[Federal Register Volume 77, Number 202 (Thursday, October 18, 2012)]
[Notices]
[Pages 64173-64178]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2012-25651]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-68047; File No. SR-Phlx-2012-121]


Self-Regulatory Organizations; NASDAQ OMX PHLX LLC; Notice of 
Filing and Immediate Effectiveness of Proposed Rule Change Relating to 
a Customer Rebate Program, Multiply Listed Options Transaction Charges 
and PIXL

October 12, 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 October 1, 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 the Exchange's Pricing Schedule to: 
(i) Clarify the Monthly Market Maker Cap \3\ in Section II titled 
``Multiply Listed Options Fees''; \4\ (ii) amend PIXL pricing \5\ in 
Section IV titled ``Other Transaction Fees'', Section A titled ``PIXL 
Pricing''; and amend and relocate the Customer Rebate Program in 
Section II to a new Section A.
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    \3\ Today, the Monthly Market Maker Cap is $550,000 for equity 
option transaction fees and QCC Transaction Fees. The trading 
activity of separate Specialist and Market Maker member 
organizations is aggregated in calculating the Monthly Market Maker 
Cap if there is at least 75% common ownership between the member 
organizations. All dividend, merger, short stock interest and 
reversal and conversion strategy executions are excluded from the 
Monthly Market Maker Cap.
    \4\ Section II includes options overlying equities, ETFs, ETNs, 
indexes and HOLDRs which are Multiply Listed.
    \5\ PIXL is the Exchange's price-improvement mechanism where a 
member may electronically submit for execution an order it 
represents as agent on behalf of a public customer, broker-dealer, 
or any other entity (``PIXL Order'') against principal interest or 
against any other order (except as provided in Rule 1080(n)(i)(E)) 
it represents as agent (``Initiating Order'') provided it submits 
the PIXL order for electronic execution into the PIXL Auction 
(``Auction'') pursuant to Rule 1080. See Exchange Rule 1080(n).
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    The text of the proposed rule change is available on the Exchange's 
Web site at http://www.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 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 amend Sections II and 
III of the Exchange's Pricing Schedule and create a new Section A. 
Specifically, the Exchange is proposing to clarify its Pricing Schedule 
with respect to fees related to an order or quote that is contra to a 
PIXL Order and included in the Monthly Market Maker Cap calculation, 
increase the fee for certain orders executed once the Monthly Market 
Maker Cap has been exceeded and relocate the Customer Rebate Program 
from Section II to Section A and amend various pricing for that 
program. Also, the Exchange proposes to amend Section IV related to 
PIXL Pricing. Each of the amendments will be described below in greater 
detail.
Section II Amendments
    The Exchange is proposing to amend the Monthly Market Maker Cap. 
Currently, the Monthly Market Maker Cap is $550,000 for equity options 
transaction fees and Qualified Contingent Cross (``QCC'') Transaction 
Fees.\6\ The Exchange proposes to clarify the fees included in the 
Monthly Market Maker Cap. Today, the Exchange includes fees related to 
an order or quote that is contra to a PIXL Order or specifically 
responding to a PIXL auction executed resting and responding orders \7\ 
that execute against a PIXL Initiating Order in the Monthly Market 
Maker Cap calculation. The Exchange proposes to clarify the Pricing 
Schedule by specifically delineating the various fees that are 
calculated to arrive at the Monthly Market Maker Cap. The Exchange 
proposes to amend the Pricing Schedule to note that in addition to 
equity options transaction fees and QCC Transaction Fees, fee related 
to an order or quote that is contra to a PIXL Order or specifically 
responding to a PIXL Auction are included in the Monthly Market Maker 
Cap calculation.
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    \6\ QCC Transaction Fees are defined in Rules 1064(e) and 
1080(o). The trading activity of separate Specialist and Market 
Maker member organizations is aggregated in calculating the Monthly 
Market Maker Cap if there is at least 75% common ownership between 
the member organizations. All dividend, merger, short stock interest 
and reversal and conversion strategy executions (as defined in this 
Section II of the Pricing Schedule) are excluded from the Monthly 
Market Maker Cap.
    \7\ When the Exchange receives a PIXL Order for auction 
processing, a PIXL Auction Notification (``PAN'') message is sent 
over the Exchange's TOPO Plus Orders data feed detailing the side, 
size, and the stop price of the PIXL Order. Any person or entity may 
submit a PAN response, provided such response is properly marked 
specifying the price, size, and side of the market. See Rule 
1080(n).
