[Federal Register Volume 76, Number 32 (Wednesday, February 16, 2011)]
[Notices]
[Pages 9067-9070]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2011-3422]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-63880; File No. SR-Phlx-2011-12]
Self-Regulatory Organizations; Notice of Filing and Immediate
Effectiveness of Proposed Rule Change by NASDAQ OMX PHLX LLC Relating
to Fees for Complex Orders
February 9, 2011.
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 7, 2011, NASDAQ OMX PHLX LLC (``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 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 its Complex Order \3\ Fees in
Section I of its Fee Schedule titled Rebates and Fees for Adding and
Removing Liquidity in Select Symbols.
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\3\ A Complex Order is any order involving the simultaneous
purchase and/or sale of two or more different options series in the
same underlying security, priced at a net debit or credit based on
the relative prices of the individual components, for the same
account, for the purpose of executing a particular investment
strategy. Furthermore, a Complex Order can also be a stock-option
order, which is an order to buy or sell a stated number of units of
an underlying stock or ETF coupled with the purchase or sale of
options contract(s). See Exchange Rule 1080, Commentary .08(a)(i).
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This filing is effective on February 7, 2011.
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 modify the Exchange's
Fee Schedule to support the enhanced Complex Order System.\4\
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\4\ See Securities Exchange Act Release No. 63777 (January 26,
2011), 76 FR 2733 (January 14, 2011) (SR-Phlx-2010-157).
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Changes to the Fees in Part B, Complex Orders. Specifically, the
Exchange is proposing to amend the Rebates for Adding Liquidity, create
Fees for Adding Liquidity and amend Fees for Removing Liquidity. With
respect to the Rebate for Adding Liquidity, the Exchange proposes to
increase the Customer rebate to $0.24 and not pay other market
participants a rebate. With respect to the Fees for Adding Liquidity,
the Exchange proposes to not assess Customers any fees and assess
market makers $0.10 per contract and Firms, Broker-Dealers and
Professionals $0.20 per contract. With respect to the Fees for Removing
Liquidity, the Exchange proposes to increase Firms and Professionals to
$0.28 per contract (a $0.01 increase).
A table displaying the proposed fees follows as well as a
description of each proposed amendment.
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Specialist,
Customer Directed ROT, SQT and Firm Broker-dealer Professional
participant RSQT
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Rebate for Adding Liquidity............................. $0.24 $0.00 $0.00 $0.00 $0.00 $0.00
Fee for Adding Liquidity................................ 0.00 0.10 0.10 0.20 0.20 0.20
Fee for Removing Liquidity.............................. 0.25 0.25 0.27 0.28 0.35 0.28
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[[Page 9068]]
First, the Exchange is proposing to amend the Rebates for Adding
Liquidity applicable to Section I, Part B, Complex Orders. The Exchange
currently pays the following Rebates for Adding Liquidity for Complex
Orders: $0.22 per contract for Customers; $0.25 per contract for
Directed Participants; \5\ $0.23 per contract for Specialists,\6\
Registered Options Traders,\7\ SQT,\8\ and Remote Streaming Quote
Traders; \9\ $0.10 per contract for Firms and Broker-Dealers; and $0.20
per contract for Professionals.\10\ The Exchange is proposing to
increase the Rebate for Adding Liquidity for Customers to $0.24 per
contract and not pay a Rebate for Adding Liquidity to Directed
Participants, Specialists, ROTs, SQTs, RSQTs, Firms, Broker-Dealers and
Professionals, thereby reducing such rebate to $0.00. The Exchange
believes that it is necessary to continue to pay a rebate solely for
Customer complex orders that add liquidity in order to continue to
attract Customer complex order flow to the Exchange.
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\5\ The term ``Directed Participant'' applies to transactions
for the account of a Specialist, Streaming Quote Trader or Remote
Streaming Quote Trader resulting from a Customer order that is (1)
directed to it by an order flow provider, and (2) executed by it
electronically on Phlx XL II.
\6\ A Specialist is an Exchange member who is registered as an
options specialist pursuant to Rule 1020(a).
