Document ID: SEC-2011-0688-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: NASDAQ OMX PHLX LLC
Posted Date: 2011-05-13T04:00Z

[Federal Register Volume 76, Number 93 (Friday, May 13, 2011)]
[Notices]
[Pages 28113-28115]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2011-11765]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-64446; File No. SR-Phlx-2011-62]

Self-Regulatory Organizations; Notice of Filing and Immediate 
Effectiveness of Proposed Rule Change by NASDAQ OMX PHLX LLC Relating 
to the Options Floor Broker Subsidy

May 9, 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 April 29, 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 Section VIII of its Fee Schedule 
titled the ``Options Floor Broker Subsidy.''
    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 2, 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: (i) Eliminate the 
threshold requirement that a member organization with Exchange 
registered floor brokers must have more than an average of 100,000 
executed contracts per day in the applicable month; (ii) amend the 
computation for eligible contracts; and (iii) amend the eligible 
contracts per tier and monthly volume subsidy payments. The Exchange 
believes that the proposed amendments could enable a member 
organization to receive a higher subsidy because the Exchange is 
changing from a daily average to a monthly total calculation to 
determine the number of contracts traded.
Eliminating a Threshold
    The Exchange currently pays an Options Floor Broker Subsidy to 
member organizations with Exchange registered floor brokers that enter 
eligible contracts into the Exchange's Floor Broker Management System 
(``FBMS'').\3\ To qualify for the per contract subsidy, a member 
organization with Exchange registered floor brokers must have more than 
100,000 average executed contracts per day in the month (``100,000 
contract threshold'').\4\ Only the volume from orders entered by floor 
brokers into FBMS and subsequently executed on the Exchange qualifies. 
The

[[Page 28114]]

100,000 contract threshold is calculated per member organization floor 
brokerage unit. Where two or more member organizations with Exchange 
registered floor brokers each entered one side of a transaction into 
FBMS, the executed contracts are divided equally among qualifying 
member organizations that participate in that transaction.\5\
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    \3\ 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.
    \4\ For purposes of calculating the 100,000 threshold, customer-
to-customer transactions, customer-to-non-customer transactions, and 
non-customer-to-non-customer transactions are currently included.
    \5\ When computing the threshold amount, the Exchange would 
first count all customer-to-customer transactions and then all other 
customer-to-non-customer transactions. See also Securities Exchange 
Act Release Nos. 57253 (February 1, 2008), 73 FR 7352 (February 7, 
2008) (SR-Phlx-2008-08) (adopting a tiered per contract floor broker 
options subsidy payable to member organization with Exchange 
registered floor brokers), 62403 (June 30, 2010), 75 FR 39301 (July 
8, 2010) (SR-Phlx-2010-80) (an amendment to the threshold volume 
requirements and per contract average daily volume subsidy payment).
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    The Exchange is proposing to eliminate the 100,000 contract 
threshold. The Exchange believes that this threshold is no longer 
necessary because the Exchange is changing to a monthly total 
calculation. In the future, all eligible contracts will qualify for a 
subsidy rather than just those that are entered by members exceeding 
the 100,000 contract threshold.
Computation for Eligible Contracts
    Currently, customer-to-customer transactions qualify towards the 
100,000 contract threshold, but do not qualify for the subsidy. 
Dividend, merger and short stock interest strategies do not qualify 
towards the 100,000 contract threshold or the per contract subsidy. The 
largest component of a Complex Order counts toward the 100,000 contract 
threshold but neither that component nor any other component of the 
Complex Order qualifies for the per contract subsidy. Firm facilitation 
transactions count towards reaching the 100,000 contract threshold, but 
no per contract subsidy is paid for a firm facilitation transaction.
    The Exchange is proposing to amend the computation of eligible 
contracts. Customer-to-customer executions, dividend, merger and short 
stock interest strategies and firm facilitation transactions will be 
excluded from the eligible contract computations.
    The Exchange is deleting the references to the 100,000 contract 
threshold as proposed herein. Therefore, the Exchange is eliminating 
the consideration of the largest component of a Complex Order (i.e., 
the component that includes the greatest number of contracts) counting 
toward the 100,000 contract threshold; the 100,000 contract threshold 
would no longer exist. The Options Floor Broker Subsidy would now apply 
to any contracts that are executed as part of a Complex Order.
Eligible Contracts per Tier/Monthly Volume Subsidy Payments
    Currently, a per contract subsidy is paid based on the average 
daily contract volume for that month, which includes customer-to-non-
customer transactions that are in excess of 100,000 contracts. These 
contracts may include customer-to-customer transactions for the 
purposes of reaching a tier, but as stated above, a per contract 
subsidy would not be paid on these executions.
    The Exchange is amending the Options Floor Broker Subsidy to change 
the ``Per Contract Average Daily Volume Subsidy Payment'' to a ``Per 
Eligible Contract Monthly Volume Subsidy Payment.'' In other words, the 
computation would not be an average daily computation but a monthly 
total of all eligible contracts as proposed herein.
    Currently, the Exchange pays an average daily volume subsidy 
payment as follows:

