Document ID: SEC-2011-0148-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: NASDAQ OMX PHLX LLC
Posted Date: 2011-02-02T05:00Z

[Federal Register Volume 76, Number 22 (Wednesday, February 2, 2011)]
[Notices]
[Pages 5846-5848]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2011-2226]

[[Page 5846]]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-63780; File No. SR-Phlx-2011-07]

Self-Regulatory Organizations; NASDAQ OMX PHLX LLC; Notice of 
Filing and Immediate Effectiveness of Proposed Rule Change Relating to 
Firm Related Equity Option Cap, Active SQF Port Fees and Other 
Membership Fees

January 26, 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 January 14, 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 the Exchange's Fee Schedule to: (i) 
Allow Firms to cap their equity option transaction charges, per month, 
when such Firms are trading in their own proprietary account; (ii) 
correct a typographical error related to the Active Specialized Quote 
Feed (``SQF'') Port Fee and also extended the current $40,000 per month 
cap from March 31, 2011 to November 30, 2011; (iii) clarify the 
Transfer of Affiliation Fee applies to member organizations; (iv) 
clarify when an Initiation Fee is assessed; (v) remove a reference to 
Application Fee in the Fee Schedule; and (vi) remove a note associated 
with the Options Regulatory Fee which is no longer necessary.
    While changes to the Exchange's Fee Schedule pursuant to this 
proposal are effective upon filing, the Exchange has designated this 
proposal to be operative on January 17, 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, 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 types of 
equity transaction charges that would count toward the Firm Related 
Equity Option Cap. The Exchange believes that this amendment would 
encourage organizations that are not members to become members by 
further reducing fees. The Exchange is also proposing to extend the 
timeframe for members to cap their Active SQF Port Fees in order that 
members will have additional time to transition from SQF 5.0 to SQF 
6.0. Finally, the Exchange is proposing to make certain clarifying 
amendments to the text of the Fee Schedule to more accurately reflect 
when certain fees would be assessed on members.
Firm Related Equity Option Cap
    The Exchange currently caps Firms at $75,000 (``Firm Related Equity 
Option Cap'') for equity options transactions charges, in the aggregate 
for one billing month per member organization, except for orders of 
joint back-office (``JBO'') participants.\3\ The Exchange is proposing 
to amend the application of the Firm Related Equity Option Cap to state 
that the $75,000 Firm Related Equity Option Cap would apply to Firm 
equity option transaction charges, in the aggregate for one billing 
month per member organization, when such members are trading in their 
own proprietary account.\4\ The Firm Related Equity Option Cap would 
not apply to orders where a member is acting as agent on behalf of a 
non-member. The Firm Related Equity Options Cap would apply to trades 
in which a member acts as agent on behalf of another member, provided 
those orders are not commingled with orders from a non-member.
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    \3\ A JBO participant is a member, member organization or non-
member organization that maintains a JBO arrangement with a clearing 
broker-dealer (``JBO Broker'') subject to the requirements of 
Regulation T Section 220.7 of the Federal Reserve System. See also 
Exchange Rule 703.
    \4\ The Firm equity options transaction charges are waived for 
members executing facilitation orders pursuant to Exchange Rule 1064 
when such members are trading in their own proprietary account.
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    Members and member organizations would be required to continue to 
notify the Exchange, in writing, of all accounts, which under this 
proposal are not executed for their own proprietary account. The 
purpose of this provision would be to enable the Exchange to accurately 
monitor which executions are subject to the Firm Related Equity Option 
Cap. Furthermore, the Exchange proposes to specify that it would not 
make adjustments to billing invoices where the member/member 
organization commingles transactions that are not for their own 
proprietary account, and thus not subject to the Firm Related Equity 
Option Cap, with transactions for accounts which are proprietary.\5\
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    \5\ In the initial filing, the Exchange stated that 
``[f]urthermore, the Exchange proposes to specify that it would not 
make adjustments to billing invoices where the member/member 
organization commingles transactions that are not for their own 
proprietary account, and thus not subject to the Firm Related Equity 
Option Cap, with transactions for accounts which are non-
proprietary.'' The Exchange requested the removal of the letters 
``non-'' before the word ``proprietary'' because it was incorrect. 
See E-mail from Angela S. Dunn, Assistant General Counsel, Phlx, 
dated January 26, 2011.
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Active SQF Port Fee
    The Exchange recently amended the Active SQF Port \6\ Fee to 
establish a tiered schedule of fees.\7\ In that rule change, the 
Exchange placed a $40,000 per month cap (``Cap'') on Active SQF Port 
Fees from January 3, 2011 through March 31, 2011. In that rule change, 
the Exchange noted that it believed that member organizations will 
utilize less SQF 6.0 ports than SQF 5.0 ports \8\ and that all member 
organizations should have transitioned to SQF 6.0 by March 31, 2011.
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    \6\ Active SQF ports refer to ports that receive inbound quotes 
at any time within that month. SQF is an interface that enables 
specialists, Streaming Quote Traders (``SQTs'') and Remote Streaming 
Quote Traders (``RSQTs'') to connect and send quotes into Phlx XL.
    \7\ See Securities Exchange Act Release No. 63619 (December 29, 
2010), 76 FR 614 (January 5, 2011) (SR-Phlx-2010-181).
    \8\ The Exchange released SQF 6.0 on October 11, 2010. The 
Exchange anticipates that member organizations will utilize both SQF 
5.0 and SQF 6.0 for a period of time. See Securities Exchange Act 
Release No. 63034 (October 4, 2010), 75 FR 62441 (October 8, 2010) 
(SR-Phlx-2010-124).
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    The Exchange now believes that member organizations would require

