[Federal Register Volume 75, Number 11 (Tuesday, January 19, 2010)]
[Notices]
[Pages 2905-2908]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2010-824]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-61337; File No. SR-Phlx-2009-104]


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

January 12, 2010.
    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 December 22, 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. Phlx 
filed the proposal pursuant to Section 19(b)(3)(A) \3\ of the Act and 
Rule 19b-4(f)(2) \4\ thereunder. 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.
    \3\ 15 U.S.C. 78s(b)(3)(A).
    \4\ 17 CFR 240.19b-4(f)(2).
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to: (i) Decrease options transaction charges 
for ROTs to $.21 per contract; (ii) assess a $.05 per contract fee for 
equity options that are directed to specialists, Streaming Quote 
Traders (``SQTs'') \5\ and Remote Streaming Quote Traders (``RSQTs'') 
\6\ by a member or member organization and are executed electronically 
in lieu of the existing specialist and Registered Options Trader (on-
floor) (``ROTs'') equity options transaction fees; (iii) eliminate the 
monthly 4.5 million contracts (the ``Volume Threshold'') for ROTs and 
specialists; (iv) create a $900,000 monthly cap on equity options 
transactions executed by ROTs or specialists (``Monthly Cap''); (v) 
increase the Firm equity option transaction charge from $.24 to $.25 
and increase the Firm Related Equity Option Cap from $75,000 to 
$85,000; (vi) increase Index Options transaction charges from $.24 to 
$.30; (vii) eliminate the SQT and RSQT permit credits; (viii) eliminate 
the current permit fee structure and instead implement a $1,000 permit 
fee, regardless of classification; (ix) eliminate the Other Permit 
Holders fee category; (x) increase the Trading Floor Personnel 
Registration Fee from $50 to $100; (xi) increase the current Order 
Entry Port from $250 to $500 and only charge per mnemonic instead of 
per mnemonic per port; (xii) amend the SQF Port Fee to assess a $500 
per month per SQF port in lieu of the current structure of $250 for the 
first five ports and $1000 for additional port thereafter and also 
rename the SQF Port Fee as the ``Active SQF Port Fee''; (xiii) 
eliminate the $0.02 per contract SQF Port Fee; (xiv) eliminate 
references to Pilot FCOs; and (xv) eliminate and amend corresponding 
endnotes related to amendments indicated herein and make other 
clarifying amendments.
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    \5\ An SQT is an Exchange Registered Options Trader (``ROT'') 
who has received permission from the Exchange to generate and submit 
option quotations electronically through an electronic interface 
with AUTOM via an Exchange approved proprietary electronic quoting 
device in eligible options to which such SQT is assigned. See 
Exchange Rule 1014(b)(ii)(A).
    \6\ An RSQT is 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 through AUTOM in eligible options to which such RSQT 
has been assigned. An RSQT may only submit such quotations 
electronically from off the floor of the Exchange. See Exchange Rule 
1014(b)(ii)(B).
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    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 for trades settling on or after January 1, 
2010.
    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
    Generally, the purpose of the proposed rule change is to update the 
Exchange's fee schedules by adopting new fees, amending existing fees 
and deleting fees and text that are no longer deemed necessary.

Equity Options, Sector Index Options Fees and U.S. Dollar-Settled 
Foreign Currency Option Fees

    The Exchange proposes to amend the current options transaction 
charge of $.22 for ROTs and decrease that fee to $.21 per contract 
side, similar to the rate charged to specialists. The Exchange also 
proposes to assesses [sic] specialists, SQTs and RSQTs (``Directed 
Participants'' or ``Directed Specialists, RSQTs, or SQTs'' \7\) an 
equity options transaction fee of $.05 per contract fee in equity 
options that are directed to the Directed Participants by a member or 
member organization (``Order Flow Provider'' or ``OFP'') \8\, and 
executed electronically on the Exchange's electronic trading platform 
for options, the Phlx XL II system. The Exchange currently assesses 
this fee on Standard and Poor's Depositary Receipts/SPDRs (``SPY'') \9\ 
equity options that are directed to specialists, SQTs and RSQTs by a 
member or member organization and are executed electronically in lieu 
of the existing specialist and ROT equity options transaction fees.\10\ 
The Exchange proposes expanding this to all equity options transactions 
sent to these Directed Participants. The $0.05 per contract rate would 
be assessed to the Direct Participants, in lieu of the equity options 
transactions fees of $.21 per contract side. Customers who are on the 
contra-side of a trade involving Directed

[[Page 2906]]

