[Federal Register Volume 76, Number 78 (Friday, April 22, 2011)]
[Notices]
[Pages 22741-22743]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2011-9774]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-64305; File No. SR-Phlx-2011-51]


Self-Regulatory Organizations; NASDAQ OMX PHLX LLC; Notice of 
Filing and Immediate Effectiveness of Proposed Rule Change Relating to 
Alpha Index Options

April 18, 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 April 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 its Fee Schedule to create fees for 
options overlying NASDAQ OMX Alpha Indexes \SM\ (``Alpha Indexes'').\3\
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    \3\ Alpha Indexes measure relative total returns of one stock 
and one exchange-traded fund share (``ETF'') underlying options 
which are also traded on the Exchange (each such combination of two 
components is referred to as an ``Alpha Pair''). The first component 
identified in an Alpha Pair (the ``Target Component'') is measured 
against the second component identified in the Alpha Pair (the 
``Benchmark Component''). Alpha Index Options contracts will be 
exercised European-style and settled in U.S. dollars. See Securities 
Exchange Act Release No. 63860 (February 7, 2011), 76 FR 7888 
(February 11, 2001) (SR-Phlx-2010-176).
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    While changes to the Fee Schedule pursuant to this proposal are 
effective upon filing, the Exchange has designated these changes to be 
operative on April 18, 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

[[Page 22742]]

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 create new fees 
titled ``Alpha Index Options'' to support options overlying certain 
NASDAQ OMX Alpha Indexes\TM\ (``Alpha Indexes'') as well as offer 
discounted pricing to encourage members and member organizations to 
trade options overlying Alpha Indexes.\4\
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    \4\ Options on the Alpha Indexes will be available for trading 
on the Exchange on April 18, 2011. The Exchange will list and trade 
Alpha Index options only on the following Alpha Pairs: AAPL/SPY, 
AMZN/SPY, CSCO/SPY, F/SPY, GE/SPY, GOOG/SPY, HPQ/SPY, IBM/SPY, INTC/
SPY, KO/SPY, MRK/SPY, MSFT/SPY, ORCL/SPY, PFE/SPY, RIMM/SPY, T/SPY, 
TGT/SPY, VZ/SPY and WMT/SPY. See Securities Exchange Act Release No. 
63860 (February 7, 2011), 76 FR 7888 (February 11, 2001) (SR-Phlx-
2010-176). The Alpha Pairs are represented by the following symbols: 
AVSPY, ZVSPY, CVSPY, FVSPY, LVSPY, UVSPY, HVSPY, IVSPY, JVSPY, 
KVSPY, NVSPY, MVSPY, OVSPY, PVSPY, RVSPY, YVSPY, XVSPY, VVSPY, WVSPY 
(''Alpha Symbols'').
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    The Alpha Indexes will trade on the Exchange as a Singly Listed 
Option.\5\ The Exchange proposes to add these fees to Section II of the 
Fee Schedule titled ``Singly Listed Options.'' \6\ Specifically, the 
Exchange is proposing to assess the following fees on options overlying 
Alpha Indexes:
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    \5\ A Singly Listed Option means an option that is only listed 
on the Exchange and is not listed by any other national securities 
exchange.
    \6\ Section III of the Fee Schedule includes options overlying 
currencies, equities, exchange-traded funds (``ETFs''), exchange-
traded notes (``ETNs''), indexes and Holding Company Depository 
Receipts (``HOLDRS'').

