Document ID: SEC-2011-0962-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: NASDAQ OMX PHLX LLC
Posted Date: 2011-07-08T04:00Z

[Federal Register Volume 76, Number 131 (Friday, July 8, 2011)]
[Notices]
[Pages 40417-40419]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2011-17120]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-64790; File No. SR-Phlx-2011-84]

Self-Regulatory Organizations; NASDAQ OMX PHLX LLC; Notice of 
Filing and Immediate Effectiveness of Proposed Rule Change Relating to 
Qualified Contingent Cross Transaction Fees

July 1, 2011.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act'') \1\, and Rule 19b-4 \2\ thereunder, notice is hereby given 
that, on June 24, 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 Fee Schedule to adopt fees 
applicable to a Floor Qualified Contingent Cross order (``Floor QCC 
Order'') for execution in the Phlx XL II System.\3\
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    \3\ A Floor QCC Order must: (i) Be for at least 1,000 contracts, 
(ii) meet the six requirements of Rule 1080(o)(3) which are modeled 
on the QCT Exemption, (iii) be executed at a price at or between the 
National Best Bid and Offer (``NBBO''); and (iv) be rejected if a 
Customer order is resting on the Exchange book at the same price. In 
order to satisfy the 1,000-contract requirement, a Floor QCC Order 
must be for 1,000 contracts and could not be, for example, two 500-
contract orders or two 500-contract legs. See Rule 1064(e). See also 
Securities Exchange Act Release No. 64688 (June 16, 2011) (SR-Phlx-
2011-56).
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    The text of the proposed rule change is available on the Exchange's 
Web site at http://nasdaqtrader.com/micro.aspx?id=PHLXRulefilings, 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

[[Page 40418]]

