Document ID: SEC-2012-0777-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: NASDAQ OMX PHLX LLC
Posted Date: 2012-05-17T04:00Z

[Federal Register Volume 77, Number 96 (Thursday, May 17, 2012)]
[Notices]
[Pages 29425-29427]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2012-11916]

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

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-66968; File No. SR-Phlx-2012-57]

Self-Regulatory Organizations; NASDAQ OMX PHLX LLC; Notice of 
Filing and Immediate Effectiveness of Proposed Rule Change Relating to 
Complex Order Fees for Removing Liquidity in Select Symbols

May 11, 2012.
    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 30, 2012, 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.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------

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

    The Exchange proposes to amend Section I of the Exchange's Pricing 
Schedule entitled ``Rebates and Fees for Adding and Removing Liquidity 
in Select Symbols.'' The Exchange previously filed an immediately 
effective rule change, SR-Phlx-2012-27,\3\ to amend certain fees and 
rebates in Section I, which filing was temporarily suspended by the 
Commission as of April 30, 2012 (``Suspension Order'').\4\ At this 
time, to continue the effectiveness of certain fees and rebates that 
were contained in SR-Phlx-2012-27, the Exchange is filing this rule

[[Page 29426]]

change. The Exchange is also proposing additional amendments.
---------------------------------------------------------------------------

    \3\ See Securities Exchange Act Release No. 66551 (March 9, 
2012), 77 FR 15400 (March 15, 2012) (SR-Phlx-2012-27).
    \4\ By order dated April 30, 2012, the Commission suspended SR-
Phlx-2012-27 and SR-Phlx-2012-54. See Securities Exchange Release 
No. 66884 (April 30, 2012).
---------------------------------------------------------------------------

    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, 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 Exchange proposes to continue the effectiveness of certain 
rebates and fees originally proposed in SR-Phlx-2012-27, which fees and 
rebates were temporarily suspended by the Commission. Specifically, the 
Exchange is proposing to continue the effectiveness of: (i) An 
increased Customer Complex Order \5\ Rebate for Adding Liquidity; (ii) 
the adoption of a Rebate for Removing Liquidity category and Customer 
Complex Order Rebate for Removing Liquidity; and (iii) increased Firm, 
Broker-Dealer and Professional \6\ Complex Order Fees for Removing 
Liquidity. Also, the Exchange proposes to increase the Directed 
Participant and Market Maker Complex Order Fees for Removing Liquidity 
in this proposal. Specifically, the Exchange is proposing to amend the 
Complex Order fees and rebates in Section I of the Exchange's Pricing 
Schedule, entitled ``Rebates and Fees for Adding and Removing Liquidity 
in Select Symbols.'' \7\ The proposed amendments will enable the 
Exchange to continue to reward market participants that add liquidity 
to the Exchange and allow the Exchange to compete more effectively 
respecting Complex Orders. The increased Complex Order fees will 
continue to offset the costs of offering Complex Order rebates to 
Customers to bring liquidity to the market.
---------------------------------------------------------------------------

    \5\ 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 exchange-traded fund (``ETF'') coupled with 
the purchase or sale of options contract(s). See Exchange Rule 1080, 
Commentary .08(a)(i).
    \6\ The term ``professional'' means 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). See Rule 
1000(b)(14).
    \7\ The Select Symbols are listed in Section I of the Pricing 
Schedule.
---------------------------------------------------------------------------

    Specifically, SR-Phlx-2012-27 proposed to: (1) Increase the 
Customer Complex Order Rebate for Adding Liquidity from $0.30 to $0.32 
per contract, (2) create a new Complex Order Rebate for Removing 
Liquidity and specifically pay a Customer a $0.06 Complex Order Rebate 
for Removing Liquidity, and (3) increase the Complex Order Fees for 
Removing Liquidity for Firms, Broker-Dealers and Professionals from 
$0.35 per contract to $0.38 per contract. The Exchange is proposing to 
continue to pay the rebates and assess the fees, as noted above, which 
were initially proposed in SR-Phlx-2012-27.
    The Exchange is also proposing to increase the Complex Order 
Directed Participant \8\ Fee for Removing Liquidity from $0.30 per 
contract \9\ to $0.34 per contract and the Complex Order Market Maker 
\10\ Fee for Removing Liquidity from $0.32 per contract \11\ to $0.36 
per contract.
---------------------------------------------------------------------------