\7\ A Registered Options Trader (``ROT'') includes a Streaming
Quote Trader (``SQT''), a RSQT and a Non-SQT ROT, which by
definition is neither a SQT or a RSQT. A ROT is defined in Exchange
Rule 1014(b) as a regular member or a foreign currency options
participant of the Exchange located on the trading floor who has
received permission from the Exchange to trade in options for his
own account. See Exchange Rule 1014 (b)(i) and (ii).
\8\ An SQT is defined in Exchange Rule 1014(b)(ii)(A) as an ROT
who has received permission from the Exchange to generate and submit
option quotations electronically in options to which such SQT is
assigned.
\9\ A Remote Streaming Quote Trader (``RSQT'') is defined in
Exchange Rule 1014(b)(ii)(B) as 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 in options to which such RSQT has been
assigned. An RSQT may only submit such quotations electronically
from off the floor of the Exchange.
\10\ 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).
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Second, the Exchange is proposing to assess new Fees for Adding
Liquidity to Section I, Part B, Complex Orders. Specifically, the
Exchange proposes to amend the fees in Part B to assess a Fee for
Adding Liquidity for complex orders to all market participants, except
for Customers. Customers would not pay a Fee for Adding Liquidity in
complex orders. Directed Participants, Specialists, ROTs, SQTs, and
RSQTs would be assessed a Fee for Adding Liquidity of $0.10 per
contract. Firms, Broker-Dealers, and Professionals would be assessed a
Fee for Adding Liquidity of $0.20 per contract. The Exchange believes
that the increased Customer volume, from the proposed favorable
Customer pricing, should benefit market makers \11\ and other market
participants engaged in proprietary trading.
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\11\ The Exchange market maker category 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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Third, the Exchange proposes to amend the Fees for Removing
Liquidity in Section I, Part B, Complex Orders. The Exchange currently
assesses the following Fees for Removing Liquidity: $0.25 per contract
for Customers and Directed Participants; $0.27 per contract for
Specialists, ROTs, SQTs, RSQTs, Firms, and Professionals; and $0.35 per
contract for Broker-Dealers. The Exchange is now proposing to amend the
Fees for Removing Liquidity to assess Firms and Professionals a fee of
$0.28 per contract. All other Fees for Removing Liquidity would remain
the same.
Changes to the Applicability of Fees in Part B, Complex Orders.
Fourth, the Exchange proposes to amend the applicability of the fees in
Section I, Part B, Complex Orders by removing limitations relating to
the contra-side of a transaction. The individual components of such a
Complex Order would continue to be assessed the fees in Part B.
The Exchange currently only pays a Rebate for Adding Liquidity to
Customer complex orders when those orders are electronically executed
against a non-Customer contra-side order with the same Complex Order
Strategy.\12\ The Exchange is proposing to delete this text from the
Fee Schedule. The Exchange proposes to pay this rebate regardless of
the contra-party, except for orders executed as part of the Complex
Order Live Auction (``COLA''), the Exchange's opening process, and
other electronic auctions \13\ when such Customer order is contra to
another Customer order.\14\ Accordingly, the rebate would be available
to more complex orders executions, although as described above rebates
would only be available to Customers.
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\12\ A Complex Order Strategy means any complex order involving
any option series which is priced at a net debit or credit (based on
the relative prices of each component). See Exchange Rule 1080,
Commentary .08(a)(ii).
\13\ Electronic auctions include, without limitation, COLA and
the Quote and Market Exhaust auctions. See Exchange Rule 1017. This
does not include Exchange's price improvement mechanism known as
Price Improvement XL or (PIXL\SM\) as described in Exchange Rule
1080(n).
\14\ See Part C of the Exchange's Fee Schedule.
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The Exchange currently does not assess a Fee for Removing Liquidity
on Customer complex orders that are electronically executed against a
Customer contra-side order with the same Complex Order Strategy. The
Exchange is proposing to delete this text from the Fee Schedule. The
Exchange would now assess a Fee for Removing Liquidity to all Customers
regardless of the contra-party, except in an electronic auction and
during the Exchange's opening process.\15\ Accordingly, this fee would
become applicable to more complex orders executions.
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\15\ See Part C of the Exchange's Fee Schedule.
