[Federal Register Volume 76, Number 34 (Friday, February 18, 2011)]
[Notices]
[Pages 9618-9620]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2011-3689]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-63905; File No. SR-Phlx-2011-17]


Self-Regulatory Organizations; NASDAQ OMX PHLX LLC; Notice of 
Filing and Immediate Effectiveness of a Proposed Rule Change To 
Establish and Adopt Fees for the New Short Sale Monitor Service and PSX 
Data Add-On

February 14, 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 February 4, 2011, 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 substantially prepared by Phlx. 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 the 
Substance of the Proposed Rule Change

    Phlx proposes to adopt a fee for the Short Sale Monitor and the PSX 
Data Add-On, a new service and related NASDAQ OMX PSX (``PSX'') add-on 
data that assist subscribers in complying with new requirements arising 
from recent amendments to Regulation SHO. The Exchange will implement 
the service as soon as practicable following the effective date of the 
filing.
    The text of the proposed rule change is available 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, Phlx 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. Phlx 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
    Phlx is proposing to amend its fee schedule to establish the Short 
Sale Monitor offered to subscribing member firms at no cost through 
March 31, 2011 and for a fee of $750 per market participant identifier 
(``MPID''), per month thereafter. The Short Sale Monitor is a new 
service that provides subscribers with real-time surveillance of trades 
reported to the FINRA/Nasdaq Trade Reporting Facility (``FINRA/NASDAQ 
TRF'') \3\ marked as ``short'' and ``short exempt'' to assist them in 
monitoring their compliance with amendments to Regulation SHO under the 
Act.\4\ The Commission recently amended Regulation SHO to adopt a new 
short sale-related circuit breaker combined with an alternative uptick 
rule under Rule 201.\5\ The new rule imposes a restriction on the price 
at which a security may be sold short if the circuit breaker is 
triggered. Specifically, the new rule requires trading centers,\6\ 
which include self-regulatory organizations (``SROs''), to establish, 
maintain and enforce written policies and procedures reasonably 
designed to prevent the execution or display of short sale orders in a 
covered security \7\ at a price that is less than or equal to the 
current national best bid \8\ if the price of that covered security 
decreases by 10% or more from its closing price as determined by the 
listing market \9\ as of the end of regular trading hours on the prior 
day.\10\ In addition, the rule requires that the trading center 
establish, maintain, and enforce written policies and procedures 
reasonably designed to impose this short sale price test restriction 
for the remainder of the day and the following day when a national best 
bid for the covered security is calculated and disseminated on a 
current and continuing basis by a plan processor pursuant to an 
effective national market system plan.\11\ Trading centers are required 
to regularly surveil to ascertain the effectiveness of these policies 
and procedures. Rule 201 generally permits short selling at a price 
above the current national best bid during the time a short sale price 
test restriction is in effect for a covered security.
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    \3\ The FINRA/NASDAQ TRF is a facility of FINRA operated by The 
NASDAQ OMX Group, Inc.
    \4\ Securities Exchange Act Release No. 61595 (February 26, 
2010), 75 FR 11232 (March 10, 2010) (amending Rule 201 and Rule 
200(g) of Regulation SHO). The amendments to Rules 201 and 200(g) of 
Regulation SHO have a compliance date of February 28, 2011. See 
Securities Exchange Act Release No. 63247 (November 4, 2010), 75 FR 
68702 (November 9, 2010) (extending the compliance date of the 
amendments to Rules 201 and 200(g) of Regulation SHO from November 
10, 2010 until February 28, 2011).
    \5\ 17 CFR 242.201.
    \6\ Rule 201(a)(9) defines the term ``trading center'' as having 
the same meaning as in Rule 600(b)(78) of Regulation NMS. Rule 
600(b)(78) defines a ``trading center'' as ``a national securities 
exchange or national securities association that operates an SRO 
trading facility, an alternative trading system, an exchange market 
maker, an OTC market maker, or any other broker or dealer that 
executes orders internally by trading as principal or crossing 
orders as agent.'' 17 CFR 242.600(b)(78).
    \7\ Rule 201(a)(1) defines the term ``covered security'' for 
purposes of Rule 201. See 17 CFR 242.201(a)(1). Rule 201(a)(1) 
defines ``covered security'' to mean any ``NMS stock'' as defined 
under Rule 600(b)(47) of Regulation NMS. Rule 600(b)(47) of 
Regulation NMS defines an ``NMS stock'' as ``any NMS security other 
than an option.'' 17 CFR 242.600(b)(47). Rule 600(b)(46) of 
Regulation NMS defines an ``NMS security'' as ``any security or 
class of securities for which transaction reports are collected, 
processed, and made available pursuant to an effective transaction 
reporting plan, or an effective national market system plan for 
reporting transactions in listed options.'' 17 CFR 242.600(b)(46).
    \8\ Rule 201(a)(4) defines the term ``national best bid'' for 
purposes of Rule 201. See 17 CFR 242.201(a)(4).
    \9\ Rule 201(a)(3) defines the term ``listing market'' for 
purposes of Rule 201. See 17 CFR 242.201(a)(3).
    \10\ 17 CFR 242.201(b)(1)(i).
    \11\ 17 CFR 242.201(b)(1)(ii). Further, if the price of a 
covered security declines intra-day by at least 10% on a day on 
which the security is already subject to the short sale price test 
restriction of Rule 201, the restriction will be re-triggered and, 
therefore, will continue in effect for the remainder of that day and 
the following day. Rule 201 does not place any limit on the 
frequency or number of times the circuit breaker can be re-triggered 
with respect to a particular stock. See Division of Trading and 
Markets: Responses to Frequently Asked Questions Concerning Rule 201 
of Regulation SHO, Q&A No. 2.2 (http://sec.gov/divisions/marketreg/rule201faq.htm).
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    The Commission also amended Regulation SHO to provide that a 
broker-dealer may mark certain qualifying sell orders ``short exempt.'' 
\12\

