Self-Regulatory Organizations; NASDAQ OMX PHLX LLC.; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Institute an Excess Order Fee, 30581-30584 [2012-12451]

Download as PDF Federal Register / Vol. 77, No. 100 / Wednesday, May 23, 2012 / Notices mstockstill on DSK4VPTVN1PROD with NOTICES permit unfair discrimination between customers, issuers, brokers, or dealers. BX believes that the Order Entry Fee is reasonable because it is designed to achieve improvements in the quality of displayed liquidity and market data that will benefit all market participants. In addition, although the level of the fee may theoretically be very high, the fee is reasonable because market participants may readily avoid the fee by making improvements in their order entry practices that reduce the number of orders they enter, bring the prices of their orders closer to the NBBO, and/or increase the percentage of their orders that execute. For similar reasons, the fee is consistent with an equitable allocation of fees, because although the fee may apply to only a small number of market participants, the fee would be applied to them in order to encourage better order entry practices that will benefit all market participants. Ideally, the fee will be applied to no one, because market participants will adjust their behavior in order to avoid the fee. Finally, BX believes that the fee is not unfairly discriminatory. Although the fee may apply to only a small number of market participants, it will be imposed because of the negative externalities that such market participants impose on others through inefficient order entry practices. Accordingly, BX believes that it is fair to impose the fee on these market participants in order to incentivize them to modify their behavior and thereby benefit the market. Finally, BX believes that the fee will help to prevent fraudulent and manipulative acts and practices, to promote just and equitable principles of trade, to foster cooperation and coordination with persons engaged in regulating, clearing, settling, processing information with respect to, and facilitating transactions in securities, to remove impediments to and perfect the mechanism of a free and open market and a national market system, and, in general, to protect investors and the public interest, because the fee is designed to reduce the extent of nonactionable orders in the market, thereby promoting greater order interaction, increasing the quality of market data, and inhibiting potentially abusive trading practices. B. Self-Regulatory Organization’s Statement on Burden on Competition BX 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. Specifically, BX believes that the fee VerDate Mar<15>2010 17:00 May 22, 2012 Jkt 226001 will constrain market participants from pursuing certain inefficient and potentially abusive trading strategies. To the extent that this change may be construed as a burden on competition, BX believes that it is appropriate in order to further the purposes of Section 6(b)(5) of the Act.11 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.12 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. 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 email to rulecomments@sec.gov. Please include File Number SR–BX–2012–033 on the subject line. 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 Web site viewing and printing in the Commission’s Public Reference Room on official business days between the hours of 10:00 a.m. and 3:00 p.m. Copies of such filing also will be available for inspection and copying at the principal offices of the Exchange. All comments received will be posted without change; the Commission does not edit personal identifying information from submissions. You should submit only information that you wish to make available publicly. All submissions should refer to File Number SR–BX– 2012–033, and should be submitted on or before June 13, 2012. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.13 Kevin M. O’Neill, Deputy Secretary. [FR Doc. 2012–12452 Filed 5–22–12; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–67004; File No. SR–Phlx– 2012–64] Self-Regulatory Organizations; NASDAQ OMX PHLX LLC.; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Institute an Excess Order Fee May 17, 2012. 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–BX–2012–033. 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, 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 May 11, 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. 13 17 11 15 U.S.C. 78f(b)(5). 12 15 U.S.C. 78s(b)(3)(a)(ii). PO 00000 Frm 00085 Fmt 4703 30581 Sfmt 4703 CFR 200.30–3(a)(12). U.S.C. 78s(b)(1). 2 17 CFR 240.19b–4. 1 15 E:\FR\FM\23MYN1.SGM 23MYN1 30582 Federal Register / Vol. 77, No. 100 / Wednesday, May 23, 2012 / Notices 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 the Substance of the Proposed Rule Change Phlx proposes to institute an Excess Order Fee. Phlx will implement the proposed change on June 1, 2012. The text of the proposed rule change is available at https:// nasdaqomxphlx.cchwallstreet.com/ nasdaqomxphlx/phlx/, at Phlx’s principal office, 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 III 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 concerned that the inefficient order entry practices of certain market participants may be placing excessive burdens on Phlx’s NASDAQ OMX PSX (‘‘PSX’’) system and the member organizations that trade on it and may negatively impact the usefulness and life cycle cost of market data.3 Market participants that flood the market with orders that are rapidly cancelled or that are priced away from the inside market do little to support meaningful price discovery, and in fact may create investor confusion about the extent of trading interest in a stock. In extreme mstockstill on