[Federal Register Volume 75, Number 179 (Thursday, September 16, 2010)]
[Notices]
[Pages 56624-56627]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2010-23103]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-62876; File No. SR-Phlx-2010-120]
Self-Regulatory Organizations; Notice of Filing and Immediate
Effectiveness of Proposed Rule Change by NASDAQ OMX PHLX, Inc. To
Establish Fees for NASDAQ OMX PSX
September 9, 2010.
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 August 31, 2010, NASDAQ OMX PHLX, Inc. (``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 adopt new fees in connection with the
trading of NMS stocks through the new NASDAQ OMX PSX system (``PSX'').
The text of the proposed rule change is available on the Exchange's Web
site at http://nasdaqtrader.com/micro.aspx?id=PHLXfilings, on the
Commission's Web site at http://www.sec.gov, 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
Shortly after its acquisition by The NASDAQ OMX Group, Inc.
(``NASDAQ OMX'') in 2008, the Exchange ceased operation of XLE, its
former system for trading NMS stocks.\3\ Earlier this year, the
Exchange filed a proposed rule change to resume trading NMS stocks
through a new electronic platform known as NASDAQ OMX PSX.\4\ In
anticipation of approval and launch of PSX, the Exchange is filing this
proposed rule change to establish fees, dues, and other charges
applicable to PSX. The proposed fees are structurally similar to those
of the Exchange's affiliated exchanges, The NASDAQ Stock Market LLC
(the ``NASDAQ Exchange'') and NASDAQ OMX BX, Inc. (``BX''), but with
the omission of fees that are not pertinent to the Exchange's planned
business and with differences in the level of certain fees.
---------------------------------------------------------------------------
\3\ Securities Exchange Act Release No. 58613 (September 22,
2008), 73 FR 57181 (October 1, 2008) (SR-PHLX-2008-65).
\4\ Securities Exchange Act Release No. 62519 (July 16, 2010),
75 FR 43597 (July 26, 2010) (SR-PHLX-2010-79).
---------------------------------------------------------------------------
Order Execution Fees
Order execution fees will be uniform for all types of securities
and member organizations. Specifically, for securities executed at
prices of $1 or more, the Exchange will charge $0.0013 per share
executed and pay a liquidity provider rebate of $0.0020 per share
executed. For executions below $1, the execution fee will be 0.2% of
the total transaction cost, and the rebate will be $0. The Exchange
proposes this ``inverted'' pricing structure as a temporary promotional
mechanism to attract liquidity to PSX. Other exchanges and trading
venues have adopted inverted pricing in the past as a means to promote
the development of a new market entrant.\5\
---------------------------------------------------------------------------
\5\ See, e.g., Securities Exchange Act Release No. 59452
(February 25, 2009), 74 FR 9456 (March 4, 2009) (SR-BX-2009-012)
(temporarily decreasing order execution fee to a level below
prevailing liquidity provider rebate); BATS ECN Unveils Ultra-
Aggressive January Pricing Special (December 19, 2006) (available at
http://www.batstrading.com/resources/press_releases/BATS%20ECN%20Unveils%20Ultra-Aggressive%20January%20Pricing%20Special.pdf).
---------------------------------------------------------------------------
PSX TotalView
The Exchange proposes to establish fees for its PSX TotalView data
product. Like NASDAQ TotalView and BX TotalView, PSX TotalView will
provide all Displayed Orders in the market at every price level.\6\ In
recognition of the start-up nature of the new market, the data feed
will be provided free of charge to subscribers and distributors for a
period ending on the last day of the twelfth full calendar month of
PSX's operation. Thus, if PSX commences operations on September 27,
2010, PSX TotalView fees will be waived until October 1, 2011.
---------------------------------------------------------------------------
\6\ In contrast with the NASDAQ Exchange and BX, however, all
orders designated as Displayed Orders will be displayed without
attribution to the entering market participant.
