Self-Regulatory Organizations; NASDAQ OMX PHLX, Inc.; Notice of Filing and Immediate Effectiveness of Proposed Rule Change Relating to an Options Regulatory Fee, 66715-66718 [E9-29830]

Download as PDF Federal Register / Vol. 74, No. 240 / Wednesday, December 16, 2009 / Notices 500 Index stocks. Thus, the Commission believes that it is appropriate to allow CBOE to immediately list and trade options on the S&P 500 Dividend Index, providing investors with additional means to manage their risk exposure and carry out their investment objectives. Accordingly, the Commission finds good cause, consistent with Section 19(b)(2) of the Act,23 to approve the proposal, as modified by Amendment No. 1, on an accelerated basis. V. Solicitation of Comments Interested persons are invited to submit written data, views and arguments concerning Amendment No. 1, including whether Amendment No. 1 is consistent with the Act. Comments may be submitted by any of the following methods: srobinson on DSKHWCL6B1PROD with NOTICES Electronic Comments • Use the Commission’s Internet comment form (https://www.sec.gov/ rules/sro.shtml); or • Send an e-mail to rulecomments@sec.gov. Please include File Number SR–CBOE–2009–022 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–CBOE–2009–022. 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 (https://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 inspection and copying in the Commission’s Public Reference Room, 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–CBOE– 2009–022 and should be submitted on or before January 6, 2010. VI. Conclusion It is therefore ordered, pursuant to Section 19(b)(2) of the Act,24 that the proposed rule change (SR–CBOE–2009– 022), as modified by Amendment No. 1, be, and hereby is, approved on an accelerated basis. By the Commission. Elizabeth M. Murphy, Secretary. [FR Doc. E9–29826 Filed 12–15–09; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–61133; File No. SR–Phlx– 2009–100] Self-Regulatory Organizations; NASDAQ OMX PHLX, Inc.; Notice of Filing and Immediate Effectiveness of Proposed Rule Change Relating to an Options Regulatory Fee December 9, 2009. 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 December 7, 2009, NASDAQ OMX PHLX, Inc. (‘‘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 eliminate its Registered Representative/Member Exchange/Off-Floor Trader Registration Fee and establish an Options Regulatory Fee. While changes to the Exchange’s Fee Schedule pursuant to this proposal are effective upon filing, the Exchange has designated this proposal to be operative for trades settling on or after January 1, 2010, at which point the Registered Representative/Member Exchange/Off24 15 U.S.C. 78s(b)(2). U.S.C. 78s(b)(1). 2 17 CFR 240.19b–4. 1 15 23 15 U.S.C. 78s(b)(2). VerDate Nov<24>2008 16:18 Dec 15, 2009 Jkt 220001 PO 00000 Frm 00102 Fmt 4703 Sfmt 4703 66715 Floor Trader Registration Fee would be eliminated. The text of the proposed rule change is available on the Exchange’s Web site at https://www.nasdaqtrader.com/ micro.aspx?id=PHLXRulefilings, on the Commission’s Web site at https:// www.sec.gov, 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 proposes to eliminate its Registered Representative/Member Exchange/Off-Floor Registration Trader Fee of $55.00, the initial registration fee of $55.00, the transfer fee of $55.00 and the termination fee of $30.00 (‘‘Registration Fees’’). The Exchange proposes to establish an Options Regulatory Fee (‘‘ORF’’) of $.0035 per contract to each member for all options transactions executed or cleared by the member that are cleared by The Options Clearing Corporation (‘‘OCC’’) in the customer range, excluding Options Intermarket Linkage Plan (‘‘Linkage’’) P/A Orders.3 Registration Fees as well as other regulatory fees collected by the Exchange are intended to cover a portion of the cost of the Exchange’s regulatory programs.4 Today options exchanges, regardless of size, charge similar registered representative fees or an ORF similar to the proposal herein. Currently, Exchange rules require that 3 The Exchange understands that certain Exchanges continue to utilize Linkage to send P/A Orders. Linkage may be discontinued by the operative date. 4 In addition to Registration Fees, the Exchange derives revenue associated with its regulatory programs from its Examinations Fee. This fee is applicable to member/participant organizations for which the Exchange is the Designated Examining Authority (‘‘DEA’’). The Fee is a tiered fee and certain organizations are exempted from the fee. See Exchange’s Fee Schedule. E:\FR\FM\16DEN1.SGM 16DEN1 66716 Federal Register / Vol. 74, No. 240 / Wednesday, December 16, 2009 / Notices every qualified Registered Representative 5 of a member or participant organization must be registered with and approved by the Exchange.6 The Member Exchange category refers to Exchange permit holders.7 The Exchange believes that Registration Fees are no longer the best manner to assess regulatory fees because more than 60% of the Exchange’s Registration Fees are paid by five member organizations. Further to the point, today there are more Internet and discount brokerage firms with few registered persons that pay little in Registration Fees and fewer traditional brokerage firms with many registered persons. The regulatory effort the Exchange expends to review the transactions of each type of firm is not commensurate with the number of registered persons that each firm employs. In addition, due to the manner in which Registration Fees are charged, it is possible for a member firm to restructure its business to avoid paying these fees altogether. A firm can avoid Registration Fees by terminating its Exchange membership and sending its business to the Exchange through another member firm, even an affiliated firm that has significantly fewer registered persons. If member firms terminated their memberships to avoid Registration Fees, the Exchange would suffer the loss of a major source of funding for its regulatory programs. The Exchange proposes to eliminate Registration Fees and replace them with a transaction-based ORF. The ORF would be $.0035 per contract and would be assessed by the Exchange to each member for all options transactions executed or cleared by the member that are cleared by The Options Clearing Corporation (‘‘OCC’’) in the customer range (i.e., that clear in the customer account of the member’s clearing firm at OCC), excluding P/A Orders as defined in the Options Intermarket Linkage Plan srobinson on DSKHWCL6B1PROD with NOTICES 5 Registered Representative categories include registered options principals, general securities representatives, general securities sales supervisors and United Kingdom limited general securities registered representatives but do not include ‘‘offfloor’’ traders. See Exchange Rule 604(e). See also Exchange Rule 604(a) and (d). 