[Federal Register Volume 76, Number 237 (Friday, December 9, 2011)]
[Notices]
[Pages 77046-77048]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2011-31603]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-65888; File No. SR-Phlx-2011-160]
Self-Regulatory Organizations; NASDAQ OMX PHLX LLC; Notice of
Filing and Immediate Effectiveness of Proposed Rule Change Relating to
the Firm Related Equity Option Cap
December 5, 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 November 22, 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 Section II of the Fee Schedule
entitled ``Equity Options Fees'' to apply the Firm Related Equity
Option Cap to certain proprietary orders of affiliated member
organizations.
While fee changes pursuant to this proposal are effective upon
filing, the Exchange has designated these changes to be operative on
December 1, 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 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 the
Statutory Basis for, the Proposed Rule Change
1. Purpose
The purpose of this proposed rule change is to apply the Firm
Related Equity Option Cap to proprietary orders of certain affiliates
of member organizations. Currently, Firms are subject to a maximum fee
of $75,000 (''Firm Related Equity Option Cap''). Firm equity option
transaction fees and QCC Transaction Fees \3\, in the aggregate, for
one billing month will not exceed the Firm Related Equity Option Cap
per member organization when such members are trading in their own
proprietary account.\4\ The Firm equity options transaction fees \5\
will be waived for members executing facilitation orders \6\ pursuant
to Exchange Rule 1064 when such members are trading in their own
proprietary account.\7\
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\3\ QCC Transaction Fees apply to QCC Orders as defined in
Exchange Rule 1080(o) and 1064(e). For QCC Orders as defined in
Exchange Rule 1080(o), and Floor QCC Orders, as defined in 1064(e),
a Service Fee of $0.05 per side will apply once a Firm has reached
the Firm Related Equity Option Cap. This $0.05 Service Fee will
apply to every contract side after a Firm has reached the Firm
Related Equity Option Cap.
\4\ Once Firms reach the Firm Related Equity Option Cap by
incurring qualifying fees, they will not incur additional
transaction fees beyond the $75,000 Firm Related Equity Option Cap
for that month as long as those transactions occurred in their own
proprietary account. Member organizations must notify the Exchange
in writing of all accounts in which the member is not trading in its
own proprietary account. The Exchange will not make adjustments to
billing invoices where transactions are commingled in accounts which
are not subject to the Firm Related Equity Option Cap.
\5\ See Section II of the Exchange's Fee Schedule for equity
option transaction fees.
\6\ A facilitation occurs when a floor broker holds an options
order for a public customer and a contra-side order for the same
option series and, after providing an opportunity for all persons in
the trading crowd to participate in the transaction, executes both
orders as a facilitation cross. See Exchange Rule 1064 entitled
``Crossing, Facilitation and Solicited Orders.''
\7\ The waiver would not apply to orders where a member is
acting as agent on behalf of a non-member.
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The Exchange proposes to apply the Firm Related Equity Option Cap
to proprietary orders effected for the purpose of hedging the
proprietary over-the-counter trading of an affiliate of a member
organization that qualifies for the Firm Related Equity Option Cap
(``Qualifying Member Organization''). A Qualifying Member Organization
would be a 100% wholly-owned affiliate or subsidiary of a member
organization that is not a Phlx member organization and is registered
as a United States or foreign broker-dealer. In other words, a
Qualifying Member Organization must be either a wholly-owned subsidiary
of a Phlx member organization or a wholly-owned subsidiary of the
parent company of a Phlx member organization. These orders must clear
in the customer range at The Options Clearing Corporation and be
subject to the fees assessed to Broker-Dealers in order for the trade
to be eligible for the Firm Related Equity Option Cap. The Exchange
would aggregate the Qualifying Member Organization's fees in Multiply-
Listed options \8\ on the Exchange with the transaction fees of
affiliated member organizations in Multiply-Listed options on the
Exchange for purposes of determining whether the Qualifying Member
Organization has reached the Firm Related Equity Option Cap.
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\8\ Multiply Listed Securities include those symbols which are
subject to rebates and fees in Section I, Rebates and Fees For
Adding and Removing Liquidity in Select Symbols, and Section II,
Equity Options Fees.
