[Federal Register Volume 78, Number 6 (Wednesday, January 9, 2013)]
[Notices]
[Pages 1898-1901]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2013-00256]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-68577; File No. SR-Phlx-2012-141]
Self-Regulatory Organizations; Notice of Filing and Immediate
Effectiveness of Proposed Rule Change by NASDAQ OMX PHLX LLC Relating
to Professional Options Transaction Charges
January 3, 2013.
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 December 21, 2012, 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 certain electronic Professional \3\
Options
[[Page 1899]]
Transaction Charges in Section II \4\ of the Exchange's Pricing
Schedule entitled ``Multiply Listed Options.''
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\3\ The term ``Professional'' means 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). See Rule
1000(b)(14).
\4\ Section II of the Pricing Schedule includes options
overlying equities, ETFs, ETNs, and indexes which are Multiply
Listed.
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While changes to the Pricing Schedule pursuant to this proposal are
effective upon filing, the Exchange has designated the proposed
amendment to be operative on January 2, 2013.
The text of the proposed rule change is available on the Exchange's
Web site at http://nasdaqomxphlx.cchwallstreet.com/, 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
Statutory Basis for, the Proposed Rule Change
1. Purpose
The Exchange proposes to amend Section II of the Exchange's Pricing
Schedule to increase the electronic Professional Options Transaction
Charges for both Penny Pilot Options \5\ and non-Penny Pilot
Options.\6\ The Exchange believes that increasing the electronic
Professional Options Transaction Charges in Penny Pilot and non-Penny
Pilot Options will allow the Exchange to compete more effectively. The
Exchange also believes that the proposed fees will operate to assist
the Exchange in recouping increased costs generally tied to supporting
a larger number of options classes, option series and overall
transaction volume.
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\5\ The Penny Pilot was established in January 2007; and in
October 2009, it was expanded and extended through June 30, 2012.
See Securities Exchange Act Release Nos. 55153 (January 23, 2007),
72 FR 4553 (January 31, 2007) (SR-Phlx-2006-74) (notice of filing
and approval order establishing Penny Pilot); 60873 (October 23,
2009), 74 FR 56675 (November 2, 2009) (SR-Phlx-2009-91) (notice of
filing and immediate effectiveness expanding and extending Penny
Pilot); 60966 (November 9, 2009), 74 FR 59331 (November 17, 2009)
(SR-Phlx-2009-94) (notice of filing and immediate effectiveness
adding seventy-five classes to Penny Pilot); 61454 (February 1,
2010), 75 FR 6233 (February 8, 2010) (SR-Phlx-2010-12) (notice of
filing and immediate effectiveness adding seventy-five classes to
Penny Pilot); 62028 (May 4, 2010), 75 FR 25890 (May 10, 2010) (SR-
Phlx-2010-65) (notice of filing and immediate effectiveness adding
seventy-five classes to Penny Pilot); 62616 (July 30, 2010), 75 FR
47664 (August 6, 2010) (SR-Phlx-2010-103) (notice of filing and
immediate effectiveness adding seventy-five classes to Penny Pilot);
63395 (November 30, 2010), 75 FR 76062 (December 7, 2010) (SR-Phlx-
2010-167) (notice of filing and immediate effectiveness extending
the Penny Pilot); 65976 (December 15, 2011), 76 FR 79247 (December
21, 2011) (SR-Phlx-2011-172) (notice of filing and immediate
effectiveness extending the Penny Pilot); and 67326 (June 29, 2012),
77 FR 40126 (July 6, 2012) (SR-Phlx-2012-86) (notice of filing and
immediate effectiveness extending the Penny Pilot). See also
Exchange Rule 1034.
\6\ Non-Penny Pilot refers to options classes not in the Penny
Pilot.
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Specifically, the Exchange proposes to increase the electronic
Professional Options Transaction Charges for both Penny Pilot Options
and non-Penny Pilot Options from $0.25 to $0.30 per contract. The
Exchange is not proposing to increase the floor Professional Options
Transaction Charges or any other electronic Professional transaction
charges.
