[Federal Register Volume 75, Number 165 (Thursday, August 26, 2010)]
[Notices]
[Pages 52558-52560]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2010-21177]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-62744; File No. SR-Phlx-2010-105]
Self-Regulatory Organizations; NASDAQ OMX PHLX, Inc.; Notice of
Filing and Immediate Effectiveness of Proposed Rule Change Relating to
the Cancellation Fee
August 19, 2010.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(the ``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given
that on August 13, 2010, NASDAQ OMX PHLX, Inc. (``Phlx'' or
``Exchange'') filed with the Securities and Exchange Commission
(``Commission'') the proposed rule change as described in Items I and
II 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 assess a Cancellation Fee on all
electronically delivered all-or-none (``AON'') orders that are
submitted by a Professional and subsequently cancelled by the party
that originally submitted the order.
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 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 the manner in
which the Cancellation Fee is assessed on members. The Exchange
proposes to assess a Cancellation Fee of $1.10 on all electronically
delivered \3\ AON orders that are submitted by a Professional \4\
(hereafter ``Professional AON'') and subsequently cancelled by the
party that originally submitted the order. The Exchange has observed
that the number of cancelled Professional AON orders greatly exceeds
the normal order cancellation activity on the Exchange for all other
order types, and thus affects the automated order handling capacity of
the Exchange's systems. The Exchange proposes to include Professional
AON orders into the calculation of cancelled orders to assess the
Cancellation Fee to recover costs associated with system issues that
are attributable to cancelled AON orders. A Professional order is
treated, for purposes of priority, as a Customer order.\5\
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\3\ Electronically delivered orders are delivered through the
Exchange's options trading platform known as PHLX XL II.
\4\ Currently, a Professional is treated in the same manner as
an off-floor broker-dealer for purposes of Rules 1014(g) (except
with respect to AON orders, which will be treated like Customer
orders), 1033(e), 1064.02 (except professional orders will be
considered Customer orders subject to facilitation), and 1080.08 as
well as Options Floor Procedure Advices B-6, B-11 and F-5. Member
organizations must indicate whether orders are for professionals.
\5\ Id.
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Currently, the Exchange assesses a Cancellation Fee of $2.10 per
order on member organizations for each cancelled electronically
delivered Customer order that exceeds the number of Customer orders
executed on the Exchange by that member organization in a given month.
The Exchange calculates the Cancellation Fee by aggregating all
Customer orders and cancellations received from a member organization
in a particular calendar month. At least 500 Customer cancellations
must be made in a given month by a member organization in order for a
member organization to be assessed the Cancellation Fee (``500
Threshold''). The Cancellation Fee is not assessed in a month in which
fewer than 500 electronically delivered Customer orders \6\ are
cancelled. Simple
[[Page 52559]]
cancels and cancel-replacement orders are the types of orders that are
counted when calculating the number of electronically delivered
orders.\7\ The following order activity is exempt from the Cancellation
Fee: (i) Pre-market cancellations; \8\ (ii) Complex Orders \9\ that are
submitted electronically; (iii) unfilled Immediate-or-Cancel \10\
Customer orders; and (iv) cancelled Customer orders that improved the
Exchange's prevailing bid or offer (PBBO) market at the time the
Customer orders were received by the Exchange.
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\6\ For purposes of assessing the Cancellation Fee, Customer
orders from the same member organization in the same series on the
same side of the market that are executed at the same price within a
300 second period will be aggregated and counted as one executed
Customer option order.
\7\ A cancel-replacement order is a contingency order consisting
of two or more parts which require the immediate cancellation of a
previously received order prior to the replacement of a new order
with new terms and conditions. If the previously placed order is
already filled partially or in its entirety the replacement order is
automatically canceled or reduced by such number. See Exchange Rule
1066(c)(7).
\8\ See Securities Exchange Act Release Nos. 53226 (February 3,
2006), 71 FR 7602 (February 13, 2006) (SR-Phlx-2005-92); and 53670
(April 18, 2006), 71 FR 21087 (April 24, 2006) (SR-PHLX-2006-21).
See also Securities Exchange Act Release No. 60046 (June 4, 2009),
74 FR 28083 (June 12, 2009) (SR-Phlx-2009-44).
\9\ A complex order is a spread, straddle, combination, ratio or
collar order, all of which consist of more than one component,
priced like a single order at a net debit or credit based on the
prices of the individual components. See Exchange Rule 1080.08
Commentary .08(a)(i).
