
[Federal Register Volume 77, Number 155 (Friday, August 10, 2012)]
[Notices]
[Pages 47894-47896]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2012-19667]



[[Page 47894]]

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

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-67601; File No. SR-Phlx-2012-102]


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

August 6, 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 July 31, 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.
---------------------------------------------------------------------------

    \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

    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 August 1, 2012. The text of the proposed rule 
change is available at http://nasdaqomxphlx.cchwallstreet.com/nasdaqomxphlx/phlx/, at Phlx's principal office, on the Commission's 
Web site 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. Effective July 2, 2012, Phlx made a number of 
modifications to the PSX fee schedule.\3\ Because these changes have 
negatively impacted PSX's market share, Phlx is proposing to revert to 
the fee schedule in effect prior to July 2, 2012.
---------------------------------------------------------------------------

    \3\ Securities Exchange Act Release No. 67387 (July 10, 2012), 
77 FR 41838 (July 16, 2012) (SR-Phlx-2012-87).
---------------------------------------------------------------------------

    Under the fee schedule in effect during July 2012, for securities 
priced at $1 or more per share, an order that accessed liquidity 
through a market participant identifier (``MPID'') through which a 
market participant provided an average daily volume of 25,000 or more 
shares of liquidity or accessed an average daily volume of 3.5 million 
or more shares of liquidity during the month paid no fee when accessing 
liquidity. Other orders that accessed liquidity paid $0.0005 per share 
executed. For securities priced at less than $1, the fee was 0.10% of 
the total transaction cost. Under the prior schedule, to which PSX is 
reverting, PSX will charge $0.0019 per share executed for orders that 
access liquidity in securities listed on the New York Stock Exchange 
(``NYSE'') priced at $1 or more per share; and $0.0027 per share 
executed for other liquidity-accessing orders priced at $1 or more per 
share. For securities priced under $1, PSX will revert to the prior fee 
of 0.20% of the total transaction cost.
    Also, during July 2012, for securities priced at $1 or more per 
share, Phlx charged $0.0002 per share executed for an order that 
provided liquidity through an MPID through which a market participant 
provided an average daily volume of 10 million or more shares of 
liquidity during the month, and charged $0.0005 per share executed for 
other orders that provided liquidity. Under the prior schedule, to 
which PSX is reverting, PSX will offer a credit to liquidity providers 
in securities priced at $1 or more per share that varies based on the 
type and size of the liquidity-providing order and the market on which 
the stock is listed. Specifically:
     For liquidity provided through displayed orders with an 
original order size \4\ of 2,000 or more shares, the credit will be 
$0.0018 per share executed for securities listed on NYSE and $0.0026 
per share executed for other orders;
---------------------------------------------------------------------------

    \4\ An order will be treated as the original order if it is 
decremented due to executions. However, orders that are modified by 
the PSX Participant entering the order or by System processes other 
than execution and decrementation will be treated as a new order.
---------------------------------------------------------------------------

     For liquidity provided through displayed orders with an 
original order size of less than 2,000 shares, the credit will be 
$0.0016 per share executed for securities listed on NYSE and $0.0024 
per share executed for other orders;
     For liquidity provided through Minimum Life Orders,\5\ the 
credit will be $0.0018 per share executed for securities listed on NYSE 
and $0.0026 per share executed for other orders;
---------------------------------------------------------------------------

    \5\ ``Minimum Life Orders'' are orders that may not be cancelled 
by the entering participant for a period of 100 milliseconds 
following receipt. All Minimum Life Orders must be designated as 
Displayed Orders.
---------------------------------------------------------------------------

     For liquidity provided through non-displayed orders, the 
credit will be $0.0005 per share executed for securities listed on NYSE 
and $0.0010 per share executed for other orders.
    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. This aspect of the PSX fee schedule was not changed in July.
2. Statutory Basis
    Phlx believes that the proposed rule change is consistent with the 
provisions of Section 6 of the Act,\6\ in general, and with Sections 
6(b)(4) and (5) of the Act,\7\ 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.
---------------------------------------------------------------------------

