[Federal Register Volume 76, Number 221 (Wednesday, November 16, 2011)]
[Notices]
[Pages 71089-71092]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2011-29510]


-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-65720; File No. SR-Phlx-2011-147]


Self-Regulatory Organizations; NASDAQ OMX PHLX LLC; Notice of 
Filing and Immediate Effectiveness of Proposed Rule Change Relating to 
the Complex Order Rebates and Fees for Adding and Removing Liquidity

November 9, 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 November 1, 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.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------

I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to amend its Complex Order Fees in Section I 
of its Fee Schedule entitled ``Rebates and Fees for Adding and Removing 
Liquidity in Select Symbols.''
    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, on the Commission's Web site at 
http://www.sec.gov, 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.

[[Page 71090]]

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 Section I, Part 
B of the Exchange's Fee Schedule for Complex Orders. A Complex Order is 
any order involving the simultaneous purchase and/or sale of two or 
more different options series in the same underlying security, priced 
at a net debit or credit based on the relative prices of the individual 
components, for the same account, for the purpose of executing a 
particular investment strategy. Furthermore, a Complex Order can also 
be a stock-option order, which is an order to buy or sell a stated 
number of units of an underlying stock or ETF coupled with the purchase 
or sale of options contract(s).\3\
---------------------------------------------------------------------------

    \3\ See Exchange Rule 1080, Commentary .08(a)(i).
---------------------------------------------------------------------------

    The Exchange is proposing to: (i) Eliminate all references to 
Designated Options; \4\ (ii) amend its Customer Complex Order Rebate 
for Adding Liquidity for all Select Symbols,\5\ which will now include 
the Designated Options; and (iii) amend its Complex Order Fees for 
Removing Liquidity for Select Symbols, which will now include the 
Designated Options.
---------------------------------------------------------------------------

    \4\ The Exchange defines Designated Options in Section I of its 
Fee Schedule as the following options: (i) Standard and Poor's 
Depositary Receipts/SPDRs (``SPY''); (ii) the PowerShares QQQ Trust 
(``QQQ'') [reg]; (iii) Apple, Inc. (``AAPL''); (iv) iShares Russell 
2000 Index (``IWM''); (v) Bank of America Corporation (``BAC''); 
(vi) Citigroup, Inc. (``C''); (vii) SPDR Gold Trust (``GLD''); 
(viii) Intel Corporation (``INTC''); (ix) JPMorgan Chase & Co. 
(``JPM''); (x) iShares Silver Trust (``SLV''); (xi) Financial Select 
Sector SPDR (``XLF''); and (xii) Ford Motor Company (``F'') (taken 
together, ``Designated Options'').
    \5\ All Designated Options are also Select Symbols.
---------------------------------------------------------------------------

    The Exchange proposes to eliminate the Customer Complex Order 
Rebate for Adding Liquidity in Designated Options and the Complex Order 
Fees for Removing Liquidity in Designated Options. Designated Options 
will be paid the rebates and assessed the fees applicable to Select 
Symbols. The Exchange initially filed a proposed rule change \6\ to pay 
a different Customer Complex Order Rebate to Add Liquidity and assess 
different Complex Order Fees for Removing Liquidity for Designated 
Options as compared to Select Symbols. In that filing, the Exchange 
noted that it believed that the proposed Complex Order rebate and fees 
for the Designated Options would attract additional order flow to the 
Exchange.
---------------------------------------------------------------------------

    \6\ See Securities Exchange Act Release No. 65049 (August 5, 
2011), 76 FR 49810 (August 11, 2011) (SR-Phlx-2011-103).
---------------------------------------------------------------------------

    At this time, the Exchange is proposing to remove the Complex Order 
rebate and fees for Designated Options and instead assess those 
Designated Options the same rates that apply to the Select Symbols. The 
Exchange is combining Designated Options and Select Symbols into one 
category. The Exchange is increasing the Customer Complex Order Rebate 
for Adding Liquidity and also increasing the Fees for Removing 
Liquidity in the combined category. The Exchange believes that 
increasing the Complex Order Customer Rebate for Adding Liquidity will 
further attract additional order flow to the Exchange. The Exchange 
believes that increasing the Complex Order Fees for Removing Liquidity 
will assist the Exchange in recouping certain costs associated with its 
Fees and Rebates for Adding and Removing Liquidity while not impeding 
the Exchange from continuing to increase its order flow.
    Currently, the Exchange pays a Customer Complex Order Rebate for 
Adding Liquidity in Designated Options of $0.27 per contract. The 
Exchange proposes to eliminate the Customer Complex Order Rebate for 
Adding Liquidity in Designated Options and instead apply the Complex 
Order Rebate for Adding Liquidity in Select Symbols to those symbols by 
removing the text ``except in Designated Options **'' from the Fee 
Schedule. The Exchange currently pays a Customer Complex Order Rebate 
for Adding Liquidity in Select Symbols of $0.24 per contract. The 
Exchange is proposing to increase that Customer Complex Order Rebate 
for Adding Liquidity in Select Symbols to $0.30 per contract.
    Currently, the Exchange assesses the following Complex Order Fees 
for Removing Liquidity in Select Symbols and Designated Options, 
respectively.