    \8\ The term ``Directed Participant'' applies to transactions 
for the account of a Specialist, Streaming Quote Trader (``SQT'') or 
Remote Streaming Quote Trader (``RSQT'') resulting from a Customer 
order that is (1) directed to it by an order flow provider, and (2) 
executed by it electronically on Phlx XL II.
    \9\ The Suspension Order reverted the Complex Order Directed 
Participant Fee for Removing Liquidity from $0.32 per contract to 
$0.30 per contract as of the date of the Suspension Order.
    \10\ A ``Market Maker'' includes Specialists (see Rule 1020) and 
Registered Options Traders (``ROTs'') (Rule 1014(b)(i) and (ii), 
which includes SQTs (see Rule 1014(b)(ii)(A)) and RSQTs (see Rule 
1014(b)(ii)(B)).
    \11\ The Suspension Order reverted the Complex Order Market 
Maker Fee for Removing Liquidity from $0.37 per contract to $0.32 
per contract as of the date of the Suspension Order.
---------------------------------------------------------------------------

    The Exchange is not proposing any amendments to Parts A or C of 
Section I of the Pricing Schedule.\12\
---------------------------------------------------------------------------

    \12\ As part of SR-Phlx-2012-27, the Exchange proposed a volume 
incentive for Market Makers that executed more than 25,000 contracts 
per day in a month of Complex Orders, either adding or removing 
liquidity, in Select Symbols. Market Makers that met the 
aforementioned volume criteria received a $0.01 per contract 
reduction of both the Directed Participant and Market Maker Complex 
Order Fees for Removing Liquidity, as applicable, on all of their 
transactions for the month. The Suspension Order would eliminate 
this incentive. The Exchange is not proposing to reinstate that 
incentive, which will no longer be effective as of the Suspension 
Order.
---------------------------------------------------------------------------

2. Statutory Basis
    The Exchange believes that its proposal to amend its Pricing 
Schedule is consistent with Section 6(b) of the Act \13\ in general, 
and furthers the objectives of Section 6(b)(4) of the Act \14\ in 
particular, in that it is an equitable allocation of reasonable fees 
and other charges among Exchange members and other persons using its 
facilities. The Exchange also believes that it is an equitable 
allocation of reasonable rebates among Exchange members and other 
persons using its facilities.
---------------------------------------------------------------------------

    \13\ 15 U.S.C. 78f(b).
    \14\ 15 U.S.C. 78f(b)(4).
---------------------------------------------------------------------------

Complex Order Customer Rebates
    Customer Complex Orders are becoming an increasingly important 
segment of options trading. The Exchange believes that it is reasonable 
to increase the current Customer Complex Order Rebate for Adding 
Liquidity to $0.32 per contract and create a new Customer Complex Order 
Rebate for Removing Liquidity of $0.06 per contract, because the 
Exchange seeks to incentivize market participants to direct and 
transact a greater number of Customer Complex Orders at the Exchange. 
Creating these incentives and attracting Customer Complex Orders to the 
Exchange, in turn, benefits all market participants through increased 
liquidity at the Exchange. A higher percentage of Customer Complex 
Orders leads to increased Complex Order auctions and better 
opportunities for price improvement.
    The Exchange also believes it is reasonable, equitable and not 
unfairly discriminatory to only offer rebates to Customers and not 
other market participants. Customer Complex Order flow brings unique 
benefits to the marketplace in terms of liquidity and order 
interaction. It is an important Exchange function to provide an 
opportunity to all market participants to trade against Customer 
Complex Orders. The Exchange believes that it is equitable and not 
unfairly discriminatory to increase the current Customer Complex Order 
Rebate for Adding Liquidity to $0.32 per contract and create a new 
Customer Complex Order Rebate for Removing Liquidity of $0.06 per 
contract, because the Exchange will uniformly pay these rebates to all 
Customer orders from any member organization.