6 See Exchange Rule 604. Every person who is compensated directly or indirectly by a member or participant organization for which the Exchange is the DEA, or any other associated person of such member or participant organization, and who executes, makes trading decisions with respect to, or otherwise engages in proprietary or agency trading of securities, including, but not limited to, equities, preferred securities, convertible debt securities or options off the floor of the Exchange (‘‘off-floor traders’’), must successfully complete the Series 7 General Securities Registered Representative Examination. 7 See Exchange Rule 600. VerDate Nov<24>2008 16:18 Dec 15, 2009 Jkt 220001 (‘‘Linkage’’).8 The ORF would be imposed upon all such transactions executed by a member, even if such transactions do not take place on the Exchange.9 The ORF also includes options transactions that are not executed by an Exchange member but are ultimately cleared by an Exchange member. Thus the Exchange would charge a member $.0035 per contract for all options transactions executed or cleared by the member that are cleared by OCC in the customer range, excluding Linkage P/A Orders, regardless of the marketplace of execution. In the case where one member both executes a transaction and clears the transaction, the ORF would be assessed to the member only once on the execution. In the case where one member executes a transaction and a different member clears the transaction, the ORF would be assessed only to the member who executes the transaction and would not be assessed to the member who clears the transaction. In the case where a non-member executes a transaction and a member clears the transaction, the ORF would be assessed to the member who clears the transaction. The ORF would not be charged for member options transactions because members incur the costs of owning memberships and through their memberships are charged transaction fees, dues and other fees that are not applicable to non-members.10 The dues and fees paid by members go into the general funds of the Exchange, a portion of which is used to help pay the costs of regulation. Thus, the Exchange believes members are already paying their fair share of the costs of regulation.11 Moreover, because the 8 See Securities Exchange Act Release Nos. 60405 (July 30, 2009), 74 FR 39362 (August 6, 2009) (National Market System Plan Relating to Options Order Protection and Locked/Crossed Markets). 9 The ORF would apply to all ‘‘C’’ account origin code orders executed by a member on the Exchange. Exchange rules require each member to record the appropriate account origin code on all orders at the time of entry in order to allow the Exchange to properly prioritize and route orders and assess transaction fees pursuant to the rules of the Exchange and report resulting transactions to the OCC. See Exchange Rule 1063, Responsibilities of Floor Brokers, and Options Floor Procedure Advice F–4, Orders Executed as Spreads, Straddles, Combinations or Synthetics and Other Order Ticket Marking Requirements. The Exchange represents that it has surveillances in place to verify that members mark orders with the correct account origin code. 10 For example, non-broker-dealer customers generally are not charged transaction fees to trade equity options on the Exchange. 11 If the Exchange changes its method of funding regulation or if circumstances otherwise change in the future, the Exchange may decide to impose the ORF or a separate regulatory fee on members if the Exchange deems it advisable. In the event that the PO 00000 Frm 00103 Fmt 4703 Sfmt 4703 ORF would replace Registration Fees, which relate to a member’s customer business, the Exchange believes it is appropriate to charge the ORF only to transactions that clear as customer at the OCC. The Exchange believes that its broad regulatory responsibilities with respect to its members’ activities, supports applying the ORF to transactions cleared but not executed by a member. The Exchange’s regulatory responsibilities are the same regardless of whether a member executes a transaction or clears a transaction executed on its behalf. The Exchange regularly reviews all such activity, including performing surveillance for position limit violations, manipulation, frontrunning contrary exercise advice violations and insider trading.12 The ORF is collected indirectly from members through their clearing firms by OCC on behalf of the Exchange. There is a minimum one-cent charge per trade. The Exchange expects that member firms will pass-through the ORF to their customers in the same manner that firms pass-through to their customers the fees charged by SROs to help the SROs meet their obligation under Section 31 of the Exchange Act. The ORF is designed to recover a portion of the costs to the Exchange of the supervision and regulation of its members, including performing routine surveillances, investigations, examinations, financial monitoring, and policy, rulemaking, interpretive, and enforcement activities. The Exchange believes that revenue generated from the ORF, when combined with all of the Exchange’s other regulatory fees, will cover a material portion, but not all, of the Exchange’s regulatory costs. The total amount of regulatory fees collected by the Exchange is less than the regulatory costs incurred by the Exchange on an annual basis. Registration Fees make up the largest part of the Exchange’s total regulatory Exchange does decide to impose such a fee, that fee would be filed with the Commission pursuant to Section 19 of the Act. 12 The Exchange also participates in The Options Regulatory Surveillance Authority (‘‘ORSA’’)12 national market system plan and in doing so shares information and coordinates with other exchanges designed to detect the unlawful use of undisclosed material information in the trading of securities options. ORSA is a national market system comprised of several self-regulatory organizations whose functions and objectives include the joint development, administration, operation and maintenance of systems and facilities utilized in the regulation, surveillance, investigation and detection of the unlawful use of undisclosed material information in the trading of securities options. The Exchange compensates ORSA for the Exchange’s portion of the cost to perform