April 3, 2012.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (“Act”),
and Rule 19b-4 
thereunder, notice is hereby given that, on March 26, 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.
I. Self-Regulatory Organization's Statement of the Terms of Substance of the Proposed Rule Change
The Exchange proposes to amend Section III of the Exchange's Pricing Schedule entitled “Singly Listed Options.” The Exchange also proposes to amend Section II of the Pricing Schedule entitled, “Equity Options Fees” to clarify text concerning rebates.
While changes to the Pricing Schedule pursuant to this proposal are effective upon filing, the Exchange has designated certain changes be operative on April 2, 2012, namely the amendments to the Alpha Index Options Fees and the proposed MSCI Index Options Fees. The Exchange proposes the clarifying amendment in Section II be immediately effective.
The text of the proposed rule change is available on the Exchange's Web site at http://nasdaqtrader.com/micro.aspx?id=PHLXRulefilings, 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
The Exchange proposes to amend Section III 
of the Exchange's Pricing Schedule to: (1) Amend the Alpha Index Options Fees; and (ii) create fees for MSCI Index Options. With respect to the Alpha Index Options Fees, the Exchange is lowering the Customer fee and increasing the Professional,
Firm and Broker-Dealer fees with respect to this index. Despite the increases, the fees will continue to be lower than the Options Transaction Charges for other Singly Listed Options. The Exchange proposes these amendments to support options overlying certain NASDAQ OMX Alpha IndexesTM (“Alpha Indexes”).
The Exchange is also proposing to create fees for the MSCI Indexes 
and offer discounted pricing to encourage members and member organizations to trade options overlying MSCI Indexes.
Both the Alpha Indexes and MSCI Indexes trade on the Exchange as Singly Listed Options.
The Exchange currently assesses the following fees on options overlying Alpha Indexes:
| ||Customer||Professional||Market maker||Firm||Broker-Dealer|
|Alpha Index Options||$0.15+||$0.20||$0.00||$0.20||$0.20|
|+ Customer executions with average daily volume of 1,000 Customer contracts or more in a calendar month will be assessed $0.10 per contract.|
The Exchange is proposing to amend the Alpha Index Options Fees as noted below and assess the same fees for MSCI Index Options.
| ||Customer||Professional||Market maker||Firm||Broker-Dealer|
|Alpha and MSCI Index Options||$0.10||$0.25||$0.15||$0.25||$0.25|
The Exchange proposes to eliminate the current incentive for Customer executions with average daily volume of 1,000 Customer contracts or more in a calendar month that are assessed $0.10 per contract. The Exchange is proposing to assess a $0.05 per contract surcharge on non-Customer executions in MSCI Index Options in order to recover a portion of the cost associated with licensing MSCI products.
The Exchange intends that the aforementioned fee amendments become operative on April 2, 2012.
The Exchange also proposes to amend Section II of the Pricing Schedule to clarify that the current $0.07 per contract rebate that is applicable to Customer Orders that are electronically-delivered to a member that has an average daily volume of 50,000 contracts are Customer contracts. The Exchange is assessing rebates for Customer orders based on Customer volume. The Exchange proposes to clarify the text of the Pricing Schedule by adding the word “Customer” in the section of the sentence pertaining to the average daily volume. The Exchange proposes this amendment to be immediately effective.
2. Statutory Basis
The Exchange believes that its proposal to amend its Pricing Schedule is consistent with Section 6(b) of the Act 
in general, and furthers the objectives of Section 6(b)(4) of the Act 
in particular, in that it is an equitable allocation of reasonable fees and other charges among Exchange members and other persons using its facilities.
The Exchange's proposal to amend the Alpha Index Options Fees and assess those same fees for MSCI Index Options is reasonable because the Exchange is seeking to recoup the operation and development costs associated with both the Alpha and MSCI Indexes.
The Exchange would also be assessing lower fees for these options products, despite the increase to certain market participants in the Alpha Index Options Fees, as compared to other Singly Listed Options products to encourage members and member organizations to trade options on Alpha and MSCI Indexes. For example, Customers would be assessed $0.10 per contract to transact options on Alpha and MSCI Indexes as compared to $0.35 per contract for other Singly Listed Options products; Professionals, Firms and Broker-Dealers would be assessed $0.25 per contract as compared to $0.45 per contract for all other Singly Listed Options products; and Market Makers would be assessed $0.15 per contract as compared to the $0.35 per contract for all other Singly Listed Options products.