The Exchange also proposes to amend its Pricing Schedule at Section
II to add another column to the Professional fees to differentiate
electronic and floor fees as it does today with other market
participants.\7\ The Exchange also proposes a technical amendment to
the Specialist,\8\ Market Maker,\9\ Broker-Dealer \10\ and Firm \11\
transaction fees to correct the Pricing Schedule to note an ``N/A'' for
electronic FLEX \12\ and Cabinet \13\ Options pricing instead of $0.10
per contract. While the $0.10 per contract fee is noted on the Pricing
Schedule, no market participant has been assessed that fee because FLEX
and Cabinet Options are transacted on the Exchange's trading floor and
are not transacted electronically.\14\ The Exchange proposes to note
``N/A'' for those electronic fees because these types of transactions
are not able to be executed electronically on the Exchange and this
would correct the Pricing Schedule to reflect no fee is being assessed.
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\7\ Today, the Specialist, Market Maker, Broker-Dealer and Firm
fees are differentiated between electronic and firm fees.
\8\ A ``Specialist'' is an Exchange member who is registered as
an options specialist pursuant to Rule 1020(a).
\9\ A ``Market Maker'' includes Registered Options Traders (Rule
1014(b)(i) and (ii)), which includes Streaming Quote Traders (see
Rule 1014(b)(ii)(A)) and Remote Streaming Quote Traders (see Rule
1014(b)(ii)(B)). Directed Participants are also market makers.
\10\ Broker-Dealers are assessed a Penny Pilot Options
Transaction Charge of $0.45 per contract for electronic orders and a
non-Penny Pilot Options Transaction Charge of $0.60 for electronic
orders.
\11\ Firms are assessed a Penny Pilot Options Transaction Charge
of $0.40 per contract for electronic orders and a non-Penny Pilot
Options Transaction Charge of $0.45 for electronic orders.
\12\ A FLEX option is a customized option that provides parties
to the transaction with the ability to fix terms including the
exercise style, expiration date, and certain exercise prices. See
Exchange Rule 1079. FLEX Options are a trademark of the Chicago
Board Options Exchange.
\13\ An ``accommodation'' or ``cabinet'' trade refers to trades
in listed options on the Exchange that are worthless or not actively
traded. Cabinet trading is generally conducted in accordance with
Exchange Rules, except as provided in Exchange Rule 1059 entitled
``Accommodation Trading'', which sets forth specific procedures for
engaging in cabinet trading below $1 per option contract. Cabinet or
accommodation trading of option contracts is intended to accommodate
persons wishing to effect closing transactions in those series of
options dealt in on the Exchange for which there is no auction
market.
\14\ The Exchange's systems do not allow for FLEX or Cabinet
transactions to be executed electronically.
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2. Statutory Basis
The Exchange believes that its proposal to amend its Pricing
Schedule is consistent with Section 6(b) of the Act \15\ in general,
and furthers the objectives of Section 6(b)(4) of the Act \16\ 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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\15\ 15 U.S.C. 78f(b).
\16\ 15 U.S.C. 78f(b)(4).
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The Exchange's proposal to increase the electronic Professional
Options Transaction Charges in both Penny Pilot and non-Penny Pilot
Options is reasonable because of the greater costs incurred by the
Exchange associated with supporting a larger number of options classes,
option series and overall transaction volume. Also, the Exchange
believes increasing the electronic Professional Options Transaction
Charges in both Penny Pilot and non-Penny Pilot Options from $0.25 to
$0.30 per contract is reasonable because the $0.05 per contract
increase would allow the Exchange to recoup the aforementioned costs
while also continuing to assess a Professional a rate that is lower
than Broker-Dealer and Firm electronic rates. Also, the increased
Professional fees are comparable with electronic Professional fees at
other options exchanges.\17\
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\17\ The Chicago Board Options Exchange Incorporated (``CBOE'')
assesses professionals and voluntary professionals a $0.30 per
contract transaction fee for electronic orders. See CBOE's Fees
Schedule. See also NYSE Amex LLC's (``NYSE Amex'') Fee Schedule,
which assesses Professional Customers a $0.32 per contract fee for
electronic orders which take liquidity from 1 to 16,999 contracts.
