
[Federal Register Volume 77, Number 87 (Friday, May 4, 2012)]
[Notices]
[Pages 26591-26595]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2012-10754]


-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-66883; File No. SR-Phlx-2012-54]


Self-Regulatory Organizations; NASDAQ OMX PHLX LLC; Notice of 
Filing and Immediate Effectiveness of Proposed Rule Change Relating to 
Complex Order Fees for Removing Liquidity in Select Symbols

April 30, 2012.
    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 April 23, 2012, NASDAQ OMX PHLX LLC (``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 by the Exchange. The Commission is publishing 
this notice to solicit comments on the proposed rule change from 
interested persons.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------

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

    The Exchange proposes to replace a portion of a previously filed 
rule change. Specifically, PHLX is replacing SR-Phlx-2012-27,\3\ which 
amended Section I of the Exchange's Pricing Schedule titled ``Rebates 
and Fees for Adding and Removing Liquidity in Select Symbols,'' with 
this filing which provides additional information concerning the 
current Complex Order Directed Participant and Market Maker Fees for 
Removing Liquidity in Select Symbols. Those fees became effective on 
March 1, 2012 pursuant to SR-Phlx-2012-27, and they will remain in 
effect, unchanged by this filing.
---------------------------------------------------------------------------

    \3\ See Securities Exchange Act Release No. 66551 (March 9, 
2012), 77 FR 15400 (March 15, 2012) (SR-Phlx-2012-27). This rule 
proposal amended the Customer Complex Order Rebate to Add Liquidity, 
adopted a new category of Complex Order ``Rebate to Remove 
Liquidity,'' amended various Complex Order Fees for Removing 
Liquidity and created a volume tier for certain market participants 
that transact significant volumes of Complex Orders. These fees 
became effective on March 1, 2012. The Exchange does not intend to 
amend any pricing changes that became effective in SR-Phlx-2012-27.
---------------------------------------------------------------------------

    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, 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
    This rule change seeks to replace a portion of SR-Phlx-2012-27 to 
provide additional information concerning the Directed Participant and 
Market Maker Fees for Removing Liquidity in Complex Orders.\4\ The 
Exchange filed SR-Phlx-2012-27 in order to attract additional Customer 
Complex Orders from competing exchanges because increased order flow 
benefits all market participants and investors that trade on the 
Exchange. This filing maintains the fees adopted in SR-Phlx-2012-27 
related to Directed Participants and Market Makers because the evidence 
(set forth below) demonstrates that while those fees have been in 
effect, since March 1, 2012 to the present, the Exchange has 
experienced increased Customer order flow. The Exchange continues to 
believe such Customer order flow will encourage Market Makers to 
compete more aggressively to trade against that order flow.
---------------------------------------------------------------------------

    \4\ 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 exchange-traded fund (``ETF'') coupled with 
the purchase or sale of options contract(s). See Exchange Rule 1080, 
Commentary .08(a)(i).
---------------------------------------------------------------------------

    Specifically, the Exchange amended certain fees in Section I of the 
Exchange's Pricing Schedule, entitled ``Rebates and Fees for Adding and 
Removing Liquidity in Select Symbols.'' \5\ The Directed Participant 
Complex Order Fee for Removing Liquidity was increased from $0.30 per 
contract to $0.32 per contract and the Market Maker Complex Order Fee 
for Removing Liquidity was increased from $0.32 per contract to $0.37 
per contract. Today, the Complex Order Fees for Removing Liquidity are 
as follows:
---------------------------------------------------------------------------

    \5\ The Select Symbols are listed in Section I of the Pricing 
Schedule.

----------------------------------------------------------------------------------------------------------------
                                                        Directed     Market               Broker-
                                            Customer  participant    maker       Firm      dealer   Professional
----------------------------------------------------------------------------------------------------------------
Fee for Removing Liquidity...............      $0.00       $0.32       $0.37      $0.38      $0.38        $0.38
----------------------------------------------------------------------------------------------------------------

    The Exchange is not amending any of these prices in this proposal. 
Rather, this proposal is intended to justify further the differential 
between the fees paid by different participants that trade Complex 
Orders. Specifically, the filing addresses the Directed Participant 
Complex Order Fee for Removing Liquidity, which was increased from 
$0.30 per contract to $0.32 per contract, and the Market Maker Complex 
Order Fee for Removing Liquidity, which was increased from $0.32 per 
contract to $0.37 per contract.
2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act \6\ in general, and furthers the objectives of Section 
6(b)(4) of the Act \7\ in particular, in that it is an equitable