DSK4VPTVN1PROD with NOTICES 3 See generally Recommendations Regarding Regulatory Reponses to the Market Events of May 6, 2010, Joint CFTC–SEC Advisory Committee on Emerging Regulatory Issues, at 11 (February 18, 2011) (‘‘The SEC and CFTC should also consider addressing the disproportionate impact that [high frequency trading] has on Exchange message traffic and market surveillance costs. * * *. The Committee recognizes that there are valid reasons for algorithmic strategies to drive high cancellation rates, but we believe that this is an area that deserves further study. At a minimum, we believe that the participants of those strategies should properly absorb the externalized costs of their activity.’’). VerDate Mar<15>2010 17:00 May 22, 2012 Jkt 226001 instances, inefficient order entry may constitute ‘‘layering,’’ the manipulative practice of using multiple orders at different price levels to move the price of a stock. While Phlx has an active program to detect and prosecute manipulative schemes, including layering,4 it also believes that market quality can be improved through the imposition of a fee on market participants that engage in extremely inefficient order entry practices. Because Phlx believes that inefficient order entry is a problem associated with a relatively small number of market participants, and is therefore not a pervasive characteristic of today’s markets, the impact of the fee will be narrow. In fact, it is Phlx’s expectation that the fee will encourage potentially affected market participants to modify their order entry practices in order to avoid the fee, thereby improving the market for all participants. Accordingly, Phlx does not expect to earn significant revenues from the fee. The fee will be imposed on market participant identifiers (‘‘MPID’’) that have characteristics indicative of inefficient order entry practices. In general, the determination of whether to impose the fee on a particular MPID will be made by calculating the ratio between (i) entered orders, weighted by the distance of the order from the national best bid or offer (‘‘NBBO’’), and (ii) orders that execute in whole or in part. The fee is imposed on MPIDs with an ‘‘Order Entry Ratio’’ of more than 100. The Order Entry Ratio is calculated, and the Excess Order Fee imposed, on a monthly basis. For each MPID, the Order Entry Ratio is the ratio of (i) the MPID’s ‘‘Weighted Order Total’’ to (ii) the greater of one (1) or the number of displayed, nonmarketable orders 5 sent to PSX through the MPID that execute in full or in part.6 The Weighted Order Total is the number of displayed, non-marketable orders sent to PSX through the MPID, as adjusted by a ‘‘Weighting Factor.’’ The applicable Weighting Factor is applied to each order based on its price in 4 Cf. FINRA Sanctions Trillium Brokerage Services, LLC, Director of Trading, Chief Compliance Officer, and Nine Traders $2.26 Million for Illicit Equities Trading Strategy (September 13, 2010) (available at https://www.finra.org/Newsroom/ News Releases/2010/P121951). The fee proposed in this filing will not in any way substitute for, or result in a diminution of, Phlx’s surveillance program for market manipulation. 5 The fee focuses on displayed orders since they have the most significant impact on investor confusion and the quality of market data. 6 Thus, in an extreme case where no orders entered through the MPID executed, this component of the ratio would be assumed to be 1, so as to avoid the impossibility of dividing by zero. PO 00000 Frm 00086 Fmt 4703 Sfmt 4703 comparison to the NBBO at the time of order entry: Order’s Price versus NBBO at entry Less than 0.20% away ............... 0.20% to 0.99% away ................ 1.00% to 1.99% away ................ 2.00% or more away .................. Weighting factor 0x 1x 2x 3x Thus, in calculating the Weighted Order Total, an order that was more than 2.0% away from the NBBO would be equivalent to three orders that were 0.50% away. Due to the applicable Weighting Factor of 0x, orders entered less than 0.20% away from the NBBO would not be included in the Weighted Order Total, but would be included in the ‘‘executed’’ orders component of the Order Entry Ratio if they execute in full or part.7 MPIDs with a daily average Weighted Order Total of less than 100,000 during the month will not be subject to the Excess Order Fee.8 The following example illustrates the calculation of the Order Entry Ratio: • A member enters 15,000,000 displayed, liquidity-providing orders: Æ 10,000,000 orders are entered at the NBBO. The Weighting Factor for these orders is 0x. Æ 5,000,000 orders are entered at a price that is 1.50% away from the NBBO. The Weighting Factor for these orders is 2x. • Of the 15,000,000 orders, 90,000 are executed. • The Weighted Order Total is (10,000,000 × 0) + (5,000,000 × 2) = 10,000,000. The Order Entry Ratio is 10,000,000/90,000 = 111 If an MPID has an Order Entry Ratio of more than 100, the amount of the Order Entry Fee will be calculated by determining the MPID’s ‘‘Excess Weighted Orders.’’ Excess Weighted Orders are calculated by subtracting (i) the Weighted Order Total that would result in the MPID having an Order Entry Ratio of 100 from (ii) the MPID’s actual Weighted Order Total. In the example above, the Weighted Order Total that would result in an Order Entry Ratio of 100 is 9,000,000, since 9,000,000/90,000 = 100. Accordingly, 7 An analogous fee that was recently filed by The NASDAQ Stock Market LLC (‘‘NASDAQ’’) includes an exclusion from both components of the ratio for orders sent by market makers in securities in which they are registered, through the MPID applicable to the registration. Because Phlx rules governing PSX currently do not allow for market maker registration, Phlx is not proposing a comparable exemption. 