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Self-Regulatory Organizations; NASDAQ OMX PHLX, Inc.; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change Relating to Fees and Rebates for Adding and Removing Liquidity

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Start Preamble March 10, 2010.

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 February 26, 2010, NASDAQ OMX PHLX, Inc. (“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 substantially by the Exchange. Phlx has designated this proposal as one establishing or changing a member due, fee, or other charge imposed under Section 19(b)(3)(A)(ii) of the Act [3] and Rule 19b-4(f)(2) thereunder,[4] which renders the proposal effective upon filing with the Commission. The Commission is publishing this notice to solicit comments on the proposed rule change from interested persons.

I. Self-Regulatory Organization's Statement of the Terms of Substance of the Proposed Rule Change

The Exchange proposes to amend the Exchange's Fee Schedule by adopting per contract transaction fees for options overlying Standard and Poor's Depositary Receipts/SPDRs (“SPY”), [5] the PowerShares QQQ Trust (“QQQQ”)®; Ishares Russell 2000 (“IWM”) and Citigroup Inc. (“C”). The fees would apply to: (i) Transaction sides that remove liquidity from the Exchange's disseminated market, and (ii) Firm and broker-dealer quotes and orders that are included in the Exchange's disseminated market.

Additionally, the Exchange proposes to offer a transaction rebate to certain liquidity providers, as described more fully below.

The text of the proposed rule change is available on the Exchange's Web site at​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

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 increase liquidity and to attract order flow in SPY, QQQQ, IWM and C options on the Exchange.

Transaction Charges for Removing Liquidity:

The Exchange proposes to assess a per-contract transaction charge in SPY, QQQQ, IWM and C options on five different categories of market participants that submit orders and/or quotes that remove, or “take,” liquidity from the Exchange. The per-contract transaction charge would depend on the category of market participant submitting an order or quote to the Exchange that removes liquidity.

The proposed amendments to the Exchange's Fee Schedule would break Start Printed Page 13190down market participants by the following five categories: (i) Specialists, Registered Options Traders (“ROTs”), Streaming Quote Traders (“SQTs”) [6] and Remote Streaming Quote Traders (“RSQTs”); [7] (ii) customers; [8] (iii) specialists, ROTs [sic], SQTs and RSQTs that receive Directed Orders (“Directed Participants” or “Directed Specialists, RSQTs, or SQTs”; [9] ) (iv) Firms; and (v) broker-dealers. For purposes of this fee, a Directed Participant is a Specialist, SQT, or RSQT that executes a customer order that is directed to them by an Order Flow Provider and is executed electronically on PHLX XL II.

The per-contract transaction charges to be assessed on participants who submit proprietary quotes and/or orders that remove liquidity in SPY, QQQQ, IWM and C options from the Exchange in SPY, QQQQ, IWM and C options are, by category:

CategoryRebate (per contract)
Specialist, ROT, SQT, RSQT$0.32
Directed Participants0.30

Transaction Charges for Adding Liquidity:

The Exchange proposes to assess a transaction charge of $0.35 per contract to Firms and $0.45 per contract to broker-dealers that add liquidity.


In order to promote and encourage liquidity in SPY, QQQQ, IWM and C options, the Exchange proposes to amend its fee schedule to include a per-contract rebate relating to transaction charges for orders or quotations that add liquidity in SPY, QQQQ, IWM and C options. The amount of the rebate would depend on the category of participant whose order or quote was executed as part of the Phlx Best Bid and Offer. Specifically, the per-contract rebates are, by category:

CategoryCharge (per contract)
Specialist, ROT, SQT, RSQT$0.23
Directed Participants0.25

Applicability of Other Fees:

  • The Monthly Cap that is currently applicable to ROTs and specialists transacting equity options will not be applicable to the fees described herein.[10]
  • The Firm Related Equity Option Cap will not be applicable to the fees described herein.[11]
  • The Exchange pays a per-contract Market Access Provider (“MAP”) Subsidy to any Exchange member organization that qualifies as an Eligible MAP.[12] The MAP Subsidy will not apply to electronic transactions in SPY, QQQQ, IWM and C.[13]
  • Payment for Order Flow fees [14] will not be collected on transactions in SPY, QQQQ, IWM and C options.
  • All electronic auctions will be free to Customers, Directed Participants, Specialists, ROTs, SQTs and RSQTs.[15] Electronic auctions include, without limitation, the Complex Order Live Auction (“COLA”),[16] and Quote and Market Exhaust auctions.[17] Firms and broker-dealers will be assessed the appropriate charge for removing liquidity.
  • The fees described herein will not apply to contracts executed during the Exchange's opening process.[18] Firms and broker-dealers will be assessed the appropriate charge for removing liquidity.
  • The Exchange pays an Options Floor Broker Subsidy to member organizations with Exchange registered Floor Brokers for eligible contracts that are entered into the Exchange's Options Floor Broker Management System. The Options Floor Broker Subsidy will be applicable to the transactions described herein.[19]
  • The Exchange assesses a Cancellation Fee of $2.10 per order on member organizations for each cancelled electronically delivered customer order in excess of the number of customer orders executed on the Exchange by that member organization in a given month.[20] The Cancellation Fee will continue to apply.
  • Regular Equity Option transaction fees will apply to Complex Orders that are electronically executed against a contra-side order with the same Complex Order Strategy.
  • Single contra-side orders that are executed against the individual components of Complex Orders will be charged under the proposed Fee Schedule. The individual components of such a Complex Order will not be charged.
  • SPY, QQQQ, IWM and C transactions executed via open outcry will be subject to the standard equity options fee schedule. However, if one side of the transaction is executed using the Options Floor Broker Management System [21] and any other side of the trade Start Printed Page 13191was the result of an electronically submitted order or a quote, then the fees proposed herein will apply to the FBMS contracts and contracts that are executed electronically on all sides of the transaction.

2. Statutory Basis

The Exchange believes that its proposal to amend its schedule of fees is consistent with Section 6(b) of the Act [22] in general, and furthers the objectives of Section 6(b)(4) of the Act [23] in particular, in that it is an equitable allocation of reasonable fees and other charges among Exchange members. The impact of the proposal upon the net fees paid by a particular market participant will depend on a number of variables, including its monthly volumes, the order types it uses, and the prices of its quotes and orders (i.e., its propensity to add or remove liquidity).

Specifically, the Exchange believes that its proposal is consistent with the current fee schedule and industry fee assessments of member firms that allow for different rates to be charged for different order types originated by dissimilarly classified market participants.[24]

Order flow providers that control customer order flow and route customer orders to exchanges are responsible to obtain the best pricing available for their customers. An order flow provider has the ability to enter into arrangements whereby they may receive consideration for directing the customer order to a specific market maker (specialists, ROTs [sic], SQTs and/or RSQTs).

The Exchange operates in a highly competitive market in which market participants can readily direct order flow to competing venues if they deem fee levels at a particular venue to be excessive. The Exchange believes that the fees it charges for options overlying SPY, QQQQ, IWM and C remain competitive with fees charged by other venues and therefore continue to be reasonable and equitably allocated to those members that opt to direct orders to the Exchange rather than competing venues.

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 [25] and paragraph (f)(2) of Rule 19b-4 [26] thereunder. At any time within 60 days of the filing of the proposed rule change, the Commission may summarily abrogate 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.

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

Paper Comments

  • Send paper comments in triplicate to Secretary, Securities and Exchange Commission, Station Place, 100 F Street, NE., Washington, DC 20549-1090.

All submissions should refer to File Number SR-Phlx-2010-33. 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 (​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 publicly available. All submissions should refer to File Number SR-Phlx-2010-33 and should be submitted on or before April 8, 2010.

Start Signature

For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.[27]

Florence E. Harmon,

Deputy Secretary.

End Signature End Preamble


3.  15 U.S.C. 78s(b)(3)(A)(ii).

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5.  SPY options are based on the SPDR exchange-traded fund (“ETF”), which is designed to track the performance of the S&P 500 Index.

