[Federal Register Volume 75, Number 52 (Thursday, March 18, 2010)]
[Notices]
[Pages 13189-13191]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2010-5909]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-61684; File No. SR-Phlx-2010-33]
Self-Regulatory Organizations; NASDAQ OMX PHLX, Inc.; Notice of
Filing and Immediate Effectiveness of a Proposed Rule Change Relating
to Fees and Rebates for Adding and Removing Liquidity
March 10, 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 February 26, 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, II and III below, which
Items have been prepared substantially by the Exchange. Phlx has
designated this proposal as one establishing or changing a member due,
fee, or other charge imposed under Section 19(b)(3)(A)(ii) of the Act
\3\ and Rule 19b-4(f)(2) thereunder,\4\ which renders the proposal
effective upon filing with the Commission. 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.
\3\ 15 U.S.C. 78s(b)(3)(A)(ii).
\4\ 17 CFR 240.19b-4(f)(2).
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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 Fee Schedule by
adopting per contract transaction fees for options overlying Standard
and Poor's Depositary Receipts/SPDRs (``SPY''), \5\ the PowerShares QQQ
Trust (``QQQQ'')[reg]; Ishares Russell 2000 (``IWM'') and Citigroup
Inc. (``C''). The fees would apply to: (i) Transaction sides that
remove liquidity from the Exchange's disseminated market, and (ii) Firm
and broker-dealer quotes and orders that are included in the Exchange's
disseminated market.
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\5\ SPY options are based on the SPDR exchange-traded fund
(``ETF''), which is designed to track the performance of the S&P 500
Index.
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Additionally, the Exchange proposes to offer a transaction rebate
to certain liquidity providers, as described more fully below.
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, at the Commission's Public Reference
Room, and on the Commission's Web site at http://www.sec.gov.
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 increase liquidity
and to attract order flow in SPY, QQQQ, IWM and C options on the
Exchange.
Transaction Charges for Removing Liquidity:
The Exchange proposes to assess a per-contract transaction charge
in SPY, QQQQ, IWM and C options on five different categories of market
participants that submit orders and/or quotes that remove, or ``take,''
liquidity from the Exchange. The per-contract transaction charge would
depend on the category of market participant submitting an order or
quote to the Exchange that removes liquidity.
The proposed amendments to the Exchange's Fee Schedule would break
[[Page 13190]]
down market participants by the following five categories: (i)
Specialists, Registered Options Traders (``ROTs''), Streaming Quote
Traders (``SQTs'') \6\ and Remote Streaming Quote Traders (``RSQTs'');
\7\ (ii) customers; \8\ (iii) specialists, ROTs [sic], SQTs and RSQTs
that receive Directed Orders (``Directed Participants'' or ``Directed
Specialists, RSQTs, or SQTs''; \9\) (iv) Firms; and (v) broker-dealers.
For purposes of this fee, a Directed Participant is a Specialist, SQT,
or RSQT that executes a customer order that is directed to them by an
Order Flow Provider and is executed electronically on PHLX XL II.
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\6\ An SQT is an Exchange Registered Options Trader (``ROT'')
who has received permission from the Exchange to generate and submit
option quotations electronically through an electronic interface
with AUTOM via an Exchange-approved proprietary electronic quoting
device in eligible options to which such SQT is assigned. See
Exchange Rule 1014(b)(ii)(A).
\7\ An RSQT is an ROT that is a member or member organization
with no physical trading floor presence who has received permission
from the Exchange to generate and submit option quotations
electronically through AUTOM in eligible options to which such RSQT
has been assigned. An RSQT may only submit such quotations
electronically from off the floor of the Exchange. See Exchange Rule
1014(b)(ii)(B).
\8\ This applies to all customer orders, directed and non-
directed.
\9\ See Exchange Rule 1080(l), ``* * * The term `Directed
Specialist, RSQT, or SQT' means a specialist, RSQT, or SQT that
receives a Directed Order.'' A Directed Participant has a higher
quoting requirement as compared with a specialist, SQT or RSQT who
is not acting as a Directed Participant. See Exchange Rule 1014.