[[Page 26592]]

allocation of reasonable fees and other charges among Exchange members 
and other persons using its facilities.
---------------------------------------------------------------------------

    \6\ 15 U.S.C. 78f(b).
    \7\ 15 U.S.C. 78f(b)(4).
---------------------------------------------------------------------------

    SR-Phlx-2012-27 amended the Complex Order Fees for Removing 
Liquidity in Select Symbols to assess a $0.32 per contract Complex 
Order Directed Participant Fee for Removing Liquidity and a $0.37 per 
contract Complex Order Market Maker Fee for Removing Liquidity. The 
Exchange argued in SR-Phlx-2012-27 that it is reasonable, equitable and 
not unfairly discriminatory to increase the Market Maker Complex Order 
Fee for Removing Liquidity from $0.32 to $0.37 per contract and 
increase the Directed Participant Complex Order Fee for Removing 
Liquidity from $0.30 to $0.32 per contract. The Exchange intends in 
this filing to justify further the differential by indicating that the 
differential is reasonable, equitable and not unfairly discriminatory 
because (i) the current fee structure is consistent with fee structures 
at other options exchanges, and reflects a degree of price 
differentiation that is comparable to or lower than the degree that 
exists elsewhere; \8\ (ii) Market Makers are not entitled to guaranteed 
allocations for directed Complex Orders; \9\ (ii) [sic] only Market 
Maker executions against Customer orders that are directed by an OFP 
and executed by that specific Market Maker receive the Complex Order 
Directed Participant fee; \10\ (iii) Market Makers are unaware of the 
identity of the contra-party at the time of the trade and are also 
required to execute at the best price, pursuant to Exchange Rules; (iv) 
Market Makers compete in offering price improvement in auctions; and 
(v) the Directed Participant and Market Maker Fees for Removing 
Liquidity in Complex Orders, along with other Complex Order fee 
increases proposed in SR-Phlx-2012-27,\11\ provide the Exchange an 
opportunity to offer increased Customer rebates,\12\ which attracts 
additional Customer order flow and benefits all market participants.
---------------------------------------------------------------------------

    \8\ The Exchange believes that its fee differentiation as 
between Directed Participants and Market Makers is comparable to a 
fee differentiation at The International Securities Exchange LLC 
(``ISE'') which assesses a complex order take fee in Select Symbols 
of $0.32 per contract for preferenced market makers, $0.34 per 
contract for non-preferenced market makers, firm proprietary and 
customer professionals and $0.38 per contract for the non-ISE market 
maker (FARMM). See ISE's Fee Schedule. The Exchange believes that 
its fee differentiation as between Directed Participants and Market 
Makers is lower than a similar fee differentiation in place at NYSE 
Amex, LLC (``Amex'') which assesses $0.13 per contract for 
Specialists and eSpecialists complex orders, $0.20 per contract for 
an NYSE Amex Options Market Maker-Non Directed and $0.18 per 
contract for a NYSE Amex Options Market Maker-Directed.
    \9\ Unlike Complex Orders, Single contra-side orders are 
governed by Rule 1014. Specifically, Directed Orders that are 
executed electronically shall be automatically allocated as follows: 
(A) First, to customer limit orders resting on the limit order book 
at the execution price; (B) Thereafter, contracts remaining in the 
Directed Order, if any, shall be allocated automatically as follows: 
(1) [sic] The Directed Specialist (where applicable), shall be 
allocated a number of contracts that is the greater of: (a) the 
proportion of the aggregate size at the NBBO associated with such 
Directed Specialist's quote, Streaming Quote Trader (``SQT'') and 
Remote Streaming Quote Trader (``RSQT'') quotes, and non-SQT 
Registered Options Trader (``ROT'') limit orders entered on the book 
at the disseminated price represented by the size of the Directed 
Specialist's quote; (b) the Enhanced Specialist Participation as 
described in Rule 1014(g)(ii); or (c) 40% of the remaining 
contracts. See Rule 1014(g)(viii). Thereafter, SQTs and RSQTs 
quoting at the disseminated price, and non-SQT ROTs that have placed 
limit orders on the limit order book via electronic interface at the 
Exchange's disseminated price shall be allocated contracts according 
to a formula specified in Rule 1014(g)(viii). If any contracts 
remain to be allocated after the specialist, SQTs, RSQTs and non-SQT 
ROTs with limit orders on the limit order book have received their 
respective allocations, off-floor broker-dealers (as defined in Rule 
1080(b)(i)(C)) that have placed limit orders on the limit order book 
which represent the Exchange's disseminated price shall be entitled 
to receive a number of contracts that is the proportion of the 
aggregate size associated with off-floor broker-dealer limit orders 
on the limit order book at the disseminated price represented by the 
size of the limit order they have placed on the limit order book.
    \10\ Other markets discount their directed fee for other classes 
of market participants in addition to customers. For example, Amex 
assesses an NYSE Amex Options Market Maker-Non Directed a fee of 
$0.20 per contract and a NYSE Amex Options Market Maker-Directed a 
fee of $0.18 per contract. See Amex's Fee Schedule. Phlx only 
assesses the Directed Participant Fee for Removing Liquidity with 
respect to Customer orders.
    \11\ SR-Phlx-2012-27 amended the Complex Order Fees for Removing 
Liquidity in Select Symbols to assess Directed Participants $0.32 
per contract, Market Makers $0.37 per contract, and Firms, Broker-
Dealer and Professionals $0.38 per contract.
    \12\ The Exchange amended its Pricing Schedule to offer a higher 
Customer Complex Order Rebate for Adding Liquidity ($0.32 per 
contract) and offer a new Customer Complex Order Rebate for Removing 
Liquidity ($0.06 per contract) in SR-Phlx-2012-27.
---------------------------------------------------------------------------