Orders are not be [sic] subject to a fee and will remain free of 
charge.
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    \7\ 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.
    \8\ See Exchange Rule 1080(l). ``* * * The term ``Order Flow 
Provider'' (``OFP'') means any member or member organization that 
submits, as agent, customer orders to the Exchange.''
    \9\ SPY options are based on the SPDR exchange-traded fund 
(``ETF''), which is designed to track the performance of the S&P 500 
Index.
    \10\ See Securities Exchange Act Release No. 60587 (August 28, 
2009), 74 FR 46920 (September 8, 2009) (SR-Phlx-2009-73).
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    The Exchange currently provides a discount for ROTs (on-floor) and 
specialists that exceed 4.5 million contracts in a given month (the 
``Volume Threshold'') by assessing $0.01 per contract on contract 
volume above the Volume Threshold instead of the applicable options 
transaction charges. The Exchange proposes to eliminate the Volume 
Threshold and instead establish a monthly cap for ROTs and specialists 
of $900,000. The Exchange believes that by eliminating the current 4.5 
million contracts Volume Threshold and instead proposing a Monthly Cap, 
a greater number of members will benefit from the Monthly Cap.
    The Exchange also proposes to increase the Firm equity options 
transaction charge from $.24 to $.25 and increase the Firm Related 
Equity Option Cap from $75,000 to $85,000. Additionally, the Exchange 
proposes to increase the Sector Index Options Fees for ROTs, 
specialists and Firm from $.24 to $.30. The Exchange believes that 
these increases will be offset by other fee amendments that are 
proposed herein.
    In connection with these above-referenced proposals the Exchange 
proposes to delete endnotes A, B, D and 1 and amend endnote 5 in 
connection with the proposed amendments specified herein. Endnotes A, 
B, D and 1 are no longer necessary in light of the proposed amendments 
herein. Endnote 5 is being amended to correspond with the proposed 
amendments. The Exchange proposes to delete endnote 5 from the Sector 
Index Options Fees, specifically the Firm Proprietary Fee, as that 
reference was inadvertently not removed at the time the Exchange filed 
a proposed rule change eliminating the options transaction charge 
associated with the sector index options in the $75,000 Firm-Related 
Equity Option and Index Option Cap calculation.\11\ Also, the Exchange 
proposes to delete endnote 5 from the U.S. Dollar-Settled Foreign 
Currency Options Fees, specifically, the Firm Proprietary Fee, as that 
reference was inadvertently not removed at the time the Exchange filed 
a proposed rule change redefining the firm proprietary order to exclude 
U.S. Dollar-Settled Foreign Currency Option Fees from the Firm-Related 
Cap.\12\
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    \11\ See Securities Exchange Act Release No. 59545 (March 9, 
2009), 74 FR 11158 (March 16, 2009) (SR-Phlx-2009-20).
    \12\ See Securities Exchange Act Release No. 59393 (February 11, 
2009), 74 FR 7721 (February 19, 2009) (SR-Phlx-2009-12).
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Permit Fees and Credits

    The Exchange proposes to eliminate the permit credit associated 
with SQT and RSQT fees. Currently, a member organization is eligible to 
receive a monthly credit against the SQT fee for the number of actual 
permits issued to the member organization that are utilized by the SQT. 
Similarly, the RSQT member organizations' fees are subject to credits 
based on the number of permits applicable to such member organization, 
subject to the maximum allowable permit credit applicable to each RQST 
category. The Exchange is proposing to eliminate these credits. In 
connection with eliminating these credits the Exchange proposes to 
amend endnote 35 and eliminate endnote 40 to reflect the elimination of 
the credits. This proposal to eliminate the credit is consistent with 
the Exchange's proposal to eliminate the current permit fee structure 
wherein permit holders are categorized differently and assessed 
differently based on type of permit holder and number of permits held 
and instead propose one permit fee of $1,000 for all permit holders. 
The Exchange would therefore propose removing all other categories and 
the tiered structure associated with the number of permits held and 
instead assess only one fee per permit holder. The Exchange believes 
that while some members may be assessed a higher fee, for example an 
Order Flow Provider will now be assessed $1,000 as opposed to $500, and 
others will be assessed a lower fee, Floor Brokers, Specialists, ROTs, 
Off-Floor Traders or Market Makers will be assessed $1,000 instead of 
$1,200 for the first permit and $1,000 thereafter, overall members will 
be assessed equally for a permit and no distinction will be made by 
category or number of permits. The Exchange believes that this fee 
structure is more equitable and therefore the credit associated with 
SQT and RSQTs is no longer required. The Exchange believes that this 
proposal to institute a single permit fee is simpler and treats are 
[sic] members alike, regardless of classification.
    Additionally, the Exchange proposes to eliminate the ``Other Permit 
Holder'' category. The Other Permit Holder category was adopted for 
billing purposes to address the limited situation where permit holders 
did not fall under one of the existing permit fee categories. Status as 
an Other Permit Holder requires that a permit holder or the member 
organization for which they solely qualify has no transaction activity 
for the applicable monthly billing period. Should a permit holder 
actively transact business during a particular month, the highest 
applicable monthly permit fee will apply to such permit holder and the 
member organization for that monthly period. The ``other'' status only 
applies to permit holders who solely qualify their member organization, 
or in other words there is just one permit holder in that member 
organization. If there is more than one permit holder in a member 
organization and that permit holder does not fit within any of the 
existing permit fee categories, then this ``other'' category does not 
apply. Such permit holder or the member organization they solely 
qualify for must apply for such ``other'' status in writing to the 
Membership Department.\13\
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    \13\ See Securities Exchange Act Release No. 59641 (March 27, 
2009), 74 FR 15024 (April 2, 2009) (SR-Phlx-2009-26).
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    The Exchange believes that this classification is no longer 
necessary and all members should be required to pay the same permit fee 
regardless of classification.\14\ Likewise the Exchange proposes to 
eliminate endnote 45(b), which endnote references the Other Permit 
Holder Fee.
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    \14\ There are currently no members who are assessed the Other 
Permit Holder Fee.
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Other Access Service, Cancellation, Membership, Regulatory and Other 
Fees