[[Page 9619]]

If a broker-dealer marks an order ``short exempt,'' it is not subject 
to the short sale price test restrictions of Rule 201 and can be 
executed by a trading center without regard to its price.\13\ 
Paragraphs (c) and (d) of Rule 201 specify the circumstances under 
which a broker-dealer may mark certain sale orders as ``short exempt.'' 
\14\ If a broker-dealer chooses to rely on its own determination that 
it is submitting a short sale order to the trading center at a price 
that is above the current national best bid at the time of submission 
under Rule 201(c) or to rely on an exception specified in Rule 201(d), 
it may mark the order ``short exempt.'' The Commission noted in 
adopting the ``short exempt'' marking requirement that it will both 
provide a record of broker-dealers availing themselves of the 
provisions of paragraphs (c) or (d) to the rule and aid surveillance by 
SROs and the Commission for compliance with the provisions of Rule 
201.\15\
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    \12\ Formerly, Rule 200(g) of Regulation SHO provided that a 
broker-dealer must mark all sell orders of any security as ``long'' 
or ``short.'' As amended, Rule 200(g) now provides a ``short 
exempt'' marking requirement. 17 CFR 242.200(g). Rule 200(g)(2) 
provides that a sale order may only be marked ``short exempt'' if 
the provisions of Rule 201(c) or Rule 201(d) are met. 17 CFR 
242.200(g)(2). See supra note 4. See also Division of Trading and 
Markets: Responses to Frequently Asked Questions Concerning Rule 201 
of Regulation SHO, Q&A Nos. 5.4 and 8.1.
    \13\ 17 CFR 242.201(b)(1)(iii)(B).
    \14\ 17 CFR 242.201(c); 17 CFR 242.201(d).
    \15\ See supra note 4, 75 FR at 11275-76.
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    The Short Sale Monitor provides subscribing member firms with a 
tool to aid them in monitoring their trades reported into the FINRA/
NASDAQ TRF for compliance with the requirements of the amended 
rules.\16\ Accessed through either a Workstation or Weblink ACT 2.0 
terminal, the Short Sale Monitor provides subscribers with 
notifications of their reported trades marked ``short'' and ``short 
exempt'' for covered securities subject to the short sale price test 
restrictions of Rule 201. Specifically, the Short Sale Monitor will 
provide subscribers notice of covered securities subject to the 
restrictions of Rule 201, and provide access to historical lists of 
such covered securities. In addition, the Short Sale Monitor will 
provide notice of trades in covered securities that are: (i) Subject to 
the short sale price test restriction, and marked ``short,'' (ii) 
subject to the short sale price test restriction, and marked ``short 
exempt,'' (iii) subject to the short sale price test restriction, and 
sold above the current national best bid at the time of trade execution 
time, and (iv) not subject to the short sale price test restriction, 
but marked ``short exempt.'' \17\ The Short Sale Monitor will provide 
this information to a subscribing firm both as real-time alerts and 
through a historical database of the firm's trades that prompted the 
alerts, which will assist the firm in meeting its obligation to 
ascertain the effectiveness of its policies and procedures.\18\ As 
such, member firms will have a useful compliance tool with which they 
can monitor, post-trade, their compliance with the amendments to 
Regulation SHO under the Act.\19\ In this regard, the Short Sale 
Monitor is similar to NASDAQ's InterACT service in that it provides 
member firms with post-trade analysis of their trades for compliance 
with regulatory obligations.\20\ Lastly, Phlx will supplement and 
enhance the Short Sale Monitor as needed to address any amendments to 
Regulation SHO or other related rules, and from time to time will make 
changes to enhance the service.
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    \16\ FINRA recently amended its rules to conform them to the 
requirements of the changes made by the Commission to Regulation 
SHO, including amending its trade reporting rules applicable to 
over-the-counter trades in NMS stocks to reintroduce the short sale 
exempt category. See Securities Exchange Act Release No. 63032 
(December 4, 2010), 75 FR 62439 (December 8, 2010) (SR-FINRA-2010-