    As noted above, SR-Phlx-2012-27 increased Complex Order Fees for 
Removing Liquidity in Select Symbols for all market participants, 
except Customers who pay no fee, in order to offer greater Customer 
Complex Order rebates. Market Makers are assessed lower fees than 
Professionals,\13\ Firms and Broker-Dealers. By way of background, 
Specialists,\14\ ROTs,\15\ SQTs \16\ and RSQTs \17\ are Market Makers. 
Such Market Makers may also be categorized as Directed Participants 
only at the time when such Market Makers execute against a Customer 
order directed to that Market Maker for execution by an Order Flow 
Provider (``OFP'').\18\ For example, a Market Maker is assessed the 
Directed Participant category fee for trading against a Customer order 
directed to it for execution by an OFP. That Market Maker is not 
assessed the Directed Participant category fee for executing a Customer 
order directed to different Market Maker, but rather is assessed the 
Market Maker category fee.\19\
---------------------------------------------------------------------------

    \13\ 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).
    \14\ A Specialist is an Exchange member who is registered as an 
options specialist pursuant to Rule 1020(a).
    \15\ A ROT includes an SQT, an RSQT and a Non-SQT, which by 
definition is neither a SQT or a RSQT. A ROT is defined in Exchange 
Rule 1014(b) as a regular member of the Exchange located on the 
trading floor who has received permission from the Exchange to trade 
in options for his own account. See Exchange Rule 1014(b)(i) and 
(ii).
    \16\ An SQT is defined in Exchange Rule 1014(b)(ii)(A) as an ROT 
who has received permission from the Exchange to generate and submit 
option quotations electronically in options to which such SQT is 
assigned.
    \17\ An RSQT is defined Exchange Rule in 1014(b)(ii)(B) as 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 in options to 
which such RSQT has been assigned. An RSQT may only submit such 
quotations electronically from off the floor of the Exchange.
    \18\ The term ``Order Flow Provider'' means any member or member 
organization that submits, as agent, orders to the Exchange. See 
Rule 1080(l)(i)(B).
    \19\ Neither a Market Maker nor a Directed Participant is 
entitled to a rebate for transacting a Customer Complex Order today.
---------------------------------------------------------------------------

    The fee structure is consistent with fee structures at other 
options exchanges.
    Market Makers are valuable market participants that provide 
liquidity in the marketplace and incur costs unlike other market 
participants including, but not limited to, SQF Port Fees \20\ to 
assist them in responding to auctions and providing liquidity to the 
market.\21\ The Directed Participant and Market Maker fees were lower 
as compared to those charged to other market participants prior to the 
amendment which became effective on March 1, 2012 with SR-Phlx-2012-27 
and continue to be lower. In addition, the Exchange believes that its 
fee differentiation is within the range of other exchanges, as 
mentioned previously with respect to ISE and Amex, and lower than other 
fee