    The Exchange proposes to increase the Trading Floor Personnel 
Registration Fee from $50 to $100. This fee is imposed on member/
participant organizations for individuals who are employed by such 
member/participant organizations and who work on the Exchange's trading 
floor, such as clerks, interns, stock execution clerks that handle 
equity orders that are part of an options contingency order and other 
associated persons, but who are not registered as members or 
participants. The Exchange is increasing this fee to keep pace with 
rising regulatory costs associated with its obligations to conduct 
oversight on on-floor trading activities. In connection with this 
proposal the Exchange proposes to amend endnote 55 to conform the 
language of the endnote to this proposed fee increase.
    The Exchange proposes to amend its port fees. Currently, the 
Exchange assesses a monthly fee of $250.00 for the Order Entry Port 
Fee.\15\ The $250 monthly Order Entry Port Fee is assessed per member 
organization order

[[Page 2907]]

entry mnemonic \16\. The Exchange assesses the $250 monthly Order Flow 
Port Fee on members regardless of whether the order entry mnemonic is 
active \17\ during the billing month. The fee is assessed regardless of 
usage, and solely on the number of order entry ports assigned to each 
member organization. The Exchange proposes to increase the fee from 
$250 to $500 per month per mnemonic. Also, the Exchange proposed to 
modify the manner in which members are assessed the Order Entry Port 
Fee to assess the fee per mnemonic instead of per mnemonic and per the 
number of order entry ports. The Exchange proposes to amend the Fee 
Schedule to note that the fee is assessed per mnemonic.
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    \15\ The Order Entry Port Fee is a connectivity fee assessed on 
members in connection with routing orders to the Exchange via an 
external order entry port. Members access the Exchange's network 
through order entry ports. A member organization may have more than 
one order entry port.
    \16\ Order entry mnemonics are codes that identify member 
organization order entry ports.
    \17\ An order entry mnemonic is considered active if a member 
organization sends at least one order to the Exchange using that 
order entry mnemonic during the applicable billing month. See 
Securities Exchange Act Release No. 58728 (October 3, 2008), 73 FR 
59695 (October 9, 2008) (SR-Phlx-2008-70).
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    Additionally, the Exchange proposes to amend the SQF Port Fee to 
change the name to the ``Active SQF Port Fee'' and also amend the fee 
structure to eliminate the current tiered structure and instead propose 
a monthly fee of $500 per port. ``SQF'' stands for specialized quote 
feed and is a proprietary quoting system that allows specialists, 
streaming quote traders and remote streaming quote traders to connect 
and send quotes into Phlx XL II, bypassing the Exchange's Auto-Quote 
System.\18\ The SQF Port Fee is assessed in connection with sending 
quotes to the Exchange. Currently, the SQF Port Fee is assessed as 
follows: for the first 5 active SQF ports, a member organization would 
be charged $250 per port per month and, for each additional active SQF 
port (over the first 5 active SQF ports), the member organization would 
be charged $1,000 per port per month. Additionally, the same member 
organization would be credited $0.02 per side for every option contract 
executed on the Exchange in that same month (excluding executions 
resulting from dividend, merger and short stock interest strategies) up 
to the amount of the SQF Port Fees when the member organization or one 
of its employees is designated as a specialist, SQT or RSQT and the 
transaction is billed according to the specialist or ROT transaction 
and/or comparison rates.\19\ The SQF Port Fee and corresponding credit 
are applied per member organization.\20\
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    \18\ See Exchange Rule 1080, Commentary .01(b).
    \19\ The Exchange is proposing to eliminate the SQT and RSQT 
credits as proposed herein.
    \20\ SQTs and RSQTs are assessed fees pursuant to the ROT rates 
as SQTs and RSQTs are deemed to be ROTs. See Exchange Rule 
1014(b)(ii)(A) and (B).
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    In connection with this proposal a corresponding amendment is 
proposed to endnote 65 to clarify the endnote. The Exchange believes 
that by billing the Order Entry Port Fee per mnemonic instead of per 
mnemonic per port, member assessments will be reduced. The proposal to 
amend the SQF Port Fee is meant to simplify the fee structure. The 
Exchange believes that these increases in fees are necessary to keep 
pace with escalating technology costs.

