[Federal Register Volume 77, Number 64 (Tuesday, April 3, 2012)]
[Notices]
[Pages 20090-20092]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2012-7914]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-66668; File No. SR-Phlx-2012-35]


Self-Regulatory Organizations; NASDAQ OMX PHLX LLC; Notice of 
Filing and Immediate Effectiveness of Proposed Rule Change Relating to 
the Equity Options Fees and Singly Listed Option Fee

March 28, 2012.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ and Rule 19b-4 \2\ thereunder, notice is hereby given 
that, on March 16, 2012, 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: (i) Section II \3\ of the Fee 
Schedule entitled ``Equity Options Fees'' to assess Professionals an 
Options Surcharge in certain Multiply Listed Options; (ii) amend 
Section III \4\ of the Fee Schedule entitled ``Singly Listed Options'' 
to specify certain options that would be subject to the fees in this 
section; and (iii) amend the title of the Fee Schedule.
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    \3\ Section II of the Fee Schedule includes options overlying 
equities, ETFs, ETNs, indexes and HOLDRs which are Multiply Listed.
    \4\ Section III of the Fee Schedule includes options overlying 
equities, ETFs, ETNs, indexes and HOLDRs which are not listed on 
another 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 2, 2012.
    The text of the proposed rule change is available on the Exchange's 
Web site at http://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
    The Exchange proposes to amend Section II of the Fee Schedule to 
assess Professionals an Options Surcharge for transactions in RUT,\5\ 
MNX,\6\ NDX \7\ and BKX.\8\ The Exchange believes that these surcharges 
will assist the Exchange in remaining competitive in these options. The 
Exchange also proposes to amend Section III of the Fee Schedule to 
specify that the following options: PHLX Semiconductor Sector\SM\ (SOX 
\SM\), PHLX Housing Sector\TM\ (HGX \SM\) and PHLX Oil Service 
Sector\SM\ (OSX \SM\) are subject to the Singly Listed Options 
Transaction Charge even though these options will no longer be Singly 
Listed. These above-referenced options are proprietary indexes. These 
options will be listed on the NASDAQ Options Market LLC (``NOM'') 
commencing on April 2, 2012. The Exchange seeks to continue to recoup 
fees associated with maintaining these proprietary indexes. The 
Exchange is also proposing to amend the title of the Fee Schedule to 
more specifically describe the document.
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    \5\ RUT represents the options on the Russell 2000[supreg] Index 
(the ``Full Value Russell Index'' or ``RUT'').
    \6\ MNX represents options on the one-tenth value of the Nasdaq 
100 Index traded under the symbol MNX (``MNX'').
    \7\ NDX represents options on the Nasdaq 100 Index1 traded under 
the symbol NDX (``NDX'').
    \8\ BKX represents the KBW Bank Index.
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Section II Amendments
    The Exchange currently assesses an Options Surcharge for 
transactions in RUT, MNX and NDX of $.15 per

[[Page 20091]]

contract for Market Makers,\9\ Broker-Dealers and Firms.\10\ The 
Exchange also currently assesses an Options Surcharge for transactions 
in BKX of $.10 per contract for Market Makers, Broker-Dealers and 
Firms.\11\ The Exchange is proposing to assess Professionals an Options 
Surcharge for transactions in RUT, MNX and NDX of $.15 per contract and 
an Options Surcharge for transactions in BKX of $.10 per contract. 
Customers will continue not to be assessed an Options Surcharge in RUT, 
MNX, NDX and BKX.
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    \9\ The term ``Market Maker'' is utilized herein to describe 
fees and rebates applicable to Specialists, Registered Options 
Traders, Streaming Quote Traders and Remote Streaming Quote Traders.
    \10\ Currently, Professionals are not assessed an Options 
Surcharge for transactions in RUT, MNX or NDX.
    \11\ Currently, Professionals are not assessed an Options 
Surcharge for transactions in BKX.
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Section III Amendments
    Currently, SOX, HGX and OSX are Singly Listed Options subject to 
the following fees in Section III of the Fee Schedule:

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                                                                Customer         Professional       Market maker           Firm          Broker-dealer
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Options Transaction Charge...............................             $0.35              $0.45              $0.35              $0.45              $0.45
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    On April 2, 2012, NOM will list SOX, HGX and OSX and therefore 
these options will become Multiply Listed. The Exchange proposes to 
continue to assess SOX, HGX and OSX the Singly Listed Options 
Transaction Charges in Section III by specifying that these index 
options will be subject to Section III fees, even though they will no 
longer be Singly Listed. The Exchange also proposes to indicate in 
Section II of the Fee Schedule that SOX, HGX and OSX would be subject 
to the fees in Section III.
Other Amendments
    The Exchange is also proposing to amend the title of the ``Fee 
Schedule'' to ``Pricing Schedule'' to more specifically describe this 
document.
2. Statutory Basis
    The Exchange believes that its proposal to amend its Fee Schedule 
is consistent with Section 6(b) of the Act \12\ in general, and 
furthers the objectives of Section 6(b)(4) of the Act \13\ 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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    \12\ 15 U.S.C. 78f(b).
    \13\ 15 U.S.C. 78f(b)(4).
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    The Exchange's proposal to assess Professionals a $.15 per contract 
Options Surcharge for transactions in RUT, MNX and NDX and a $.10 per 
contract Options Surcharge for transactions in BKX is reasonable 
because Professionals would be assessed a fee that is less favorable 
than a Customer but equivalent to all other market participants because 
it has been established that Professionals have access to more 
information than a Customer. It can be argued that Professionals have 
the same technological and informational advantages as broker-dealers 
trading for their own account. The Exchange believes that 
Professionals, who are considered sophisticated algorithmic traders, 
utilize the advantaged Customer pricing they receive to effectively 
compete with Market Makers and Broker-Dealers \14\ without the 
obligations of either. Also, the Exchange believes that unlike 
Customers, Professionals are able to shoulder the burden of fees as 
effectively as other market participants.
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    \14\ Broker-dealers pay registration and membership fees in 
self-regulatory organizations (``SRO'') and incur costs to comply 
and assure that their associated persons comply with the Act and SRO 
rules.
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    The Exchange's proposal to assess Professionals a $.15 per contract 
Options Surcharge for transactions in RUT, MNX and NDX and a $.10 per 
contract Options Surcharge for transactions in BKX is equitable and not 
unfairly discriminatory because all market participants, except for 
Customers, would be uniformly assessed the Options Surcharge fees for 
RUT, MNX, NDX and BKX, respectively. A lower Customer fee benefits all 
market participants by incentivizing market participants to transact a 
greater number of Customer orders, which results in increased 
liquidity. Additionally, today Professionals are assessed a higher fee 
as compared to Customers in both Penny Pilot Options \15\ and non-Penny 
Pilot Options.\16\
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    \15\ The Penny Pilot was established in January 2007; and in 
October 2009, it was expanded and extended through June 30, 2012. 
See Securities Exchange Act Release Nos. 55153 (January 23, 2007), 
72 FR 4553 (January 31, 2007) (SR-Phlx-2006-74) (notice of filing 
and approval order establishing Penny Pilot); 60873 (October 23, 
2009), 74 FR 56675 (November 2, 2009) (SR-Phlx-2009-91) (notice of 
filing and immediate effectiveness expanding and extending Penny 
Pilot); 60966 (November 9, 2009), 74 FR 59331 (November 17, 2009) 
(SR-Phlx-2009-94) (notice of filing and immediate effectiveness 
adding seventy-five classes to Penny Pilot); 61454 (February 1, 
2010), 75 FR 6233 (February 8, 2010) (SR-Phlx-2010-12) (notice of 
filing and immediate effectiveness adding seventy-five classes to 
Penny Pilot); 62028 (May 4, 2010), 75 FR 25890 (May 10, 2010) (SR-
Phlx-2010-65) (notice of filing and immediate effectiveness adding 
seventy-five classes to Penny Pilot); 62616 (July 30, 2010), 75 FR 
47664 (August 6, 2010) (SR-Phlx-2010-103) (notice of filing and 
immediate effectiveness adding seventy-five classes to Penny Pilot); 
63395 (November 30, 2010), 75 FR 76062 (December 7, 2010) (SR-Phlx-
2010-167) (notice of filing and immediate effectiveness extending 
the Penny Pilot); and 65976 (December 15, 2011), 76 FR 79247 
(December 21, 2011) (SR-Phlx-2011-172) (notice of filing and 
immediate effectiveness extending the Penny Pilot). See also 
Exchange Rule 1034.
    \16\ Customers are not assessed an Options Transaction Charge 
for either Penny Pilot Options or non-Penny Pilot Options while 
Professionals are assessed $.20 per contract for both Penny and non-
Penny Pilot Options.
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    The Exchange's proposal to continue to assess SOX, HGX and OSX the 
fees in Section III for Singly Listed Options is reasonable because the 
Exchange is seeking to continue to recoup the operation and development 
costs associated with these proprietary indexes.\17\
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    \17\ The Exchange continues to incur costs for maintaining these 
proprietary indexes including marketing expenses.
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    The Exchange believes that its proposal to continue to assess SOX, 
HGX and OSX the fees in Section III for Singly Listed Options is 
equitable and not unfairly discriminatory because all market 
participants would be assessed the Singly Listed Options Transaction 
Charges for transacting options on these indexes instead of the Options 
Transaction Charges in Section II.\18\ Specifically, all market 
participants would be assessed the higher fees in Section III, as 
compared to the fees in Section II, with the exception of a Broker-
Dealer electronically transacting options on these indexes.\19\ The 
Exchange has previously stated that it