The Exchange believes that its proposal to amend the Alpha Index Options Fees is equitable and not unfairly discriminatory because despite the increase for all market participants, except Customers, the fees for Alpha Index Options would be lower than those for other Singly Listed Options products as detailed above. Specifically, the Customer fee for Alpha Index Options is being lowered from $0.15 per contract to $0.10 per contract to encourage market participants to transact a greater number of Customer orders in options overlying Alpha Indexes. The Exchange believes that it is equitable and not unfairly discriminatory to assess lower fees to Customers, because all market participants benefit from Customer order flow. The Professional, Firm and Broker-Dealer Alpha Index Options Fees would be increased by $0.05 per contract (from $0.20 per contract to $0.25 per contract) and these fees would be uniformly assessed to these market participants and exclude Customers and Market Makers, which market participant fees are more specifically described herein. Currently, Market Makers 
are not assessed a fee for Alpha Index Options. The Exchange did not initially assess Market Makers a fee because the Exchange desired to encourage such Market Makers to transact Alpha Index Options. At this time, the Exchange still desires to encourage Market Makers to transact Alpha Index Options by assessing them a fee equal to that of a Customer ($0.15 per contract) while still continuing to recognize the burdensome quoting obligations 
to the market which do not apply to Customers, Professionals, Firms and Broker-Dealers. The Exchange also believes the Market Maker fee amendment is equitable and not unfairly discriminatory because the amendment will more closely align the Market Maker fee with other market participant fees for Alpha Index Options.
The Exchange believes that the proposed MSCI Index Options fees are equitable and not unfairly discriminatory because the fees would be lower than those for other Singly Listed Options products as detailed above. In addition, the Exchange would be assessing a lower Customer fee ($0.10 per contract) because the Exchange, as noted above, seeks to encourage Customer order flow, which benefits all market participants. The Exchange would assess Market Makers a lower fee similar to a Customer ($0.15 per contract) because of the burdensome quoting obligations borne by these participants. The remaining market participants, Professionals, Firms and Broker-Dealers, would be uniformly assessed a $0.25 per contract fee to transact MSCI Index Options.
The Exchange also believes that it is reasonable, equitable and not unfairly discriminatory to assess a surcharge of $0.05 per contract for non-Customer executions in MSCI Index Options. The Exchange incurs licensing fees associated with MSCI products and seeks to recoup those costs with the surcharge. The Exchange believes it is equitable and not unfairly discriminatory to assess this surcharge on all participants except Customers because the Exchange seeks to encourage Customer order flow and the liquidity such order flow brings to the marketplace, which in turn benefits all market participants.
The Exchange has previously stated that it incurs higher costs for Singly Listed options as compared to Multiply Listed options.
The Chicago Board Options Exchange, Incorporated (“CBOE”) noted in a comment letter dated June 21, 2010 that CBOE relies upon fees to recoup licensing costs incurred on options products that use third-party proprietary indexes as benchmarks (such as the S&P 500®), and to generate returns on its investments for its own popular proprietary products (such as The CBOE Volatility Index® (“VIX®”) Options).
The Exchange agrees with CBOE's position and while the Exchange continues to assert that Singly Listed products incur higher costs and therefore market participants should be assessed higher fees as compared to Multiply Listed products, the Exchange is proposing to assess lower fees for the Alpha Indexes, and MSCI Indexes,
as a means to promote these new index products.
In addition, the Exchange believes that the proposed fees are reasonable, equitable and not unfairly discriminatory because the fees are consistent with price differentiation that exists today at all option exchanges. For example, CBOE assesses different rates for certain proprietary indexes as compared to other index products transacted at CBOE. VIX options and The S&P 500® Index options (“SPX ”) are assessed different fees than other indexes.
In addition, the concept of offering a volume discount to incentivize order flow is not novel.
The Exchange believes that its proposal to add the term “Customer” as a clarifying amendment to a sentence describing rebates in Section II is reasonable because the addition of the word “Customer” will further clarify that the rebate, applicable to Customer orders, is based on members that have a certain amount of Customer volume. The Exchange believes that the proposal to amend this text is equitable and not unfairly discriminatory because it will help to clarify the Pricing Schedule and the Exchange's calculation of its fees.
The Exchange operates in a highly competitive market, comprised of nine exchanges, in which market participants can easily and readily direct order flow to competing venues if they deem fee levels at a particular venue to be excessive. Accordingly, the fees that are assessed by the Exchange must remain competitive with fees charged 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.
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.
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.
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:
- 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-2012-34. 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 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-2012-34 and should be submitted on or before April 30, 2012.
For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.
Elizabeth M. Murphy,
[FR Doc. 2012-8427 Filed 4-6-12; 8:45 am]
BILLING CODE 8011-01-P