Other Amendments

    The Exchange proposes to eliminate endnote E which relates to a 
Pilot Program which is set to expire December 31, 2009 (``Pilot''). The 
Pilot is applicable to specialists and ROTs trading certain U.S. 
dollar-settled foreign currency options (``FCOs''), specifically the 
Mexican peso, Swedish krona, South African rand or the New Zealand 
dollar (``Pilot FCOs''). The Pilot Program allows the Exchange to waive 
the applicable specialist and ROT option transaction fees for 
specialists and ROTs trading Pilot FCOs.\21\ The Exchange pays a $1,700 
monthly stipend (``Monthly Stipend'') per currency to each member 
organization acting as a specialist.\22\ As the Pilot is set to expire, 
the Exchange proposes to eliminate endnote E which makes reference to 
the Pilot.
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    \21\ FCOs are currently traded on the Exchange under the name 
PHLX World Currency Options[reg] (``WCOs'').
    \22\ See Securities Exchange Act Release No. 60392 (July 28, 
2009), 74 FR 38477 (August 3, 2009) (SR-Phlx-2009-57).
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    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 for trades settling on or after January 1, 
2010.
2. Statutory Basis
    The Exchange believes that its proposal to amend its Fee Schedule 
is consistent with Section 6(b) of the Act \23\ in general, and 
furthers the objectives of Section 6(b)(4) of the Act \24\ in 
particular, in that it is an equitable allocation of reasonable fees 
and other charges among Exchange members. Specifically, the Exchange 
believes that this proposal is equitable because it would apply evenly 
to specialists and ROTs transacting equity options contracts sent to 
the Exchange for execution, in that any specialist, SQT or RSQT may act 
as a Directed Participant and receive the $.05 per contract fee. The 
Exchange believes that by eliminating the Volume Threshold and instead 
proposing a Monthly Cap of $900,000 that members will benefit from such 
a cap and this would decrease fee assessments to member organizations 
and incentivize them to transact more business on the Exchange. This 
also applies to the decrease from $22 [sic] to $21 [sic] for ROTs in 
options transaction charges. The Exchange is also increasing certain 
fees including the Firm Fee, the Sector Index Options Fees and the 
Trading Floor Personnel Registration Fee and also increasing the Firm 
Related Equity Option Cap. The Exchange believes that other fee 
changes, which benefit members, will offset, to a certain degree, these 
proposed increases. Specifically, the Trading Floor Personnel 
Registration Fee is tied to increase costs of regulating floor members. 
The proposed amendments to the permit fees will simplify the permit fee 
structure and assess one fee on all permit holders. The elimination of 
the Other Permit category should not impact members as this category is 
no longer applicable. Also, the proposed permit fee is equitable in 
that all members will be required to pay the same permit fee under the 
new structure. The elimination of the permit fee credit is encompassed 
in the overall proposal to amend the fee structure related to permit 
fees. The Exchange believes that the permit fee credit is no longer 
necessary under this new permit fee proposal. The proposed amendments 
to the Port Fees should allow the Exchange to keep pace with increasing 
technology costs. Finally, other amendments are conforming and 
clarifying amendments to reflect the proposed amendments discussed 
herein with respect to the explanatory endnotes.
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    \23\ 15 U.S.C. 78f(b).
    \24\ 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.

[[Page 2908]]

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\25\ and paragraph (f)(2) of Rule 19b-4\26\ 
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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    \25\ 15 U.S.C. 78s(b)(3)(A)(ii).
    \26\ 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 [email protected]. Please include 
File Number SR-Phlx-2009-104 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-2009-104. 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,\27\ 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 Section, 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 will also 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-2009-104 and should be 
submitted on or before February 9, 2010.
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    \27\ The text of the proposed rule change is available on the 
Commission's Web site at www.sec.gov.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\28\
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    \28\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
[FR Doc. 2010-824 Filed 1-15-10; 8:45 am]
BILLING CODE 8011-01-P