insider trading surveillance on behalf of the Exchange. The ORF will cover the costs associated with the Exchange’s arrangement with ORSA. E:\FR\FM\16DEN1.SGM 16DEN1 Federal Register / Vol. 74, No. 240 / Wednesday, December 16, 2009 / Notices srobinson on DSKHWCL6B1PROD with NOTICES fee revenue. The Exchange collects other regulatory revenues from DEA Fees.13 The Exchange notes that its regulatory responsibilities with respect to member compliance with options sales practice rules have been allocated to FINRA under a 17d–2 agreement. The ORF is not designed to cover the cost of options sales practice regulation. The ORF is designed to generate revenue that, when combined with all of the Exchange’s other regulatory fees, will approximate the Exchange’s regulatory costs. The Exchange would monitor the amount of revenue collected from the ORF to ensure that it, in combination with its other regulatory fees and fines, does not exceed regulatory costs. The Exchange expects to monitor regulatory costs and revenues at a minimum on an annual basis. If the Exchange determines regulatory revenues would exceed regulatory costs, the Exchange would adjust the ORF by submitting a fee change filing to the Commission. The Exchange notifies members of adjustments to the ORF via an Options Trader Alert (‘‘OTA’’). The Exchange believes the proposed ORF is equitably allocated because it would be charged to all members on all their customer options business (as defined above). The Exchange believes the proposed ORF is reasonable because it will raise revenue related to the amount of customer options business conducted by members, and thus the amount of Exchange regulatory services those members will require, instead of how many registered persons a particular member firm employs.14 The Exchange believes it is reasonable and appropriate for the Exchange to charge the ORF for options transactions regardless of the exchange on which the transactions occur. The Exchange has a statutory obligation to enforce compliance by its members and their associated persons with the Act and the rules of the Exchange and to surveil for other manipulative conduct by market participants (including non-members) trading on the Exchange. The Exchange cannot effectively surveil for such conduct without looking at and 13 The Exchange assesses the Examinations Fee to each firm for which the SEC has designated the Exchange to be the DEA pursuant to SEC Rule 17d– 1. The Examinations Fee is intended to reimburse the Exchange for its costs associated with examining member firms and is generally the same throughout the SRO community. The Examination Fee is based on the number of off-floor traders in the same member organization. 14 The Exchange expects that implementation of the proposed ORF will result generally in many traditional brokerage firms paying less regulatory fees while Internet and discount brokerage firms will pay more. VerDate Nov<24>2008 16:18 Dec 15, 2009 Jkt 220001 evaluating activity across all options markets. Many of the Exchange’s market surveillance programs require the Exchange to look at and evaluate activity across all options markets, such as surveillance for position limit violations, manipulation, frontrunning, contrary exercise advice violations and locked/crossed markets in connection with the Linkage.15 The Exchange, along with other options exchanges are required to populate a consolidated options audit trail (‘‘COATS’’) system in order to surveil member activities across markets.16 In addition to its own surveillance programs, the Exchange works with other SROs and exchanges on intermarket surveillance related issues. Through its participation in the Intermarket Surveillance Group (‘‘ISG’’) the Exchange shares information and coordinates inquiries and investigations with other exchanges designed to address potential intermarket manipulation and trading abuses.17 The Exchange believes that charging the ORF across markets will avoid having members direct their trades to other markets in order to avoid the fee and to thereby avoid paying for their fair share of regulation. If the ORF did not apply to activity across markets, then members would send their orders to the least cost, least regulated exchange. Other exchanges would, of course, be free to impose a similar fee on their member’s activity, including the activity of Exchange members. Finally, there is established precedent for an SRO charging a fee across markets, namely, FINRA’s Trading Activity Fee 18 and the Chicago Board of Options Exchange, Inc.’s (‘‘CBOE’’) ORF.19 While the Exchange does not 15 The Exchange and other options SROs are parties to a 17d–2 agreement allocating among the SROs regulatory responsibilities relating to compliance by their common members with rules for expiring exercise declarations, position limits, OCC trade adjustments, and Large Option Position Report reviews. See Securities Exchange Act Release No. 56941 (December 11, 2007), 72 FR 71723 (December 18, 2007). 16 COATS effectively enhances intermarket options surveillance by enabling the options exchanges to reconstruct markets promptly, effectively surveil them and enforce order handling, firm quote, trade reporting and other rules. 17 ISG is an industry organization formed in 1983 to coordinate intermarket surveillance among the SROs by cooperatively sharing regulatory information pursuant to a written agreement between the parties. The goal of the ISG’s information sharing is to coordinate regulatory efforts to address potential intermarket trading abuses and manipulations. 18 See Securities Exchange Act Release No. 47946 (May 30, 2003), 68 FR 34021 (June 6, 2003) (SR– NASD–2002–148). 19 See Securities Exchange Act Release Nos. 58817 (October 20, 2008), 73 FR 63744 (October 27, 2009) (SR–CBOE–2008–105). PO 00000 Frm 00104 Fmt 4703 Sfmt 4703 66717 have all of the same regulatory responsibilities as FINRA, the Exchange believes that like the CBOE, its broad regulatory responsibilities with respect to its members’ activities, irrespective of where their transactions take place, supports a regulatory fee applicable to transactions on other markets. Unlike the TAF, the ORF would apply only to a member’s customer options transactions. Currently, the Exchange is in negotiations with FINRA to render regulatory services which are currently performed by the Exchange. The Exchange anticipates continuing to provide on-floor surveillance options review and data storage.20 The Exchange has designated this proposal to be operative for trades settling on or after January 1, 2010. 