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incurs higher costs for Singly Listed Options as compared to Multiply 
Listed Options.\20\ The Chicago Board Options Exchange, Incorporated 
(``CBOE'') noted in a comment letter dated June 21, 2010 that CBOE 
relies upon fees to, among other things, generate returns on its 
investments for its own popular proprietary products (such as The CBOE 
Volatility Index[supreg] (``VIX[supreg]'') Options).\21\ In addition, 
the Exchange believes that the proposed fees are reasonable, equitable 
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.\22\
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    \18\ The Options Transaction Charges for non-Penny Multiply 
Listed Options are as follows: Customers pays $.00 per contract, a 
Professional pays $.20 per contract, a Market maker pays $.23 per 
contract for electronic transactions and $.25 per contract for non-
electronic transactions, a Broker-Dealer pays $.50 per contract for 
electronic transactions and $.25 per contract for non-electronic 
transactions and a Firm pays $.40 per contract for electronic 
transactions and $.25 per contract for non-electronic transactions. 
See Section II of the Fee Schedule.
    \19\ The Broker-Dealer non-Penny options transaction charge for 
a Multiply Listed Option is $.50 per contract as compared to the 
Broker-Dealer fee of $0.45 per contract for Singly Listed Options.
    \20\ See Securities Exchange Release Act No. 64096 (March 18, 
2011), 76 FR 16646 (March 24, 2011) (SR-Phlx-2011-34).
    \21\ 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.
    \22\ See CBOE's Fees Schedule.
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    The Exchange believes that its proposal to rename the ``Fee 
Schedule'' as the ``Pricing Schedule'' is reasonable, equitable and not 
unfairly discriminatory because the Exchange believes that the changing 
the title to ``Pricing Schedule'' more specifically describes the fees, 
rebates and other charges reflected in the document termed ``Fee 
Schedule.''
    The Exchange operates in a highly competitive market, comprised of 
nine exchanges, in which market participants can easily and readily 
direct order flow to competing venues if they deem fee levels at a 
particular venue to be excessive. Accordingly, the fees that are 
assessed by the Exchange must remain competitive with fees charged by 
other venues and therefore must continue to be reasonable and equitably 
allocated to those members that opt to direct orders to the Exchange 
rather than competing venues.

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 email to [email protected]. Please include 
File Number SR-Phlx-2012-35 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-2012-35. 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 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-2012-35 and should be 
submitted on or before April 24, 2012.

    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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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2012-7914 Filed 4-2-12; 8:45 am]
BILLING CODE 8011-01-P