[Federal Register Volume 76, Number 93 (Friday, May 13, 2011)]
[Notices]
[Pages 28113-28115]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2011-11765]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-64446; File No. SR-Phlx-2011-62]
Self-Regulatory Organizations; Notice of Filing and Immediate
Effectiveness of Proposed Rule Change by NASDAQ OMX PHLX LLC Relating
to the Options Floor Broker Subsidy
May 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 April 29, 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 Section VIII of its Fee Schedule
titled the ``Options Floor Broker Subsidy.''
While changes to the Fee Schedule pursuant to this proposal are
effective upon filing, the Exchange has designated these changes to be
operative on May 2, 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: (i) Eliminate the
threshold requirement that a member organization with Exchange
registered floor brokers must have more than an average of 100,000
executed contracts per day in the applicable month; (ii) amend the
computation for eligible contracts; and (iii) amend the eligible
contracts per tier and monthly volume subsidy payments. The Exchange
believes that the proposed amendments could enable a member
organization to receive a higher subsidy because the Exchange is
changing from a daily average to a monthly total calculation to
determine the number of contracts traded.
Eliminating a Threshold
The Exchange currently pays an Options Floor Broker Subsidy to
member organizations with Exchange registered floor brokers that enter
eligible contracts into the Exchange's Floor Broker Management System
(``FBMS'').\3\ To qualify for the per contract subsidy, a member
organization with Exchange registered floor brokers must have more than
100,000 average executed contracts per day in the month (``100,000
contract threshold'').\4\ Only the volume from orders entered by floor
brokers into FBMS and subsequently executed on the Exchange qualifies.
The
[[Page 28114]]
100,000 contract threshold is calculated per member organization floor
brokerage unit. Where two or more member organizations with Exchange
registered floor brokers each entered one side of a transaction into
FBMS, the executed contracts are divided equally among qualifying
member organizations that participate in that transaction.\5\
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\3\ FBMS is designed to enable floor brokers and/or their
employees to enter, route, and report transactions stemming from
options orders received on the Exchange. FBMS also is designed to
establish an electronic audit trail for options orders represented
and executed by floor brokers on the Exchange. See Exchange Rule
1080, commentary .06.
\4\ For purposes of calculating the 100,000 threshold, customer-
to-customer transactions, customer-to-non-customer transactions, and
non-customer-to-non-customer transactions are currently included.
\5\ When computing the threshold amount, the Exchange would
first count all customer-to-customer transactions and then all other
customer-to-non-customer transactions. See also Securities Exchange
Act Release Nos. 57253 (February 1, 2008), 73 FR 7352 (February 7,
2008) (SR-Phlx-2008-08) (adopting a tiered per contract floor broker
options subsidy payable to member organization with Exchange
registered floor brokers), 62403 (June 30, 2010), 75 FR 39301 (July
8, 2010) (SR-Phlx-2010-80) (an amendment to the threshold volume
requirements and per contract average daily volume subsidy payment).
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The Exchange is proposing to eliminate the 100,000 contract
threshold. The Exchange believes that this threshold is no longer
necessary because the Exchange is changing to a monthly total
calculation. In the future, all eligible contracts will qualify for a
subsidy rather than just those that are entered by members exceeding
the 100,000 contract threshold.
Computation for Eligible Contracts
Currently, customer-to-customer transactions qualify towards the
100,000 contract threshold, but do not qualify for the subsidy.
Dividend, merger and short stock interest strategies do not qualify
towards the 100,000 contract threshold or the per contract subsidy. The
largest component of a Complex Order counts toward the 100,000 contract
threshold but neither that component nor any other component of the
Complex Order qualifies for the per contract subsidy. Firm facilitation
transactions count towards reaching the 100,000 contract threshold, but
no per contract subsidy is paid for a firm facilitation transaction.
The Exchange is proposing to amend the computation of eligible
contracts. Customer-to-customer executions, dividend, merger and short
stock interest strategies and firm facilitation transactions will be
excluded from the eligible contract computations.
The Exchange is deleting the references to the 100,000 contract
threshold as proposed herein. Therefore, the Exchange is eliminating
the consideration of the largest component of a Complex Order (i.e.,
the component that includes the greatest number of contracts) counting
toward the 100,000 contract threshold; the 100,000 contract threshold
would no longer exist. The Options Floor Broker Subsidy would now apply
to any contracts that are executed as part of a Complex Order.