[[Page 26593]]

differentiations that exist today, and have for some time, at Amex. The 
Exchange notes that Amex has three classes of market makers on its fee 
schedule: (1) Specialist, eSpecialist; (2) NYSE Amex Options Market 
Maker-Non-Directed; and (3) NYSE Amex Options Market Maker-Directed 
(taken together, ``Amex Market Makers''). Amex imposes the standard per 
contract fees on electronic trades for simple and complex orders.\22\ 
Pursuant to Amex rules, Amex Market Makers have no allocation rights or 
quoting obligations in the Amex complex order system and Amex Market 
Makers are eligible to receive orders directed to them for 
execution.\23\ With no additional quoting obligations or other 
requirements for complex orders, Amex assesses a Specialist and 
eSpecialist a fee of $.13 per contract while assessing a NYSE Amex 
Options Market Maker-Non-Directed a fee of $.20 per contract. This fee 
differentiation is greater than that currently in place on the 
Exchange. Amex differentiates one type of market maker, the Specialist 
and eSpecialist, from other Amex Market Makers who receive directed 
orders, in its pricing with a $.07 per contract fee differential.\24\ 
As mentioned herein, a Market Maker on Phlx includes Specialists and 
Remote Specialists.\25\ For this reason, the Exchange believes that its 
current fee differentiation is equitable and not unfairly 
discriminatory because the fees and fee differentiation in place at the 
Exchange are competitive with and lower than fees and differentials at 
other options exchanges.\26\
---------------------------------------------------------------------------

    \20\ SQF Port Fees are listed in the Exchange's Pricing Schedule 
at Section VII.
    \21\ Also important are the continuous quoting obligations 
applicable to Market Makers. Market Makers have these obligations 
for each series in which they are assigned pursuant to Rule 1014 
entitled ``Obligations and Restrictions Applicable to Specialists 
and Registered Options Traders.'' These burdensome quoting 
obligations to the market do not apply to Customers, Firms, 
Professionals and Broker-Dealers. Also, Market Makers that receive 
Directed Orders have higher quoting obligations compared to other 
Market Makers.
    \22\ See Securities Exchange Act Release No. 65549 (October 13, 
2011), 76 FR 64983 (SR-NYSEAmex-2011-77) (notice of filing and 
immediate effectiveness amending electronic complex orders). Amex 
noted in that filing that the standard per contract fees apply to 
electronic complex orders.
    \23\ See Amex Rule 964NY entitled ``Display, Priority and Order 
Allocation-Trading Systems.'' See also Amex Rule 980NY ``Electronic 
Complex Order Trading.''
    \24\ Pursuant to Amex's Rules, specialists and market makers may 
receive directed orders in their appointed classes. See Amex Rule 
964.1NY entitled ``Directed Orders.''
    \25\ See Exchange Rule 1020. An options Specialist includes a 
Remote Specialist which is a defined as an options specialist in one 
or more classes that does not have a physical presence on an 
Exchange floor and is approved by the Exchange pursuant to Rule 501.
    \26\ By way of further example, the Exchange notes that Amex 
assesses a NYSE Amex Options Market Maker-Directed a fee of $.18 per 
contract which creates a $.05 per contract fee differential when 
compared to the Specialist and eSpecialist fee of $.13 per contract 
for electronic executions in complex orders.
---------------------------------------------------------------------------

    Only Market Maker executions against Customer orders that are 
directed by an OFP and executed by that specific Market Maker receive 
the Complex Order Directed Participant fee.
    The Exchange's Fee for Removing Liquidity for Single contra-side 
transactions in Select Symbols for the Directed Participant category is 
two cents lower than the Fee for Removing Liquidity for the Market 
Maker category.\27\ The Exchange amended the Complex Order Fees for 
Removing Liquidity in Select Symbols to increase the fee differential 
between the Directed Participant and Market Maker categories from $0.02 
per contract to $0.05 per contract for Complex Order transactions to 
also reflect the fact that unlike in the case of a Single contra-side 
order, a Directed Participant does not have a guaranteed allocation in 
a Complex Order. Market Makers receive no allocation guarantee when a 
Customer Complex Order is directed to them by an OFP and the order is 
executed. Directed Specialists, Directed ROTs, Directed SQTs and 
Directed RSQTs are guaranteed a 40% allocation with respect to Single 
contra-side transactions eligible as a Directed Order.\28\
---------------------------------------------------------------------------