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The Exchange currently assesses Fees for Removing Liquidity to
Directed Participants, Specialists, ROTs, SQTs, RSQTs, Firms, Broker-
Dealers, and Professionals when those orders are electronically
executed against a contra-side order with the same Complex Order
Strategy. The Exchange is proposing to delete this text from the Fee
Schedule. Directed Participants, Specialists, ROTs, SQTs, RSQTs, Firms,
Broker-Dealers, and Professionals would be assessed a fee under Section
I, Part B.\16\
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\16\ This includes orders transacted in an electronic auction
and the Exchange's opening process.
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Changes to Part C of Section I. Fifth, the Exchange is proposing to
amend Section I, Part C of the Fee Schedule \17\ regarding electronic
auctions and opening process. Currently, a Customer receives a Rebate
for Adding Liquidity (as set forth in Part B) in an electronic auction
and during the Exchange's opening process, except when such Customer
order is contra to another Customer order. This would remain the same
for Customer complex orders that are executed as part of an electronic
auction \18\ and during the Exchange's opening process. The Exchange is
proposing to add language to Part C to provide that for Customer orders
that are not complex orders, the Rebate for Adding Liquidity would
instead remain at the current rate of $0.22 per contract, except when
such Customer order is contra to another Customer order.
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\17\ Part C applies to the fees in Parts A, single contra-side
order, and B, complex orders.
\18\ In a Complex Order auction, the Customer would receive the
proposed $0.24 per contract Rebate for Adding Liquidity.
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The Exchange is not amending the applicability of the fees in
Section I, Part A, Single Contra-Side Order. Single contra-side orders
that are executed against the individual components of complex orders
will continue to be assessed the fees in Part A.
[[Page 9069]]
The Exchange also proposes to make minor, non-substantive,
technical amendments to Section I of the Fee Schedule to amend the
titles of the sections in Parts A and B.
2. Statutory Basis
The Exchange believes that its proposal to amend its Fee Schedule
is consistent with Section 6(b) of the Act \19\ in general, and
furthers the objectives of Section 6(b)(4) of the Act \20\ in
particular, in that it is an equitable allocation of reasonable fees
and other charges among Exchange members. The Exchange also believes
that there is an equitable allocation of reasonable rebates among
Exchange members.
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\19\ 15 U.S.C. 78f(b).
\20\ 15 U.S.C. 78f(b)(4).
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The Exchange operates in a highly competitive market comprised of
nine U.S. options exchanges in which sophisticated and knowledgeable
market participants can readily send order flow to competing exchanges
if they deem fee levels at a particular exchange to be excessive. The
Exchange believes that the Complex Order Fees it assesses must be
competitive with fees charged by other exchanges. The Exchange further
believes that this competitive marketplace impacts the fees assessed by
the Exchange today and influences the proposals set forth below. The
Exchange believes that the proposed fees and rebates are reasonable and
equitably allocated to those members that opt to direct complex orders
to the Exchange rather than competing venues.
The Exchange believes that it is reasonable to only pay a Rebate
for Adding Liquidity to Customers and pay no rebate to all other market
participants because this Customer rebate would attract Customer order
flow to the Exchange for the benefit of all market participants. The
Exchange believes that the proposal is equitable because by paying a
Rebate for Adding Liquidity only to Customers, all market participants
would benefit from the increased liquidity which increased Customer
order flow would bring to the Exchange. In addition, the Exchange
believes that by not assessing such a Fee for Adding Liquidity on
Customers and providing Customers a $0.24 per contract Rebate for
Adding Liquidity further incentivizes Customer order flow to the
Exchange for the benefit of all market participants.
