[Federal Register Volume 76, Number 34 (Friday, February 18, 2011)]
[Notices]
[Pages 9618-9620]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2011-3689]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-63905; File No. SR-Phlx-2011-17]
Self-Regulatory Organizations; NASDAQ OMX PHLX LLC; Notice of
Filing and Immediate Effectiveness of a Proposed Rule Change To
Establish and Adopt Fees for the New Short Sale Monitor Service and PSX
Data Add-On
February 14, 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 4, 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 substantially prepared by Phlx. 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 the
Substance of the Proposed Rule Change
Phlx proposes to adopt a fee for the Short Sale Monitor and the PSX
Data Add-On, a new service and related NASDAQ OMX PSX (``PSX'') add-on
data that assist subscribers in complying with new requirements arising
from recent amendments to Regulation SHO. The Exchange will implement
the service as soon as practicable following the effective date of the
filing.
The text of the proposed rule change is available 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, Phlx 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. Phlx 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
Phlx is proposing to amend its fee schedule to establish the Short
Sale Monitor offered to subscribing member firms at no cost through
March 31, 2011 and for a fee of $750 per market participant identifier
(``MPID''), per month thereafter. The Short Sale Monitor is a new
service that provides subscribers with real-time surveillance of trades
reported to the FINRA/Nasdaq Trade Reporting Facility (``FINRA/NASDAQ
TRF'') \3\ marked as ``short'' and ``short exempt'' to assist them in
monitoring their compliance with amendments to Regulation SHO under the
Act.\4\ The Commission recently amended Regulation SHO to adopt a new
short sale-related circuit breaker combined with an alternative uptick
rule under Rule 201.\5\ The new rule imposes a restriction on the price
at which a security may be sold short if the circuit breaker is
triggered. Specifically, the new rule requires trading centers,\6\
which include self-regulatory organizations (``SROs''), to establish,
maintain and enforce written policies and procedures reasonably
designed to prevent the execution or display of short sale orders in a
covered security \7\ at a price that is less than or equal to the
current national best bid \8\ if the price of that covered security
decreases by 10% or more from its closing price as determined by the
listing market \9\ as of the end of regular trading hours on the prior
day.\10\ In addition, the rule requires that the trading center
establish, maintain, and enforce written policies and procedures
reasonably designed to impose this short sale price test restriction
for the remainder of the day and the following day when a national best
bid for the covered security is calculated and disseminated on a
current and continuing basis by a plan processor pursuant to an
effective national market system plan.\11\ Trading centers are required
to regularly surveil to ascertain the effectiveness of these policies
and procedures. Rule 201 generally permits short selling at a price
above the current national best bid during the time a short sale price
test restriction is in effect for a covered security.
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\3\ The FINRA/NASDAQ TRF is a facility of FINRA operated by The
NASDAQ OMX Group, Inc.
\4\ Securities Exchange Act Release No. 61595 (February 26,
2010), 75 FR 11232 (March 10, 2010) (amending Rule 201 and Rule
200(g) of Regulation SHO). The amendments to Rules 201 and 200(g) of
Regulation SHO have a compliance date of February 28, 2011. See
Securities Exchange Act Release No. 63247 (November 4, 2010), 75 FR
68702 (November 9, 2010) (extending the compliance date of the
amendments to Rules 201 and 200(g) of Regulation SHO from November
10, 2010 until February 28, 2011).
\5\ 17 CFR 242.201.
\6\ Rule 201(a)(9) defines the term ``trading center'' as having
the same meaning as in Rule 600(b)(78) of Regulation NMS. Rule
600(b)(78) defines a ``trading center'' as ``a national securities
exchange or national securities association that operates an SRO
trading facility, an alternative trading system, an exchange market
maker, an OTC market maker, or any other broker or dealer that
executes orders internally by trading as principal or crossing
orders as agent.'' 17 CFR 242.600(b)(78).