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    The Exchange also proposes to amend a fee which is assessed once a 
Specialist \8\ or Market Maker \9\ has reached the Monthly Market Maker 
Cap. Currently, Specialists and Market Makers that (i) are on the 
contra-side of an electronically-delivered and executed Customer order; 
and (ii) have reached the Monthly Market Maker Cap are assessed a $0.12 
per contract fee, excluding PIXL Orders.\10\ The Exchange is proposing 
to increase this fee from $0.12 per contract to $0.16 per contract and 
also remove the exclusion for PIXL Orders. The proposal would assess 
Specialists and Market Makers that (i) are on the contra-side of an 
electronically-delivered and executed Customer order; and (ii) have 
reached the Monthly Market Maker Cap a $0.16 per contract fee and this 
would now include PIXL Orders. The Exchange

[[Page 64174]]

believes that this amendment will also permit the Exchange to pay 
certain Customer Rebates which are described below.
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    \8\ A Specialist is an Exchange member who is registered as an 
options specialist pursuant to Rule 1020(a).
    \9\ A ``market maker'' 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))). Directed 
Participants are also market makers.
    \10\ A member may electronically submit for execution an order 
it represents as agent on behalf of a public customer, broker-
dealer, or any other entity (``PIXL Order'') against principal 
interest or against any other order (except as provided in Rule 
1080(n)(i)(E)) it represents as agent (``Initiating Order'') 
provided it submits the PIXL order for electronic execution into the 
PIXL Auction (``Auction'') pursuant to Rule 1080. See Exchange Rule 
1080(n).
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    The Exchange also proposes to amend and relocate its Customer 
Rebate Program from Section II of the Pricing Schedule to a new 
``Section A'' which would be located before Section I in the Pricing 
Schedule.\11\ The Exchange is proposing to expand the three tier 
Customer Rebate Program to a four tier Customer Rebate Program. 
Currently, the Exchange pays rebates for the following Average Daily 
Volume Thresholds: (i) 0 to 49,999 contracts in a month; (ii) 50,000 to 
99,999 contracts in a month; and (iii) over 100,000 contracts in a 
month. The Exchange is proposing to amend Tier 3 and adopt a Tier 4 so 
as to have the following tiers: (i) 0 to 49,999 contracts in a month; 
(ii) 50,000 to 99,999 contracts in a month; (iii) 100,000 to 274,999 
contracts in a month; and (iii) over 275,000 contracts in a month. The 
Exchange believes offering the opportunity to obtain higher rebates, as 
described below, will incentivize market participants to send order 
flow to the Exchange.
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    \11\ The Exchange would also amend the Index to reflect the 
relocation of the Customer Rebate Program.
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    The Exchange is also proposing to amend Categories A, B, C and D, 
which currently require the following:
     Category A: Rebate will be paid to members executing 
electronically-delivered Customer Simple Orders in Penny Pilot Options, 
Simple Orders in Non-Penny Pilot Options that remove liquidity and 
Complex Orders in Non-Penny Pilot Options.
     Category B: Rebate will be paid to members executing 
electronically-delivered Customer Complex Orders in Penny Pilot 
Options.
     Category C: Rebate will be paid to members executing 
electronically-delivered Customer Simple Orders in Non-Penny Pilot 
Options that add liquidity.
     Category D: Rebate will be paid to members executing 
electronically-delivered Customer Complex Orders in Select Symbols that 
add liquidity.
    The Exchange is proposing to amend these Categories as follows:
     Category A: Rebate will be paid to members executing 
electronically-delivered Customer Simple Orders in Penny Pilot Options 
and Customer Simple Orders in Non-Penny Pilot Options in Section II. 
Rebate will be paid on PIXL Orders in Section II symbols that execute 
against non-Initiating Order interest.
     Category B: Rebate will be paid to members executing 
electronically-delivered Customer Complex Orders in Penny Pilot Options 
and Non-Penny Pilot Options in Section II.
     Category C: Rebate will be paid to members executing 
electronically-delivered Customer Complex Orders in Select Symbols in 
Section I.
    In order to analyze the impact on rebates, it is relevant to note 
how the various Categories were amended in addition to the actual 
rebates. The proposed Customer Rebate Program \12\ table is as follows:
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    \12\ The Customer Rebate Program only includes electronically-
delivered orders.