    \27\ Today, the Exchange assess Directed Participants a fee of 
$0.36 per contract and Market Makers a fee of $0.38 per contract for 
Single contra-side transactions in Select Symbols.
    \28\ Complex Orders can be distinguished from Single contra-side 
transactions with respect to allocation guarantees applicable to 
Directed Specialists, Directed ROTs, Directed SQTs and Directed 
RSQTs pursuant to Rule 1014(g)(viii). See also Securities Exchange 
Act Release No. 57844 (May 21, 2008), 73 FR 30988 (May 29, 2008) 
(SR-Phlx-2008-39) (notice of filing and order granting accelerated 
approval relating to the permanent approval of the Exchange's 
Directed Order Flow program.)
---------------------------------------------------------------------------

    Market Makers are unaware of the identity of the contra-party at 
the time of the trade and are required to execute at the best price.
    Also, only Customer Complex Order flow which is directed to a 
Market Maker by an OFP and is executed by that particular Market Maker 
is eligible for Directed Participant fees for Complex Orders.\29\ When 
a Market Maker executes against a Customer Complex Order the Market 
Maker may do so by responding to an auction,\30\ executing against an 
order on the Complex Order Book (``CBOOK''), or sweeping a resting 
Customer Complex Order.\31\ The Customer Complex Order may also be 
executed against existing quote and or limit orders on the limit order 
book for the individual components of the Complex Order.\32\ In each of 
these cases, the order will trade based on the best price or prices 
available pursuant to Exchange Rules.\33\ Therefore, in order to enjoy 
the benefits of trading against a directed Complex Customer order by 
receiving a lower transaction fee (the Directed Participant Complex 
Order Fee for Removing Liquidity), the transaction must: (i) Occur at 
the best price; and (ii) be directed, by an OFP, to the particular 
Market Maker that executed the order. Also, it is important to note 
that all market participants may compete equally for Customer Complex 
Order executions, even if that Customer Complex Order is directed to a 
specific Market Maker.
---------------------------------------------------------------------------

    \29\ All other types of directed non-Customer order flow are not 
eligible for Directed Participant pricing.
    \30\ The Complex Order Live Auction (``COLA'') is the auction 
for eligible Complex Orders. See Rule 1080, Commentary .08.
    \31\ A COLA Sweep is when a Phlx XL participant bids and/or 
offers on either or both sides of the market during the COLA Timer 
(a timing mechanism which is a counting period not to exceed 5 
seconds) by submitting one or more bids or offers that improve the 
cPPBO (the best net debit or credit price for a Complex Order 
Strategy based on the PBBO for individual components of such Complex 
Order Strategy). See Rule 1080, Commentary .08.
    \32\ In this scenario the Customer order is ``legged'' against 
interest present in the disseminated market.
    \33\ See Rule 1080.

---------------------------------------------------------------------------

[[Page 26594]]

    A Market Maker, at the time of the trade, is unaware of the 
identity of the contra-party to the trade. In other words, it is only 
sometime after the trade occurs that the Market Maker learns whether 
the Market Maker or Directed Participant fees will be assessed on a 
particular transaction.\34\ It is important to note that Customer 
Complex Orders do not always interact with the intended recipient of 
the order where such an order was directed because the Market Maker may 
not have been at the best price at the time the order was executed. For 
the time period from September 1, 2011 through April 19, 2012, the 
percentage of Customer Complex directed orders that traded with the 
Market Maker to which the trade was directed is reflected in the table 
below:
---------------------------------------------------------------------------

    \34\ This distinction holds true today for Market Makers and 
Directed Participants executing either Single contra-side 
transactions (Part A of Section I of the Pricing Schedule) or 
Complex Orders (Part B of Section I of the Pricing Schedule). When a 
Single contra-side transaction is executed against the individual 
components of a Complex Order, the Single contra-side part of the 
order will be subject to the fees in Part A of the Pricing Schedule 
and the individual components will be subject to the fees in Part B.