---------------------------------------------------------------------------
After the initial free period, the Exchange will offer users a
range of pricing options. In general, charges will be assessed to
distributors of PSX Total View on a per distributor basis, with
additional charges assessed on a per subscriber basis for each
subscriber receiving the data from a distributor. A ``distributor'' is
defined as any entity that receives a feed or data file of Exchange
data directly from the Exchange (a ``direct distributor'') or
indirectly through another entity (an ``indirect distributor'') and
then distributes the data either internally (within that entity) or
externally (outside that entity). Distributors of PSX TotalView will
pay a $1,000 monthly fee to receive the data directly from the Exchange
(including from the Exchange through an extranet); indirect
distributors would not pay this charge. Distributors will also pay
either a $500 monthly fee to distribute the data feed internally (i.e.,
to employees) or a $1,250 monthly fee to distribute to external
customers (as well as internally, if applicable). All of the foregoing
fees will be waived during the initial free period. Finally,
distributors receiving any PSX TotalView or any other PSX data feed
will be charged an annual administrative fee: either $500 for delayed
distribution of data, or $1,000 for real-time distribution.\7\ The
administrative fees, which are assessed annually, will be charged at
the beginning of the first calendar year after the launch of PSX,
rather than being subject to the one-year free period applicable to
other data fees. If, as the Exchange expects, PSX launches in
[[Page 56625]]
2010, the fees would therefore be charged in January 2011.\8\
---------------------------------------------------------------------------
\7\ These annual administrative fees may be waived for colleges
and universities receiving the data for research and educational
purposes.
\8\ The administrative fees will also cover distribution of any
other PSX data feeds, including free data feeds such as the PSX Last
Sale Data Feeds described later in this proposed rule change, and
other free or fee-liable feeds that the Exchange offers in the
future.
---------------------------------------------------------------------------
In addition to the distributor fees, the Exchange will also charge
subscriber fees for controlled accesses to the TotalView data feed.
``Subscriber'' is defined with reference to instances of access to the
data on computer equipment that can receive the data. Specifically, a
``subscriber'' is defined as any access that a distributor provides to
(i) access the information in the PSX TotalView entitlement package, or
(ii) communicate with a distributor so as to cause the distributor to
access the information in the entitlement package. If a distributor
provides its customers or employees an option to use or not to use PSX
TotalView data on their computers, and the data is not actually used on
a specific computer that has access to it, then the computer in
question would not be charged as a subscriber. However, the burden is
on the distributor to demonstrate that a particular computer with
access is not using the data.
Following the initial one-year free period, the Exchange will
assess a monthly charge for each subscriber. The fee for each
professional PSX TotalView subscriber is $40 per month.\9\
Alternatively, market participants using the data internally on non-
display controlled devices may purchase an enterprise license at a rate
of $16,000 per month for internal use on an unlimited number of non-
display devices within the firm, and thereby avoid individual
subscription charges for these devices.\10\
---------------------------------------------------------------------------
\9\ The fee is comparable to the corresponding fee on BX, but BX
bifurcates the product between a version of the product covering
NASDAQ Exchange-listed securities and a version covering securities
listed on other exchanges, charging $20 per subscriber per month for
each version. PSX TotalView will provide data about orders for all
securities for a fee of $40 per subscriber per month.
\10\ A non-display device uses data from the PSX TotalView for
calculations and routing decisions but does not provide means to
display the information on a screen.
---------------------------------------------------------------------------
In addition to the foregoing fees, which apply to professional
users of PSX TotalView, the Exchange will also allow distributors to
provide PSX TotalView to non-professional subscribers at a reduced
rate. A ``non-professional'' is defined as a natural person who is
neither (i) registered with the Commission, the Commodities Futures
Trading Commission, a state securities agency, a securities exchange or
securities association, or a commodities or futures contract market or
association; (ii) engaged as an investment advisor as defined in
Section 202(a)(11) of the Investment Advisors Act of 1940 \11\ (the
``1940 Act'') (whether or not the person is registered or qualified
under the 1940 Act); nor (iii) employed by a bank or other organization
exempt from registration under federal or state securities laws to
perform functions that would require registration or qualification if
performed for another organization. The non-professional fee is $1 per
subscriber per month. This fee will also be waived until the end of the
twelfth full calendar month following PSX's launch.