[[Page 5847]]

additional time to properly transition to SQF 6.0 ports and proposes 
extending the applicability of the Cap until November 30, 2011. On 
December 1, 2011, there will no longer be a Cap in effect for the 
Active SQF Port Fee. The purpose of the Cap is to ensure member 
organizations are not assessed fees in excess of the Active SQF Port 
Fees.
    Additionally, the Exchange proposes to correct a typographical 
error within the text of the Fee Schedule for the Active SQF Port Fee. 
When the Exchange filed to create the tiered schedule of fees for the 
Active SQF Port Fees the Exchange incorrectly noted that there would be 
a tier for 19-40 Active SQF Ports and another tier that would be for 40 
and over. The last tier should be ``41 and over'' since 40 Active SQF 
Ports would be assessed fees in the third tier. The Exchange proposes 
renaming the final tier ``41 and over'' and assessing that tier for the 
41st Active SQF Port and greater than 41 ports.
Transfer of Affiliation
    The Exchange is proposing to amend the Transfer of Affiliation Fee 
which was recently added to the Fee Schedule \9\ to clarify that the 
$350 Transfer of Affiliation Fee would be assessed on a permit holder 
who applies to transfer affiliation from one member organization to 
another member organization. The text currently states from one member 
to another member, however the transfer would take place between member 
organizations and the Exchange is proposing to clarify its Fee Schedule 
to accurately reflect the transfer. The Exchange is also proposing 
minor corrections to the Transfer of Affiliation Fee text to simplify 
the text. The Exchange therefore proposes the current text for the 
Transfer of Affiliation Fee be replaced with the following text, ``The 
Exchange will not assess the Initiation Fee on a permit holder who 
applies to transfer affiliation from one member organization to another 
member organization if the permit holder continuously held his or her 
permit without any lapse in membership.'' \10\
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    \9\ See Securities Exchange Act Release No. 63569 (December 17, 
2010), 75 FR 81323 (December 27, 2010) (SR-Phlx-2010-178).
    \10\ The Exchange is not proposing to amend the $350 fee rate.
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Initiation Fee
    The Exchange is proposing to clarify the rule text of the 
Initiation Fee, as well as the applicability of that fee.
    First, the Exchange proposes to clarify that the Initiation Fee is 
imposed on a new member upon the issuance of a permit. The current text 
of the Fee Schedule states that an ``Initiation Fee is imposed on a 
member upon election * * *'' This language refers to a former process 
at the Exchange whereby the former Admissions Committee would review an 
application for membership and grant an election to membership, which 
would in turn trigger an Initiation Fee to be assessed upon a member.
    The Exchange is proposing to clarify the text of this fee by 
instead stating that the Initiation Fee would be imposed on ``* * * a 
new member upon the issuance of a permit * * * notwithstanding the fact 
that the new member may have been a former permit holder.'' This 
language would not change the applicability of this fee, but only 
reflect the current practice of admitting members and the actual 
trigger for the fee today. Today the Exchange assesses the Initiation 
Fee on each new member. This would include new members that formerly 
held a Series A-1 permit. The Exchange does not propose to amend the 
current applicability of the Initiation Fee, but rather the Exchange 
desires to merely clarify for members the applicability of the fee.
Application Fee
    The Exchange is also seeking to clarify the applicability of the 
Application Fee with respect to PSX Participants. The Fee Schedule 
contains a note which states that,

    Applicants that apply for membership solely to participate in 
the NASDAQ OMX PSX equities market are not assessed a Permit Fee, 
Application Fee, Initiation Fee, or Account Fee. Should such 
approved member or member organization subsequently elect to engage 
in business on Phlx XL II, the Exchange's options platform, the 
monthly Permit Fee, Application Fee, Initiation Fee and Account Fee 
will apply.

The Exchange is proposing to instead state:

    Applicants that apply for membership solely to participate in 
the NASDAQ OMX PSX equities market are not assessed a Permit Fee, 
Application Fee, Initiation Fee, or Account Fee. Should such 
approved member or member organization subsequently elect to engage 
in business on Phlx XL II, the Exchange's options platform, the 
monthly Permit Fee, Initiation Fee and Account Fee will apply.