043).
    \17\ See also Division of Trading and Markets: Responses to 
Frequently Asked Questions Concerning Rule 201 of Regulation SHO, 
Q&A Nos. 5.4 and 5.5.
    \18\ The Commission notes that broker-dealers subscribing to the 
Short Sale Monitor and Data Add-On service remain responsible for 
compliance with Rule 201 of Regulation SHO.
    \19\ Supra note 4.
    \20\ See NASDAQ Rule 7049 (explaining the InterACT service).
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    Phlx is also proposing to amend its fee schedule to establish the 
PSX Data Add-On service as an additional service to an existing Short 
Sale Monitor subscription, which will provide subscribers with access 
to records of their trades in covered securities subject to the short 
sale price restrictions of Rule 201 executed on PSX and marked ``short 
exempt.'' The proposed add-on service will be offered at no cost 
through March 31, 2011, and for an additional fee of $50 per MPID, per 
month thereafter. As noted above, to be eligible for the PSX Data Add-
On service a member's MPID must first be subscribed to the Short Sale 
Monitor.
    Last, Phlx is proposing waive the Short Sale Monitor fee for 
members seeking to subscribe to the PSX Data Add-on service if the MPID 
is currently subscribed to either the NASDAQ or NASDAQ OMX BX Short 
Sale Monitor. NASDAQ and NASDAQ OMX BX will offer \21\ the Short Sale 
Monitor to their members for a price identical to that of Phlx's at 
$750 per MPID, per month. Phlx notes that the Short Sale Monitor of 
each of the three exchanges offers the identical service and access to 
data. As such, Phlx does not believe that it is appropriate to charge 
members of Phlx an additional fee of $750 per MPID, per month if the 
member currently subscribes to the Short Sale Monitor offered by 
another NASDAQ OMX exchange.\22\ Accordingly, Phlx believes that a 
member should only pay for the market-specific data if it has a pre-
existing subscription to the Short Sale Monitor, irrespective of the 
NASDAQ OMX exchange through which it subscribes.
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    \21\ NASDAQ and NASDAQ OMX BX have filed related rule changes 
with the Commission concurrent with Phlx's filing. See SR-NASDAQ-
2011-024 and SR-BX-2011-008.
    \22\ Rule changes proposed by both NASDAQ and NASDAQ OMX BX 
provide an identical waiver of the Short Sale Monitor fee.
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2. Statutory Basis
    Phlx believes that the proposed rule change is consistent with 
Section 6(b) of the Act in general,\23\ and Section 6(b)(4) of the Act 
\24\ specifically, in that it provides for the equitable allocation of 
reasonable dues, fees and other charges among members and issuers and 
other persons using any facility or system which the Phlx operates or 
controls, and it does not unfairly discriminate between customers, 
issuers, brokers or dealers. Phlx believes that offering the Short Sale 
Monitor at no cost on a trial basis, and for a fee of $750 per MPID, 
per month thereafter, and the PSX Data Add-On at no cost on a trial 
basis, and for a fee of $50 per MPID, per month thereafter is fair and 
provides an equitable allocation of fees in that subscription is 
voluntary and it will apply uniformly to all members that use the 
FINRA/NASDAQ TRF or execute on PSX, as applicable, and elect to 
subscribe to one or both of the services. Further, Phlx believes that, 
as discussed above, waiving the Short Sale Monitor fee for a member 
seeking a subscription to the PSX Data Add-On is appropriate in cases 
where the member has subscribed the MPID to the Short Sale Monitor of 
NASDAQ or NASDAQ OMX BX. As noted, the Short Sale Monitors of the 
NASDAQ OMX exchanges provide identical services and are offered at an 
identical fee. As such, Phlx does not believe requiring a firm to 
subscribe to a redundant service solely to access PSX-specific data is 
an equitable allocation of fees. Phlx notes that subscribing members 
may cancel their subscription(s) at any time prior to the expiration of 
the trial period at no cost. The proposed fee will apply to all members 
equally based on the number of MPIDs subscribed. The proposed fee will 
cover the costs associated with separately offering the service,

