
[Federal Register Volume 76, Number 28 (Thursday, February 10, 2011)]
[Notices]
[Pages 7619-7620]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2011-2951]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-63838; File No. SR-Phlx-2011-11]


Self-Regulatory Organizations; Notice of Filing and Immediate 
Effectiveness of Proposed Rule Change by NASDAQ OMX PHLX LLC To Modify 
Fees for NASDAQ OMX PSX

February 3, 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 January 26, 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 modify the fees applicable to trading on 
the NASDAQ OMX PSX system (``PSX''). The text of the proposed rule 
change is available on the Exchange's Web site at http://nasdaqomxphlx.cchwallstreet.com/NASDAQOMXPHLX/Filings/, 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 is proposing to modify order execution fees applicable 
to use of PSX for trading stocks priced at $1 or more. Since its launch 
in October 2010, PSX has employed a promotional, ``inverted'' pricing 
structure under which the rebate paid to members that provide liquidity 
exceeds the fee charged for accessing liquidity. Specifically, PSX 
currently charges $0.0013 per share executed for orders that access 
liquidity, while paying a higher rebate for orders that provide 
liquidity. Consistent with PSX's goal of encouraging display of larger 
order sizes, the Exchange currently offers a rebate of $0.0024 per 
share executed for Displayed Orders with an original order size of 
2,000 or more shares, but only $0.0018 per share executed for Non-
Displayed Orders or for Displayed Orders with an original order size of 
less than 2,000.\3\
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    \3\ The higher credit applies to an order as it is decremented 
by partial executions, but does not apply in circumstances where an 
order for more than 2,000 shares is entered and then reduced in size 
by the entering Participant, such that the order is subsequently in 
the System for less than 2,000 shares. Moreover, changes to orders 
that result from system operations other than execution and 
decrementation are deemed to result in new orders. For example, a 
Pegged Order is considered a new order each time its price changes.
    Thus, if a Participant entered a 2,400 share order that posted 
to the PSX book, the order was executed for 1,000 shares, and the 
remainder of the order was then executed for 1,400, both of the 
executions would receive the higher credit. However, if a PSX 
Participant entered a 2,400 share order and subsequently modified 
the order down to 1,500 shares, the lower credit would apply. 
Finally, if a Participant entered a 2,400 share buy order pegged to 
the national best bid, the order executed for 1,000 shares, and the 
order then repriced due to a change in the national best bid, the 
1,000 share execution would receive the higher 0.0024 credit but a 
subsequent execution of the repriced order would receive the lower 
credit because it would be treated as a new order with a size below 
2,000 shares.
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    Effective February 1, 2011, the fee for accessing liquidity will 
increase to $0.0025 per share executed, while the rebate for providing 
displayed liquidity with an original order size of 2,000 or more shares 
will remain $0.0024 per share executed. The rebate for Displayed Orders 
with an original order size of less than 2,000 will increase to $0.0022 
per share executed. However, consistent with PSX's goal of encouraging 
greater display of liquidity, the rebate for Non-Displayed Orders that 
provide liquidity will be decreased to $0.0010 per share executed.
2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with the provisions of Section 6 of the Act,\4\ in general, and with 
Section 6(b)(4) of the Act,\5\ in particular, in that it provides for 
the equitable allocation of reasonable dues, fees and other charges 
among members and issuers and other persons using any facility or 
system which the Exchange operates or controls. The impact of the price 
changes upon the net fees paid by a particular market participant will 
depend upon a number of variables, including the prices of the market 
participant's quotes and orders relative to the national best bid and 
offer (i.e., its propensity to add or remove liquidity), its usage of 
Non-Displayed orders, and the size of the orders that it enters. The 
Exchange believes that the proposal reflects an equitable allocation of 
fees, as all similarly situated member organizations will be subject to 
the same fee structure, and access to the Exchange's market is offered 
on fair and non-discriminatory terms.
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    \4\ 15 U.S.C. 78f.
    \5\ 15 U.S.C. 78f(b)(4).
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    Although the change will result in an increase of the fee charged 
to access liquidity on PSX, the fee structure adopted by PSX at its 
inception, in which liquidity provider rebates paid per share exceeded 
access fees charged, reflected a promotional pricing structure for a 
new market entrant under which costs exceed revenues on every share 
executed. Accordingly, the change is a reflection of PSX's more 
established status and the desirability of adopting a price model that 
results in net execution revenues to the Exchange. Similarly, although 
the proposed decrease in the rebate paid with respect to Non-Displayed 
Orders effectively constitutes a price increase, the Exchange believes 
that it may help to advance its market structure goals of encouraging 
the use of the venue as a means to display liquidity. The Exchange 
further notes that these price increases will be partially offset by 
the increase in the rebate paid with respect to orders with a size 
below 2,000 shares.
    The Exchange notes that it operates in a highly competitive market 
in which market participants can readily favor competing venues if they 
deem fee levels at a particular venue to be excessive. The Exchange 
believes that its fees continue to be reasonable and equitably 
allocated to members on the

[[Page 7620]]

basis of whether they opt to direct orders to the Exchange and thereby 
make use of its order execution services. In particular, the Exchange 
notes that the proposed fees are consistent with Rule 610(c) under 
Regulation NMS,\6\ which found that fees not in excess of $0.0030 per 
share executed would promote the objective of equal regulation and 
preventing excessive fees. As the Commission determined in that matter, 
competition is best able to determine whether a strategy of charging 
fees set at lower levels, or of charging a higher fee and paying a 
higher rebate, will be successful.\7\
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    \6\ 17 CFR 242.610(c).
    \7\ Securities Exchange Act Release No. 51808 (June 9, 2005), 70 
FR 37496, 37596 (June 29, 2005).
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B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange does not believe that the proposed rule change will 
result in any burden on competition that is not necessary or 
appropriate in furtherance of the purposes of the Act, as amended. 
Because the market for order execution and routing is extremely 
competitive, members may readily favor the Exchange's competitors in 
making order routing decisions to the extent that they deem PSX's fees 
to be excessive.

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.\8\ 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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    \8\ 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 e-mail to rule-comments@sec.gov. Please include 
File Number SR-Phlx-2011-11 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-2011-11. 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 (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 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 offices 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-2011-11, and should be submitted on or before March 
3, 2011.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\9\
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    \9\ 17 CFR 200.30-3(a)(12).
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Cathy H. Ahn,
Deputy Secretary.
[FR Doc. 2011-2951 Filed 2-9-11; 8:45 am]
BILLING CODE 8011-01-P