2. Statutory Basis The Exchange believes that its proposal to amend its schedule of fees is consistent with Section 6(b) of the Act,21 in general, and furthers the objectives of Section 6(b)(4) of the Act,22 in particular, in that it is an equitable allocation of reasonable fees and other charges among Exchange members. The Exchange believes that the ORF is objectively allocated to Exchange members because it would be charged to all members on all of their transactions that clear as customer at the OCC. Moreover, the Exchange believes the ORF ensures fairness by assessing higher fees to those member firms that require more Exchange regulatory services based on the amount of customer options business they conduct. The Exchange believes the initial level of the fee is reasonable because it relates to the recovery of the costs of supervising and regulating members and market activity. Accounting for recent trends in the industry, the fee is expected to approximate the Exchange’s revenue from the Registration Fees. The Commission has addressed the funding of an SRO’s regulatory operations in the Concept Release Concerning SelfRegulation 23 and the release on the Fair Administration and Governance of Self20 The costs that are currently identified by the Exchange as related to the regulatory program should approximate the costs that would in the future be paid to FINRA should a Regulatory Services Agreement be executed. The Exchange anticipates that it would pay a flat rate to FINRA for its services. 21 15 U.S.C. 78f(b). 22 15 U.S.C. 78f(b)(4). 23 See Securities Exchange Act Release No. 50700 (November 18, 2004), 69 FR 71256 (December 8, 2004) (‘‘Concept Release’’). E:\FR\FM\16DEN1.SGM 16DEN1 66718 Federal Register / Vol. 74, No. 240 / Wednesday, December 16, 2009 / Notices Regulatory Organizations.24 In the Concept Release, the Commission states that: ‘‘Given the inherent tension between an SRO’s role as a business and as a regulator, there undoubtedly is a temptation for an SRO to fund the business side of its operations at the expense of regulation.’’ 25 In order to address this potential conflict, the Commission proposed in the Governance Release rules that would require an SRO to direct monies collected from regulatory fees, fines, or penalties exclusively to fund the regulatory operations and other programs of the SRO related to its regulatory responsibilities.26 The Exchange has designed the ORF to generate revenues that, when combined with all of the Exchange’s other regulatory fees, will approximate the Exchange’s regulatory costs, which is consistent with the Commission’s view that regulatory fees be used for regulatory purposes and not to support the Exchange’s business side. 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 that is 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. srobinson on DSKHWCL6B1PROD with NOTICES 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 27 and paragraph (f)(2) of Rule 19b–4 28 thereunder. At any time within 60 days of the filing of the proposed rule change, the Commission may summarily abrogate 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. IV. Solicitation of Comments Interested persons are invited to submit written data, views, and 24 See Securities Exchange Act Release No. 50699 (November 18, 2004), 69 FR 71126 (December 8, 2004) (‘‘Governance Release’’). 25 Concept Release at 71268. 26 Governance Release at 71142. 27 15 U.S.C. 78s(b)(3)(A)(ii). 28 17 CFR 240.19b–4(f)(2). VerDate Nov<24>2008 16:18 Dec 15, 2009 Jkt 220001 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 (https://www.sec.gov/ rules/sro.shtml); or • Send an e-mail to rulecomments@sec.gov. Please include File Number SR–Phlx–2009–100 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–2009–100. 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 (https://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 inspection and copying in the Commission’s Public Reference Room, 100 F Street, NE., Washington, DC 20549, on official business days between the hours of 10 am and 3 pm. 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 available publicly. All submissions should refer to File No. SR–Phlx–2009–100 and should be submitted on or before January 6, 2010. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.29 Florence E. Harmon, Deputy Secretary. [FR Doc. E9–29830 Filed 12–15–09; 8:45 am] BILLING CODE 8011–01–P 29 17 PO 00000 CFR 200.30–3(a)(12). Frm 00105 Fmt 4703 Sfmt 4703 OFFICE OF THE UNITED STATES TRADE REPRESENTATIVE Determination of Trade Surplus in Certain Sugar and Syrup Goods and Sugar Containing Products of Chile, Morocco, the Dominican Republic, El Salvador, Guatemala, Honduras, Nicaragua, and Peru AGENCY: Office of the United States Trade Representative. ACTION: Notice. SUMMARY: In accordance with relevant provisions of the Harmonized Tariff Schedule of the United States (HTS), the Office of the United States Trade Representative (USTR) is providing notice of its determination of the trade surplus in certain sugar and syrup goods and sugar-containing products of Chile, Morocco, the Dominican Republic, El Salvador, Guatemala, Honduras, Nicaragua, and Peru. As described below, the level of a country’s trade surplus in these goods relates to the quantity of sugar and syrup goods and sugar-containing products for which the United States grants preferential tariff treatment under (i) The United States— Chile Free Trade Agreement (Chile FTA), in the case of Chile; (ii) the United States—Morocco Free Trade Agreement (Morocco FTA), in the case of Morocco; (iii) the Dominican Republic—Central America—United States Free Trade Agreement (CAFTA– DR), in the case of the Dominican Republic, El Salvador, Guatemala, Honduras, and Nicaragua; and (iv) the United States—Peru Trade Promotion Agreement (Peru TPA), in the case of Peru. DATES: Effective Date: December 16, 2009. ADDRESSES: Inquiries may be mailed or delivered to Leslie O’Connor, Director of Agricultural Affairs, Office of Agricultural Affairs, Office of the United States Trade Representative, 600 17th Street, NW., Washington, DC 20508. FOR FURTHER INFORMATION CONTACT: Leslie O’Connor, Office of Agricultural Affairs, telephone: 202–395–6127 or facsimile: 202–395–4579. SUPPLEMENTARY INFORMATION: Chile: Pursuant to section 201 of the United States—Chile Free Trade Agreement Implementation Act (Pub. L. 108–77; 19 U.S.C. 3805 note), Presidential Proclamation No. 7746 of December 30, 2003 (68 FR 75789) implemented the Chile FTA on behalf of the United States and modified the HTS to reflect the tariff treatment provided for in the Chile FTA. E:\FR\FM\16DEN1.SGM 16DEN1

