Document ID: SEC-2011-1385-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: NASDAQ OMX PHLX LLC
Posted Date: 2011-09-15T04:00Z

[Federal Register Volume 76, Number 179 (Thursday, September 15, 2011)]
[Notices]
[Pages 57090-57092]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2011-23608]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-65312; File No. SR-Phlx-2011-126]

Self-Regulatory Organizations; NASDAQ OMX PHLX LLC; Notice of 
Filing and Immediate Effectiveness of Proposed Rule Change Relating to 
Rebates and Fees for Complex Orders

September 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 September 1, 2011, NASDAQ OMX PHLX LLC (``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 amend its Complex Order Fees in Section I 
of its Fee Schedule titled ``Rebates and Fees for Adding and Removing 
Liquidity in Select Symbols.''
    While changes to the Fee Schedule pursuant to this proposal are 
effective upon filing, the Exchange has designated these changes to be 
operative on September 1, 2011.
    The text of the proposed rule change is available on the Exchange's 
website at http://nasdaqtrader.com/micro.aspx?id=PHLXfilings, 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 amend Section I, Part 
B of the Exchange's Fee Schedule for Complex Orders. A Complex Order is 
any order involving the simultaneous purchase and/or sale of two or 
more different options series in the same underlying security, priced 
at a net debit or credit based on the relative prices of the individual 
components, for the same account, for the purpose of executing a 
particular investment strategy. Furthermore, a Complex Order can also 
be a stock-option order, which is an order to buy or sell a stated 
number of units of an underlying stock or ETF coupled with the purchase 
or sale of options contract(s).\3\
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    \3\ See Exchange Rule 1080, Commentary .08(a)(i).
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    The Exchange proposes to increase the current Customer Complex 
Order Rebate for Adding Liquidity in Designated Options \4\ from $0.26 
per contract to $0.27 per contract. The Exchange also proposes to 
increase the current Complex Order Fee for Removing Liquidity in 
Designated Options for Directed Participants \5\ from

[[Page 57091]]