The Exchange believes that creating a Fee for Adding Liquidity of
$0.10 for market makers and $0.20 for all other market participants,
except for Customers, is reasonable because the Exchange believes that
the price differentiation between Firms and Brokers-Dealers and
Specialists, ROTs, SQTs and RSQTs is justified in that the Specialists,
ROTs, SQTs and RSQTs have obligations to the market, which do not apply
to Firms and Broker-Dealers.\21\ Therefore, assessing market makers a
lower fee to add liquidity as opposed to Firms, Broker-Dealers and
Professionals is reasonable because of these obligations which only
apply to market makers. Similarly, the Exchange believes that it is
reasonable to assess a $0.28 per contract Fee for Removing Liquidity on
Firms, and by extension Professionals, who have no such quoting
requirements as do market makers because market makers have quoting
obligations that do not apply to Firms and Professionals. The concept
of incentivizing market makers, who have quoting obligations, by
assessing a lower fee as compared with other market participants is not
novel.\22\
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\21\ See Exchange Rule 1014 titled ``Obligations and
Restrictions Applicable to Specialists and Registered Options
Traders.''
\22\ See Securities Exchange Act Release No. 62048 (May 6, 2010)
75 FR 26830 (May 12, 2010) (SR-ISE-2010-43) (a rule change to
incentivize market makers with rebates in order to promote and
encourage liquidity in options classes that were subject to the fees
proposed).
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Moreover, the Exchange believes that the proposed Fees for Adding
Liquidity and Removing Liquidity are equitable because the fees are
consistent with price differentiation that exists today at all option
exchanges. Specifically, the Exchange believes that the proposed fee
amendments to Part B for complex orders are equitable, because, other
than Customers, all market participants would be assessed Fees for
Adding Liquidity that are similar to fees assessed by other exchanges
for complex order executions.\23\ In addition, the Fees for Removing
Liquidity rates are similar to those assessed by ISE.\24\
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\23\ See The International Securities Exchange, LLC's (``ISE'')
Schedule of Fees, specifically ISE's Select Symbols and the rates
assessed on market makers, broker-dealers, firms and professionals.
\24\ See ISE's Schedule of Fees, specifically ISE's Select
Symbols and the rates assessed on market makers, broker-dealers,
firms and professionals.
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In addition, the Exchange also believes that these fees are
equitable because the net differential between the proposed fees, for
either adding or removing liquidity, is similar to the differential
which exists on the NASDAQ Options Market (``NOM'') between Customers
and Firms for adding liquidity. NOM currently has a differential of
$0.65 per contract between the Firm Fee for Adding Liquidity of $0.45
per contract as compared to the Customer Rebate to Add Liquidity of
$0.20 per contract in the section titled ``All Other Options''.\25\
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\25\ See NOM Rule 7050.
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As stated above, the Exchange proposes to amend the applicability
of the fees in Section I, Part B, Complex Orders by removing
limitations relating to the contra-side of a transaction. The Exchange
believes that this proposal related to the applicability of fees is
reasonable, because it seeks to pay rebates and assess fees regardless
of the contra-party. Additionally, the Exchange believes these
amendments are equitable, because the proposal is consistent with the
fees and rebates assessed pursuant to Section I, Part A of the current
Fee Schedule and general industry fee assessments of members that allow
for different rates to be charged for different order types originated
by dissimilarly classified market participants. Further, the fee
differentials between market participants are within existing industry
standards.\26\
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\26\ See ISE's Schedule of Fees.
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Finally, as stated above, the Exchange is proposing to pay Customer
orders that are not complex orders, a Rebate for Adding Liquidity of
$0.22 per contract, except when such Customer order is contra to
another Customer order. The Exchange believes that its proposal to pay
different rebates as between complex and non-complex orders transacted
during certain auctions and the Exchange's opening process is
reasonable because the Exchange is continuing to pay rebates to
Customers depending on the transaction type as a means to compete for
Customer order flow. The Exchange believes that the proposal is
equitable because by paying a Rebate for Adding Liquidity only to
Customers, the Exchange believes that all market participants would
benefit from the increased liquidity which increased Customer order
flow would bring to the Exchange.
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).
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.
[[Page 9070]]
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.\27\ 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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\27\ 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 e-mail to [email protected]. Please include
File Number SR-Phlx-2011-12 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-2011-12. 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 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-2011-12 and should be
submitted on or before March 9, 2011.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\28\
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\28\ 17 CFR 200.30-3(a)(12).
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Cathy H. Ahn,
Deputy Secretary.
[FR Doc. 2011-3422 Filed 2-15-11; 8:45 am]
BILLING CODE 8011-01-P