066(c)(7). Also, pre-market cancellations are not included in the 
calculation of the Cancellation Fee as well as Complex Orders that 
are submitted electronically. See Securities Exchange Act Release 
Nos. 53226 (February 3, 2006), 71 FR 7602 (February 13, 2006) (SR-
Phlx-2005-92); and 53670 (April 18, 2006), 71 FR 21087 (April 24, 
2006) (SR-Phlx-2006-21).
    \7\ See Securities Exchange Act Release Nos. 53226 (February 3, 
2006), 71 FR 7602 (February 13, 2006) (SR-Phlx-2005-92); and 53670 
(April 18, 2006), 71 FR 21087 (April 24, 2006) (SR-Phlx-2006-21). 
See also Securities Exchange Act Release No. 60046 (June 4, 2009), 
74 FR 28083 (June 12, 2009) (SR-Phlx-2009-44).
    \8\ A Complex Order is composed of two or more option components 
and is priced as a single order (a ``Complex Order Strategy'') on a 
net debit or net credit basis.
    \9\ An Immediate-or-Cancel (IOC) order is a limit order that is 
to be executed in whole or in part upon receipt. Any portion not so 
executed shall be cancelled.
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    The Exchange assessed the applicable Cancellation Fee of $2.10 per 
order on member organizations, as specified above, during the months of 
August and September 2009. Exchange members have experienced various 
issues related to the Cancellation Fee including staffing issues, 
delays in implementation of certain Exchange reports which notify 
members of cancellations, and other communication issues. The Exchange 
previously waived its Cancellation Fee for July 2009 because it became 
aware of member confusion with the calculation of the fee.\10\ The 
Exchange explained the Cancellation Fee to member organizations \11\ at 
that time and suggested member organizations subscribe to receive the 
daily cancellation report in order to properly track their cancellation 
activity for a given month. The Exchange more recently became aware of 
issues related to the receipt and contents of the daily cancel reports 
which the Exchange believes may have created confusion among certain 
member organizations as to the number of cancels that existed in a 
given month. The Exchange has once again reached out to its members to 
rectify existing issues with the daily cancel report and to determine 
if the reports properly reflected the information necessary for the 
firms to determine the number of cancels in a given month. 
Additionally, the Exchange will issue an Options Trader Alert to 
further clarify the tools available to member organizations to notify 
them of the cancellations and clarify that the Cancellation Fee will be 
applicable as of October 1, 2009. The Exchange believes that member 
organizations have been adequately educated as to the Exchange's 
current Cancellation Fee and its applicability for future assessments.
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    \10\ See Securities Exchange Act Release No. 60606 (September 1, 
2009), 74 FR 46264 (September 8, 2009) (SR-Phlx-2009-76).
    \11\ NASDAQ OMX PHLX staff contacted all member organizations 
who were assessed a Cancellation Fee in July 2009 concerning the 
applicability and calculation of this fee prior to August 1, 2009. 
Additionally, the Exchange produces a daily cancellation fee 
reconciliation report as a tool for member organizations to monitor 
their cancel volume and potential charges.
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2. Statutory Basis
    The Exchange believes that its proposal to amend its schedule of 
fees is consistent with Section 6(b) of the Act \12\ in general, and 
furthers the objectives of Section 6(b)(4) of the Act \13\ in 
particular, in that it is an equitable allocation of reasonable fees 
and other charges among Exchange members. The Exchange believes that 
the proposal to retroactively waive the Cancellation Fee for the months 
of August and September 2009 and issue a rebate to all member 
organizations for fees previously assessed in August and September 2009 
is fair and equitable in that the waiver will apply to all member 
organizations. The Exchange believes that it has educated its members 
as to the applicability of the current Cancellation Fee and any 
implementation issues have been addressed and remedied for future 
assessment of this fee.
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    \12\ 15 U.S.C. 78f(b).
    \13\ 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 proposed rule change establishes or changes a due, 
fee, or other charge applicable only to a member pursuant to Section 
19(b)(3)(A)(ii) of the Act \14\ and Rule 19b-4(f)(2) \15\ thereunder. 
Accordingly, the proposal will take effect upon filing with the 
Commission. 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.
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    \14\ 15 U.S.C. 78s(b)(3)(A)(ii).
    \15\ 17 CFR 240.19b-4(f)(2).
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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-2009-89 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-2009-89. 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

[[Page 55596]]

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 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-2009-89 and 
should be submitted on or before November 18, 2009.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\16\
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    \16\ 17 CFR 200.30-3(a)(12).
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Elizabeth M. Murphy,
Secretary.
[FR Doc. E9-25827 Filed 10-27-09; 8:45 am]

BILLING CODE 8011-01-P