---------------------------------------------------------------------------
\11\ 15 U.S.C. 80b-2(a)(11).
---------------------------------------------------------------------------
After the expiration of the one-year introductory period, the
Exchange will allow distributors to provide PSX TotalView to new
subscribers receiving PSX TotalView for the first time free of charge
for an individual one-month trial period. The free trial period applies
to individual subscribers receiving the data on a per-subscriber basis,
and to broker-dealers that opt to receive the data under an enterprise
license. The fee waiver would be applied to the first full month of
charges following the date on which a new subscriber is first entitled
by a distributor to receive access to PSX TotalView.
The foregoing fee structure is similar to the structure for NASDAQ
TotalView and BX TotalView, but the overall level of fees will be lower
than for NASDAQ TotalView and comparable to those for BX TotalView.
These fee levels reflect the start-up nature of the Exchange's new
equities trading platform, and will help to promote competition among
exchanges with respect to the quoting and trading services.
Specifically, the Exchange believes that the fees it sets for PSX
TotalView will help to attract order flow to the Exchange. At
inception, the Exchange will have zero market share and therefore must
set its fees, including data fees, with a view to attracting order
flow. Moreover, the alternatives that exist for market participants to
determine market depth--such as other depth of book products that may
be associated with markets with more liquidity, or order routing
strategies designed to ascertain market depth--provide incentives for
the Exchange to ensure that its fees for PSX TotalView are set
reasonably. Accordingly, the Exchange will charge no fee at all for a
period of more than twelve months, and thereafter will charge fees
comparable to those already established for BX.
The fees are not unreasonably discriminatory. The fees for
subscribers are uniform for all subscribers, except with respect to
reasonable and well-established distinctions between fees for
professional and non-professional subscribers. These distinctions,
previously approved by the Commission for the NASDAQ Exchange and BX,
are designed to promote more widespread distribution to non-
professional users. Similarly, the fees for distributors are uniform
except with respect to reasonable and well-established distinctions
between internal and external distribution and direct and indirect
receipt of data. These distinctions, also previously approved by the
Commission for the NASDAQ Exchange and BX, are designed to charge lower
fees to distributors whose activities do not require the Exchange to
establish and maintain direct connections to the distributor, and to
distributors that do not establish and maintain external distribution
networks requiring more extensive procedures to monitor subscriber
usage. The fees are fair and reasonable in that they compare favorably
to fees charged by other exchanges for comparable products.
TradeInfo PSX
TradeInfo PSX is an order and execution management tool, similar to
comparable products offered by the NASDAQ Exchange and BX. TradeInfo
PSX allows users to manage their order flow and mitigate risk by giving
them the ability to view their orders and executions, as well as the
ability to perform cancels at the port level. It also allows users to
download records of their orders and executions for record-keeping
purposes. It will be available to PSX participants for a fee of $95 per
user per month, which is the same as the fee for the comparable
products of the NASDAQ Exchange and BX.
Testing
The Exchange proposes to establish fees for its testing facility,
to be set at levels identical to the fees for the NASDAQ Exchange's and
BX's testing facilities. In general, the Exchange will charge $285 per
hour for an active connection during the facility's normal operating
hours and $333 per hour for an active connection at other times. The
fees are waived for testing of new, enhanced, or modified services and/
or software offered by the Exchange, as well as for modifications
initiated by the Exchange and for a 30-day period for new subscribers
to existing services. In addition, all testing fees will be waived for
the period ending on the last day of the sixth full calendar month
following the launch of PSX. Thereafter, as provided in the rule, the
fees will be
[[Page 56626]]
waived for a 30-day period for each new market participant.
Other Fees
Other fee rules relate to installation, removal or relocation of
equipment at a subscriber's premises,\12\ administrative reports,\13\
special data requests,\14\ and partial month charges \15\ and are
comparable to corresponding fees of the NASDAQ Exchange and BX. Fee
language governing the aggregation of the activity of affiliated
Exchange member organizations for purposes of volume pricing discounts
would not be immediately operative, since the Exchange will not
initially offer such discounts, but is being adopted at this time to
address any such discounts adopted in the future.