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[[Page 1900]]
The Exchange's proposal to increase the electronic Professional
Options Transaction Charges in both Penny Pilot and non-Penny Pilot
Options is equitable and not unfairly discriminatory because
Professionals would continue to be assessed lower fees as compared to
Broker-Dealers and Firms with respect to electronic options
transactions charges. Market Makers and Specialists would be assessed
lower fees, both electronic and floor, as compared to Professionals,
because Market Makers and Specialists have burdensome quoting
obligations \18\ to the market which do not apply to Professionals,
Customers, Firms and Broker-Dealers. Customers are not assessed Options
Transactions Charges in either Penny Pilot or non-Penny Pilot Options
because Customer order flow brings liquidity to the market, which in
turn benefits all market participants. Broker-Dealers and Firms today
pay higher fees as compared to a Professional for electronic
transactions and this is not changing. The Professional Options
Transaction Charges in both Penny Pilot and non-Penny Pilot Options for
non-electronic transactions or floor transactions would remain
unchanged.
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\18\ See Exchange Rule 1014 entitled ``Obligations and
Restrictions Applicable to Specialists and Registered Options
Traders.''
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The Exchange believes that assessing higher electronic Options
Transaction Charges in both Penny Pilot and non-Penny Pilot Options of
$0.30 per contract as compared to a floor Options Transaction Charge in
both Penny Pilot and non-Penny Pilot Options of $0.25 per contract is
reasonable, equitable and not unfairly discriminatory because these
fees recognize the distinction between the floor order entry model and
the electronic model and the proposed fees respond to competition along
the same lines.\19\ Floor participants incur costs associated with
accessing the floor, i.e. need for a floor broker, and other costs
which are not born by electronic members. Today, the Exchange assesses
different fees for electronic as compared to floor transactions for
Firms, Broker-Dealers, Specialists and Market Makers in Section II of
the Pricing Schedule. The Exchange is proposing to likewise distinguish
electronic and floor Professional Options Transactions Charges in both
Penny and non-Penny Pilot Options. Other options exchanges likewise
distinguish floor and electronic fees for Professionals.\20\ The
Exchange believes that the proposed fees are in line with similar fees
offered on other exchanges.
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\19\ A transaction resulting from an order that was
electronically delivered utilizes Phlx XL II. See Exchange Rules
1014 and 1080. Electronically delivered orders do not include orders
transacted on the Exchange floor. A transaction resulting from an
order that is non-electronically-delivered is represented on the
trading floor by a floor broker. See Exchange Rule 1063. All orders
will be either electronically or non-electronically delivered.
\20\ CBOE assesses a Professional and Voluntary Professional a
$0.25 per contract manual fee in Penny and Non-Penny Classes and
assesses a $0.45 per contract electronic fee in Penny and a $0.60
per contract electronic fee in Non-Penny Pilot Options. NYSE Amex
assesses a $0.25 per contract fee for manual Professional Customer
transactions and a tiered electronic Professional Customer rate
starting at $.32 per contract for electronic orders which take
liquidity from 1 to 16,999 contracts.
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The Exchange operates in a highly competitive market, comprised of
eleven exchanges, in which market participants can easily and readily
direct order flow to competing venues if they deem fee and rebate
levels at a particular venue to be excessive.
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. The Exchange believes that the
proposed electronic Professional Options Transaction Charges in Penny
and non-Penny Pilot Options remain competitive with fees at other
options exchanges. The Exchange believes that the proposed fees are
competitive and do not misalign the differentials currently assessed
with respect to other market participants. Market participants can
easily and readily direct order flow to competing venues if they deem
fee and rebate levels at a particular venue to be excessive.
Accordingly, the fees that are assessed and the rebates paid by the
Exchange must remain competitive with fees charged and rebates paid by
other venues and therefore must continue to be reasonable and equitably
allocated to those members that opt to direct orders to the Exchange
rather than competing venues.
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.\21\ 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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\21\ 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-2012-141 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-2012-141. 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
10:00 a.m. and 3:00 p.m. Copies of the filing also will be available
for
[[Page 1901]]
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-2012-141 and
should be submitted on or before January 30, 2013.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\22\
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\22\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2013-00256 Filed 1-8-13; 8:45 am]
BILLING CODE 8011-01-P