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                                                                                                         Specialist,
                                                                         Customer       Professional     ROT, SQT and         Firm        Broker- dealer
                                                                                                             RSQT
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Alpha Index Options................................................           $0.15            $0.20            $0.00            $0.20            $0.20
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    The proposed fees for Alpha Indexes would apply to Alpha Pairs/
Alpha Symbols which have been filed to list and trade on the 
Exchange.\7\ In addition, Customer executions with average daily volume 
of 1,000 Customer contracts or more in a calendar month would be 
assessed $0.10 per contract. The Exchange believes that this Customer 
discount should encourage member organizations to offer options on 
Alpha Indexes to their customers.
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    \7\ All other indexes would be assessed the fees in Sections II 
and III, respectively, depending on whether the index is Singly 
Listed or Multiply Listed. For purposes of this filing, a Multiply 
Listed security means an option that is listed on more than one 
exchange.
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    While changes to the Fee Schedule pursuant to this proposal are 
effective upon filing, the Exchange has designated these changes to be 
operative on April 18, 2011.
2. Statutory Basis
    The Exchange believes that its proposal to amend its Fee Schedule 
is consistent with Section 6(b) of the Act \8\ in general, and furthers 
the objectives of Sections 6(b)(4) and 6(b)(5) of the Act \9\ in 
particular, in that it is an equitable allocation of reasonable fees 
and other charges among Exchange members and other persons using its 
facilities.
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    \8\ 15 U.S.C. 78f(b).
    \9\ 15 U.S.C. 78f(b)(4).
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    The Exchange believes that the proposed fees for Alpha Indexes are 
equitable, reasonable and not unfairly discriminatory because the 
Exchange is seeking to recoup the operational and development costs 
associated with the Alpha Indexes product, a proprietary product of the 
Exchange, while also encouraging members and member organizations to 
trade Alpha Indexes by assessing lower fees and offering a Customer 
volume discount.\10\ It is also reasonable and equitable to offer 
Customers a volume discount on trading options overlying Alpha Indexes 
because Customer order flow will provide increased liquidity to the 
market and benefit all participants.
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    \10\ The Exchange incurs costs for maintaining the proprietary 
index as well as marketing expenses to develop this new product. 
Also, by way of example, in analyzing an obvious error, the Exchange 
would have additional data points available in establishing a 
theoretical price for a Multiply Listed option as compared to a 
Singly Listed option, which requires additional analysis and 
administrative time to comply with Exchange rules to resolve an 
obvious error.
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    The Exchange has previously stated that it incurs higher costs for 
Singly Listed options as compared to Multiply Listed options.\11\ The 
Chicago Board Options Exchange, Incorporated (``CBOE'') noted in a 
comment letter dated June 21, 2010, that CBOE relies upon fees to 
recoup licensing costs incurred on options products that use third-
party proprietary indexes as benchmarks (such as the S&P 500[supreg]), 
and to generate returns on its investments for its own popular 
proprietary products (such as The CBOE Volatility Index[supreg] 
(``VIX[supreg]'') Options).\12\ The Exchange agrees with CBOE's 
position and while the Exchange continues to assert that Singly Listed 
products incur higher costs and therefore market participants should be 
assessed higher fees as compared to Multiply Listed products, the 
Exchange is proposing to assess lower fees for the Alpha Indexes, and 
to offer a Customer volume discount, as a means to promote this new 
infant index product.\13\
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    \11\ See Securities Exchange Release Act No. 64096 (March 18, 
2011), 76 FR 16646 (March 24, 2011) (SR-Phlx-2011-34).
    \12\ See CBOE's Comment Letter dated June 21, 2010 to the 
Proposed Amendments to Rule 610 of Regulation NMS, File No. S7-09-
10. CBOE further noted that options exchanges expend considerable 
resources on research and development related to new product 
offerings and options exchanges incur large licensing costs for many 
products.
    \13\ If the Exchange determines to increase the pricing for 
options overlying Alpha Indexes at a later date, the Exchange would 
file a proposal with the Commission.
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    The Exchange believes that the proposed fees for Alpha Indexes are 
equitable because all market participants would be assessed lower fees 
for transacting Alpha Indexes as compared to other Singly Listed 
indexes. Specifically, Customers would be assessed $0.15 per contract 
to transact Alpha Indexes as compared to $0.35 per contract for other 
Singly Listed index options. Professionals,\14\ Firms and Broker-
Dealers would be assessed $0.20 per contract as compared to $0.45 per 
contract for all other Singly

[[Page 22743]]