---------------------------------------------------------------------------
\12\ This provision allows the Exchange to pass through any
costs it incurs.
\13\ An administrative report is prepared at a member
organization's request regarding its activities to assist the firm
in activities such as auditing its internal systems, verifying back-
office processing, or projecting monthly costs. The fee is $25 per
month.
\14\ This provision allows the Exchange to recoup costs
associated with responding to ad hoc requests for market data, such
as requests that may be made by news reporters or academic
researchers.
\15\ This provision provides that market data distributors may
elect to be billed on a prorated basis during the month of
initiation or termination of service.
---------------------------------------------------------------------------
Non-Fee Liable Data
The Exchange also proposes to make certain data feeds and other
data products available without assessing any distributor or subscriber
fees.\16\ If the Exchange opts to charge a fee for these feeds or
products at a later date, it will file a proposed rule change under
Section 19 of the Act to establish the fee.
---------------------------------------------------------------------------
\16\ The Exchange will assess the annual administrative fee
described above to all distributors receiving a data feed, including
non-fee-liable feeds. The Exchange reserves the right to impose
distributor and/or subscriber fees for these products at a later
date by submitting a proposed rule change under Section 19 of the
Act. 15 U.S.C. 78s.
---------------------------------------------------------------------------
The feeds are comparable to corresponding feeds offered by BX.
First, the Exchange will offer PSX Last Sale Data Feeds, which will
provide real-time last sale information, including execution price,
volume, and time for executions occurring within PSX. The Exchange
believes that these data feeds will increase transparency and the
efficiency of executions by enabling vendors to provide additional
market data in a cost-efficient manner. The Exchange will offer the PSX
Last Sale for NASDAQ and the PSX Last Sale for NYSE/Amex feeds,
providing information for (i) NASDAQ Exchange-listed securities, and
(ii) securities listed on the New York Stock Exchange (``NYSE''), NYSE
Amex, and other exchanges.
Second, the Exchange will offer real-time data feeds of PSX's Best
Bid and Offer (``BBO''). The Exchange will offer three different feeds,
one providing the BBO for NASDAQ Exchange-listed securities, a second
for NYSE-listed securities, and a third for NYSE Amex-listed
securities.
Third, the Exchange will offer the PSX Ouch BBO Feed, a data feed
that will represent PSX's internal view of the best bid and offer among
all market centers other than PSX. The PSX Ouch BBO Feed will be
available to all PSX market participants equally at no charge, and will
offer all firms transparent, real-time data concerning the Exchange's
internal view of the BBO. This data feed reflects the Exchange's view
of the BBO, at any given time, based on orders executed on PSX and
updated quote information from the SIPs. PSX will make the PSX Ouch BBO
Feed available to all market participants via subscription through an
established connection to PSX.
The PSX Ouch BBO Feed will contain the following data elements:
Symbol, bid price, and ask price.\17\ Unlike the PSX TotalView feed,
the Ouch BBO feed will not contain information about individual orders,
either those residing within the PSX system or those executed or routed
by PSX. Unlike the SIP feeds containing the National Best Bid and Offer
(``NBBO''), the PSX Ouch BBO Feed will not identify either the market
center quoting the BBO or the size of the BBO quotes. It merely
contains the symbol and bid and offer prices.
---------------------------------------------------------------------------
\17\ PSX also provides a time stamp and message type field for
reference.
---------------------------------------------------------------------------
By making the PSX Ouch BBO Feed data available, the Exchange will
enhance market transparency and foster competition among orders and
markets. Member organizations may use the PSX Ouch BBO Feed to more
accurately price their orders based on PSX's view of what the BBO is at
any point in time, which may not be reflected in the official NBBO due
to latencies inherent in the NBBO's dissemination. As a consequence,
firms may more accurately price their orders on PSX, thus avoiding
price adjustments by PSX based on a quote that is no longer available.
Additionally, market participants can price orders more aggressively to
narrow the NBBO and provide better reference prices for investors.