----------------------------------------------------------------------------------------------------------------
                                                                          Rebate per contract categories
                 Average daily volume threshold                  -----------------------------------------------
                                                                    Category A      Category B      Category C
----------------------------------------------------------------------------------------------------------------
0 to 49,999 contracts in a month................................           $0.00           $0.00           $0.00
50,000 to 99,999 contracts in a month...........................            0.07            0.10            0.00
100,000 to 299,999 contracts in a month.........................            0.10            0.14            0.05
over 300,000 contracts in a month...............................            0.12            0.15            0.06
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    With respect to Category A, which today allows members who transact 
electronically-delivered Customer Simple Orders in Penny Pilot Options, 
Simple Orders in Non-Penny Pilot Options that remove liquidity and 
Complex Orders in Non-Penny Pilot Options to earn Category A rebates, 
the Exchange is amending this Category to now include all Simple Orders 
in Non-Penny Pilot Options in Section II (not just orders that remove 
liquidity). In addition, Complex Orders in Non-Penny Pilot Options will 
no longer be part of Category A. The fees in Category A will increase 
for volume over 100,000 contracts. Today, a rebate of $0.09 per 
contract is paid for volume over 100,000 contracts. The new pricing in 
Category A will pay a rebate of $0.10 per contract for volume between 
100,000 and 274,999 contracts and a rebate of $0.12 per contract for 
volume over 275,000 contracts.\13\ With respect to Simple Orders in 
Non-Penny Pilot Options that add liquidity that are today included in 
Category C, these will be included in Category A. These orders will now 
be subject to a decreased rebate of $0.07 per contract for volume 
between 50,000 to 99,999 contracts in a month. Today those orders 
receive a rebate of $0.10 per contract.\14\ Finally, Category A will 
now include PIXL Orders in Section II, except for contracts of PIXL 
orders that execute against an Initiating Order.\15\ These types of 
orders today are not subject to rebates in the Customer Rebate Program.
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    \13\ Category A will continue to pay no rebate for volume 
between 0 and 49,999 contracts and a rebate of $0.07 per contract 
for volume between 50,000 and 99,999 contracts in a month.
    \14\ Simple Orders in Non-Penny Pilot Options that add liquidity 
will continue to receive no rebate for volume between 0 to 49,999 
contracts. Also, the $0.10 per contract rebate will remain the same 
for over 100,000 but the tier will now be amended to volume between 
100,000 to 274,999 contracts. The $0.12 per contract rebate for 
volume over 275,000 contracts will also apply to these orders.
    \15\ A member may electronically submit for execution an order 
it represents as agent on behalf of a public customer, broker-
dealer, or any other entity (``PIXL Order'') against principal 
interest or against any other order (except as provided in Rule 
1080(n)(i)(E)) it represents as agent (``Initiating Order'') 
provided it submits the PIXL order for electronic execution into the 
PIXL Auction (``Auction'') pursuant to Rule 1080. See Exchange Rule 
1080(n).
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    With respect to Category B, which today allows members executing 
electronically-delivered Customer Complex Orders in Penny Pilot Options 
in Section II to earn Category B rebates, the Exchange proposes to 
amend this Category to now also include Complex Orders in Non-Penny 
Pilot Options in Section II (not just Complex Orders in Penny Pilot 
Options). The fees in Category B will increase for volume over 100,000 
contracts. Today, a rebate of $0.10 per contract is paid for volume 
over 100,000 contracts. The new pricing in Category B will pay a rebate 
of $0.14 per contract for volume between 100,000 and 274,999 contracts 
and a rebate of $0.15 per contract for volume over 275,000 
contracts.\16\ With respect to Complex Orders in Non-Penny Pilot 
Options that are today included in Category A, these will be included 
in Category B. These orders will now be subject to an increased rebate 
of $0.10

[[Page 64175]]

per contract for volume between 50,000 to 99,999 contracts in a month. 
Today those orders receive a rebate of $0.07 per contract. 
Additionally, today for volume over 100,000 contracts, Complex Orders 
in Non-Penny Pilot Options receive a rebate of $0.09 per contract. This 
rebate will be increased in the new category, between 100,000 and 
274,999 contracts, to $0.14 per contract.\17\
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    \16\ Category B will continue to pay no rebate for volume 
between 0 and 49,999 contracts and a rebate of $0.10 per contract 
for volume between 50,000 and 99,999 contracts in a month.
    \17\ Complex Orders in Non-Penny Pilot Options will continue to 
receive no rebate for volume between 0 to 49,999 contracts. The 
$0.15 per contract rebate for volume over 275,000 contracts will 
also apply to these orders.