$0.27 per contract to $0.28 per contract. The Exchange believes that 
increasing the Customer Complex Order Rebate for Adding Liquidity in 
the Designated Options will incentivize members to direct customer 
order flow to the Exchange. The Exchange also believes that increasing 
the Complex Order Fee for Removing Liquidity for Directed Participants 
will still continue to draw order flow to the Exchange as well, as that 
fee is within the range of fees assessed by other exchanges. The 
Exchange is not proposing any change to fees for Select Symbols.\6\
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    \4\ The Designated Options are defined in Section I of the Fee 
Schedule and include AAPL, BAC, C, F, GLD, INTC, IWM, JPM, QQQ, SLV, 
SPY, and XLF.
    \5\ See Exchange Rule 1080(l), ``* * * The term `Directed 
Specialist, RSQT, or SQT' means a specialist, RSQT, or SQT that 
receives a Directed Order.'' A Directed Participant has a higher 
quoting requirement as compared with a specialist, SQT or RSQT who 
is not acting as a Directed Participant. See Exchange Rule 1014.
    \6\ Select Symbols are defined in Section I of the Exchange's 
Fee Schedule.
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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 September 1, 2011.
2. Statutory Basis
    The Exchange believes that its proposal to amend its Fee Schedule 
is consistent with Section 6(b) of the Act \7\ in general, and furthers 
the objectives of Section 6(b)(4) of the Act \8\ in particular, in that 
it is an equitable allocation of reasonable fees and other charges 
among Exchange members. The Exchange also believes that there is an 
equitable allocation of reasonable rebates among Exchange members.
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    \7\ 15 U.S.C. 78f(b).
    \8\ 15 U.S.C. 78f(b)(4).
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    The Exchange believes that it is reasonable and equitable to only 
pay a Complex Order Rebate for Adding Liquidity to Customers, as 
compared to other market participants, and increase the Customer 
Complex Order Rebate for Adding Liquidity in Designated Options because 
this will incentivize members to direct Customer order flow to the 
Exchange in these Designated Options.
    The Exchange believes that it is reasonable, equitable and not 
unfairly discriminatory to increase the Complex Order Fee for Removing 
Liquidity in Designated Options for Directed Participants because the 
proposed fee for options overlying the Designated Options remains 
competitive with fees charged by other exchanges and is reasonable and 
equitably allocated to those members that opt to direct orders to the 
Exchange rather than to a competing exchange. The proposed fee is 
within the range of fees assessed by other exchanges employing similar 
pricing schemes. For example, the International Securities Exchange, 
LLC (``ISE'') provides its market makers a $0.02 reduction off the 
taker fee for removing liquidity in its Select Symbols from the complex 
order book by trading with orders that are preferenced to them.\9\ The 
Exchange's proposal to increase the Directed Participant's Fee for 
Removing Liquidity for Complex Orders from $0.27 per contract to $0.28 
per contract is reasonable because the Exchange is continuing to assess 
Directed Participants the lowest fee as compared to other market 
participants and reflects the fact that these market makers have higher 
quoting requirements as compared to Specialists, ROTs, SQTs and RSQTs 
who do not receive directed orders.\10\ In addition, the Exchange 
believes the proposed fee is equitable and not unfairly discriminatory 
in that it will apply equally to all market participants that were 
previously subject to this fee.
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    \9\ See ISE's Schedule of Fees.
    \10\ Currently, a Directed Participant is assessed a Complex 
Order Fee For Removing Liquidity in Designated Options of $0.27 per 
contract, a Specialist, Registered Options Trader (``ROT''), 
Streaming Quote Trader (``SQT'') and Remote Streaming Quote Trader 
(``RSQT'') is assessed $0.29 per contract, a Firm is assessed $0.30 
per contract; a Broker-Dealer is assessed $0.35 per contract and a 
Professional is assessed $0.30 per contract.
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    With respect to the Customer Complex Order Rebate for Adding 
Liquidity the Exchange believes that it is reasonable to pay a 
different rebate for transacting equity options in Designated Options, 
and with respect to the Directed Participant Complex Order Fee for 
Removing Liquidity the Exchange believes that it is reasonable to 
assess a different Fee for Removing Liquidity in the Designated 
Options. The Exchange currently pays a different Customer Complex Order 
Rebate for Adding Liquidity and assesses a different Directed 
Participant Complex Order Fee for Removing Liquidity in Designated 
Options as compared to other Select Symbols. Trading in Designated 
Options is different from trading in other symbols in that they are 
more liquid, have higher volume and competition for executions is more 
intense. The Exchange believes that paying different rebates and 
assessing different fees for Designated Options as compared to Select 
Symbols will incentivize trading in Designated Options and increase 
liquidity in the Designated Options, which in turn will benefit all 
market participants. With respect to the increased Directed Participant 
Complex Order Fee for Removing Liquidity in Designated Options, the 
Exchange is increasing this fee to cover costs. Notwithstanding the 
increase in the fee, the Exchange believes that Directed Participants 
will continue to send order flow to the Exchange in Designated Options 
because the fee is within the range of fees assessed by other 
exchanges.
    In addition, the Exchange believes that it is equitable and not 
unfairly discriminatory to pay a different Customer Complex Order 
Rebate for Adding Liquidity for transacting equity options in certain 
symbols and with respect to the Directed Participant Complex Order Fee 
for Removing Liquidity the Exchange believes that it is equitable and 
not unfairly discriminatory to assess a different Fee for Removing 
Liquidity in certain symbols because the Exchange uniformly pays the 
same Customer Complex Order Rebate for Adding Liquidity for all 
Customer Complex Orders in all Designated Options and the Exchange 
uniformly assesses the same Fee for Removing Liquidity to all Directed 
Participants Complex Orders in all Designated Options.
    The Exchange operates in a highly competitive market comprised of 
nine U.S. options exchanges in which sophisticated and knowledgeable 
market participants can readily send order flow to competing exchanges 
if they deem fee levels at a particular exchange to be excessive. The 
Exchange believes that the Complex Order fees and rebates it pays/
assesses must be competitive with fees and rebates in place on other 
exchanges. The Exchange believes that this competitive marketplace 
impacts the fees and rebates 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.\11\ At any time within 60 days of the 
filing of the proposed rule change, the Commission

[[Page 57092]]

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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    \11\ 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-2011-126 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-2011-126. 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 website (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-2011-126 and 
should be submitted on or before October 6, 2011.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\12\
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    \12\ 17 CFR 200.30-3(a)(12).
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Elizabeth M. Murphy,
Secretary.
[FR Doc. 2011-23608 Filed 9-14-11; 8:45 am]
BILLING CODE 8011-01-P