\7\ Rule 201(a)(1) defines the term ``covered security'' for
purposes of Rule 201. See 17 CFR 242.201(a)(1). Rule 201(a)(1)
defines ``covered security'' to mean any ``NMS stock'' as defined
under Rule 600(b)(47) of Regulation NMS. Rule 600(b)(47) of
Regulation NMS defines an ``NMS stock'' as ``any NMS security other
than an option.'' 17 CFR 242.600(b)(47). Rule 600(b)(46) of
Regulation NMS defines an ``NMS security'' as ``any security or
class of securities for which transaction reports are collected,
processed, and made available pursuant to an effective transaction
reporting plan, or an effective national market system plan for
reporting transactions in listed options.'' 17 CFR 242.600(b)(46).
\8\ Rule 201(a)(4) defines the term ``national best bid'' for
purposes of Rule 201. See 17 CFR 242.201(a)(4).
\9\ Rule 201(a)(3) defines the term ``listing market'' for
purposes of Rule 201. See 17 CFR 242.201(a)(3).
\10\ 17 CFR 242.201(b)(1)(i).
\11\ 17 CFR 242.201(b)(1)(ii). Further, if the price of a
covered security declines intra-day by at least 10% on a day on
which the security is already subject to the short sale price test
restriction of Rule 201, the restriction will be re-triggered and,
therefore, will continue in effect for the remainder of that day and
the following day. Rule 201 does not place any limit on the
frequency or number of times the circuit breaker can be re-triggered
with respect to a particular stock. See Division of Trading and
Markets: Responses to Frequently Asked Questions Concerning Rule 201
of Regulation SHO, Q&A No. 2.2 (http://sec.gov/divisions/marketreg/rule201faq.htm).
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The Commission also amended Regulation SHO to provide that a
broker-dealer may mark certain qualifying sell orders ``short exempt.''
\12\
[[Page 9619]]
If a broker-dealer marks an order ``short exempt,'' it is not subject
to the short sale price test restrictions of Rule 201 and can be
executed by a trading center without regard to its price.\13\
Paragraphs (c) and (d) of Rule 201 specify the circumstances under
which a broker-dealer may mark certain sale orders as ``short exempt.''
\14\ If a broker-dealer chooses to rely on its own determination that
it is submitting a short sale order to the trading center at a price
that is above the current national best bid at the time of submission
under Rule 201(c) or to rely on an exception specified in Rule 201(d),
it may mark the order ``short exempt.'' The Commission noted in
adopting the ``short exempt'' marking requirement that it will both
provide a record of broker-dealers availing themselves of the
provisions of paragraphs (c) or (d) to the rule and aid surveillance by
SROs and the Commission for compliance with the provisions of Rule
201.\15\
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\12\ Formerly, Rule 200(g) of Regulation SHO provided that a
broker-dealer must mark all sell orders of any security as ``long''
or ``short.'' As amended, Rule 200(g) now provides a ``short
exempt'' marking requirement. 17 CFR 242.200(g). Rule 200(g)(2)
provides that a sale order may only be marked ``short exempt'' if
the provisions of Rule 201(c) or Rule 201(d) are met. 17 CFR
242.200(g)(2). See supra note 4. See also Division of Trading and
Markets: Responses to Frequently Asked Questions Concerning Rule 201
of Regulation SHO, Q&A Nos. 5.4 and 8.1.
\13\ 17 CFR 242.201(b)(1)(iii)(B).
\14\ 17 CFR 242.201(c); 17 CFR 242.201(d).
\15\ See supra note 4, 75 FR at 11275-76.