Eligible Contracts per Tier/Monthly Volume Subsidy Payments
Currently, a per contract subsidy is paid based on the average
daily contract volume for that month, which includes customer-to-non-
customer transactions that are in excess of 100,000 contracts. These
contracts may include customer-to-customer transactions for the
purposes of reaching a tier, but as stated above, a per contract
subsidy would not be paid on these executions.
The Exchange is amending the Options Floor Broker Subsidy to change
the ``Per Contract Average Daily Volume Subsidy Payment'' to a ``Per
Eligible Contract Monthly Volume Subsidy Payment.'' In other words, the
computation would not be an average daily computation but a monthly
total of all eligible contracts as proposed herein.
Currently, the Exchange pays an average daily volume subsidy
payment as follows:
Per Contract Average Daily Volume Subsidy Payment
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Tier I Tier II Tier III
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100,001 to 200,000..................... 200,001 to 300,000........ 300,001 and greater.
$0.02 per contract..................... $0.08 per contract........ $0.09 per contract.
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The Exchange is proposing to amend the tiers and payments as follows:
Per Eligible Contract Monthly Volume Subsidy Payment
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Tier I Tier II Tier III Tier III
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0 to 1,250,000....................... 1,250,001 to 2,250,000. 2,250,001 to 5,250,000. 5,250,001 and greater.
$0.00 per contract................... $0.03 per contract..... $0.05 per contract..... $0.09 per contract.
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The Exchange is proposing to amend the remainder of the Fee Schedule to
conform to the proposed rule changes.
The Exchange is also proposing to remove the following text from
the Fee Schedule: ``based on the amount of customer-to-customer
contracts, a member organization could enter Tier II or a higher tier
due to the amount of customer-to-customer contract volume,'' because
the Exchange believes that language is unnecessary.
While changes to the Fee Schedule pursuant to this proposal are
effective upon filing, the Exchange has designated these changes to be
operative on May 2, 2011.
2. Statutory Basis
The Exchange believes that its proposal to amend its Fee Schedule
is consistent with Section 6(b) of the Act \6\ in general, and furthers
the objectives of Section 6(b)(4) of the Act \7\ in particular, in that
it is an equitable allocation of reasonable fees and other charges
among Exchange members.
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\6\ 15 U.S.C. 78f(b).
\7\ 15 U.S.C. 78f(b)(4).
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The Exchange believes that the proposed amendments to the Options
Floor Broker Subsidy are equitable and reasonable because member
organizations with Exchange registered floor brokers would continue to
be provided an equal opportunity to receive a subsidy. Additionally,
any member organization is free to establish floor brokerage operations
on the floor of the Exchange, and, as such, would have more opportunity
to earn additional payments for attracting additional order flow to the
Exchange.
The Exchange believes that rewarding members that contribute the
most liquidity or executions to the Exchange is reasonable and
equitable and therefore the tiered fees will continue to uniformly
benefit all market
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participants. The Exchange believes that by amending the computation
from an average daily computation to a monthly computation and also
amending the tier levels, because the computation is based on a total
monthly volume, additional member organizations could benefit from the
ability to obtain greater subsidy payments. The Exchange also believes
that the proposed amendments to the rates paid to member organizations
are both reasonable and equitable because the Exchange continues to pay
member organizations the subsidy. Although the rates are lowered, the
Exchange added an additional tier which provides member organizations
the ability to obtain the same or larger subsidy payments based on
volume, potentially with lower volume.
The Exchange also believes that the amendments to the computations
to exclude customer-to-customer executions, dividend, merger and short
stock interest strategies, and firm facilitation transactions are
reasonable because the proposal to compute the monthly total eligible
contracts, which could result in a greater number of eligible
contracts, may still provide member organizations with the same or
greater benefits as the previous subsidy. In addition, the proposals to
amend the computation are equitable because the computations apply
uniformly to all member organizations.
Finally, the Exchange does not believe that this subsidy is
unreasonable or discriminatory because any floor broker is capable of
meeting the volume criteria.
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.\8\ 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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\8\ 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-2011-62 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-2011-62. 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-2011-62 and should be
submitted on or before June 3, 2011.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\9\
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\9\ 17 CFR 200.30-3(a)(12).
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Cathy H. Ahn,
Deputy Secretary.
[FR Doc. 2011-11765 Filed 5-12-11; 8:45 am]
BILLING CODE 8011-01-P