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The per-contract transaction charges to be assessed on participants
who submit proprietary quotes and/or orders that remove liquidity in
SPY, QQQQ, IWM and C options from the Exchange in SPY, QQQQ, IWM and C
options are, by category:
------------------------------------------------------------------------
Rebate (per
Category contract)
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Specialist, ROT, SQT, RSQT........................... $0.32
Customer............................................. 0.25
Directed Participants................................ 0.30
Firms................................................ 0.45
Broker-Dealers....................................... 0.45
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Transaction Charges for Adding Liquidity:
The Exchange proposes to assess a transaction charge of $0.35 per
contract to Firms and $0.45 per contract to broker-dealers that add
liquidity.
Rebates:
In order to promote and encourage liquidity in SPY, QQQQ, IWM and C
options, the Exchange proposes to amend its fee schedule to include a
per-contract rebate relating to transaction charges for orders or
quotations that add liquidity in SPY, QQQQ, IWM and C options. The
amount of the rebate would depend on the category of participant whose
order or quote was executed as part of the Phlx Best Bid and Offer.
Specifically, the per-contract rebates are, by category:
------------------------------------------------------------------------
Charge (per
Category contract)
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Specialist, ROT, SQT, RSQT........................... $0.23
Customer............................................. 0.20
Directed Participants................................ 0.25
Firms................................................ N/A
Broker-Dealers....................................... N/A
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Applicability of Other Fees:
The Monthly Cap that is currently applicable to ROTs and
specialists transacting equity options will not be applicable to the
fees described herein.\10\
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\10\ See Securities and Exchange Release No. 61529 (February 17,
2010) (SR-Phlx-2010-17). [sic]
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The Firm Related Equity Option Cap will not be applicable
to the fees described herein.\11\
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\11\ See SR-Phlx-2010-25.
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The Exchange pays a per-contract Market Access Provider
(``MAP'') Subsidy to any Exchange member organization that qualifies as
an Eligible MAP.\12\ The MAP Subsidy will not apply to electronic
transactions in SPY, QQQQ, IWM and C.\13\
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\12\ An ``Eligible MAP'' is defined in the Exchange's Fee
Schedule in the Market Access Provider Subsidy.
\13\ See Securities Exchange Act Release No. 59537 (March 9,
2009), 74 FR 11151 (March 16, 2009) (SR-Phlx-2009-19).
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Payment for Order Flow fees \14\ will not be collected on
transactions in SPY, QQQQ, IWM and C options.
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\14\ See Securities Exchange Act Release No. 59841 (April 29,
2009), 74 FR 21035 (May 6, 2009) (SR-Phlx-2009-38).
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All electronic auctions will be free to Customers,
Directed Participants, Specialists, ROTs, SQTs and RSQTs.\15\
Electronic auctions include, without limitation, the Complex Order Live
Auction (``COLA''),\16\ and Quote and Market Exhaust auctions.\17\
Firms and broker-dealers will be assessed the appropriate charge for
removing liquidity.
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\15\ With respect to electronic auctions, it is systemically
difficult to determine which participant(s) would qualify for a
rebate, therefore the Exchange has determined not to apply the
rebate to transactions resulting from electronic auctions.
\16\ COLA is the automated Complex Order Live Auction process. A
COLA may take place upon identification of the existence of a COLA-
eligible order either: (1) Following a COOP, or (2) during normal
trading if the Phlx XL system receives a Complex Order that improves
the cPBBO. See Exchange Rule 1080.
\17\ Market Exhaust occurs when there are no Phlx XL II
participant (specialist, SQT or RSQT) quotations in the Exchange's
disseminated market for a particular series and an initiating order
in the series is received. In such a circumstance, the Phlx XL II
system, using Market Exhaust, will initiate a Market Exhaust auction
for the initiating order. Under Market Exhaust, any order volume
that is routed to away markets will be marked as an Intermarket
Sweep Order or ``ISO.'' See Exchange Rule 1082.
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The fees described herein will not apply to contracts
executed during the Exchange's opening process.\18\ Firms and broker-
dealers will be assessed the appropriate charge for removing liquidity.
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\18\ See Exchange Rule 1017.
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The Exchange pays an Options Floor Broker Subsidy to
member organizations with Exchange registered Floor Brokers for
eligible contracts that are entered into the Exchange's Options Floor
Broker Management System. The Options Floor Broker Subsidy will be
applicable to the transactions described herein.\19\
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\19\ See Securities Exchange Act Release No. 60578 (August 27,
2009), 74 FR 45666 (September 3, 2009) (SR-Phlx-2009-72).
