[Federal Register Volume 76, Number 43 (Friday, March 4, 2011)]
[Notices]
[Pages 12169-12171]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2011-4903]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-63985; File No. SR-Phlx-2011-23]
Self-Regulatory Organizations; Notice of Filing and Immediate
Effectiveness of Proposed Rule Change by NASDAQ OMX PHLX LLC Relating
to Clarifying Changes to Rules 607 and 3202 Concerning the Application
and Collection of the Covered Sale Fee
February 28, 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 16, 2011, NASDAQ OMX PHLX LLC (``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.
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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 make clarifying changes to Rules 607and
3202 concerning the application and collection of the Covered Sale Fee.
The text of the proposed rule change is available on the Exchange's
Website at http://www.nasdaqtrader.com/micro.aspx?id=PHLXRulefilings,
at the principal office of the Exchange, on the Commission's Web site
at http://www.sec.gov, and at the Commission's Public Reference Room.
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, the Exchange included statements
concerning the purpose of and basis for the proposed rule change and
discussed any comments it received on the proposed rule change. The
text of these statements may be examined at the places specified in
Item IV below. The Exchange has prepared summaries, set forth in
sections A, B, and C below, of the most significant aspects of such
statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
The purpose of the proposed rule change is to make clarifying
changes to Rules 607 and 3202 concerning the application and collection
of the Covered Sale Fee. In light of the varying means by which a
Covered Sale Fee is incurred by members, as described below, the
Exchange believes that a more detailed description of the circumstances
that trigger the Covered Sale Fee is warranted. Accordingly, the new
rule language proposed by the Exchange expressly discusses covered
sales in both equity and option securities. In addition, the proposed
new rule language includes a description of sell orders entered into
the Exchange transaction execution systems that result in a covered
sale on another exchange, expressly discussing the fee incurred by the
Exchange and
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the application of the Covered Sale Fee in such circumstances.
PHLX Rule 607
The Exchange is proposing amendments to Rule 607 to make clear the
circumstances that trigger application of the Covered Sale Fee, and to
make other clarifying changes. Initially, the Exchange is proposing to
enumerate all paragraphs in Rule 607 for clarity. Furthermore, the
Exchange proposes to amend paragraph two by removing the reference to
Rule 185(g), the former equities platform rule regarding the Exchange's
Routing Facility; and insert Rule 1080(m)(iii), the current options
platform rule regarding the Exchange's Routing Facility. This amendment
is predicated on the fact that upon the implementation of the
Exchange's current equities platform, NASDAQ OMX PSX, \3\ only options
transactions may be routed to other markets for executions.
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\3\ See Exchange Rules 3000-3407.
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Rule 607 permits the Exchange to collect a fee from its members for
sales of securities with respect to which the Exchange is obligated to
pay a fee to the SEC pursuant to Section 31 of the Act \4\ and Rule 31,
thereunder.\5\ Each national securities exchange and association is
required to calculate the aggregate dollar amount of ``covered sales''
occurring on the exchange or through a member of the national
securities association and to pay fees based on those covered sales to
the Commission (``Section 31 fees''). A covered sale is a ``sale of a
security, other than an exempt sale or a sale of a security future,
occurring on a national securities exchange or by or through any member
of a national securities association otherwise than on a national
securities exchange.'' \6\ Pursuant to Rule 607 the Exchange assesses a
member the Covered Sale Fee for an executed sell order entered into the
Exchange's transaction execution systems that results in a covered
sale. The Covered Sale Fee defrays the cost of the Section 31 fee
triggered by the covered sale. In this regard, the Covered Sale Fee
assessed a member is equal to the Section 31 fee assessed by the
Commission for the covered sale. Further, the Exchange adjusts the
Covered Sale Fee in lock step with changes to the Section 31 fee made
by the Commission.\7\ Assessing a sales fee is common practice among
the national securities exchanges and associations.\8\
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\4\ 15 U.S.C. 78ee.
\5\ 17 CFR 240.31.
\6\ 17 CFR 240.31(a)(6).
\7\ The Exchange issues Regulatory Alerts to provide members
with notice of Covered Sale Fee changes. See e.g., http://www.nasdaqtrader.com/TraderNews.aspx?id=ERA2011-01.
\8\ See e.g., CBOE Fees Schedule (January 3, 2011), Item 6
``Sales Value Fee,'' ISE Rule 212, NYSE Rule 440H, and NYSE Amex
Rule 393.
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As noted above, the Covered Sale Fee defrays the cost of the
Section 31 fee. The Covered Sale Fee is triggered by the fulfillment of
a members [sic] sell order in equity or options securities entered into
the Exchange transaction execution systems that results in a covered
sale. If the member's sell order is fulfilled on the Exchange's equity
or options trading markets, the Exchange incurs a Section 31 fee
obligation. Sell orders in options securities entered into the Exchange
transaction execution system that are routed to another market for
execution, however, does [sic] not result in a covered sale on the
Exchange. Execution of such routed orders is facilitated by the
Exchange's routing broker,\9\ which acts as the selling member for a
routed order on the away market on behalf of the Exchange member. Such
routed sell orders result in a covered sale on the away market, which
incurs a Section 31 fee obligation. Like the Exchange, the away market
assesses a sales fee on the member that entered the sell order, in this
case Nasdaq Options Services LLC,\10\ to defray the cost of the Section
31 fee obligation. In turn, the Exchange assesses its member, the
original selling party, a Covered Sale Fee pursuant to Rule 607 to
defray the cost of the Section 31 fee passed on by the away exchange
pursuant to its sales fee. As such, the Exchange's Covered Sale Fee
offsets the sales fee it is assessed by the away market, the result of
which is to place the parties involved in the transaction in the same
position as if the covered sale had occurred on the Exchange.