[[Page 9620]]

responding to customer requests, configuring PSX's systems, programming 
to user specifications, and administering the service, among other 
things, and may provide Phlx with a profit to the extent costs are 
covered.
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    \23\ 15 U.S.C. 78f(b).
    \24\ 15 U.S.C. 78f(b)(4).
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    Phlx also believes that the proposed rule change is consistent with 
the provisions of Section 6(b)(5) of the Act \25\ because it is 
designed to, among other things, prevent fraudulent and manipulative 
acts and practices, to promote just and equitable principles of trade, 
and to foster cooperation and coordination with persons engaged in 
facilitating transactions in securities. The Short Sale Monitor will 
assist subscribing member firms in monitoring their compliance with the 
amendments to Regulation SHO under the Act \26\ with respect to trades 
reported to the FINRA/NASDAQ TRF. Phlx notes that the Short Sale 
Monitor is similar to NASDAQ's InterACT service,\27\ which allows 
member firms to supervise trade activity required to be reported to the 
FINRA/NASDAQ TRF, and provides member firms with real time totals of 
open trades awaiting review and acceptance within the twenty minute 
period required by FINRA Rule 7230A(b). As noted above, the Short Sale 
Monitor is similar to this service in that it provides member firms 
with post-trade analysis of their trades for compliance with regulatory 
obligations. In the case of the Short Sale Monitor and PSX Data Add-On, 
such analysis include trades reported to the FINRA/NASDAQ TRF and 
trades executed on PSX marked ``short exempt'' in covered securities.
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    \25\ 15 U.S.C. 78f(b)(5).
    \26\ Supra note 4.
    \27\ Supra note 20.
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B. Self-Regulatory Organization's Statement on Burden on Competition

    Phlx does not believe that the proposed rule change will result in 
any burden on competition that is not necessary or appropriate in 
furtherance of the purposes of the Act, as amended.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants, or Others

    Written comments were neither solicited nor 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 \28\ and subparagraph (f)(2) of Rule 19b-4 
thereunder.\29\ 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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    \28\ 15 U.S.C. 78s(b)(3)(a)(ii).
    \29\ 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, as amended, 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-2011-17 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-2011-17. 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 such filing also will be 
available for inspection and copying at the principal offices 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-2011-17, and should be submitted on or before March 11, 2011.
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    \30\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\30\
Cathy H. Ahn,
Deputy Secretary.
[FR Doc. 2011-3689 Filed 2-17-11; 8:45 am]
BILLING CODE 8011-01-P