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The Exchange assesses a Cancellation Fee of $2.10 per
order on member organizations for each cancelled electronically
delivered customer order in excess of the number of customer orders
executed on the Exchange by that member organization in a given
month.\20\ The Cancellation Fee will continue to apply.
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\20\ See Securities Exchange Act Release No. 60188 (June 29,
2009), 74 FR 32986 (July 9, 2009) (SR-Phlx-2009-48).
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Regular Equity Option transaction fees will apply to
Complex Orders that are electronically executed against a contra-side
order with the same Complex Order Strategy.
Single contra-side orders that are executed against the
individual components of Complex Orders will be charged under the
proposed Fee Schedule. The individual components of such a Complex
Order will not be charged.
SPY, QQQQ, IWM and C transactions executed via open outcry
will be subject to the standard equity options fee schedule. However,
if one side of the transaction is executed using the Options Floor
Broker Management System \21\ and any other side of the trade
[[Page 13191]]
was the result of an electronically submitted order or a quote, then
the fees proposed herein will apply to the FBMS contracts and contracts
that are executed electronically on all sides of the transaction.
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\21\ The Options Floor Broker Management System (``FBMS'') is a
component of the Exchange's system designed to enable Floor Brokers
and/or their employees to enter, route and report transactions
stemming from options orders received on the Exchange. The FBMS also
is designed to establish an electronic audit trail for options
orders represented and executed by Floor Brokers on the Exchange,
such that the audit trial provides an accurate, time-sequenced
record of electronic and other orders, quotations and transactions
on the Exchange, beginning with the receipt of an order by the
Exchange, and further documenting the life of the order through the
process of execution, partial execution, or cancellation of that
order. AUTOM is the Exchange's electronic order delivery and
reporting system, which provides for the automatic entry and routing
of Exchange-listed equity options, index options and U.S. dollar-
settled foreign currency options orders to the Exchange trading
floor. See Exchange Rule 1080, Commentary .06.
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2. Statutory Basis
The Exchange believes that its proposal to amend its schedule of
fees is consistent with Section 6(b) of the Act \22\ in general, and
furthers the objectives of Section 6(b)(4) of the Act \23\ in
particular, in that it is an equitable allocation of reasonable fees
and other charges among Exchange members. The impact of the proposal
upon the net fees paid by a particular market participant will depend
on a number of variables, including its monthly volumes, the order
types it uses, and the prices of its quotes and orders (i.e., its
propensity to add or remove liquidity).
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\22\ 15 U.S.C. 78f(b).
\23\ 15 U.S.C. 78f(b)(4).
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Specifically, the Exchange believes that its proposal is consistent
with the current fee schedule and industry fee assessments of member
firms that allow for different rates to be charged for different order
types originated by dissimilarly classified market participants.\24\
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\24\ NYSE Amex currently charges different rates to different
market participants in assessing its firm facilitation fee. [sic]
See Securities Exchange Act Release No. 60378 (July 23, 2009), 74 FR
38245 (July 31, 2009) (SR-NYSEAmex-2009-38).
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Order flow providers that control customer order flow and route
customer orders to exchanges are responsible to obtain the best pricing
available for their customers. An order flow provider has the ability
to enter into arrangements whereby they may receive consideration for
directing the customer order to a specific market maker (specialists,
ROTs [sic], SQTs and/or RSQTs).
The Exchange operates in a highly competitive market in which
market participants can readily direct order flow to competing venues
if they deem fee levels at a particular venue to be excessive. The
Exchange believes that the fees it charges for options overlying SPY,
QQQQ, IWM and C remain competitive with fees charged by other venues
and therefore 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 \25\ and paragraph (f)(2) of Rule 19b-4 \26\
thereunder. At any time within 60 days of the filing of the proposed
rule change, the Commission may summarily abrogate 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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\25\ 15 U.S.C. 78s(b)(3)(A)(ii).
\26\ 17 CFR 240.19b-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-2010-33 on the subject line.
Paper Comments
Send paper comments in triplicate to Secretary, Securities
and Exchange Commission, Station Place, 100 F Street, NE., Washington,
DC 20549-1090.
All submissions should refer to File Number SR-Phlx-2010-33. 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 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 publicly available. All
submissions should refer to File Number SR-Phlx-2010-33 and should be
submitted on or before April 8, 2010.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\27\
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\27\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
[FR Doc. 2010-5909 Filed 3-17-10; 8:45 am]
BILLING CODE 8011-01-P