8 Phlx believes that this exclusion is reasonable because an MPID with an extremely low volume of entered orders has only a de minimis impact on the market. E:\FR\FM\23MYN1.SGM 23MYN1 Federal Register / Vol. 77, No. 100 / Wednesday, May 23, 2012 / Notices inefficient order entry practices. Accordingly, Phlx believes that it is fair to impose the fee on these market participants in order to incentivize them to modify their behavior and thereby benefit the market. Finally, Phlx believes that the fee will help to prevent fraudulent and manipulative acts and practices, to Applicable promote just and equitable principles of Order entry ratio rate trade, to foster cooperation and 101–1,000 ................................. $0.005 coordination with persons engaged in More than 1,000 ....................... 0.01 regulating, clearing, settling, processing information with respect to, and facilitating transactions in securities, to In the example above, the Applicable remove impediments to and perfect the Rate would be $0.005, based on the mechanism of a free and open market MPID’s Order Entry Ratio of 111. and a national market system, and, in Accordingly, the monthly Excess Order general, to protect investors and the Fee would be 1,000,000 × $0.005 = public interest, because the fee is $5,000. designed to reduce the extent of non2. Statutory Basis actionable orders in the market, thereby Phlx believes that the proposed rule promoting greater order interaction, change is consistent with the provisions increasing the quality of market data, of Section 6 of the Act,9 in general, and and inhibiting potentially abusive with Sections 6(b)(4) and 6(b)(5) of the trading practices. Act,10 in particular, in that it provides for the equitable allocation of reasonable B. Self-Regulatory Organization’s Statement on Burden on Competition dues, fees and other charges among members and issuers and other persons Phlx does not believe that the using any facility or system which Phlx proposed rule change will result in any operates or controls, is not designed to burden on competition that is not permit unfair discrimination between necessary or appropriate in furtherance customers, issuers, brokers, or dealers. of the purposes of the Act, as amended. Phlx believes that the Order Entry Fee Specifically, Phlx believes that the fee is reasonable because it is designed to will constrain market participants from achieve improvements in the quality of pursuing certain inefficient and displayed liquidity and market data that potentially abusive trading strategies. To will benefit all market participants. In the extent that this change may be addition, although the level of the fee construed as a burden on competition, may theoretically be very high, the fee Phlx believes that it is appropriate in is reasonable because market order to further the purposes of Section participants may readily avoid the fee 6(b)(5) of the Act.11 by making improvements in their order C. Self-Regulatory Organization’s entry practices that reduce the number Statement on Comments on the of orders they enter, bring the prices of Proposed Rule Change Received From their orders closer to the NBBO, and/or Members, Participants, or Others increase the percentage of their orders that execute. For similar reasons, the fee Written comments were neither is consistent with an equitable solicited nor received. allocation of fees, because although the III. Date of Effectiveness of the fee may apply to only a small number of market participants, the fee would be Proposed Rule Change and Timing for Commission Action applied to them in order to encourage The foregoing rule change has become better order entry practices that will benefit all market participants. Ideally, effective pursuant to Section the fee will be applied to no one, 19(b)(3)(A)(ii) of the Act.12 At any time because market participants will adjust within 60 days of the filing of the their behavior in order to avoid the fee. proposed rule change, the Commission Finally, Phlx believes that the fee is not summarily may temporarily suspend unfairly discriminatory. Although the such rule change if it appears to the fee may apply to only a small number Commission that such action is of market participants, it will be necessary or appropriate in the public imposed because of the negative interest, for the protection of investors, externalities that such market or otherwise in furtherance of the participants impose on others through purposes of the Act. If the Commission mstockstill on DSK4VPTVN1PROD with NOTICES the Excess Weighted Orders would be 10,000,000 ¥ 9,000,000 = 1,000,000. The Excess Order Fee charged to the member will then be determined by multiplying the ‘‘Applicable Rate’’ by the number of Excess Weighted Orders. The Applicable Rate is determined based on the MPID’s Order Entry Ratio: 9 15 U.S.C. 78f. U.S.C. 78f(b)(4) and (5). 11 15 10 15 VerDate Mar<15>2010 17:00 May 22, 2012 12 15 Jkt 226001 PO 00000 U.S.C. 78f(b)(5). U.S.C. 78s(b)(3)(a)(ii). Frm 00087 Fmt 4703 Sfmt 4703 30583 takes such action, the Commission shall institute proceedings to determine whether the proposed rule should be approved or disapproved. 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 email to rulecomments@sec.gov. Please include File Number SR–Phlx–2012–64 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–2012–64. 