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    With respect to Category C, which today allows members executing 
electronically-delivered Customer Simple Orders in Non-Penny Pilot 
Options that add liquidity in Section II to earn Category C rebates, 
the Exchange proposes to amend this Category to now include Complex 
Orders in Select Symbols in Section I. The fees applicable to Complex 
Orders in Select Symbols that remove liquidity today receive rebates in 
Category D. These orders will continue to receive the same pricing, 
except that volume over 100,000 contracts which today pays a $0.05 per 
contract rebate will apply to contracts between 100,000 to 274,999 and 
pay the same rebate. Additionally, a rebate of $0.06 per contract will 
be paid for volume over 275,000 contracts.\18\ With respect to Complex 
Orders in Non-Penny Pilot Options that are today included in Category 
A, these will be included in Category B. These orders will now be 
subject to an increased rebate of $0.10 per contract for volume between 
50,000 to 99,999 contracts in a month. Today those orders receive a 
rebate of $0.07 per contract. Additionally, today for volume over 
100,000 contracts, Complex Orders in Non-Penny Pilot Options receive a 
rebate of $0.09 per contract. This rebate will be increased in the new 
category, between 100,000 and 274,999 contracts, to $0.14 per 
contract.\19\ Complex Orders in Select Symbols for adding liquidity 
today are not subject to rebates in the Customer Rebate Program. With 
respect to proposed Category D, as noted above, those Complex Orders in 
Select Symbols that add liquidity will become part of Category C. 
Category D will be eliminated.
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    \18\ Category C will continue to pay no rebate for volume 
between 0 and 49,999 contracts and 50,000 and 99,999 contracts in a 
month as is the case today for Complex Orders in Select Symbols that 
remove liquidity.
    \19\ Complex Orders in Non-Penny Pilot Options will continue to 
receive no rebate for volume between 0 to 49,999 contracts. The 
$0.15 per contract rebate for volume over 275,000 contracts will 
also apply to these orders.
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    Finally, the Exchange proposes to amend its Average Daily Volume 
Threshold calculation. Currently, the Average Daily Volume Threshold is 
calculated by totaling Customer volume in Multiply Listed Options \20\ 
that are electronically-delivered and executed, except electronic QCC 
Orders as defined in Exchange Rule 1080(o), and including 
electronically-delivered and executed Customer Complex Orders in Select 
Symbols (``Threshold Volume''). Rebates are paid on Threshold Volume in 
a given month, excluding electronically delivered Customer volume 
associated with PIXL. The Exchange is proposing to amend the 
calculation of the Average Daily Volume Threshold to total Customer 
volume in Multiply Listed Options (including Select Symbols) that are 
electronically-delivered and executed, except: (i) electronically-
delivered and executed Customer Simple Orders in Select Symbols that 
remove liquidity; and (ii) electronic QCC Orders, as defined in 
Exchange Rule 1080(o) (``Threshold Volume''). The Exchange would pay 
the rebates on the Threshold Volume.\21\
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    \20\ This includes all options classes defined in Sections I and 
II. This excludes PHLX Semiconductor Sector\SM\ (SOX\SM\), PHLX 
Housing Sector\TM\ (HGX\SM\) and PHLX Oil Service Sector\SM\ 
(OSX\SM\) which are assessed Singly Listed Options fees in Section 
III of the Pricing Schedule despite the fact that these are 
Multiply-Listed index options. See Securities Exchange Act Release 
No. 66668 (April 3, 2012), 77 FR 20090 (March 28, 2012) (SR-Phlx-
2012-35).
    \21\ Currently, the Customer Simple Orders in Select Symbols are 
not part of the Average Daily Volume Calculation as the Customer 
Rebate Program today is limited to the symbols subject to Section II 
pricing and only Complex Orders that add liquidity in Section I. The 
Exchange proposes to exclude electronically-delivered and executed 
Customer Simple Orders in Select Symbols that remove liquidity from 
the Average Daily Volume Threshold, along with electronic QCC 
Orders. Today, these excluded orders are not included in the 
Threshold Volume. The Exchange would pay a rebate on all Customer 
volume included in the Threshold Volume. Today Customer volume 
associated with PIXL is excluded from the Threshold Volume, this 
would be amended and PIXL orders would be subject to a rebate. Today 
Customer Simples Orders in Select Symbols that remove liquidity and 
QCC Orders are not entitled to rebates under the Customer Rebate 
program today and those orders will continue to be excluded.
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    The Exchange believes that the proposed amendments to the Customer 
Rebate Program will attract additional Customer order flow to the 
Exchange to the benefit of all market participants.
Section III Amendments
    The Exchange is proposing to amend its PIXL Pricing in Section IV 
of the Pricing Schedule at Part A. Currently, the Exchange assesses 
PIXL fees on Customers, Professionals,\22\ Specialists,\23\ Market 
Makers,\24\ Firms and Broker-Dealers. All options traded on the 
Exchange are eligible for PIXL. Today, the Exchange assesses a fee of 
$0.07 per contract when an Initiating Order executes against a PIXL 
Order in the symbols listed in Section I, Select Symbols, and the 
symbols defined in Section II. The Exchange has different PIXL pricing 
depending on whether the PIXL order execution was in a Select Symbol 
(Section I) or Section II symbol.