\10\ An Immediate-or-Cancel (IOC) order is a limit order that is
to be executed in whole or in part upon receipt. Any portion not so
executed shall be cancelled.
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The Exchange proposes to continue to assess the $2.10 Cancellation
Fee on all Customer orders that exceed the 500 Threshold for cancelled
orders. Professional AON orders would be computed in calculating the
500 Threshold before any order is assessed a Cancellation Fee.\11\
Beyond the 500 Threshold, each Customer order would be assessed a
Cancellation Fee of $2.10 per order; this is not changing. The Exchange
proposes to assess each Professional AON order, beyond the 500
Threshold, a $1.10 per order Cancellation Fee.
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\11\ In reaching the 500 Threshold, orders must be executed from
the same member organization in the same series on the same side of
the market and executed at the same price within a 300 second
period. Orders are aggregated and counted as one executed Customer
or Professional AON option order.
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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. The Exchange believes that the proposed amendments to the
Cancellation Fee are reasonable because they will ease system
congestion and allow the Exchange to recover costs associated with
excessive order cancellation activity. The Exchange has experienced a
significant increase in the number of Professional AON orders. Also,
the Exchange believes that the amendment to the Cancellation Fee is
equitable because the addition of the Professional AON orders to the
Cancellation Fee computation would continue to be applied equitably
among members according to system use.
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\12\ 15 U.S.C. 78f(b).
\13\ 15 U.S.C. 78f(b)(4).
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With respect to Section I, Rebates and Fees for Adding and Removing
Liquidity in Select Symbols, of the Fee Schedule, a Customer is
entitled to receive a $.20 rebate for adding liquidity, is assessed no
fee for adding liquidity and is assessed a $.25 fee for removing
liquidity. A Professional in that same fee model is entitled to receive
a $.20 rebate for adding liquidity, is assessed no fee for adding
liquidity and is assessed a $.40 fee for removing liquidity. The
Professional AON orders would be assessed a fee that is $1.00 lower
($1.10 as compared to $2.10) than fees assessed for Customer orders
over the 500 Threshold.
With respect to the fees in Section II, Equity Options Fees, of the
Fee Schedule, a Customer is not assessed a fee for options transactions
(penny or non-penny); however, a Professional is assessed a $.20 fee
for options transactions (penny and non-penny). Neither a Customer nor
a Professional is assessed an Options Surcharge in RUT, RMN, MNX or
NDX. Again, there would be a $1.00 differential between Customer and
Professional AON orders with this proposed Cancellation Fee.
The Exchange assesses the Cancellation Fee by aggregating all
Customer orders. Cancellations received from a member organization in a
particular calendar month from the same member organization in the same
series on the same side of the market and executed at the same price
within a 300-second period are aggregated and counted as one option
order. The Professional AON orders, which receive a Customer priority,
are proposed to be included in that calculation. The Exchange would
assess the Cancellation Fee only after the 500 Threshold is reached.
The Exchange believes that this proposal is equitable because: (i) The
Exchange is assessing the fee on aggregate Customer orders (including
Professional AON orders) because they are the specific cause of the
system congestion; \14\ (ii) Professional AON orders have the benefit
of the Customer priority and therefore should be treated similar to
Customers in terms of the Cancellation Fee assessment; and (iii) the
Exchange proposes to assess a lower Cancellation Fee on a Professional
order as compared to a Customer order.
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\14\ The Exchange has no evidence that Broker-Dealer and other
market participants contribute to system congestion as a result of
cancellation orders.
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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 \15\ and Rule 19b-4(f)(2) \16\ thereunder.
At any time within 60 days of the filing of such 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.
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\15\ 15 U.S.C. 78s(b)(3)(A)(ii).
\16\ 17 CFR 19b-4(f)(2).
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IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
change 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-2010-105 on the subject line.
Paper Comments
Send paper comments in triplicate to Elizabeth M. Murphy,
Secretary, Securities and Exchange Commission,
[[Page 52560]]
100 F Street, NE., Washington, DC 20549-1090.
All submissions should refer to File Number SR-Phlx-2010-105. 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,\17\ 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-2010-105 and should be submitted on or before September 16, 2010.
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\17\ The text of the proposed rule change is available on
Exchange's Web site at http://nasdaqtrader.com/micro.aspx?id=PHLXfilings, on the Commission's Web site at http://www.sec.gov, at Phlx, and at the Commission's Public Reference Room.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\18\
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\18\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
[FR Doc. 2010-21177 Filed 8-25-10; 8:45 am]
BILLING CODE 8010-01-P