Agencies

SECURITIES AND EXCHANGE COMMISSION

[Federal Register Volume 74, Number 240 (Wednesday, December 16, 2009)]
[Notices]
[Pages 66715-66718]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E9-29830]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-61133; File No. SR-Phlx-2009-100]

Self-Regulatory Organizations; NASDAQ OMX PHLX, Inc.; Notice of
Filing and Immediate Effectiveness of Proposed Rule Change Relating to
an Options Regulatory Fee

December 9, 2009.
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 December 7, 2009, NASDAQ OMX PHLX, Inc. (``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.
---------------------------------------------------------------------------

\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 eliminate its Registered Representative/
Member Exchange/Off-Floor Trader Registration Fee and establish an
Options Regulatory Fee.
While changes to the Exchange's Fee Schedule pursuant to this
proposal are effective upon filing, the Exchange has designated this
proposal to be operative for trades settling on or after January 1,
2010, at which point the Registered Representative/Member Exchange/Off-
Floor Trader Registration Fee would be eliminated.
The text of the proposed rule change is available on the Exchange's
Web site at https://www.nasdaqtrader.com/micro.aspx?id=PHLXRulefilings,
on the Commission's Web site at https://www.sec.gov, 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 proposes to eliminate its Registered Representative/
Member Exchange/Off-Floor Registration Trader Fee of $55.00, the
initial registration fee of $55.00, the transfer fee of $55.00 and the
termination fee of $30.00 (``Registration Fees''). The Exchange
proposes to establish an Options Regulatory Fee (``ORF'') of $.0035 per
contract to each member for all options transactions executed or
cleared by the member that are cleared by The Options Clearing
Corporation (``OCC'') in the customer range, excluding Options
Intermarket Linkage Plan (``Linkage'') P/A Orders.\3\
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\3\ The Exchange understands that certain Exchanges continue to
utilize Linkage to send P/A Orders. Linkage may be discontinued by
the operative date.
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Registration Fees as well as other regulatory fees collected by the
Exchange are intended to cover a portion of the cost of the Exchange's
regulatory programs.\4\ Today options exchanges, regardless of size,
charge similar registered representative fees or an ORF similar to the
proposal herein. Currently, Exchange rules require that

[[Page 66716]]