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 (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 Web site viewing and printing in the Commission’s Public Reference Room on official business days between the hours of 10:00 a.m. and 3:00 p.m. Copies of such filing also will be available for inspection and copying at the principal offices of the Exchange. All comments received will be posted without change; the Commission does not edit personal identifying information from submissions. You should submit only information that you wish to make available publicly. All submissions should refer to File Number SR–Phlx– 2012–64, and should be submitted on or before June 13, 2012. E:\FR\FM\23MYN1.SGM 23MYN1 30584 Federal Register / Vol. 77, No. 100 / Wednesday, May 23, 2012 / Notices For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.13 Kevin M. O’Neill, Deputy Secretary. [FR Doc. 2012–12451 Filed 5–22–12; 8:45 am] BILLING CODE 8011–01–P DEPARTMENT OF STATE OFFICE OF THE UNITED STATES TRADE REPRESENTATIVE [Public Notice 7893] Notice of Termination of United States—Bolivia Bilateral Investment Treaty Department of State and Office of the United States Trade Representative. ACTION: Notice. AGENCY: The Government of Bolivia has delivered to the United States a notice of termination for the bilateral investment treaty between the two countries, a termination that will take effect on June 10, 2012. As of June 10, 2012, the treaty will cease to have effect except that it will continue to apply for another 10 years to covered investments existing at the time of termination (June 10, 2012). FOR FURTHER INFORMATION CONTACT: Michael Tracton, Senior Negotiator for Investment Treaties at the Department of State, at (202) 736–4060, or Jai Motwane, Director for Services and Investment at the Office of the United States Trade Representative, at (202) 395–9580. SUPPLEMENTARY INFORMATION: Bolivia delivered notice on June 10, 2011, that it was terminating the ‘‘Treaty Between the Government of the United States of America and the Government of the Republic of Bolivia Concerning the Encouragement and Reciprocal Protection of Investment’’ (‘‘the Treaty’’). Pursuant to the terms of the Treaty, termination is to take effect one year from the date of that notice. The Treaty was signed in Santiago, Chile on April 17, 1998, and entered into force on June 6, 2001. Under the terms of the Treaty, either Party may terminate the Treaty at the end of an initial ten-year period, or any time thereafter, by giving one year’s written notice to the other Party. The provisions of the Treaty will continue to apply for an additional 10 years to all covered investments existing at the time of termination. The Treaty provides mstockstill on DSK4VPTVN1PROD with NOTICES SUMMARY: 13 17 CFR 200.30–3(a)(12). VerDate Mar<15>2010 17:00 May 22, 2012 Jkt 226001 protections to cross-border investment between the two countries and the option to resolve investment disputes through international arbitration. The Department of State and the Office of the U.S. Trade Representative, which co-lead the U.S. bilateral investment treaty program, are providing this notice so that existing or potential U.S. investors in Bolivia can factor the termination of the Treaty into their business planning, as appropriate. Dated: May 14, 2012. Todd Kushner, Deputy Director, Department of State. Dated: May 14, 2012. Jonathan Kallmer, Deputy Assistant U.S. Trade Representative, Office of the U.S. Trade Representative. [FR Doc. 2012–12494 Filed 5–22–12; 8:45 am] BILLING CODE 4710–07–P June 11, 2012 11 June—Monday 8:30 a.m. • Opening Plenary • Chairmen’s remarks and host’s comments • Introductions • Approval of previous meeting minutes • Review and approve meeting agenda • Action item review • RTCA Workspace Update • Discussion on setting up the MASPS Sub-Group (#4) and a preliminary roadmap • SG1 report • SG2 report • SG3 report • SAE G–10 AI ARP Briefing to SC– 206 Plenary 12:30 p.m. Review ConUse Changes 12 June—Tuesday DEPARTMENT OF TRANSPORTATION Federal Aviation Administration Thirtieth Meeting: RTCA Special Committee 206, Aeronautical Information and Meteorological Data Link Services Federal Aviation Administration (FAA), U.S. Department of Transportation (DOT). AGENCY: Meeting Notice of RTCA Special Committee 206, Aeronautical Information and Meteorological Data Link Services. ACTION: The FAA is issuing this notice to advise the public of the thirtieth meeting of RTCA Special Committee 206, Aeronautical Information and Meteorological Data Link Services. SUMMARY: The meeting will be held June 11–15, 2012, from 8:30 a.m.–4:00 p.m. DATES: The meeting will be held at FAA William J. Hughes Technical Center, Atlantic City, NJ, 08405. Contact Tom Helms by telephone at (202) 747– 4396 or email Helms@avmet.com. ADDRESSES: The RTCA Secretariat, 1150 18th Street NW., Suite 910, Washington, DC, 20036, or by telephone at (202) 833–9339, fax at (202) 833–9434, or Web site at https:// www.rtca.org. FOR FURTHER INFORMATION CONTACT: Pursuant to section 10(a) (2) of the Federal Advisory Committee Act (Pub. L. 92– 463, 5 U.S.C., App.), notice is hereby given for a meeting of Special Committee 206. The agenda will include the following: SUPPLEMENTARY INFORMATION: PO 00000 Frm 00088 Fmt 4703 Sfmt 4703 08:30 a.m. • SG1, SG2, and SG3 meetings 13 June—Wednesday 08:30 a.m. • SG1, SG2, and SG3 meetings 02:00 p.m. • SG1, SG2, and SG3 meetings or demonstration tour(s) 14 June–Thursday 08:30 a.m. • SG1, SG2, and SG3 meetings 02:00 p.m. • SG1, SG2, and SG3 meetings or demonstration tour(s) 15 June—Friday 08:30 a.m. • Closing Plenary • SG1 report • SG2 report • Decision to approve the ConUse document for release to the PMC • SG3 report • PMC decision on TOR revision • Action item review • Future meeting plans and dates • Other business 01:00 p.m. • Adjourn (no lunch break) Attendance is open to the interested public but limited to space availability. With the approval of the chairman, members of the public may present oral statements at the meeting. Persons wishing to present statements or obtain information should contact the person listed in the FOR FURTHER INFORMATION CONTACT section. Members of the public may present a written statement to the committee at any time. E:\FR\FM\23MYN1.SGM 23MYN1