--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                 October      November     December     January      February                April 1-19,
                        September 2011                             2011         2011         2011         2012         2012      March 2012      2012
--------------------------------------------------------------------------------------------------------------------------------------------------------
17.02%.......................................................       16.16%       17.94%       14.01%        6.19%       11.47%       14.19%       17.13%
--------------------------------------------------------------------------------------------------------------------------------------------------------

     Generally, a Market Maker will be assessed the Market Maker Fee 
for Removing Liquidity in Complex Orders when the Market Maker is not 
executing a Customer order intended for that Market Maker. Moreover, in 
a given month the effective Complex Order Fee for Removing Liquidity 
for a Market Maker that also has executions subject to the Directed 
Participant rate is approximately $0.02 below the Market Maker Complex 
Order Fee for Removing Liquidity.\35\
---------------------------------------------------------------------------

    \35\ For example if a Market Maker, that is the intended 
recipient of a Customer Complex Order, only executes the Customer 
Complex Order 14.5% of the time (paying the Directed Participant 
Complex Order fee of $0.32 per contract), then that Market Maker is 
paying the proposed Market Maker Complex Order fee of $0.37 per 
contract the other 85.5% of the time. The effective Complex Order 
Fee for Removing Liquidity for that Market Maker is $0.3613 in a 
given month, less than $0.01 below the rate paid by a Market Maker 
that never receives a Customer Complex Order directed to it for 
execution.
---------------------------------------------------------------------------

    Market Makers compete in offering price improvement in auctions.
    The Exchange bases its belief that the fees are reasonable, in 
part, on an analysis of the level of price improvement currently 
received by Customer Complex Orders trading in an auction process. 
Based on an analysis of the week of October 10, 2011, Customer Complex 
Orders received price improvement 29% of the time and the average level 
of price improvement was $0.059 per option or $5.90 per contract for 
options receiving price improvement. Based on an analysis of the week 
of April 9, 2012, Customer Complex Orders received price improvement 
29% of the time and the average level of price improvement was $0.056 
per option or $5.60 per contract for options receiving price 
improvement.
    Market Makers compete in offering price improvement in auctions. 
The significant difference in magnitude between the proposed $0.05 per 
contract increased fee differential (between Market Makers and Directed 
Participants) and the extent of price improvement supports the 
Exchange's belief that the fee is reasonable and will have a negligible 
impact on Directed and non-Directed Market Makers.
    The Directed Participant and Market Maker Complex Order Fees for 
Removing Liquidity provide the Exchange an opportunity to offer 
increased Customer rebates to attract Customer order flow.
    Today, options exchanges aggressively compete for Complex order 
flow. In January 2012, based on data from the Options Price Reporting 
Authority (``OPRA''), the average daily equity options complex order 
transactions on the various option exchanges totaled 117,539. The 
combined total for the last six months of 2011 was 593,286. With 
respect to market share, the six options exchanges handling complex 
orders had market share in complex orders ranging from 2.4% to 40.1% in 
January 2012. The Exchange believes the increased fees, which fund 
Customer Complex Order rebates, bring more Customer order flow to the 
market and, in turn, benefit all market participants.
    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 or rebates offered to be insufficient. 
Accordingly, the fees that are assessed by the Exchange and the rebates 
it pays for options overlying the various Select Symbols in Complex 
Orders must remain competitive with fees and rebates charged/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.

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.\36\ 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.\37\
---------------------------------------------------------------------------

    \36\ 15 U.S.C. 78s(b)(3)(A)(ii).
    \37\ In a separate order, the Commission is temporarily 
suspending and instituting proceedings to determine whether the 
proposed rule change SR-Phlx-2012-54, as well as SR-Phlx-2012-27, 
should be approved or disapproved. See Securities Exchange Act 
Release No. 66884 (April 30, 2012).
---------------------------------------------------------------------------

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:

[[Page 26595]]

Electronic Comments

     Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to rule-comments@sec.gov. Please include 
File Number SR-Phlx-2012-54 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-2012-54. 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 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-2012-54 and should be 
submitted on or before May 25, 2012.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\38\
---------------------------------------------------------------------------

    \38\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2012-10754 Filed 5-3-12; 8:45 am]
BILLING CODE 8011-01-P