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\9\ Nasdaq Options Services LLC is the Exchange's routing broker
for option securities. See PHLX Options Rule 1080(m)(iii).
\10\ See e-mail from Arlinda Clark, Assistant General Counsel,
Phlx, to Jennifer Dodd, Special Counsel, Office of Market
Supervision, Division of Trading and Markets, Commission, dated
February 22, 2011 (requesting corrections to this sentence).
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Additionally, the Exchange is updating its rules to indicate that
the Covered Sale fee is collected by ``designated clearing agency,''
which is defined by rule promulgated under the Act as a ``clearing
agency registered under section 17A of the Act * * * that clears and
settles covered sales or covered round turn transactions.'' \11\ The
Exchange employs the National Security Clearing Corporation to collect
the Covered Sale Fee from members arising from their covered sales in
equity securities. Covered Sale Fees arising from options covered
sales, however, are collected from members by the Options Clearing
Corporation, another designated clearing agency that clears option
securities.\12\ The Exchange believes such amendment will more
accurately reflect all parts the Exchange employs to collect the
Covered Sale Fee from its members.
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\11\ 17 CFR 240.31(a)(9).
\12\ In addition to clearing transactions in options, the
Options Clearing Corporation also clears security futures. See
http://www.optionsclearing.com.
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PHLX Rule 3202
The Exchange also proposes to amend its equity rules to clarify
application and collection of the Covered Sale Fee. PHLX Rule 3202 sets
forth that certain rules of the Exchange are applicable to market
participants trading on the Exchange's equity trading platform. PHLX
Rule 607 is cross referenced within Rule 3202, however Rule 3202 only
references the first paragraph of Rule 607. For clarification, Rule
3202 will be amended to indicate that Rule 607 will be referenced in
its entirety. Such amendment serves to describe the full process for
collection of the Covered Sale Fee regarding equity transactions.
2. Statutory Basis
The Exchange believes that the proposed rule change is consistent
with Section 6(b)(4) of the Act \13\ 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 Exchange operates or controls, and it does not unfairly
discriminate between customers, issuers, brokers or dealers. The
proposed clarifying language does not change the application and
assessment of the Covered Sale Fee under the rule, but rather provides
greater detail on the transactions that trigger the fee. The Exchange
applies Rule 607 uniformly to all members' sell orders entered into the
Exchange's transaction execution systems resulting in covered sales.
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\13\ 15 U.S.C. 78f(b)(4).
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The Exchange also believes the proposed rule change is consistent
with the provisions of Section 6 of the Act,\14\ in general and with
Section 6(b)(5) of the Act,\15\ in particular, which requires that the
rules of an exchange be designed to prevent fraudulent and manipulative
acts and practices, promote just and equitable principles of trade,
foster cooperation and coordination with persons engaged in regulating,
clearing, settling, processing information with respect to, and
facilitating transactions in securities,
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remove impediments to and perfect the mechanism of a free and open
market and a national market system, and, in general, protect investors
and the public interest. The Exchange believes that the proposed rule
change is consistent with these requirements because the proposed
amended rule text provides members with more detail regarding the
circumstances under which the Exchange assesses a Covered Sale Fee. As
such, the proposed changes will help avoid member confusion and foster
better understanding of the application of the rule. Accordingly, the
Exchange believes the proposed rule change will promote just and
equitable principles of trade, remove impediments to and perfect the
mechanism of a free and open market and a national market system, and
protect investors and the public interest.
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\14\ 15 U.S.C. 78f.
\15\ 15 U.S.C. 78f(b)(5).
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B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the proposed rule change will
impose any burden on competition not necessary or appropriate in
furtherance of the purposes of the Act.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
No written comments were either solicited or received.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
Because the foregoing proposed rule change establishes or changes a
due, fee or other charge applicable only to a member, it has become
effective pursuant to Section 19(b)(3)(A) of the Act \16\ and Rule 19b-
4(f)(2) thereunder.\17\
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\16\ 15 U.S.C. 78s(b)(3)(A).
\17\ 17 CFR 240.19b-4(f)(2).
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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.
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-2011-23 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-2011-23. 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 available publicly. All
submissions should refer to File Number SR-Phlx-2011-23 and should be
submitted on or before March 25, 2011.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\18\
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\18\ 17 CFR 200.30-3(a)(12).
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Cathy H. Ahn,
Deputy Secretary.
[FR Doc. 2011-4903 Filed 3-3-11; 8:45 am]
BILLING CODE 8011-01-P