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The Short Sale Monitor provides subscribing member firms with a
tool to aid them in monitoring their trades reported into the FINRA/
NASDAQ TRF for compliance with the requirements of the amended
rules.\16\ Accessed through either a Workstation or Weblink ACT 2.0
terminal, the Short Sale Monitor provides subscribers with
notifications of their reported trades marked ``short'' and ``short
exempt'' for covered securities subject to the short sale price test
restrictions of Rule 201. Specifically, the Short Sale Monitor will
provide subscribers notice of covered securities subject to the
restrictions of Rule 201, and provide access to historical lists of
such covered securities. In addition, the Short Sale Monitor will
provide notice of trades in covered securities that are: (i) Subject to
the short sale price test restriction, and marked ``short,'' (ii)
subject to the short sale price test restriction, and marked ``short
exempt,'' (iii) subject to the short sale price test restriction, and
sold above the current national best bid at the time of trade execution
time, and (iv) not subject to the short sale price test restriction,
but marked ``short exempt.'' \17\ The Short Sale Monitor will provide
this information to a subscribing firm both as real-time alerts and
through a historical database of the firm's trades that prompted the
alerts, which will assist the firm in meeting its obligation to
ascertain the effectiveness of its policies and procedures.\18\ As
such, member firms will have a useful compliance tool with which they
can monitor, post-trade, their compliance with the amendments to
Regulation SHO under the Act.\19\ In this regard, the Short Sale
Monitor is similar to NASDAQ's InterACT service in that it provides
member firms with post-trade analysis of their trades for compliance
with regulatory obligations.\20\ Lastly, Phlx will supplement and
enhance the Short Sale Monitor as needed to address any amendments to
Regulation SHO or other related rules, and from time to time will make
changes to enhance the service.
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\16\ FINRA recently amended its rules to conform them to the
requirements of the changes made by the Commission to Regulation
SHO, including amending its trade reporting rules applicable to
over-the-counter trades in NMS stocks to reintroduce the short sale
exempt category. See Securities Exchange Act Release No. 63032
(December 4, 2010), 75 FR 62439 (December 8, 2010) (SR-FINRA-2010-
043).
\17\ See also Division of Trading and Markets: Responses to
Frequently Asked Questions Concerning Rule 201 of Regulation SHO,
Q&A Nos. 5.4 and 5.5.
\18\ The Commission notes that broker-dealers subscribing to the
Short Sale Monitor and Data Add-On service remain responsible for
compliance with Rule 201 of Regulation SHO.
\19\ Supra note 4.
\20\ See NASDAQ Rule 7049 (explaining the InterACT service).
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Phlx is also proposing to amend its fee schedule to establish the
PSX Data Add-On service as an additional service to an existing Short
Sale Monitor subscription, which will provide subscribers with access
to records of their trades in covered securities subject to the short
sale price restrictions of Rule 201 executed on PSX and marked ``short
exempt.'' The proposed add-on service will be offered at no cost
through March 31, 2011, and for an additional fee of $50 per MPID, per
month thereafter. As noted above, to be eligible for the PSX Data Add-
On service a member's MPID must first be subscribed to the Short Sale
Monitor.
Last, Phlx is proposing waive the Short Sale Monitor fee for
members seeking to subscribe to the PSX Data Add-on service if the MPID
is currently subscribed to either the NASDAQ or NASDAQ OMX BX Short
Sale Monitor. NASDAQ and NASDAQ OMX BX will offer \21\ the Short Sale
Monitor to their members for a price identical to that of Phlx's at
$750 per MPID, per month. Phlx notes that the Short Sale Monitor of
each of the three exchanges offers the identical service and access to
data. As such, Phlx does not believe that it is appropriate to charge
members of Phlx an additional fee of $750 per MPID, per month if the
member currently subscribes to the Short Sale Monitor offered by
another NASDAQ OMX exchange.\22\ Accordingly, Phlx believes that a
member should only pay for the market-specific data if it has a pre-
existing subscription to the Short Sale Monitor, irrespective of the
NASDAQ OMX exchange through which it subscribes.
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\21\ NASDAQ and NASDAQ OMX BX have filed related rule changes
with the Commission concurrent with Phlx's filing. See SR-NASDAQ-
2011-024 and SR-BX-2011-008.
\22\ Rule changes proposed by both NASDAQ and NASDAQ OMX BX
provide an identical waiver of the Short Sale Monitor fee.