every qualified Registered Representative \5\ of a member or
participant organization must be registered with and approved by the
Exchange.\6\ The Member Exchange category refers to Exchange permit
holders.\7\
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\4\ In addition to Registration Fees, the Exchange derives
revenue associated with its regulatory programs from its
Examinations Fee. This fee is applicable to member/participant
organizations for which the Exchange is the Designated Examining
Authority (``DEA''). The Fee is a tiered fee and certain
organizations are exempted from the fee. See Exchange's Fee
Schedule.
\5\ Registered Representative categories include registered
options principals, general securities representatives, general
securities sales supervisors and United Kingdom limited general
securities registered representatives but do not include ``off-
floor'' traders. See Exchange Rule 604(e). See also Exchange Rule
604(a) and (d).
\6\ See Exchange Rule 604. Every person who is compensated
directly or indirectly by a member or participant organization for
which the Exchange is the DEA, or any other associated person of
such member or participant organization, and who executes, makes
trading decisions with respect to, or otherwise engages in
proprietary or agency trading of securities, including, but not
limited to, equities, preferred securities, convertible debt
securities or options off the floor of the Exchange (``off-floor
traders''), must successfully complete the Series 7 General
Securities Registered Representative Examination.
\7\ See Exchange Rule 600.
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The Exchange believes that Registration Fees are no longer the best
manner to assess regulatory fees because more than 60% of the
Exchange's Registration Fees are paid by five member organizations.
Further to the point, today there are more Internet and discount
brokerage firms with few registered persons that pay little in
Registration Fees and fewer traditional brokerage firms with many
registered persons. The regulatory effort the Exchange expends to
review the transactions of each type of firm is not commensurate with
the number of registered persons that each firm employs. In addition,
due to the manner in which Registration Fees are charged, it is
possible for a member firm to restructure its business to avoid paying
these fees altogether. A firm can avoid Registration Fees by
terminating its Exchange membership and sending its business to the
Exchange through another member firm, even an affiliated firm that has
significantly fewer registered persons. If member firms terminated
their memberships to avoid Registration Fees, the Exchange would suffer
the loss of a major source of funding for its regulatory programs.
The Exchange proposes to eliminate Registration Fees and replace
them with a transaction-based ORF. The ORF would be $.0035 per contract
and would be assessed by the Exchange to each member for all options
transactions executed or cleared by the member that are cleared by The
Options Clearing Corporation (``OCC'') in the customer range (i.e.,
that clear in the customer account of the member's clearing firm at
OCC), excluding P/A Orders as defined in the Options Intermarket
Linkage Plan (``Linkage'').\8\ The ORF would be imposed upon all such
transactions executed by a member, even if such transactions do not
take place on the Exchange.\9\ The ORF also includes options
transactions that are not executed by an Exchange member but are
ultimately cleared by an Exchange member. Thus the Exchange would
charge a member $.0035 per contract for all options transactions
executed or cleared by the member that are cleared by OCC in the
customer range, excluding Linkage P/A Orders, regardless of the
marketplace of execution. In the case where one member both executes a
transaction and clears the transaction, the ORF would be assessed to
the member only once on the execution. In the case where one member
executes a transaction and a different member clears the transaction,
the ORF would be assessed only to the member who executes the
transaction and would not be assessed to the member who clears the
transaction. In the case where a non-member executes a transaction and
a member clears the transaction, the ORF would be assessed to the
member who clears the transaction.
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\8\ See Securities Exchange Act Release Nos. 60405 (July 30,
2009), 74 FR 39362 (August 6, 2009) (National Market System Plan
Relating to Options Order Protection and Locked/Crossed Markets).
\9\ The ORF would apply to all ``C'' account origin code orders
executed by a member on the Exchange. Exchange rules require each
member to record the appropriate account origin code on all orders
at the time of entry in order to allow the Exchange to properly
prioritize and route orders and assess transaction fees pursuant to
the rules of the Exchange and report resulting transactions to the
OCC. See Exchange Rule 1063, Responsibilities of Floor Brokers, and
Options Floor Procedure Advice F-4, Orders Executed as Spreads,
Straddles, Combinations or Synthetics and Other Order Ticket Marking
Requirements. The Exchange represents that it has surveillances in
place to verify that members mark orders with the correct account
origin code.
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The ORF would not be charged for member options transactions
because members incur the costs of owning memberships and through their
memberships are charged transaction fees, dues and other fees that are
not applicable to non-members.\10\ The dues and fees paid by members go
into the general funds of the Exchange, a portion of which is used to
help pay the costs of regulation. Thus, the Exchange believes members
are already paying their fair share of the costs of regulation.\11\
Moreover, because the ORF would replace Registration Fees, which relate
to a member's customer business, the Exchange believes it is
appropriate to charge the ORF only to transactions that clear as
customer at the OCC. The Exchange believes that its broad regulatory
responsibilities with respect to its members' activities, supports
applying the ORF to transactions cleared but not executed by a member.
The Exchange's regulatory responsibilities are the same regardless of
whether a member executes a transaction or clears a transaction
executed on its behalf. The Exchange regularly reviews all such
activity, including performing surveillance for position limit
violations, manipulation, frontrunning contrary exercise advice
violations and insider trading.\12\
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\10\ For example, non-broker-dealer customers generally are not
charged transaction fees to trade equity options on the Exchange.
\11\ If the Exchange changes its method of funding regulation or
if circumstances otherwise change in the future, the Exchange may
decide to impose the ORF or a separate regulatory fee on members if
the Exchange deems it advisable. In the event that the Exchange does
decide to impose such a fee, that fee would be filed with the
Commission pursuant to Section 19 of the Act.
\12\ The Exchange also participates in The Options Regulatory
Surveillance Authority (``ORSA'')\12\ national market system plan
and in doing so shares information and coordinates with other
exchanges designed to detect the unlawful use of undisclosed
material information in the trading of securities options. ORSA is a
national market system comprised of several self-regulatory
organizations whose functions and objectives include the joint
development, administration, operation and maintenance of systems
and facilities utilized in the regulation, surveillance,
investigation and detection of the unlawful use of undisclosed
material information in the trading of securities options. The
Exchange compensates ORSA for the Exchange's portion of the cost to
perform insider trading surveillance on behalf of the Exchange. The
ORF will cover the costs associated with the Exchange's arrangement
with ORSA.
---------------------------------------------------------------------------