Since an Application Fee only applies to new members upon the issuance 
of a permit, a PSX Participant that subsequently elects to engage in 
options business would not require a new permit because that member 
would already possess a Series A-1 permit.\11\ Therefore, the 
Application Fee would never be assessed in that scenario.\12\ The 
Exchange is proposing to correct this oversight by removing that 
language in the note related to Initiation Fee.
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    \11\ The Exchange included language in the initial filing 
stating that it ``was noted above'' that Application Fees only apply 
to new member upon the issuance of a new permit. The Exchange 
requested the removal of the ``as noted above'' language because it 
was incorrect. See E-mail from Angela S. Dunn, Assistant General 
Counsel, Phlx, dated January 26, 2011.
    \12\ See Securities Exchange Act Release No. 61863 (April 7, 
2010), 75 FR 20021 (April 16, 2010) (SR-Phlx-2010-54). In this rule 
change, the Exchange noted ``[a]n Exchange member approved to 
participate in PSX would not be assessed an application fee should 
it subsequently determine to participate in the Exchange's options 
market, but would be charged the one-time initiation fee and would 
thereafter be charged the monthly account fee and permit fee.''
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Options Regulatory Fee
    The Exchange proposes to remove text in the Fee Schedule related to 
the Options Regulatory Fee, which is no longer necessary. The Exchange 
proposes removing the following language in the Fee Schedule, ``The 
Exchange will continue to assess $.0030 until January 3, 2011 at which 
time the new rate of $.0035 will be assessed.'' The Exchange has 
already commenced assessing the new rate, therefore this text is no 
longer necessary and the Exchange proposes deleting this text.
2. Statutory Basis
    The Exchange believes that its proposal to amend its Fee 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 believes that its proposal to amend the Firm 
Related Equity Option Cap to apply to members trading in their own 
proprietary account is reasonable because it would allow the Exchange 
to reduce costs for more member organizations. The Exchange believes 
that the proposal is equitable because member organizations that are 
JBOs could be subject to the Firm Related Equity Option Cap, as are 
other members, as long as the JBO trades were for their own proprietary 
account. Additionally, the proposed change would encourage JBOs that 
are not members to seek to become member organizations to further 
reduce their transaction fees.
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    \13\ 15 U.S.C. 78f(b).
    \14\ 15 U.S.C. 78f(b)(4).
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    The proposed modification to the Firm Related Equity Option Cap is 
similar to other fees assessed by the Exchange. Specifically, the Firm 
equity

[[Page 5848]]

options transaction charges are waived for members executing 
facilitation orders \15\ pursuant to Exchange Rule 1064 when such 
members are trading in their own proprietary account.\16\ Additionally, 
dividend, merger and short stock interest strategies are capped at 
$25,000 per member organization per month when such members are trading 
in their own proprietary accounts.\17\
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    \15\ A facilitation occurs when a floor broker holds an options 
order for a public customer and a contra-side order for the same 
option series and, after providing an opportunity for all persons in 
the trading crowd to participate in the transaction, executes both 
orders as a facilitation cross. See Exchange Rule 1064.
    \16\ See Securities Exchange Act Release No. 60477 (August 11, 
2009), 74 FR 41777 (August 18, 2009) (SR-Phlx-2009-67).
    \17\ See Securities Exchange Act Release Nos. 61115 (December 4, 
2009), 74 FR 65571 (December 10, 2009) (SR-Phlx-2009-97) and 63712 
(January 12, 2011) (SR-Phlx-2011-01).
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    The Exchange operates in a highly competitive market in which 
sophisticated and knowledgeable market participants can readily send 
orders to buy and sell options to competing venues if they deem fee 
levels at a particular venue to be excessive. The Exchange believes 
that the proposed modification to the Firm Related Equity Option Cap is 
necessary to remain competitive with fees charged by other venues and 
therefore continues to be reasonable and equitably allocated to those 
member organizations that opt to direct orders to the Exchange rather 
than competing venues.
    The Exchange believes that its proposal to expand the applicability 
of the Cap for Active SQF Port Fees is both reasonable and equitable 
because it would allow members additional time to transition from SQF 
5.0 to SQF 6.0.
    The Exchange believes that its various proposals to amend the text 
of the Fee Schedule to clarify the applicability of certain fees, amend 
typographical errors and remove irrelevant text is both reasonable and 
equitable because members would benefit from clear guidance in the rule 
text describing the manner in which the Exchange would assess fees.

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.\18\ 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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    \18\ 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-2011-07 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-2011-07. 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. 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-2011-07 and should be submitted on or before 
February 23, 2011.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\19\
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    \19\ 17 CFR 200.30-3(a)(12).
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Elizabeth M. Murphy,
Secretary.
[FR Doc. 2011-2226 Filed 2-1-11; 8:45 am]
BILLING CODE 8011-01-P