[Federal Register Volume 76, Number 78 (Friday, April 22, 2011)]
[Notices]
[Pages 22741-22743]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2011-9774]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-64305; File No. SR-Phlx-2011-51]
Self-Regulatory Organizations; NASDAQ OMX PHLX LLC; Notice of
Filing and Immediate Effectiveness of Proposed Rule Change Relating to
Alpha Index Options
April 18, 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 April 14, 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 amend its Fee Schedule to create fees for
options overlying NASDAQ OMX Alpha Indexes \SM\ (``Alpha Indexes'').\3\
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\3\ Alpha Indexes measure relative total returns of one stock
and one exchange-traded fund share (``ETF'') underlying options
which are also traded on the Exchange (each such combination of two
components is referred to as an ``Alpha Pair''). The first component
identified in an Alpha Pair (the ``Target Component'') is measured
against the second component identified in the Alpha Pair (the
``Benchmark Component''). Alpha Index Options contracts will be
exercised European-style and settled in U.S. dollars. See Securities
Exchange Act Release No. 63860 (February 7, 2011), 76 FR 7888
(February 11, 2001) (SR-Phlx-2010-176).
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While changes to the Fee Schedule pursuant to this proposal are
effective upon filing, the Exchange has designated these changes to be
operative on April 18, 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, 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
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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 create new fees
titled ``Alpha Index Options'' to support options overlying certain
NASDAQ OMX Alpha Indexes\TM\ (``Alpha Indexes'') as well as offer
discounted pricing to encourage members and member organizations to
trade options overlying Alpha Indexes.\4\
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\4\ Options on the Alpha Indexes will be available for trading
on the Exchange on April 18, 2011. The Exchange will list and trade
Alpha Index options only on the following Alpha Pairs: AAPL/SPY,
AMZN/SPY, CSCO/SPY, F/SPY, GE/SPY, GOOG/SPY, HPQ/SPY, IBM/SPY, INTC/
SPY, KO/SPY, MRK/SPY, MSFT/SPY, ORCL/SPY, PFE/SPY, RIMM/SPY, T/SPY,
TGT/SPY, VZ/SPY and WMT/SPY. See Securities Exchange Act Release No.
63860 (February 7, 2011), 76 FR 7888 (February 11, 2001) (SR-Phlx-
2010-176). The Alpha Pairs are represented by the following symbols:
AVSPY, ZVSPY, CVSPY, FVSPY, LVSPY, UVSPY, HVSPY, IVSPY, JVSPY,
KVSPY, NVSPY, MVSPY, OVSPY, PVSPY, RVSPY, YVSPY, XVSPY, VVSPY, WVSPY
(''Alpha Symbols'').
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The Alpha Indexes will trade on the Exchange as a Singly Listed
Option.\5\ The Exchange proposes to add these fees to Section II of the
Fee Schedule titled ``Singly Listed Options.'' \6\ Specifically, the
Exchange is proposing to assess the following fees on options overlying
Alpha Indexes:
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\5\ A Singly Listed Option means an option that is only listed
on the Exchange and is not listed by any other national securities
exchange.
\6\ Section III of the Fee Schedule includes options overlying
currencies, equities, exchange-traded funds (``ETFs''), exchange-
traded notes (``ETNs''), indexes and Holding Company Depository
Receipts (``HOLDRS'').
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Specialist,
Customer Professional ROT, SQT and Firm Broker- dealer
RSQT
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Alpha Index Options................................................ $0.15 $0.20 $0.00 $0.20 $0.20
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The proposed fees for Alpha Indexes would apply to Alpha Pairs/
Alpha Symbols which have been filed to list and trade on the
Exchange.\7\ In addition, Customer executions with average daily volume
of 1,000 Customer contracts or more in a calendar month would be
assessed $0.10 per contract. The Exchange believes that this Customer
discount should encourage member organizations to offer options on
Alpha Indexes to their customers.
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\7\ All other indexes would be assessed the fees in Sections II
and III, respectively, depending on whether the index is Singly
Listed or Multiply Listed. For purposes of this filing, a Multiply
Listed security means an option that is listed on more than one
exchange.
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While changes to the Fee Schedule pursuant to this proposal are
effective upon filing, the Exchange has designated these changes to be
operative on April 18, 2011.
2. Statutory Basis
The Exchange believes that its proposal to amend its Fee Schedule
is consistent with Section 6(b) of the Act \8\ in general, and furthers
the objectives of Sections 6(b)(4) and 6(b)(5) of the Act \9\ in
particular, in that it is an equitable allocation of reasonable fees
and other charges among Exchange members and other persons using its
facilities.
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\8\ 15 U.S.C. 78f(b).
\9\ 15 U.S.C. 78f(b)(4).
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The Exchange believes that the proposed fees for Alpha Indexes are
equitable, reasonable and not unfairly discriminatory because the
Exchange is seeking to recoup the operational and development costs
associated with the Alpha Indexes product, a proprietary product of the
Exchange, while also encouraging members and member organizations to
trade Alpha Indexes by assessing lower fees and offering a Customer
volume discount.\10\ It is also reasonable and equitable to offer
Customers a volume discount on trading options overlying Alpha Indexes
because Customer order flow will provide increased liquidity to the
market and benefit all participants.