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A member organization would be required to certify the affiliate
status of any Qualifying Member Organization whose trading activity it
seeks to aggregate and to certify that the trades identified as
eligible for the Firm Related Equity Option Cap were made for the
purposes of hedging proprietary over-the county [sic] trading of the
member organization or its affiliates. The member organization would be
required to inform the Exchange immediately of any event that causes an
entity to cease to be an affiliate. In addition, member organizations
must notify the Exchange in writing of the account(s) designated for
purposes of hedging the proprietary over-the-counter trading of the
Qualifying Member Organization or its affiliates.\9\
[[Page 77047]]
The Exchange would require member organizations to segregate other
orders from that of its affiliates for those orders to be eligible for
the Firm Related Equity Option Cap by placing such orders in a separate
house account. If the member organization does not segregate the
transactions into the specified house account which was designated by
the member organization for the purpose of affiliated eligible
transactions, the Exchange will not make any adjustments to the billing
invoice to account for those transactions not placed in the specified
account and those transactions will not be subject to the Firm Related
Equity Option Cap. The Exchange believes that this practice would not
create an undue burden on its member organizations and would ensure a
more efficient billing process.
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\9\ The Exchange assesses a $50 Account Fee for each account
beyond the number of permits billed to the member organization.
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The Exchange also proposes to rename the ``Firm Related Equity
Option Cap'' as the ``Monthly Firm Fee Cap'' to more accurately
describe the cap. The Exchange also proposes to amend a reference to
``members and member organizations'' in Section II of the Fee Schedule
as only ``member organizations'' for clarity.
While fee changes pursuant to this proposal are effective upon
filing, the Exchange has designated these changes to be operative on
December 1, 2011.
2. Statutory Basis
The Exchange believes that its proposal to amend its Fee Schedule
is consistent with Section 6(b) of the Act \10\ in general, and
furthers the objectives of Section 6(b)(4) of the Act \11\ in
particular, in that it is an equitable allocation of reasonable fees
and other charges among Exchange members.
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\10\ 15 U.S.C. 78f(b).
\11\ 15 U.S.C. 78f(b)(4).
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Specifically, the Exchange believes the proposed rule change is
reasonable because it would allow aggregation of the trading activity
of a member organization and its Qualifying Member Organization for
purposes of the Firm Related Equity Option Cap only in very narrow
circumstances, namely, where the Qualifying Member Organization is an
affiliate, as defined herein, and the trading activity of the
Qualifying Member Organization, which would be included in the
calculation of the Firm Related Equity Option Cap, is limited to
proprietary orders of the Qualifying Member Organization effected for
purposes of hedging the proprietary over-the-counter trading of the
member organization or its affiliates. Furthermore, other exchanges
have rules that permit the aggregation of the trading activity of
affiliated entities for the purposes of calculating and assessing
certain fees.\12\ The Exchange believes that it is reasonable to
require member organizations to segregate these transactions in a
separate account to create an effective way to account and bill for
these transactions.
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\12\ See the Chicago Board Options Exchange, Incorporated
(``CBOE'') Fees Schedule (CBOE's application of its Fee Cap and
Scale to order to certain non-Trading Permit Holder affiliates of a
clearing trading permit holder). See also NASDAQ Stock Market LLC's
(``NASDAQ'') Rule 7027 (a NASDAQ pricing rule which allows
affiliated members to aggregate their activity under certain
provision of NASDAQ's fee schedule that make fees dependent upon the
volume of their activity). See also the Chicago Stock Exchange, Inc.
(``CHX'') Fee Schedule at Section P entitled ``Aggregation of
Activity of Affiliated Participants'' (CHX allows a participant to
request the aggregation of its activity with the activity of its
affiliates). See also the International Securities Exchange, LLC's
(``ISE'') Fee Schedule at footnote 2 (ISE permits Non-ISE Market-
Maker transaction fees that are part of the originating or contra
side of a crossing transaction to be included in the calculation of
the monthly fee cap).
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The Exchange believes that its proposal is equitable and not
unfairly discriminatory because any member organization may request
that the Exchange aggregate its trading activity with the trading
activity of a Qualifying Member Organization for purposes of
calculating the Firm Related Equity Option Cap. The Exchange believes
that it is equitable and not unfairly discriminatory to require member
organizations to segregate these transactions in a separate account as
this requirement would apply to all member organizations.
The Exchange also believes that the amendments to rename the Firm
Related Equity Option Cap and change a reference from ``members and
member organizations'' to ``member organizations'' are reasonable,
equitable and not unfairly discriminatory because these amendments will
more accurately describe the cap and the member that is being billed.
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.\13\ 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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\13\ 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 email to [email protected]. Please include
File No. SR-Phlx-2011-160 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 No. SR-Phlx-2011-160. This file
number should be included on the subject line if email 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
[[Page 77048]]
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 No. SR-Phlx-2011-160 and should be
submitted on or before December 30, 2011.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\14\
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\14\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2011-31603 Filed 12-8-11; 8:45 am]
BILLING CODE 8011-01-P