    \6\ 15 U.S.C. 78f.
    \7\ 15 U.S.C. 78f(b)(4) and (5).
---------------------------------------------------------------------------

    The pricing change that PSX made for July 2012 was premised on the 
belief that market participants might be attracted to a pricing model 
under which both liquidity accessors and liquidity providers were 
assessed a very low fee (ranging from $0 to $0.0005). In fact, the 
decrease in market share experienced by PSX has demonstrated that PSX's 
market participants preferred the maker-taker model that was previously 
in effect. Under that model, accessors of liquidity are charged a fee 
ranging from $0.0019 to $0.0027 per share executed for stocks priced at 
$1 or more, and 0.20% of the transaction cost for lower priced stocks. 
The Exchange

[[Page 47895]]

believes that these fees are reasonable because they are consistent 
with the limitations imposed by SEC Rule 610 \8\ on access fees. The 
Exchange further believes that the proposed access fees are consistent 
with an equitable allocation of fees, in that they are set at levels 
that allow the Exchange to pay a credit to liquidity providers that is 
only slightly less than the corresponding access fee. Because the 
payment of such credits encourage liquidity providers to post orders in 
PSX, they also benefit liquidity accessors by increasing the likelihood 
of execution at or near the inside market. The Exchange further 
believes that charging a lower fee with respect to securities listed on 
NYSE than securities listed on other exchanges is not unfairly 
discriminatory because the charges assessed by NYSE for executing 
orders are generally lower than those charged by other exchanges. In 
addition, pricing incentives that focus on securities listed on 
particular listing venues are not uncommon,\9\ and provide means by 
which venues such as Phlx may compete more effectively with listing 
venues such as NYSE.
---------------------------------------------------------------------------

    \8\ 17 CFR 242.610.
    \9\ See, e.g., Securities Exchange Act Release No. 66322 
(February 3, 2012), 77 FR 6831 (February 9, 2012) (SR-NASDAQ-2012-
020) (pricing incentives focused on securities listed on exchanges 
other than The NASDAQ Stock Market or NYSE).
---------------------------------------------------------------------------

    Phlx further believes that the proposed rebates for liquidity 
providers are reasonable because they are set at levels that had 
previously been effective at attracting liquidity-providing orders to 
PSX. In addition, Phlx believes that the proposed rebates reflect an 
equitable allocation of fees because they are slightly lower than the 
corresponding access fees. Moreover, to the extent that the level of 
rebates varies based on the type of order providing liquidity, the 
Exchange believes that the variation is not unreasonably 
discriminatory. Specifically, the Exchange will pay higher rebates with 
respect to Minimum Life Orders and displayed orders with an original 
size of 2,000 or more shares because the Exchange believes that the 
market benefits from the presence of stable orders and orders with 
larger size; specifically, the Exchange believes that such orders have 
the potential to allow market participants to trade larger volumes at 
more predictable prices. Accordingly, the Exchange believes that it is 
not unreasonably discriminatory to pay higher rebates with respect to 
such orders, while paying lower rebates with respect to smaller orders 
and non-displayed orders. Phlx also believes that it is not 
unreasonably discriminatory to pay lower rebates for NYSE-listed 
securities than for other securities, since the rebates paid must be 
correspondingly lower to allow PSX to charge a lower access fee with 
respect to such securities.
    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.\10\ 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.
---------------------------------------------------------------------------

    \10\ 15 U.S.C. 78s(b)(3)(A)(ii).
---------------------------------------------------------------------------

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-2012-102 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-2012-102. 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 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-2012-102 and should be 
submitted on or before August 31, 2012.


[[Page 47896]]


    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\11\
---------------------------------------------------------------------------

    \11\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2012-19667 Filed 8-9-12; 8:45 am]
BILLING CODE 8011-01-P