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    \22\ 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).
    \23\ A Specialist is an Exchange member who is registered as an 
options specialist pursuant to Rule 1020(a).
    \24\ A ``market maker'' 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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    With respect to the Select Symbols, today, when a PIXL order is 
contra to the Initiating Order the appropriate Multiply Listed Options 
Transaction Charge in Section II in Section II of the Pricing Schedule 
is assessed up to a maximum fee of $0.32 per contract. The Options 
Transaction Charges are as follows: a Customer is not assessed an 
Options Transaction Charge, a Professional is assessed a $0.25 per 
contract Options Transaction Charge in both Penny Pilot and non-Penny 
Pilot Options, a Specialist and Market Maker are assessed a $0.22 per 
contract Options Transaction Charge in a Penny Pilot and a $0.23 per 
contract Options Transaction Charge in a non-Penny Pilot Option, and a 
Broker-Dealer and Firm are assessed $0.32 per contact because the 
Options Transactions Charges are greater than the maximum fee.\25\
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    \25\ The Broker-Dealer Options Transaction Charge in a Penny 
Pilot is $0.45 per contract and $0.60 per contact in a non-Penny 
Pilot. The Firm Options Transaction Charge in a Penny Pilot is $0.40 
per contract and $0.45 per contact in a non-Penny Pilot. See Section 
II in the Pricing Schedule.
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    When a PIXL Order executes in an auction against a resting contra-
side order or quote that was present upon the initial receipt of the 
PIXL Order, the Fee for Removing Liquidity in Section I is assessed on 
the PIXL Order. The Fees for Removing Liquidity are as follows: 
Customers are assessed $0.43 per contract, and all other market 
participants are assessed $0.45 per contract, therefore all market 
participants today are assessed the maximum fee of $0.32 per 
contract.\26\ The resting contra-side order or quote in

[[Page 64176]]

that scenario is paid the Rebate for Adding Liquidity in Section I.\27\
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    \26\ See Section I, Part A Simple Order Pricing in the Pricing 
Schedule.
    \27\ The Rebate for Adding Liquidity is $0.26 per contract for a 
Customer, $0.23 per contract for a Specialist, Market Maker or 
Professional. A Firm and Broker-Dealer do not receive a Rebate for 
Adding Liquidity. See Section I, Part A of the Pricing Schedule.
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    Today, if a PIXL Order executes in an auction against a Responder 
or contra-side quotes and/or orders sent in during the auction, the 
PIXL Order is paid the Rebate for Adding Liquidity in Section I.\28\ 
The Responders and contra-side orders and quotes which were entered 
during the PIXL Auction, are assessed the Fee for Removing Liquidity in 
Section I, which is greater than the maximum fee of $0.32 per contract, 
therefore the PIXL Order is assessed $0.32 per contract.\29\
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    \28\ Id.
    \29\ The Fees for Removing Liquidity are as follows: Customers 
are assessed $0.43 per contract, and all other market participants 
are assessed $0.45 per contract, therefore all market participants 
today are assessed the maximum fee of $0.32 per contract. See 
Section I, Part A.
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    With respect to Section II symbols, the PIXL Order and the contra-
side order or quote are assessed the appropriate Multiply Listed Option 
Transaction Charge in Section II of the Pricing Schedule up to a 
maximum fee of $0.32 per contract. Today, a Customer is not assessed an 
Options Transaction Charge, a Professional is assessed a $0.25 per 
contract Options Transaction Charge in both Penny Pilot and non-Penny 
Pilot Options, a Specialist and Market Maker are assessed a $0.22 per 
contract Options Transaction Charge in a Penny Pilot and a $0.23 per 
contract Options Transaction Charge in a non-Penny Pilot Option, a 
Broker-Dealer and Firm are assessed $0.32 per contact because the 
Options Transactions Charges are greater than the maximum fee.\30\ With 
respect to Section III pricing related to Singly Listed Options, the 
fees for PIXL pricing are the Section III fees and this will remain the 
same.
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    \30\ The Broker-Dealer Options Transaction Charge for a Penny 
Pilot Options is $0.45 per contract and $0.60 per contact in a non-
Penny Pilot Option. The Firm Options Transaction Charge in a Penny 
Pilot Option is $0.40 per contract and $0.45 per contact in a non-
Penny Pilot Option. See Section II in the Pricing Schedule.