Fourth, the Exchange will make a version of NASDAQ OMX's Weblink
ACT product available for use by PSX participants. For PSX
participants, Weblink Act will provide a convenient system for member
organizations to access comprehensive records of their own trades in
PSX. Weblink ACT will be provided free of charge at the time of PSX's
launch. Users will have the option of receiving the Weblink ACT service
for PSX as a standalone product, or in addition to Weblink ACT for the
NASDAQ Exchange service that they may already be receiving. In either
case, the Exchange will not charge a fee for the PSX version.
Finally, the PSX Trading and Compliance Data Package will provide
PSX Participants with historical data reports containing trade-
reporting information about the Participant's own trades in PSX, for
delivery on an end-of-day or T+1 basis. The Exchange may modify the
contents of the PSX Trading and Compliance Data Package from time to
time based on subscriber interest. Users will have the option to
request and download these reports as a standalone product, and
subscribers to the existing NASDAQ Exchange Trading and Compliance Data
package who are PSX Participants will also have the option to request
PSX reports through their existing service. In either case, the
Exchange will not charge a fee for the PSX version at this time.
2. Statutory Basis
The Exchange believes that the proposed rule change is consistent
with the provisions of Section 6 of the Act,\18\ in general and with
Section 6(b)(4) of the Act,\19\ in particular, in that it provides an
equitable allocation of reasonable dues, fees, and other charges among
its members and other persons using its facilities. The Exchange makes
all services and products subject to these fees available on a non-
discriminatory basis to similarly situated recipients. All fees are
structured in manner comparable to corresponding fees of the NASDAQ
Exchange or BX already in effect, and are set at levels equal to or
lower than the levels of the comparable NASDAQ Exchange and BX fees.
Most of the proposed fees, including transaction execution and testing
fees, are uniform for all customers and are therefore equitably
allocated based on usage of PSX services. The proposed fees for PSX
TotalView are equitably allocated since the fees vary solely based on
reasonable and well-established distinctions with respect to
professional and non-professional users, internal and external
distribution, and direct and indirect
[[Page 56627]]
receipt of data. The fees are fair and reasonable in that they compare
favorably to fees charged by other exchanges for comparable products.
---------------------------------------------------------------------------
\18\ 15 U.S.C. 78f.
\19\ 15 U.S.C. 78f(b)(4).
---------------------------------------------------------------------------
B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the proposed rule change will
result in any burden on competition that is not necessary or
appropriate in furtherance of the purposes of the Act, as amended.
Despite its long history, the Exchange will effectively be entering the
highly competitive markets for trading NMS stocks as a start-up
venture. Accordingly, its fees must be set at a level that will promote
competition in these markets, or potential users of its services will
simply continue to obtain services from the Exchange's multiple
competitors. If the Exchange sets fees at inappropriately high levels,
market participants will seek to avoid using the Exchange. Thus, the
products and services introduced by the Exchange will promote
competition if they succeed in providing market participants with
viable and cost-effective alternatives to existing competitors.
Conversely, they will impose no burden on competition if they fail to
provide such alternatives.
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.\20\ 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.
---------------------------------------------------------------------------
\20\ 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 proposal 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 No. SR-Phlx-2010-120 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 No. SR-Phlx-2010-120. This file
number should be included on the subject line if e-mail is used. To
help the Commission process and review your comments more efficiently,
please use only one method. The Commission will post all comments on
the Commission's Internet Web site (http://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, all
written statements with respect to the proposed rule change that are
filed with the Commission, and all written communications relating to
the proposed rule change between the Commission and any person, other
than those that may be withheld from the public in accordance with the
provisions of 5 U.S.C. 552, will be available for Web site viewing and
printing in the Commission's Public Reference Room, 100 F Street, NE.,
Washington, DC 20549, on official business days between the hours of 10
a.m. and 3 p.m. Copies of such filing will also 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 No. SR-Phlx-2010-120 and should be
submitted on or before October 7, 2010.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\21\
---------------------------------------------------------------------------
\21\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------
Elizabeth M. Murphy,
Secretary.
[FR Doc. 2010-23103 Filed 9-15-10; 8:45 am]
BILLING CODE 8010-01-P