Document ID: SEC-2009-0925-0001
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 the Cancellation Fee
Posted Date: 2009-07-09T04:00Z

[Federal Register: July 9, 2009 (Volume 74, Number 130)]
[Notices]               
[Page 32987-32989]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr09jy09-122]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-60188; File No. SR-Phlx-2009-48]

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

June 29, 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 June 19, 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 aggregate options orders within a 
specified time period for the purpose of assessing the Cancellation 
Fee. In addition, the Exchange purposes several technical amendments to 
delete obsolete language and further clarify the Fee Schedule.
    While changes to the Exchange's fee schedule pursuant to this 
proposal are effective upon filing, the Exchange has designated this 
proposal to be effective on July 1, 2009.
    The text of the proposed rule change is available on the Exchange's 
Web site at http://www.nasdaqtrader.com/micro.aspx?id=PHLXRulefilings, 
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 the manner in 
which the Cancellation Fee is assessed on members. In order to 
calculate the Cancellation Fee, the Exchange proposes to aggregate and 
count as one executed customer \3\ 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. The Exchange believes the level of cancelled orders remains 
high. Some customers are seeking to avoid the fee by executing large 
quantities of small orders in out-of-the-money options to offset their 
cancellation activity in more actively traded options. The Exchange 
believes this modification to the calculation of the Cancellation Fee 
is necessary for the Exchange to recover costs associated with system 
congestion.
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    \3\ 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.''
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    Currently, the Exchange assesses a Cancellation Fee of $ 2.10 per 
order on member organizations for each cancelled electronically \4\ 
delivered

[[Page 32988]]

customer order in excess of the number of customer orders executed on 
the Exchange by that member organization in a given month. The Exchange 
calculates the Cancellation Fee by aggregating all customer orders and 
cancels received by the Exchange and totaling those orders by member 
organization. At least 500 customer 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 
customer 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.\5\ The following order 
activity is exempt from the Cancellation Fee: (i) Pre-market 
cancellations; \6\ (ii) Complex Orders \7\ that are submitted 
electronically; (iii) unfilled Immediate-or-Cancel \8\ 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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    \4\ The Exchange previously referred to the electronic order 
delivery, routing, execution and reporting system as AUTOM. This 
system provided for the automatic entry and routing of equity option 
and index option orders to the Exchange trading floor. See Exchange 
Rule 1080. The Exchange filed a rule change which replaced the terms 
AUTOM and AUTO-X with the Phlx XL System, such that references to 
both terms refer to Phlx XL. See Securities Exchange Act Release No. 
59995 (May 28, 2009), 74 FR 26750 (June 3, 2009) (SR-Phlx-2009-32). 
Therefore, in light of the rule change references to AUTOM have been 
replaced with the words electronically delivered in describing the 
Cancellation Fee.
    \5\ 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).
    \6\ 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).
    \7\ 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.
    \8\ 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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    Additionally, the Exchange proposes to amend the Fee Schedule at 
endnote 5 to replace the current language: ``Firm Proprietary Options 
Transaction Charge applies to firm proprietary orders (``F'' account 
type) in all products'' to state instead that it applies to ``* * * 
equity option products.'' The language in the Fee Schedule was amended 
by a previous rule change \9\ and was inadvertently omitted from the 
corresponding endnote. The Exchange also proposes to make a technical 
amendment to the Fee Schedule to replace all references to AUTOM with 
the words ``electronically delivered.'' As previously stated herein, 
the Exchange has modified Rule 1080 to replace the terms AUTOM and 
AUTO-X with the Phlx XL System, such that references to both terms 
refer to Phlx XL. Therefore, in light of the rule change the Exchange 
proposes to replace references to AUTOM with the words ``electronically 
delivered'' to correspond with Exchange Rule 1080.
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    \9\ See Securities Exchange Act Release No. 59545 (March 9, 
2009); 74 FR 11158 (March 16, 2009) (SR-Phlx-2009-20).
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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 \10\ in general, and 
furthers the objectives of Section 6(b)(4) of the Act \11\ in 
particular, in that it is an equitable allocation of reasonable fees 
and other charges among Exchange members. The Exchange believes that 
the proposed amendments to the Cancellation Fee will continue to fairly 
allocate costs among members according to system use as well as ease 
system congestion. Additionally, the proposed technical amendments will 
clarify the Fee Schedule.
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    \10\ 15 U.S.C. 78f(b).
    \11\ 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 rule change has become effective pursuant to Section 
19(b)(3)(A)(ii) of the Act \12\ and paragraph (f)(2) of Rule 19b-4 \13\ 
thereunder. 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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    \12\ 15 U.S.C. 78s(b)(3)(A)(ii).
    \13\ 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-2009-48 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-2009-48. 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 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-2009-48 and should be 
submitted on or before July 30, 2009.

[[Page 32989]]

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\14\
Elizabeth M. Murphy,
Secretary.
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    \14\ 17 CFR 200.30-3(a)(12).
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[FR Doc. E9-16172 Filed 7-8-09; 8:45 am]

BILLING CODE 8010-01-P