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    The Exchange is proposing to amend the PIXL pricing. The Exchange 
proposes to continue to assess a $0.07 per contract Initiating Order 
fee, unless the market participant has greater than 275,000 contracts 
per day in a month of Threshold Volume in the Customer Rebate Program, 
in which case a reduced fee of $0.05 per contract fee would be assessed 
for the Initiating Order. With respect to the PIXL Order, the Exchange 
is amending the PIXL fees for Select Symbols (Section I) as follows:
     When the PIXL Order is contra to the Initiating Order a 
Customer PIXL Order will be assessed $0.00 and all non-Customer market 
participant PIXL Orders will be assessed $0.30 per contract when contra 
to the Initiating Order.
     When a PIXL Order is contra to a PIXL Auction Responder, 
the PIXL Order will either be paid the Rebate for Adding Liquidity or 
assessed the Fee for Adding Liquidity in Section I and the Responder 
will be assessed $0.30 per contract.
     When the PIXL Order is contra to a resting order or quote 
that was on the PHLX book prior to the auction, the PIXL Order will be 
assessed $0.30 per contract and the resting order or quote will either 
be paid the Rebate for Adding Liquidity or assessed the Fee for Adding 
Liquidity in Section I. If the resting order or quote that was on the 
PHLX was entered during the Auction, the PIXL Order will receive the 
Rebate for Adding Liquidity or assessed the Fee for Adding Liquidity in 
Section I and the resting order or quote will be assessed $0.30.
    With respect to the PIXL Order, the Exchange is amending is 
amending the PIXL fees for Section II symbols as follows:
     When the PIXL Order is contra to the Initiating Order a 
Customer PIXL Order will be assessed $0.00 and non-Customer PIXL Orders 
will be assessed $0.30 per contract.
     When a PIXL Order is contra to a PIXL Auction Responder, a 
Customer PIXL Order will be assessed $0.00, other market participants 
will be assessed $0.30 per contract, and a Responder will be assessed 
$0.30 per contract, unless the Responder is a Customer, in which case 
the fee will be $0.00 per contract.
     When a PIXL Order is contra to a resting order or quote a 
Customer PIXL Order will be assessed $0.00, other market participants 
will be assessed $0.30 per contract and the resting order or quote will 
be assessed the appropriate Options Transaction Charge in Section II.
    In analyzing the impact of these amendments, the Exchange's 
amendments to the Initiating Order provides market participants the 
opportunity to lower the fee by transacting a greater number of 
Customer Volume. With respect to the Select Symbols (Section I), the 
Exchange today assesses a PIXL Order the Options Transaction Charges in 
Section II with a maximum fee of $0.32 per contract. When a non-
Customer PIXL order is contra to the Initiating Order a non-Customer 
PIXL Order that today is assessed the appropriate Options Transaction 
Charge in Section II, which is capped at $0.32 per contract, would 
instead pay $0.30 per contract. The Customer PIXL Order would not be 
assessed a fee. When a PIXL Order is contra to a resting order or quote 
that was on the PHLX book prior to the auction, the PIXL Order today is 
assessed the Fee for Removing Liquidity in Section I, which is capped 
at $0.32 per contract, would instead pay $0.30 per contract. The 
resting contra-side order or quote on the book prior to the auction 
will continue to be paid the Rebate/Fee for Adding Liquidity in Section 
I as they are today.\31\ When a PIXL Order executes in an auction 
against a Responder that responds with either a contra-side quote or 
order sent in during the auction, the Responder is assessed the Fee for 
Removing Liquidity in Section I and will be capped at $0.30 per 
contract instead of the $0.32 cap that is assessed today. The PIXL 
Order will continue to receive the Rebate for Adding Liquidity or 
assessed the Fee for Adding Liquidity in Section I.
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    \31\ The Fee for Adding Liquidity in Section I is $0.05 per 
contact for Firms and Broker-Dealers. All other market participants 
are not assessed a Fee for Adding Liquidity. See Section I, Part A 
of the Pricing Schedule.