Listed index options. Specialists,\15\ Registered Options Traders,\16\ 
SQTs,\17\ and RSQTs \18\ (collectively ``market makers'') \19\ would be 
assessed no fees for transacting Alpha Indexes as compared to the $0.35 
per contract fee such market makers are assessed for all other Singly 
Listed index options.
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    \14\ The Exchange defines a ``professional'' as 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) 
(hereinafter ``Professional'').
    \15\ A Specialist is an Exchange member who is registered as an 
options specialist pursuant to Rule 1020(a).
    \16\ A Registered Options Trader (``ROT'') includes a Streaming 
Quote Trader (``SQT''), a Remote Streaming Quote Trader (``RSQT'') 
and a Non-SQT ROT, which by definition is neither a SQT or a RSQT. A 
ROT is defined in Exchange Rule 1014(b) as a regular member or a 
foreign currency options participant of the Exchange located on the 
trading floor who has received permission from the Exchange to trade 
in options for his own account. See Exchange Rule 1014 (b)(i) and 
(ii).
    \17\ An SQT is defined in Exchange Rule 1014(b)(ii)(A) as an ROT 
who has received permission from the Exchange to generate and submit 
option quotations electronically in options to which such SQT is 
assigned.
    \18\ A RSQT is defined Exchange Rule in 1014(b)(ii)(B) as 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 in options to 
which such RSQT has been assigned. An RSQT may only submit such 
quotations electronically from off the floor of the Exchange.
    \19\ The Exchange market maker category includes Specialists 
(see Rule 1020) and ROTs (Rule 1014(b)(i) and (ii), which includes 
SQTs (see Rule 1014(b)(ii)(A)) and RSQTs (see Rule 1014(b)(ii)(B)).
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    The Exchange believes that it is equitable and not unfairly 
discriminatory to assess lower fees to Customers because all market 
participants benefit from Customer order flow. The Exchange also 
believes that offering discounted pricing to Customers for transacting 
1,000 or more options overlying Alpha Indexes further provides benefits 
to both Customers and other market participants. The Exchange believes 
it is reasonable, equitable and not unfairly discriminatory to assess a 
Professional, Firm and Broker-Dealer a per contract fee of $0.20 per 
contract for transacting Alpha Indexes because the Exchange is 
assessing all market participants, except Customers and market makers, 
the same rate to transact Alpha Indexes. The Exchange believes that the 
price differentiation between market makers as compared to 
Professionals, Firms and Broker-Dealers is justified and not unfairly 
discriminatory because market makers have obligations to the market, 
which do not apply to Firms, Professionals and Broker-Dealers.\20\ 
Obligations, such as quoting obligations, are critical to ensure there 
is sufficient liquidity in new options classes.
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    \20\ See Exchange Rule 1014 titled ``Obligations and 
Restrictions Applicable to Specialists and Registered Options 
Traders.''
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    The Exchange believes that the proposed fees are reasonable and not 
unfairly discriminatory because the fees are consistent with price 
differentiation that exists today at all option exchanges. For example, 
CBOE assesses different rates for certain proprietary indexes as 
compared to other index products transacted at CBOE. VIX options and 
The S&P 500[supreg] Index options (``SPX\SM\'') are assessed different 
fees than other indexes.\21\ In addition, the concept of offering a 
volume discount to incentivize order flow is not novel.\22\
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    \21\ See CBOE's Fees Schedule.
    \22\ See CBOE's Fees Schedule. CBOE has a sliding scale for its 
proprietary products whereby transaction fees are reduced when a 
Clearing Trading Permit Holder reaches certain volume thresholds in 
multiply listed options on CBOE in a month.
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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.\23\ 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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    \23\ 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 [email protected]. Please include 
File Number SR-Phlx-2011-51 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-2011-51. 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 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-2011-51 and 
should be submitted on or before May 13, 2011.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\24\
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    \24\ 17 CFR 200.30-3(a)(12).
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Cathy H. Ahn,
Deputy Secretary.
[FR Doc. 2011-9774 Filed 4-21-11; 8:45 am]
BILLING CODE 8011-01-P