The ORF is collected indirectly from members through their clearing
firms by OCC on behalf of the Exchange. There is a minimum one-cent
charge per trade. The Exchange expects that member firms will pass-
through the ORF to their customers in the same manner that firms pass-
through to their customers the fees charged by SROs to help the SROs
meet their obligation under Section 31 of the Exchange Act.
The ORF is designed to recover a portion of the costs to the
Exchange of the supervision and regulation of its members, including
performing routine surveillances, investigations, examinations,
financial monitoring, and policy, rulemaking, interpretive, and
enforcement activities. The Exchange believes that revenue generated
from the ORF, when combined with all of the Exchange's other regulatory
fees, will cover a material portion, but not all, of the Exchange's
regulatory costs. The total amount of regulatory fees collected by the
Exchange is less than the regulatory costs incurred by the Exchange on
an annual basis. Registration Fees make up the largest part of the
Exchange's total regulatory

[[Page 66717]]

fee revenue. The Exchange collects other regulatory revenues from DEA
Fees.\13\ The Exchange notes that its regulatory responsibilities with
respect to member compliance with options sales practice rules have
been allocated to FINRA under a 17d-2 agreement. The ORF is not
designed to cover the cost of options sales practice regulation.
---------------------------------------------------------------------------

\13\ The Exchange assesses the Examinations Fee to each firm for
which the SEC has designated the Exchange to be the DEA pursuant to
SEC Rule 17d-1. The Examinations Fee is intended to reimburse the
Exchange for its costs associated with examining member firms and is
generally the same throughout the SRO community. The Examination Fee
is based on the number of off-floor traders in the same member
organization.
---------------------------------------------------------------------------

The ORF is designed to generate revenue that, when combined with
all of the Exchange's other regulatory fees, will approximate the
Exchange's regulatory costs. The Exchange would monitor the amount of
revenue collected from the ORF to ensure that it, in combination with
its other regulatory fees and fines, does not exceed regulatory costs.
The Exchange expects to monitor regulatory costs and revenues at a
minimum on an annual basis. If the Exchange determines regulatory
revenues would exceed regulatory costs, the Exchange would adjust the
ORF by submitting a fee change filing to the Commission. The Exchange
notifies members of adjustments to the ORF via an Options Trader Alert
(``OTA'').
The Exchange believes the proposed ORF is equitably allocated
because it would be charged to all members on all their customer
options business (as defined above). The Exchange believes the proposed
ORF is reasonable because it will raise revenue related to the amount
of customer options business conducted by members, and thus the amount
of Exchange regulatory services those members will require, instead of
how many registered persons a particular member firm employs.\14\
---------------------------------------------------------------------------

\14\ The Exchange expects that implementation of the proposed
ORF will result generally in many traditional brokerage firms paying
less regulatory fees while Internet and discount brokerage firms
will pay more.
---------------------------------------------------------------------------

The Exchange believes it is reasonable and appropriate for the
Exchange to charge the ORF for options transactions regardless of the
exchange on which the transactions occur. The Exchange has a statutory
obligation to enforce compliance by its members and their associated
persons with the Act and the rules of the Exchange and to surveil for
other manipulative conduct by market participants (including non-
members) trading on the Exchange. The Exchange cannot effectively
surveil for such conduct without looking at and evaluating activity
across all options markets. Many of the Exchange's market surveillance
programs require the Exchange to look at and evaluate activity across
all options markets, such as surveillance for position limit
violations, manipulation, frontrunning, contrary exercise advice
violations and locked/crossed markets in connection with the
Linkage.\15\ The Exchange, along with other options exchanges are
required to populate a consolidated options audit trail (``COATS'')
system in order to surveil member activities across markets.\16\
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\15\ The Exchange and other options SROs are parties to a 17d-2
agreement allocating among the SROs regulatory responsibilities
relating to compliance by their common members with rules for
expiring exercise declarations, position limits, OCC trade
adjustments, and Large Option Position Report reviews. See
Securities Exchange Act Release No. 56941 (December 11, 2007), 72 FR
71723 (December 18, 2007).
\16\ COATS effectively enhances intermarket options surveillance
by enabling the options exchanges to reconstruct markets promptly,
effectively surveil them and enforce order handling, firm quote,
trade reporting and other rules.
---------------------------------------------------------------------------

In addition to its own surveillance programs, the Exchange works
with other SROs and exchanges on intermarket surveillance related
issues. Through its participation in the Intermarket Surveillance Group
(``ISG'') the Exchange shares information and coordinates inquiries and
investigations with other exchanges designed to address potential
intermarket manipulation and trading abuses.\17\
---------------------------------------------------------------------------

\17\ ISG is an industry organization formed in 1983 to
coordinate intermarket surveillance among the SROs by cooperatively
sharing regulatory information pursuant to a written agreement
between the parties. The goal of the ISG's information sharing is to
coordinate regulatory efforts to address potential intermarket
trading abuses and manipulations.
---------------------------------------------------------------------------