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    With respect to Section II symbols, the PIXL Order and the contra-
side order or quote which today are assessed the appropriate Multiply 
Listed Option Fee in Section II of the Pricing Schedule, up to a 
maximum fee of $0.32 per contract, would be assessed $0.30 per 
contract, except for Customers, who are not assessed a fee, when a PIXL 
Order is contra an Initiating Order. When a PIXL Order is contra to a 
PIXL Auction Responder a Customer PIXL Order would be assessed $0.00 
(which is the case today), and other market participants would be 
assessed $0.30 per contract as well as the Responder, unless the 
Responder is a Customer, in which case there is no fee. When a PIXL 
Order is contra to a resting order or quote the Customer would be 
assessed no fee, all other market participants would be assessed $0.30 
per contract and the resting order or quote would continue to be 
assessed the Options Transaction Charges in Section II. The impact of 
these amendments with regard to non-Customer market participants is 
that a Professional which today is assessed a $0.25 per contract 
Options Transaction Charge in both Penny Pilot and non-Penny Pilot 
Options would pay an increased fee of $0.30 per contract, a Specialist 
and Market Maker that today are assessed a

[[Page 64177]]

$0.22 per contract Options Transaction Charge in a Penny Pilot and a 
$0.23 per contract Options Transaction Charge in a non-Penny Pilot 
Option would pay an increased fee of $0.30 per contract, a Broker-
Dealer and Firm which today are assessed $0.32 per contact would pay 
decreased fees of $0.30 per contract. In addition, the Exchange is 
proposing to note that the Monthly Market Maker Cap will apply except 
with respect to the Initiating Order fee which is not included in the 
cap. PIXL Orders are proposed as part of the Monthly Market Maker Cap 
as noted in this filing. The Exchange also proposes to specify in the 
Pricing Schedule that all other fees discussed in Section II, including 
Payment for Order Flow and surcharges will also apply as 
appropriate.\32\ The Exchange believes that the PIXL fees which will be 
the same for all market participants, except Customers, in each Section 
I and II should encourage the initiation of price improvement auctions.
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    \32\ Payment for Order Flow fees apply today as well.
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2. Statutory Basis
    The Exchange believes that its proposal to amend its Pricing 
Schedule is consistent with Section 6(b) of the Act \33\ in general, 
and furthers the objectives of Section 6(b)(4) of the Act \34\ 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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    \33\ 15 U.S.C. 78f(b).
    \34\ 15 U.S.C. 78f(b)(4).
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Section II Amendments
Monthly Market Maker Cap
    The Exchange's clarification to the Monthly Market Maker Cap is 
reasonable, equitable and not unfairly discriminatory because it would 
clarify in the Pricing Schedule that the fees related to an order or 
quote that is contra to a PIXL Order or specifically responding to a 
PIXL auction is included in the Monthly Market Maker Cap calculation. 
In addition, all Specialists and Market Makers are afforded the 
opportunity to cap their fees.
    The Exchange's proposal to amend a fee which is assessed once a 
Specialist or Market Maker has reached the Monthly Market Maker Cap is 
reasonable because the Exchange is now including fees related to an 
order or quote that is contra to a PIXL Order or specifically 
responding to a PIXL auction in the Monthly Market Maker Cap. The 
proposal to remove the exclusion for PIXL Orders and increase fee (from 
$0.12 to $0.16 per contract) once the Monthly Market Maker Cap is 
exceeded and a Specialist or Market Maker is contra an electronic 
Customer order is reasonable because the Exchange is affording 
Specialists and Market Makers the opportunity to reach the Monthly 
Market Maker Cap earlier, by including PIXL orders. Also, the fee is 
assessed only when the Monthly Market Maker Cap is exceeded and 
Specialists and Market Makers are on the contra-side of an 
electronically-delivered and executed Customer order.\35\ The Exchange 
believes that this amendment will also permit the Exchange to pay 
certain Customer Rebates based on tiers and average daily volume 
thresholds which are described below and now also permits rebates for 
PIXL Orders.
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    \35\ The contra-side Customer is not assessed a fee in this 
scenario.
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    The Exchange's proposal to increase the fee (from $0.12 to $0.16 
per contract) which is assessed once a Specialist or Market Maker has 
reached the Monthly Market Maker Cap is equitable and not unfairly 
discriminatory because all Specialist and Market Makers would be 
uniformly assessed the fee as long as they have reached the cap and are 
contra to an electronically-delivered Customer order.
Customer Rebate Program
    The Exchange's proposal to amend the current three tier Customer 
Rebate Program to a four tier program is reasonable, equitable and not 
unfairly discriminatory because it will further incentivize a greater 
number of market participants to take advantage of the Customer Rebate 
Program because of the added categories of orders eligible for the 
Customer Rebate Program and also because the Exchange is offering 
market participants the opportunity to obtain higher rebates with the 
addition of the new tier.
    The Exchange also believes that the amendments to the Customer 
Rebate Program are reasonable because the Customer liquidity that this 
program attracts to the market benefits all market participants. The 
program now includes new categories of orders that were not previously 
included in the Average Daily Volume Threshold such as PIXL Orders in 
Section II and Complex Orders in Select Symbols (Select I) that add 
liquidity.