[[Page 29427]]

Complex Order Fees for Removing Liquidity

    The Exchange believes that it is reasonable to increase the Complex 
Order Fees for Removing Liquidity for Directed Participants, Market 
Makers, Firms, Broker-Dealers and Professionals so that the Exchange 
can offer increased rebates to Customers. As previously noted, the 
Exchange is proposing to increase the Customer Complex Order Rebate for 
Adding Liquidity and offer a new Customer Complex Order Rebate for 
Removing Liquidity.
    The Exchange believes that it is equitable and not unfairly 
discriminatory to increase the Complex Order Fees for Removing 
Liquidity for Directed Participants, Market Makers, Firms, Broker-
Dealers and Professionals because, the Exchange is increasing these 
fees for all market participants, except Customers who are not assessed 
a fee, to position itself to offer greater Customer Complex Order 
rebates. The Exchange is consistently assessing lower Complex Order 
Fees for Removing Liquidity to Directed Participants and Market Makers 
as compared to Firms, Broker-Dealers and Professionals, because, as has 
been described in previous filings, these participants have requisite 
quoting obligations in the series in which they are assigned. Market 
Makers \15\ have burdensome quoting obligations to the market which do 
not apply to Firms, Professionals and Broker-Dealers. Also, Market 
Makers that receive Directed Orders \16\ have higher quoting 
obligations compared to other Market Makers and therefore are assessed 
a lower fee when they transact with a Customer order that was directed 
to them for execution as compared to Market Makers. In addition, the 
fee differential of $0.02 per contract as between a Market Maker and 
Directed Participant is comparable to the fee differential at the 
International Stock Exchange, Inc. (``ISE'') \17\ and is lower than the 
fee differential at NYSE Amex, LLC (``Amex'').\18\ Firms, Broker-
Dealers and Professionals are being assessed the same $0.38 per 
contract fees. Customers are not assessed a Fee for Removing Liquidity, 
as is the case on competing exchanges.\19\
---------------------------------------------------------------------------

    \15\ See Rule 1014 titled ``Obligations and Restrictions 
Applicable to Specialists and Registered Options Traders.''
    \16\ Id.
    \17\ ISE has a $.02 fee differential as between ISE Market 
Makers who remove liquidity from the Complex Order Book by trading 
with orders that are preferenced to them ($0.32 per contract) and 
non-preferenced ISE Market Makers ($0.34 per contract). See ISE's 
Fee Schedule.
    \18\ Amex assesses directed and non-directed Specialists and 
eSpecialists (termed Market Makers at Phlx) a fee of $.13 per 
contract for removing liquidity in complex orders and a non-directed 
Market Maker a fee of $0.20 per contract for removing liquidity in 
complex orders. This $.07 fee differential is greater than Phlx's 
proposed $.02 fee differential.
    \19\ See the Chicago Board Options Exchange Incorporated's 
(``CBOE'') Fees Schedule.
---------------------------------------------------------------------------

    The Exchange operates in a highly competitive market, comprised of 
nine exchanges, in which market participants can easily and readily 
direct order flow to competing venues if they deem fee levels at a 
particular venue to be excessive or rebates offered to be insufficient. 
Accordingly, the fees that are assessed by the Exchange and the rebates 
it pays for options overlying the various Select Symbols in Complex 
Orders must remain competitive with fees and rebates charged/paid by 
other venues and therefore must continue to be reasonable and equitably 
allocated to those members that opt to direct orders to the Exchange 
rather than competing venues.

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.\20\ 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.
---------------------------------------------------------------------------

    \20\ 15 U.S.C. 78s(b)(3)(A)(ii).
---------------------------------------------------------------------------

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 email to rule-comments@sec.gov. Please include 
File Number SR-Phlx-2012-57 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-2012-57. This file 
number should be included on the subject line if email 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 
10:00 a.m. and 3:00 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-2012-57 and should be 
submitted on or before June 7, 2012.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\21\
---------------------------------------------------------------------------

    \21\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2012-11916 Filed 5-16-12; 8:45 am]
BILLING CODE 8011-01-P