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\10\ The Exchange incurs costs for maintaining the proprietary
index as well as marketing expenses to develop this new product.
Also, by way of example, in analyzing an obvious error, the Exchange
would have additional data points available in establishing a
theoretical price for a Multiply Listed option as compared to a
Singly Listed option, which requires additional analysis and
administrative time to comply with Exchange rules to resolve an
obvious error.
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The Exchange has previously stated that it incurs higher costs for
Singly Listed options as compared to Multiply Listed options.\11\ The
Chicago Board Options Exchange, Incorporated (``CBOE'') noted in a
comment letter dated June 21, 2010, that CBOE relies upon fees to
recoup licensing costs incurred on options products that use third-
party proprietary indexes as benchmarks (such as the S&P 500[supreg]),
and to generate returns on its investments for its own popular
proprietary products (such as The CBOE Volatility Index[supreg]
(``VIX[supreg]'') Options).\12\ The Exchange agrees with CBOE's
position and while the Exchange continues to assert that Singly Listed
products incur higher costs and therefore market participants should be
assessed higher fees as compared to Multiply Listed products, the
Exchange is proposing to assess lower fees for the Alpha Indexes, and
to offer a Customer volume discount, as a means to promote this new
infant index product.\13\
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\11\ See Securities Exchange Release Act No. 64096 (March 18,
2011), 76 FR 16646 (March 24, 2011) (SR-Phlx-2011-34).
\12\ See CBOE's Comment Letter dated June 21, 2010 to the
Proposed Amendments to Rule 610 of Regulation NMS, File No. S7-09-
10. CBOE further noted that options exchanges expend considerable
resources on research and development related to new product
offerings and options exchanges incur large licensing costs for many
products.
\13\ If the Exchange determines to increase the pricing for
options overlying Alpha Indexes at a later date, the Exchange would
file a proposal with the Commission.
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The Exchange believes that the proposed fees for Alpha Indexes are
equitable because all market participants would be assessed lower fees
for transacting Alpha Indexes as compared to other Singly Listed
indexes. Specifically, Customers would be assessed $0.15 per contract
to transact Alpha Indexes as compared to $0.35 per contract for other
Singly Listed index options. Professionals,\14\ Firms and Broker-
Dealers would be assessed $0.20 per contract as compared to $0.45 per
contract for all other Singly
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Listed index options. Specialists,\15\ Registered Options Traders,\16\
SQTs,\17\ and RSQTs \18\ (collectively ``market makers'') \19\ would be
assessed no fees for transacting Alpha Indexes as compared to the $0.35
per contract fee such market makers are assessed for all other Singly
Listed index options.
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\14\ The Exchange defines a ``professional'' as 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)
(hereinafter ``Professional'').
\15\ A Specialist is an Exchange member who is registered as an
options specialist pursuant to Rule 1020(a).
\16\ A Registered Options Trader (``ROT'') includes a Streaming
Quote Trader (``SQT''), a Remote Streaming Quote Trader (``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).
\17\ 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.
\18\ A RSQT is defined Exchange Rule in 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.
\19\ 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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The Exchange believes that it is equitable and not unfairly
discriminatory to assess lower fees to Customers because all market
participants benefit from Customer order flow. The Exchange also
believes that offering discounted pricing to Customers for transacting
1,000 or more options overlying Alpha Indexes further provides benefits
to both Customers and other market participants. The Exchange believes
it is reasonable, equitable and not unfairly discriminatory to assess a
Professional, Firm and Broker-Dealer a per contract fee of $0.20 per
contract for transacting Alpha Indexes because the Exchange is
assessing all market participants, except Customers and market makers,
the same rate to transact Alpha Indexes. The Exchange believes that the
price differentiation between market makers as compared to
Professionals, Firms and Broker-Dealers is justified and not unfairly
discriminatory because market makers have obligations to the market,
which do not apply to Firms, Professionals and Broker-Dealers.\20\
Obligations, such as quoting obligations, are critical to ensure there
is sufficient liquidity in new options classes.
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\20\ See Exchange Rule 1014 titled ``Obligations and
Restrictions Applicable to Specialists and Registered Options
Traders.''
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The Exchange believes that the proposed fees are reasonable and not
unfairly discriminatory because the fees are consistent with price
differentiation that exists today at all option exchanges. For example,
CBOE assesses different rates for certain proprietary indexes as
compared to other index products transacted at CBOE. VIX options and
The S&P 500[supreg] Index options (``SPX\SM\'') are assessed different
fees than other indexes.\21\ In addition, the concept of offering a
volume discount to incentivize order flow is not novel.\22\
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\21\ See CBOE's Fees Schedule.
\22\ See CBOE's Fees Schedule. CBOE has a sliding scale for its
proprietary products whereby transaction fees are reduced when a
Clearing Trading Permit Holder reaches certain volume thresholds in
multiply listed options on CBOE in a month.
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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
The foregoing rule change has become effective pursuant to Section
19(b)(3)(A)(ii) of the Act.\23\ 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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\23\ 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-2011-51 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-2011-51. 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-2011-51 and
should be submitted on or before May 13, 2011.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\24\
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\24\ 17 CFR 200.30-3(a)(12).
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Cathy H. Ahn,
Deputy Secretary.
[FR Doc. 2011-9774 Filed 4-21-11; 8:45 am]
BILLING CODE 8011-01-P