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2. Statutory Basis
Phlx believes that the proposed rule change is consistent with
Section 6(b) of the Act in general,\23\ and Section 6(b)(4) of the Act
\24\ specifically, in that it provides for the equitable allocation of
reasonable dues, fees and other charges among members and issuers and
other persons using any facility or system which the Phlx operates or
controls, and it does not unfairly discriminate between customers,
issuers, brokers or dealers. Phlx believes that offering the Short Sale
Monitor at no cost on a trial basis, and for a fee of $750 per MPID,
per month thereafter, and the PSX Data Add-On at no cost on a trial
basis, and for a fee of $50 per MPID, per month thereafter is fair and
provides an equitable allocation of fees in that subscription is
voluntary and it will apply uniformly to all members that use the
FINRA/NASDAQ TRF or execute on PSX, as applicable, and elect to
subscribe to one or both of the services. Further, Phlx believes that,
as discussed above, waiving the Short Sale Monitor fee for a member
seeking a subscription to the PSX Data Add-On is appropriate in cases
where the member has subscribed the MPID to the Short Sale Monitor of
NASDAQ or NASDAQ OMX BX. As noted, the Short Sale Monitors of the
NASDAQ OMX exchanges provide identical services and are offered at an
identical fee. As such, Phlx does not believe requiring a firm to
subscribe to a redundant service solely to access PSX-specific data is
an equitable allocation of fees. Phlx notes that subscribing members
may cancel their subscription(s) at any time prior to the expiration of
the trial period at no cost. The proposed fee will apply to all members
equally based on the number of MPIDs subscribed. The proposed fee will
cover the costs associated with separately offering the service,
[[Page 9620]]
responding to customer requests, configuring PSX's systems, programming
to user specifications, and administering the service, among other
things, and may provide Phlx with a profit to the extent costs are
covered.
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\23\ 15 U.S.C. 78f(b).
\24\ 15 U.S.C. 78f(b)(4).
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Phlx also believes that the proposed rule change is consistent with
the provisions of Section 6(b)(5) of the Act \25\ because it is
designed to, among other things, prevent fraudulent and manipulative
acts and practices, to promote just and equitable principles of trade,
and to foster cooperation and coordination with persons engaged in
facilitating transactions in securities. The Short Sale Monitor will
assist subscribing member firms in monitoring their compliance with the
amendments to Regulation SHO under the Act \26\ with respect to trades
reported to the FINRA/NASDAQ TRF. Phlx notes that the Short Sale
Monitor is similar to NASDAQ's InterACT service,\27\ which allows
member firms to supervise trade activity required to be reported to the
FINRA/NASDAQ TRF, and provides member firms with real time totals of
open trades awaiting review and acceptance within the twenty minute
period required by FINRA Rule 7230A(b). As noted above, the Short Sale
Monitor is similar to this service in that it provides member firms
with post-trade analysis of their trades for compliance with regulatory
obligations. In the case of the Short Sale Monitor and PSX Data Add-On,
such analysis include trades reported to the FINRA/NASDAQ TRF and
trades executed on PSX marked ``short exempt'' in covered securities.
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\25\ 15 U.S.C. 78f(b)(5).
\26\ Supra note 4.
\27\ Supra note 20.
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B. Self-Regulatory Organization's Statement on Burden on Competition
Phlx 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.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
Written comments were neither solicited nor 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 \28\ and subparagraph (f)(2) of Rule 19b-4
thereunder.\29\ 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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\28\ 15 U.S.C. 78s(b)(3)(a)(ii).
\29\ 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, as amended, 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-2011-17 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-2011-17. 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 offices 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-2011-17, and should be submitted on or before March 11, 2011.
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\30\ 17 CFR 200.30-3(a)(12).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\30\
Cathy H. Ahn,
Deputy Secretary.
[FR Doc. 2011-3689 Filed 2-17-11; 8:45 am]
BILLING CODE 8011-01-P