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6.  An SQT is an Exchange Registered Options Trader (“ROT”) who has received permission from the Exchange to generate and submit option quotations electronically through an electronic interface with AUTOM via an Exchange-approved proprietary electronic quoting device in eligible options to which such SQT is assigned. See Exchange Rule 1014(b)(ii)(A).

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7.  An RSQT is 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 through AUTOM in eligible options to which such RSQT has been assigned. An RSQT may only submit such quotations electronically from off the floor of the Exchange. See Exchange Rule 1014(b)(ii)(B).

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8.  This applies to all customer orders, directed and non-directed.

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9.  See Exchange Rule 1080(l), “* * * The term `Directed Specialist, RSQT, or SQT' means a specialist, RSQT, or SQT that receives a Directed Order.” A Directed Participant has a higher quoting requirement as compared with a specialist, SQT or RSQT who is not acting as a Directed Participant. See Exchange Rule 1014.

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10.  See Securities and Exchange Release No. 61529 (February 17, 2010) (SR-Phlx-2010-17). [sic]

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11.  See SR-Phlx-2010-25.

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12.  An “Eligible MAP” is defined in the Exchange's Fee Schedule in the Market Access Provider Subsidy.

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13.  See Securities Exchange Act Release No. 59537 (March 9, 2009), 74 FR 11151 (March 16, 2009) (SR-Phlx-2009-19).

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14.  See Securities Exchange Act Release No. 59841 (April 29, 2009), 74 FR 21035 (May 6, 2009) (SR-Phlx-2009-38).

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15.  With respect to electronic auctions, it is systemically difficult to determine which participant(s) would qualify for a rebate, therefore the Exchange has determined not to apply the rebate to transactions resulting from electronic auctions.

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16.  COLA is the automated Complex Order Live Auction process. A COLA may take place upon identification of the existence of a COLA-eligible order either: (1) Following a COOP, or (2) during normal trading if the Phlx XL system receives a Complex Order that improves the cPBBO. See Exchange Rule 1080.

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17.  Market Exhaust occurs when there are no Phlx XL II participant (specialist, SQT or RSQT) quotations in the Exchange's disseminated market for a particular series and an initiating order in the series is received. In such a circumstance, the Phlx XL II system, using Market Exhaust, will initiate a Market Exhaust auction for the initiating order. Under Market Exhaust, any order volume that is routed to away markets will be marked as an Intermarket Sweep Order or “ISO.” See Exchange Rule 1082.

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18.  See Exchange Rule 1017.

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19.  See Securities Exchange Act Release No. 60578 (August 27, 2009), 74 FR 45666 (September 3, 2009) (SR-Phlx-2009-72).

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20.  See Securities Exchange Act Release No. 60188 (June 29, 2009), 74 FR 32986 (July 9, 2009) (SR-Phlx-2009-48).

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21.  The Options Floor Broker Management System (“FBMS”) is a component of the Exchange's system designed to enable Floor Brokers and/or their employees to enter, route and report transactions stemming from options orders received on the Exchange. The FBMS also is designed to establish an electronic audit trail for options orders represented and executed by Floor Brokers on the Exchange, such that the audit trial provides an accurate, time-sequenced record of electronic and other orders, quotations and transactions on the Exchange, beginning with the receipt of an order by the Exchange, and further documenting the life of the order through the process of execution, partial execution, or cancellation of that order. AUTOM is the Exchange's electronic order delivery and reporting system, which provides for the automatic entry and routing of Exchange-listed equity options, index options and U.S. dollar-settled foreign currency options orders to the Exchange trading floor. See Exchange Rule 1080, Commentary .06.

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24.  NYSE Amex currently charges different rates to different market participants in assessing its firm facilitation fee. [sic] See Securities Exchange Act Release No. 60378 (July 23, 2009), 74 FR 38245 (July 31, 2009) (SR-NYSEAmex-2009-38).

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25.  15 U.S.C. 78s(b)(3)(A)(ii).

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[FR Doc. 2010-5909 Filed 3-17-10; 8:45 am]