                                Per Contract Average Daily Volume Subsidy Payment
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                 Tier I                            Tier II                             Tier III
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100,001 to 200,000.....................  200,001 to 300,000........  300,001 and greater.
$0.02 per contract.....................  $0.08 per contract........  $0.09 per contract.
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The Exchange is proposing to amend the tiers and payments as follows:

                              Per Eligible Contract Monthly Volume Subsidy Payment
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                Tier I                         Tier II                  Tier III                 Tier III
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0 to 1,250,000.......................  1,250,001 to 2,250,000.  2,250,001 to 5,250,000.  5,250,001 and greater.
$0.00 per contract...................  $0.03 per contract.....  $0.05 per contract.....  $0.09 per contract.
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The Exchange is proposing to amend the remainder of the Fee Schedule to 
conform to the proposed rule changes.
    The Exchange is also proposing to remove the following text from 
the Fee Schedule: ``based on the amount of customer-to-customer 
contracts, a member organization could enter Tier II or a higher tier 
due to the amount of customer-to-customer contract volume,'' because 
the Exchange believes that language is unnecessary.
    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 2, 2011.
2. Statutory Basis
    The Exchange believes that its proposal to amend its Fee Schedule 
is consistent with Section 6(b) of the Act \6\ in general, and furthers 
the objectives of Section 6(b)(4) of the Act \7\ in particular, in that 
it is an equitable allocation of reasonable fees and other charges 
among Exchange members.
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    \6\ 15 U.S.C. 78f(b).
    \7\ 15 U.S.C. 78f(b)(4).
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    The Exchange believes that the proposed amendments to the Options 
Floor Broker Subsidy are equitable and reasonable because member 
organizations with Exchange registered floor brokers would continue to 
be provided an equal opportunity to receive a subsidy. Additionally, 
any member organization is free to establish floor brokerage operations 
on the floor of the Exchange, and, as such, would have more opportunity 
to earn additional payments for attracting additional order flow to the 
Exchange.
    The Exchange believes that rewarding members that contribute the 
most liquidity or executions to the Exchange is reasonable and 
equitable and therefore the tiered fees will continue to uniformly 
benefit all market

[[Page 28115]]

participants. The Exchange believes that by amending the computation 
from an average daily computation to a monthly computation and also 
amending the tier levels, because the computation is based on a total 
monthly volume, additional member organizations could benefit from the 
ability to obtain greater subsidy payments. The Exchange also believes 
that the proposed amendments to the rates paid to member organizations 
are both reasonable and equitable because the Exchange continues to pay 
member organizations the subsidy. Although the rates are lowered, the 
Exchange added an additional tier which provides member organizations 
the ability to obtain the same or larger subsidy payments based on 
volume, potentially with lower volume.
    The Exchange also believes that the amendments to the computations 
to exclude customer-to-customer executions, dividend, merger and short 
stock interest strategies, and firm facilitation transactions are 
reasonable because the proposal to compute the monthly total eligible 
contracts, which could result in a greater number of eligible 
contracts, may still provide member organizations with the same or 
greater benefits as the previous subsidy. In addition, the proposals to 
amend the computation are equitable because the computations apply 
uniformly to all member organizations.
    Finally, the Exchange does not believe that this subsidy is 
unreasonable or discriminatory because any floor broker is capable of 
meeting the volume criteria.

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.\8\ 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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    \8\ 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-2011-62 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-2011-62. 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-2011-62 and should be 
submitted on or before June 3, 2011.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\9\
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    \9\ 17 CFR 200.30-3(a)(12).
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Cathy H. Ahn,
Deputy Secretary.
[FR Doc. 2011-11765 Filed 5-12-11; 8:45 am]
BILLING CODE 8011-01-P