
[Federal Register Volume 77, Number 136 (Monday, July 16, 2012)]
[Notices]
[Pages 41838-41840]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2012-17205]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-67387; File No. SR-Phlx-2012-87]


Self-Regulatory Organizations; NASDAQ OMX PHLX LLC; Notice of 
Filing and Immediate Effectiveness of Proposed Rule Change To Modify 
Phlx's Fee Schedule Governing Order Execution on Its NASDAQ OMX PSX 
Facility

July 10, 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 June 27, 2012, NASDAQ OMX PHLX LLC (``Phlx'' or the ``Exchange'') 
filed with the Securities and Exchange Commission (``Commission'') a 
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

    Phlx proposes to modify Phlx's fee schedule governing order 
execution on its NASDAQ OMX PSX (``PSX'') facility. Phlx will implement 
the proposed change on July 2, 2012. The text of the proposed rule 
change is available at http://nasdaqomxphlx.cchwallstreet.com/nasdaqomxphlx/phlx/, at Phlx's principal office, at http://www.sec.gov, 
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 self regulatory organization 
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 those 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 parts of such statements.

A. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    Phlx is proposing to modify its fee schedule governing order 
execution on PSX. Currently, PSX has a fee schedule under which members 
are charged a relatively high fee of $0.0027 per share executed to 
access liquidity and receive a relatively high rebate when providing 
liquidity, with the level of the rebate varying based on whether the 
order providing the liquidity is displayed or non-displayed, whether 
liquidity is provided through a minimum life order, and the original 
size of the order providing the liquidity. In addition, the current fee 
schedule has special pricing with regard to securities listed on the 
New York Stock Exchange (``NYSE'').
    Phlx is proposing to replace much of the current fee schedule with 
a new schedule under which market participants providing liquidity will 
be charged a low fee, and members accessing liquidity will either be

[[Page 41839]]

charged a low fee or not incur a fee, depending on their volume levels. 
Phlx believes that the change may encourage greater use of PSX.
    For securities priced at $1 or more per share, an order that 
accesses liquidity through a market participant identifier (``MPID'') 
through which a market participant provides an average daily volume of 
25,000 or more shares of liquidity or accesses an average daily volume 
of 3.5 million or more shares of liquidity during the month will pay no 
fee when accessing liquidity. Other orders that access liquidity will 
pay $0.0005 per share executed. By contrast, members now pay $0.0019 
per share for accessing liquidity in securities listed on NYSE, and 
$0.0027 per share executed for other securities. For securities priced 
at less than $1, Phlx is lowering the fee from 0.20% of the total 
transaction cost to $0.10% of the total transaction cost.
    For securities priced at $1 or more per share, Phlx will charge 
$0.0002 per share executed for an order that provides liquidity through 
an MPID through which a market participant provides an average daily 
volume of 10 million or more shares of liquidity during the month, and 
will charge $0.0005 per share executed for other orders that provide 
liquidity. By contrast, members now receive a rebate ranging from 
$0.0005 to $0.0026 per share executed when providing liquidity. For 
securities priced below $1, Phlx will continue neither to charge a fee 
nor to pay a rebate with respect to orders that provide liquidity.
2. Statutory Basis
    Phlx believes that the proposed rule change is consistent with the 
provisions of Section 6 of the Act,\3\ in general, and with Sections 
6(b)(4) and (5) of the Act,\4\ 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 Phlx operates or controls, and is not designed to permit 
unfair discrimination between customers, issuers, brokers or dealers. 
All similarly situated members are subject to the same fee structure, 
and access to Phlx is offered on fair and non-discriminatory terms. 
Phlx believes that the change to the fees for orders that access 
liquidity is reasonable, because it will result in a substantial 
reduction in the cost of accessing liquidity on PSX. Similarly, Phlx 
believes that although the proposal will replace rebates for providing 
liquidity on PSX with fees, the change is reasonable because the level 
of the fees is very low compared with fees charged by other trading 
venues that charge liquidity providers. For example, NASDAQ OMX BX 
charges liquidity providers fees that range from $0.0015 to $0.0018 per 
share executed, while PSX proposes to charge fees ranging from $0.0002 
to $0.0005 per share executed. Phlx further believes that the proposed 
changes are consistent with an equitable allocation of fees. The 
changes will result in a move away from a maker-taker pricing model, in 
which one side of a trade pays a fee and the other receives a credit, 
to a model in which both sides are charged very low rates, or one side 
is charged a low rate and the other is not charged. While Phlx believes 
that for many exchanges, the emphasis of the maker-taker pricing model 
on encouraging deep and liquid markets provides market structure 
benefits, it also believes that market participants may benefit from an 
alternative pricing model that offers consistently low cost on all 
trades. Phlx also believes that the proposal is not unfairly 
discriminatory, in that the basic rate of $0.0005 per share executed is 
the same for both accessing and providing liquidity, while more 
favorable pricing tiers are offered to market participants that 
contribute to the success and market quality of PSX through active use 
of its trading services.
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    \3\ 15 U.S.C. 78f.
    \4\ 15 U.S.C. 78f(b)(4) and (5).
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    Finally, Phlx 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. In such an 
environment, Phlx must continually adjust its fees to remain 
competitive with other exchanges and with alternative trading systems 
that have been exempted from compliance with the statutory standards 
applicable to exchanges. Phlx believes that the proposed rule change 
reflects this competitive environment because it is designed to create 
pricing incentives for greater use of PSX's trading services.

B. Self-Regulatory Organization's Statement on Burden on Competition

    Phlx 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 is extremely competitive, members may readily opt 
to disfavor Phlx's execution services if they believe that alternatives 
offer them better value. The proposed change is designed to enhance 
competition by using pricing incentives to encourage greater use of 
PSX's trading services.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants, or Others

    Written comments were neither solicited nor 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.\5\ 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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    \5\ 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 rule-comments@sec.gov. Please include 
File Number SR-Phlx-2012-87 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-2012-87. 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

[[Page 41840]]

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-2012-87 and should be 
submitted on or before August 6, 2012.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\6\
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    \6\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2012-17205 Filed 7-13-12; 8:45 am]
BILLING CODE 8011-01-P