    The Exchange also believes that the amendments to the Customer 
Rebate Program are equitable because other than the Simple Orders in 
Non-Penny Pilot Options that add liquidity, which today are included in 
Category C, all other order types will receive the same or higher 
rebates as described in the purpose section.\36\ With respect to the 
Average Daily Volume calculation, the Exchange believes that the 
amendments are reasonable, equitable and not unfairly discriminatory 
because Select Symbols will now be included with the exception of 
Simple Orders that remove liquidity (Simple Orders that add liquidity 
will be included in Threshold Volume) \37\ and rebates will now be paid 
on PIXL volume. The Exchange believes the amendments are reasonable 
because the Exchange is offering market participants an opportunity to 
earn rebates on order not subject to the Customer Rebate Program today 
and market participants also have an opportunity to earn higher 
rebates. The Exchange believes that the amendments are equitable and 
not unfairly discriminatory because they will be uniformly applied to 
all market participants.
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    \36\ These orders will now be subject to a decreased rebate of 
$0.07 per contract for volume between 50,000 to 99,999 contracts in 
a month. Today those orders receive a rebate of $0.10 per contract. 
Simple Orders in Non-Penny Pilot Options that add liquidity will 
continue to receive no rebate for volume between 0 to 49,999 
contracts. Also, the $0.10 per contract rebate will remain the same 
for overs 100,000 but the tier will now be amended to volume between 
100,000 to 274,999 contracts. The $0.12 per contract rebate for 
volume over 275,000 contracts will also apply to these orders.
    \37\ Complex Orders in Select Symbols are included in the 
Threshold Volume today and will continue to be included with this 
amendment.
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Section III Amendments--PIXL
    The Exchange believes that the amendments to the PIXL pricing are 
reasonable, because the Exchange is proposing to simplify the PIXL 
pricing to assess no fees to Customers uniformly and to assess all non-
Customer market participants the same fees except with respect to 
Section II when a PIXL Order is contra to a resting order or quote. In 
this case the resting contra-side orders or quotes will continue to pay 
the appropriate Options Transaction Charges in Section II. Also, while 
there will be fee increases for Professionals, Specialists and Market 
Makers in Section II, the Exchange is now proposing to include PIXL 
Orders as orders that are eligible for rebates in the Customer Rebate 
Program. The Exchange also believes that its fees are reasonable 
because they are within the range of fees that are assessed by the 
International Securities Exchange, LLC (``ISE'') for price improving 
orders

[[Page 64178]]

(``Fees for Responses to Crossing Orders.'') \38\
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    \38\ ISE assesses a range of Fees for Responses to Crossing 
Orders from $0.18 to $0.40 per contract depending on the symbol.
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    The Exchange also believes that it is reasonable to continue to 
assess a $0.07 per contract Initiating Order fee, unless the market 
participant has greater than 275,000 contracts per day in a month of 
Threshold Volume in the Customer Rebate Program, in which case a 
decreased $0.05 per contract fee would be assessed for the Initiating 
Order, because this incentivizes market participants to send additional 
Customer PIXL Order flow to the Exchange which reduces the market 
participant's fees once a certain volume (275,000 contracts per day in 
a month) is obtained and the Customer liquidity benefits all market 
participants.
    The Exchange believes that the amendments to PIXL pricing in Select 
Symbols (Section I) are equitable and not unfairly discriminatory 
because the fees will be lower for all market participants that today 
pay $0.32 per contract and Customer PIXL Orders will remain free. 
Responder fees will also be reduced from $0.32 to $0.30 per contract. 
The Exchange believes that the amendments to the PIXL pricing in 
Section II symbols are equitable and not unfairly discriminatory 
because Customer PIXL Orders will remain free in all instances and all 
non-Customer market participant PIXL Orders will be assessed a fee of 
$0.30 per contract fee uniformly. The Exchange also believes that it is 
equitable and not unfairly discriminatory to continue to assess a $0.07 
per contract Initiating Order fee, unless the market participant has 
greater than 275,000 contracts per day in a month of Threshold Volume 
in the Customer Rebate Program, in which case a $0.05 per contract 
Initiating Order fee would be assessed, because these fees would be 
assessed uniformly on all market participants and would further 
incentivize market participants to transact PIXL Orders. In addition, 
the differential between the Initiating Order and the Responders to a 
PIXL Order is $0.23 or $0.25 per contract as proposed, which is less 
than or equal to the current differential.
    The Exchange operates in a highly competitive market, comprised of 
ten 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 or rebates to be inadequate. 
Accordingly, the fees that are assessed and the rebates paid by the 
Exchange must remain competitive with fees charged and rebates paid 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. The Exchange believes that the 
new Customer Rebate Program will attract additional Customer order flow 
to the benefit of all market participants.

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.\39\ 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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    \39\ 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-2012-121 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-2012-121. 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 
10:00 a.m. and 3:00 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-2012-121 and should be 
submitted on or before November 8, 2012.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\40\
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    \40\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2012-25651 Filed 10-17-12; 8:45 am]
BILLING CODE 8011-01-P