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 Sections I and 
II, of the Exchange's Fee Schedule, entitled ``Rebates and Fees for 
Adding and Removing Liquidity in Select Symbols'' \4\ and ``Equity 
Options Fees'' \5\ to indicate that Qualified Contingent Cross 
Transaction Fees (``QCC Transaction Fees'') apply to both electronic 
Qualified Contingent Cross orders (``QCC Orders'') \6\ and Floor QCC 
Orders, which are orders that are electronically entered by a Floor 
Broker \7\ on the floor of the Exchange using the Floor Broker 
Management System (``FBMS'').\8\ The Exchange currently assesses QCC 
Transaction Fees on QCC Orders (electronic).\9\ The Exchange is 
proposing to assess the same QCC Transaction Fees on Floor QCC Orders.
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    \4\ Section I fees and rebates are applicable to certain select 
symbols which are defined in Section I (``Select Symbols'').
    \5\ Section II includes options overlying equities, ETFs, ETNs, 
indexes and HOLDRS which are Multiply Listed.
    \6\ A QCC Order is comprised of an order to buy or sell at least 
1,000 contracts that is identified as being part of a qualified 
contingent trade, as that term is defined in Rule 1080(o)(3), 
coupled with a contra-side order to buy or sell an equal number of 
contracts. The QCC Order must be executed at a price at or between 
the National Best Bid and Offer and be rejected if a Customer order 
is resting on the Exchange book at the same price. A QCC Order shall 
only be submitted electronically from off the floor to the PHLX XL 
II System. See Rule 1080(o). See also Securities Exchange Act 
Release No. 64249 (April 7, 2011), 76 FR 20773 (April 13, 2011) (SR-
Phlx-2011-47) (a rule change to establish a QCC Order to facilitate 
the execution of stock/option Qualified Contingent Trades (``QCTs'') 
that satisfy the requirements of the trade through exemption in 
connection with Rule 611(d) of the Regulation NMS).
    \7\ Floor QCC Orders must include data reflecting the number of 
shares of stock sold/purchased in the stock leg of the QCT trade. 
Floor QCC Orders lacking this data will be rejected by the Exchange 
system.
    \8\ Once entered into the FBMS by a Floor Broker, the execution 
will be executed electronically. Only Floor Brokers will be 
permitted to enter Floor QCC Orders. See Exchange Rule 1064. 
Exchange Rule 1064(e)(2) prohibits Options Floor Brokers from 
entering Floor QCC Orders for their own accounts, the account of an 
associated person, or an account with respect to which it or an 
associated person thereof exercises investment discretion.
    \9\ See Securities Exchange Act Release No. 64520 (May 19, 
2011), 76 FR 30223 (May 24, 2011) (SR-Phlx-2011-66).
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    There are currently several categories of market participants: 
Customers, Directed Participants,\10\ Specialists,\11\ Registered 
Options Traders,\12\ SQTs,\13\ RSQTs,\14\ Broker-Dealers, Firms and 
Professional.\15\ The Exchange currently assesses Directed 
Participants, Specialists, ROTs, SQTs, RSQTs, Broker-Dealers, Firms and 
Professionals a $0.20 per contract QCC Transaction Fee for QCC Orders 
(electronic) in both Select Symbols \16\ (Section I of the Exchange's 
Fee Schedule) and Multiply Listed Option Symbols (Section II of the 
Exchange's Fee Schedule). Customers are not assessed a QCC Transaction 
Fee. The QCC Transaction Fees are subject to the Firm Related Equity 
Option Cap and the Monthly Cap. The Firm Related Equity Option Cap is 
currently $75,000.\17\ ROTs and Specialists are currently subject to a 
Monthly Cap of $550,000.\18\
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    \10\ A Directed Participant is a Specialist, Streaming Quote 
Trader (``SQT''), or Remote Streaming Quote Trader (``RSQT'') that 
receives a Directed Order that is directed to them by an Order Flow 
Provider. See Exchange Rule 1080(l).
    \11\ A Specialist is an Exchange member who is registered as an 
options specialist pursuant to Rule 1020(a).
    \12\ A Registered Options Trader (``ROT'') includes a SQT, a 
RSQT and a Non-SQT ROT, which by definition is neither a SQT or a 
RSQT. A ROT is defined in Exchange Rule 1014(b) as a regular member 
or a foreign currency options participant of the Exchange located on 
the trading floor who has received permission from the Exchange to 
trade in options for his own account. See Exchange Rule 1014(b)(i) 
and (ii).
    \13\ An SQT is defined in Exchange Rule 1014(b)(ii)(A) as an ROT 
who has received permission from the Exchange to generate and submit 
option quotations electronically in options to which such SQT is 
assigned.
    \14\ An RSQT is [sic] defined Exchange Rule in [sic] 
1014(b)(ii)(B) as an ROT that is a member or member organization 
with no physical trading floor presence who has received permission 
from the Exchange to generate and submit option quotations 
electronically in options to which such RSQT has been assigned. An 
RSQT may only submit such quotations electronically from off the 
floor of the Exchange.
    \15\ The Exchange defines a ``professional'' as any person or 
entity that (i) is not a broker or dealer in securities, and (ii) 
places more than 390 orders in listed options per day on average 
during a calendar month for its own beneficial account(s) 
(hereinafter ``Professional'').
    \16\ Select Symbols are defined in Section I of the Exchange's 
Fee Schedule.
    \17\ Firm equity option transaction charges, in the aggregate, 
for one billing month will not exceed the Firm Related Equity Option 
Cap per member organization when such members are trading in their 
own proprietary account. The Firm equity options transaction charges 
will be waived for members executing facilitation orders pursuant to 
Exchange Rule 1064 when such members are trading in their own 
proprietary account. Firms that (i) are on the contra-side of an 
electronically-delivered and executed Customer complex order; and 
(ii) have reached the Firm Related Equity Option Cap will be 
assessed a $0.05 per contract fee. See Securities Exchange Act 
Release No. 63780 (January 26, 2011), 76 FR 5846 (February 2, 2011) 
(SR-Phlx-2011-07).
    \18\ The trading activity of separate ROTs and Specialist member 
organizations will be aggregated in calculating the Monthly Cap if 
there is at least 75% common ownership between the member 
organizations. In addition, ROTs and Specialists that (i) are on the 
contra-side of an electronically-delivered and executed Customer 
complex order; and (ii) have reached the Monthly Cap will be 
assessed a $0.05 per contract fee. See Securities Exchange Act 
Release No. 64113 (March 23, 2011), 76 FR 17468 (March 29, 2011) 
(SR-Phlx-2011-36).
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2. Statutory Basis
    The Exchange believes that its proposal to amend its Fee Schedule 
is consistent with Section 6(b) of the Act \19\ in general, and 
furthers the objectives of Section 6(b)(4) of the Act \20\ in 
particular, in that it is an equitable allocation of reasonable fees 
and other charges among Exchange members.
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    \19\ 15 U.S.C. 78f(b).
    \20\ 15 U.S.C. 78f(b)(4).
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    The Exchange believes that the proposed fees for Floor QCC Orders 
are equitable because the QCC Transaction Fees which would apply to 
Floor QCC Orders are currently applied to QCC Orders (electronic) 
today. For this reason, the Exchange believes that it is equitable to 
assess QCC Orders (electronic) and Floor QCC Orders the same rates.
    Additionally, the Exchange believes that QCC Transaction Fees 
proposed to be applied to Floor QCC Orders are within the range of fees 
currently assessed in Section II for Multiply Listed equity options. 
Customers are not assessed a fee for options overlying equities which 
are Multiply Listed. Other market participants are assessed transaction 
fees, pursuant to Section II, which range from $.20 per contract to 
$.25 per contract, generally.\21\ In addition, the Exchange is 
proposing to assess the same QCC Transaction Fee for Floor QCC Orders 
on all market participants uniformly, with the exception of Customers. 
The Exchange believes that its proposal to not assess Customers QCC 
Transaction Fees for Floor QCC Orders is not unfairly discriminatory 
because the Exchange is seeking to incentivize Broker-Dealers, Firms 
and Professionals to execute Customer Floor QCC Orders on the Exchange.
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    \21\ A Broker-Dealer is the one exception to this range. A 
Broker-Dealer is assessed $.45 per contract for electronically 
submitted transactions in Penny Pilot and non-Penny Pilot options.
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    The Exchange believes that the proposed fees are reasonable because 
the fees are comparable to the Exchange's fees, as stated above, and 
because the fees are within the range of fees assessed by the 
International Securities Exchange, LLC (``ISE'') for