--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                        Specialist,
                                                        Customer         Directed       ROT, SQT and         Firm        Broker-dealer     Professional
                                                                       participant          RSQT
--------------------------------------------------------------------------------------------------------------------------------------------------------
Fee for Removing Liquidity in all Select Symbols              $0.25            $0.27            $0.29            $0.30            $0.35            $0.30
 except in Designated Options.....................
Fee for Removing Liquidity in Designated Options..             0.00             0.28             0.29             0.30             0.35             0.30
--------------------------------------------------------------------------------------------------------------------------------------------------------

    The Exchange proposes to amend the Complex Order Fees for Removing 
Liquidity for all Select Symbols, including the Designated Options, for 
a Directed Participant,\7\ Specialist,\8\ ROT,\9\ SQT \10\ and 
RSQT,\11\ Firm and Professional \12\ as follows:
---------------------------------------------------------------------------

    \7\ The term ``Directed Participant'' applies to transactions 
for the account of a Specialist, Streaming Quote Trader or Remote 
Streaming Quote Trader resulting from a Customer order that is (1) 
Directed to it by an order flow provider, and (2) executed by it 
electronically on Phlx XL II.
    \8\ A Specialist is an Exchange member who is registered as an 
options specialist pursuant to Rule 1020(a).
    \9\ A Registered Options Trader (``ROT'') includes a Streaming 
Quote Trader (``SQT''), a Remote Streaming Quote Trader (``RSQT'') 
and a Non-SQT, which by definition is neither a SQT nor a RSQT. A 
Registered Option Trader 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).
    \10\ 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.
    \11\ An 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.
    \12\ The term ``professional'' means 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). See Rule 
1000(b)(14).

[[Page 71091]]



--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                    Directed      Specialist, ROT,
                           Customer                                participant      SQT and RSQT          Firm          Broker-dealer     Professional
--------------------------------------------------------------------------------------------------------------------------------------------------------
$0.00.........................................................             0.30              0.32              0.35              0.35              0.35
--------------------------------------------------------------------------------------------------------------------------------------------------------

    Customers and Broker-Dealers would remain at the same rates 
applicable today for Designated Options. The Exchange proposes to 
eliminate the Designated Options category by removing the text ``except 
in Designated Options **'' from the Fee Schedule. The Exchange would 
also eliminate any other references to Designated Options in Section I 
of the Fee Schedule.
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. The Exchange also believes 
that there is an equitable allocation of reasonable rebates among 
Exchange members.
---------------------------------------------------------------------------

    \13\ 15 U.S.C. 78f(b).
    \14\ 15 U.S.C. 78f(b)(4).
---------------------------------------------------------------------------

    The Exchange believes that it is reasonable and equitable to only 
pay a Complex Order Rebate for Adding Liquidity to Customers, as 
compared to other market participants, because the Customer rebate will 
attract Customer order flow to the Exchange for the benefit of all 
market participants. Likewise, the Exchange believes that it is 
reasonable to not assess a Complex Order Fee for Removing Liquidity for 
Customers, because this also will attract Customer order flow to the 
Exchange which in turn also benefits all market participants.
    The Exchange believes that its proposal to eliminate the Designated 
Options category and pay an increased Customer Complex Order Rebate to 
Add Liquidity for all Select Symbols, which would now include the 
Designated Options, is reasonable because this will attract additional 
order flow to the Exchange. The Exchange also believes that it is 
equitable and not unfairly discriminatory to pay all Select Symbols, 
including the Designated Options, a higher Customer Rebate for Adding 
Liquidity for Complex Orders because all the symbols in Section I will 
be paid a uniform rebate to transact Customer orders.
    The Exchange believes that it is reasonable to assess higher 
Complex Order Fees for Removing Liquidity for a Directed Participant, 
Specialist, ROT, SQT and RSQT, Firm and Professional because the rates 
will remain within the range of fees assessed today for Single contra-
side orders.\15\ In addition, the Complex Order Fees for Removing 
Liquidity are within the range of fees at the International Securities 
Exchange, LLC (``ISE'').\16\ The Exchange proposes to increase the 
Complex Order Fees for Removing Liquidity, but continue to assess 
market makers \17\ lower rates as compared to other market participants 
because market makers have obligations to the market, which do not 
apply to Firms, Professionals and Broker-Dealers.\18\ Directed 
Participants are assessed a different Complex Order Fee for Removing 
Liquidity as compared to other market makers because they have higher 
quoting obligations as compared to market makers.\19\ Firms, Broker-
Dealers and Professionals would be assessed equal rates and Customers 
would not be assessed a fee.\20\
---------------------------------------------------------------------------