The Exchange believes that charging the ORF across markets will
avoid having members direct their trades to other markets in order to
avoid the fee and to thereby avoid paying for their fair share of
regulation. If the ORF did not apply to activity across markets, then
members would send their orders to the least cost, least regulated
exchange. Other exchanges would, of course, be free to impose a similar
fee on their member's activity, including the activity of Exchange
members.
Finally, there is established precedent for an SRO charging a fee
across markets, namely, FINRA's Trading Activity Fee \18\ and the
Chicago Board of Options Exchange, Inc.'s (``CBOE'') ORF.\19\ While the
Exchange does not have all of the same regulatory responsibilities as
FINRA, the Exchange believes that like the CBOE, its broad regulatory
responsibilities with respect to its members' activities, irrespective
of where their transactions take place, supports a regulatory fee
applicable to transactions on other markets. Unlike the TAF, the ORF
would apply only to a member's customer options transactions.
Currently, the Exchange is in negotiations with FINRA to render
regulatory services which are currently performed by the Exchange. The
Exchange anticipates continuing to provide on-floor surveillance
options review and data storage.\20\
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\18\ See Securities Exchange Act Release No. 47946 (May 30,
2003), 68 FR 34021 (June 6, 2003) (SR-NASD-2002-148).
\19\ See Securities Exchange Act Release Nos. 58817 (October 20,
2008), 73 FR 63744 (October 27, 2009) (SR-CBOE-2008-105).
\20\ The costs that are currently identified by the Exchange as
related to the regulatory program should approximate the costs that
would in the future be paid to FINRA should a Regulatory Services
Agreement be executed. The Exchange anticipates that it would pay a
flat rate to FINRA for its services.
---------------------------------------------------------------------------

The Exchange has designated this proposal to be operative for
trades settling on or after January 1, 2010.
2. Statutory Basis
The Exchange believes that its proposal to amend its schedule of
fees is consistent with Section 6(b) of the Act,\21\ in general, and
furthers the objectives of Section 6(b)(4) of the Act,\22\ in
particular, in that it is an equitable allocation of reasonable fees
and other charges among Exchange members.
---------------------------------------------------------------------------

\21\ 15 U.S.C. 78f(b).
\22\ 15 U.S.C. 78f(b)(4).
---------------------------------------------------------------------------

The Exchange believes that the ORF is objectively allocated to
Exchange members because it would be charged to all members on all of
their transactions that clear as customer at the OCC. Moreover, the
Exchange believes the ORF ensures fairness by assessing higher fees to
those member firms that require more Exchange regulatory services based
on the amount of customer options business they conduct.
The Exchange believes the initial level of the fee is reasonable
because it relates to the recovery of the costs of supervising and
regulating members and market activity. Accounting for recent trends in
the industry, the fee is expected to approximate the Exchange's revenue
from the Registration Fees. The Commission has addressed the funding of
an SRO's regulatory operations in the Concept Release Concerning Self-
Regulation \23\ and the release on the Fair Administration and
Governance of Self-

[[Page 66718]]

Regulatory Organizations.\24\ In the Concept Release, the Commission
states that: ``Given the inherent tension between an SRO's role as a
business and as a regulator, there undoubtedly is a temptation for an
SRO to fund the business side of its operations at the expense of
regulation.'' \25\ In order to address this potential conflict, the
Commission proposed in the Governance Release rules that would require
an SRO to direct monies collected from regulatory fees, fines, or
penalties exclusively to fund the regulatory operations and other
programs of the SRO related to its regulatory responsibilities.\26\ The
Exchange has designed the ORF to generate revenues that, when combined
with all of the Exchange's other regulatory fees, will approximate the
Exchange's regulatory costs, which is consistent with the Commission's
view that regulatory fees be used for regulatory purposes and not to
support the Exchange's business side.
---------------------------------------------------------------------------

\23\ See Securities Exchange Act Release No. 50700 (November 18,
2004), 69 FR 71256 (December 8, 2004) (``Concept Release'').
\24\ See Securities Exchange Act Release No. 50699 (November 18,
2004), 69 FR 71126 (December 8, 2004) (``Governance Release'').
\25\ Concept Release at 71268.
\26\ Governance Release at 71142.
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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
impose any burden on competition that is 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 \27\ and paragraph (f)(2) of Rule 19b-4 \28\
thereunder. At any time within 60 days of the filing of the proposed
rule change, the Commission may summarily abrogate 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.
---------------------------------------------------------------------------

\27\ 15 U.S.C. 78s(b)(3)(A)(ii).
\28\ 17 CFR 240.19b-4(f)(2).
---------------------------------------------------------------------------

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 (https://www.sec.gov/rules/sro.shtml); or
Send an e-mail to rule-comments@sec.gov. Please include
File Number SR-Phlx-2009-100 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-2009-100. 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 (https://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 inspection and
copying in the Commission's Public Reference Room, 100 F Street, NE.,
Washington, DC 20549, on official business days between the hours of 10
am and 3 pm. 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 available publicly. All
submissions should refer to File No. SR-Phlx-2009-100 and should be
submitted on or before January 6, 2010.

For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\29\
---------------------------------------------------------------------------

\29\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
[FR Doc. E9-29830 Filed 12-15-09; 8:45 am]
BILLING CODE 8011-01-P

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