[[Page 40419]]

qualified contingent cross orders. ISE assesses $0.20 per contract for 
qualified contingent cross orders to all market participants \22\ 
except the priority customer.\23\
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    \22\ The fee for an ISE market maker is either $.18 or $.20 per 
contract, depending on the product. See ISE's Fee Schedule. See also 
Securities Release Act No. 64112 (March 23, 2011), 76 FR 17462 
(March 29, 2011) (SR-ISE-2011-14).
    \23\ An ISE priority customer is not assessed a fee. See ISE's 
Fee Schedule.
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    The Exchange operates in a highly competitive market comprised of 
nine U.S. options exchanges in which sophisticated and knowledgeable 
market participants readily can, and do, send order flow to competing 
exchanges if they deem fee levels at a particular exchange to be 
excessive. The Exchange believes that the proposed QCC Transaction Fees 
for Floor QCC Orders it assesses must be competitive with fees assessed 
on other options exchanges. The Exchange believes that this competitive 
marketplace impacts the fees 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.\24\ 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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    \24\ 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-2011-84 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-2011-84. 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-2011-84 and should be 
submitted on or before July 29, 2011.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\25\
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    \25\ 17 CFR 200.30-3(a)(12).
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Cathy H. Ahn,
Deputy Secretary.
[FR Doc. 2011-17120 Filed 7-7-11; 8:45 am]
BILLING CODE 8011-01-P