    \15\ Single contra-side orders are in Section I, Part A of the 
Exchange's Fee Schedule. There is one distinction, namely the 
Customer Fee for Removing Liquidity for a Single contra-side order 
is $0.25 per contract and there will be no Fee for Removing 
Liquidity for Complex Orders in the new combined Fee for Removing 
Liquidity for Select Symbols, which will include the Designated 
Options.
    \16\ See ISE's Schedule of Fees.
    \17\ 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)).
    \18\ See Exchange Rule 1014 titled ``Obligations and 
Restrictions Applicable to Specialists and Registered Options 
Traders.''
    \19\ See Exchange Rule 1014 titled ``Obligations and 
Restrictions Applicable to Specialists and Registered Options 
Traders.''
    \20\ Customers are not assessed a Complex Order Fee for Removing 
Liquidity today in Designated Options. Customers are assessed a 
$0.25 per contract Complex Order Fee For Removing Liquidity in the 
Select Symbols today. The Broker-Dealer fee would remain the same.
---------------------------------------------------------------------------

    The Exchange believes that it is equitable and not unfairly 
discriminatory to increase the Complex Order Fees for Removing 
Liquidity for Select Symbols, including the Designated Options, for all 
market participants except Customers and Broker-Dealers because these 
fees would apply uniformly to these market participants.\21\ In 
addition, the Complex Order Fees for Removing Liquidity are comparable 
to the complex order fees at ISE.\22\
---------------------------------------------------------------------------

    \21\ Today, Customers are assessed a Complex Order Fee for 
Removing Liquidity in all Select Symbols, except Designated Options, 
of $0.25 per contract. This proposal would result in a decrease for 
Customers currently paying the $0.25 per contract fee today, as the 
proposed Customer rate in the combined category will be $0.00. The 
Exchange believes that this is reasonable because it is within the 
range of fees assessed by other exchanges. ISE does not assess its 
customers a complex order taker fee. See ISE's Schedule of Fees. The 
Exchange believes that decreasing the Customer Fee for Removing 
Liquidity in Complex Orders in the Select Symbols is equitable and 
not unfairly discriminatory because today there is no Complex Order 
Fee for Removing Liquidity for Designated Options and the proposed 
rates will uniformly assess no fee for Customers in the combined 
category.
    \22\ See ISE's Schedule of Fees.
---------------------------------------------------------------------------

    The Exchange operates in a highly competitive market comprised of 
nine U.S. options exchanges in which sophisticated and knowledgeable 
market participants can readily send order flow to competing exchanges 
if they deem fee levels at a particular exchange to be excessive. The 
Exchange believes that the Complex Order fees and rebates it pays/
assesses must be competitive with fees and rebates in place on other 
exchanges. The Exchange believes that this competitive marketplace 
impacts the fees and rebates present on the Exchange today and 
influences the proposals set forth above.

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

[[Page 71092]]

whether the proposed rule should be approved or disapproved.
---------------------------------------------------------------------------

    \23\ 15 U.S.C. 78s(b)(3)(A)(ii).
---------------------------------------------------------------------------

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 email to [email protected]. Please include 
File Number SR-Phlx-2011-147 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-2011-147. This file 
number should be included on the subject line if email 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 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-2011-147 and should be 
submitted on or before December 7, 2011.
---------------------------------------------------------------------------

    \24\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\24\
Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2011-29510 Filed 11-15-11; 8:45 am]
BILLING CODE 8011-01-P