[Federal Register Volume 76, Number 243 (Monday, December 19, 2011)]
[Notices]
[Pages 78710-78712]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2011-32409]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-65946; File No. SR-Phlx-2011-168]
Self-Regulatory Organizations; NASDAQ OMX PHLX LLC; Notice of
Filing and Immediate Effectiveness of Proposed Rule Change Relating to
the Option Floor Broker Subsidy
December 13, 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
[[Page 78711]]
30, 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 eliminate Section VII of its Fee Schedule
entitled 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 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, 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 eliminate the Options
Floor Broker Subsidy (``Subsidy''). The Exchange is seeking to
incentivize Floor Brokers in other ways, such as offering rebates for
certain orders.\3\ The Exchange believes that the Subsidy is no longer
necessary as a means to incentivize Floor Brokers and proposes to
eliminate the Subsidy.
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\3\ See SR-Phlx-2011-169 [sic] (a proposed rule change to amend
and adopt rebates applicable to both electronic QCC Orders and Floor
QCC Orders with some exceptions and also amend and adopt a Service
Fee).
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The Exchange currently pays a Subsidy to member organizations with
Exchange registered floor brokers that enter eligible contracts into
the Exchange's Floor Broker Management System (``FBMS'').\4\ The
Subsidy is paid based on the contract volume on Customer-to-non-
Customer as well as non-Customer-to-non-Customer transactions for that
month. Only the volume from orders entered by floor brokers into FBMS
and subsequently executed on the Exchange qualifies. The Exchange pays
a Subsidy based on a monthly total of all eligible contracts as
follows:
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\4\ 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.
Per Eligible Contract Monthly Volume Subsidy Payment
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Tier I Tier II Tier III Tier IV
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0 to 1,250,000................... 1,250,001 to 2,250,001 to 5,250,001 and greater.
2,250,000. 5,250,000.
$0.00 per contract............... $0.03 per contract... $0.05 per contract.. $0.09 per contract.
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In computing the monthly eligible contracts, the Exchange currently
excludes: (i) Customer-to-Customer executions; (ii) Firm-to-Customer
executions where the Firm has reached the Firm Related Equity Option
cap (``Cap'') (see Section II); (iii) Firm-to-Firm executions, where
both sides have reached the Cap; (iv) dividend,\5\ merger \6\ and short
stock interest \7\ strategies; and (v) firm facilitation
transactions.\8\ The Subsidy applies to contracts that are executed as
part of a Complex Order.\9\ Where two or more member organizations with
Exchange registered floor brokers each enter one side of a transaction
into FBMS, the executed contracts are divided equally among qualifying
member organizations that participate in that transaction.
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\5\ A dividend strategy is defined as transactions done to
achieve a dividend arbitrage involving the purchase, sale and
exercise of in-the-money options of the same class, executed the
first business day prior to the date on which the underlying stock
goes ex-dividend. See Section II of the Fee Schedule.
\6\ A merger strategy is defined as transactions done to achieve
a merger arbitrage involving the purchase, sale and exercise of
options of the same class and expiration date, executed the first
business day prior to the date on which shareholders of record are
required to elect their respective form of consideration, i.e., cash
or stock. See Section II of the Fee Schedule.
\7\ A short stock interest strategy is defined as transactions
done to achieve a short stock interest arbitrage involving the
purchase, sale and exercise of in-the-money options of the same
class. See Section II of the Fee Schedule.
\8\ 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.
\9\ A Complex Order is any order involving the simultaneous
purchase and/or sale of two or more different options series in the
same underlying security, priced at a net debit or credit based on
the relative prices of the individual components, for the same
account, for the purpose of executing a particular investment
strategy. Furthermore, a Complex Order can also be a stock-option
order, which is an order to buy or sell a stated number of units of
an underlying stock or ETF coupled with the purchase or sale of
options contract(s). See Exchange Rule 1080, Commentary .08(a)(i).
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The Exchange also proposes to eliminate other references to the
Subsidy in the Fee Schedule at Section I entitled ``Rebates and Fees
for Adding and Removing Liquidity in Select Symbols'' and in the Table
of Contents.
The Exchange proposes to eliminate this Subsidy on December 1,
2011. The Exchange has provided notification to its Floor Brokers of
its intent to eliminate the Subsidy.
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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The Exchange believes that the proposed elimination of the Subsidy
is reasonable for various reasons. First, the Exchange believes that
its purpose for offering Floor Brokers an incentive to transact certain
eligible contracts through FBMS no longer exists. Second,
[[Page 78712]]
the Exchange is proposing to equalize the incentives provided to Floor
Brokers and members entering electronic orders by offering a rebate on
both electronic QCC Orders and Floor QCC Orders.\12\ Finally, in light
of offering Floor Brokers a rebate on Floor QCC Orders, the Exchange no
longer desires to incentivize Floor Brokers with the Subsidy.
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\12\ The Exchange recently determined to offer a rebate to Floor
Brokers for Floor QCC Orders as of December 1, 2011. See SR-Phlx-
2011-169 [sic].
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The Exchange believes that eliminating the Subsidy is equitable and
not unfairly discriminatory for various reasons. First, the Exchange
will not offer the Subsidy to any Floor Broker. Second, members
executing orders electronically are not being offered the Subsidy
today, so eliminating the Subsidy will further equalize Floor Brokers
and members entering electronic orders. Finally, unlike the Subsidy
which is based on monthly volume, there is no volume requirement to
obtain a rebate on either an electronic QCC Order or a Floor QCC Order.
The rebate is paid on each contract for electronic QCC Orders and Floor
QCC Orders. Therefore, all Floor Brokers are in an equal position to
qualify for the rebate.
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 Number SR-Phlx-2011-168 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-2011-168. 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
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-2011-168 and should be
submitted on or before January 9, 2012.
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\14\ 17 CFR 200.30-3(a)(12).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\14\
Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2011-32409 Filed 12-16-11; 8:45 am]
BILLING CODE 8011-01-P