Agencies

[Federal Register Volume 77, Number 100 (Wednesday, May 23, 2012)]
[Notices]
[Pages 30581-30584]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2012-12451]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-67004; File No. SR-Phlx-2012-64]


Self-Regulatory Organizations; NASDAQ OMX PHLX LLC.; Notice of 
Filing and Immediate Effectiveness of Proposed Rule Change To Institute 
an Excess Order Fee

May 17, 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 May 11, 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.

[[Page 30582]]

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 the 
Substance of the Proposed Rule Change

    Phlx proposes to institute an Excess Order Fee. Phlx will implement 
the proposed change on June 1, 2012. The text of the proposed rule 
change is available at https://nasdaqomxphlx.cchwallstreet.com/nasdaqomxphlx/phlx/, at Phlx's principal office, 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 III 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 concerned that the inefficient order entry practices of 
certain market participants may be placing excessive burdens on Phlx's 
NASDAQ OMX PSX (``PSX'') system and the member organizations that trade 
on it and may negatively impact the usefulness and life cycle cost of 
market data.\3\ Market participants that flood the market with orders 
that are rapidly cancelled or that are priced away from the inside 
market do little to support meaningful price discovery, and in fact may 
create investor confusion about the extent of trading interest in a 
stock. In extreme instances, inefficient order entry may constitute 
``layering,'' the manipulative practice of using multiple orders at 
different price levels to move the price of a stock. While Phlx has an 
active program to detect and prosecute manipulative schemes, including 
layering,\4\ it also believes that market quality can be improved 
through the imposition of a fee on market participants that engage in 
extremely inefficient order entry practices. Because Phlx believes that 
inefficient order entry is a problem associated with a relatively small 
number of market participants, and is therefore not a pervasive 
characteristic of today's markets, the impact of the fee will be 
narrow. In fact, it is Phlx's expectation that the fee will encourage 
potentially affected market participants to modify their order entry 
practices in order to avoid the fee, thereby improving the market for 
all participants. Accordingly, Phlx does not expect to earn significant 
revenues from the fee.
---------------------------------------------------------------------------

    \3\ See generally Recommendations Regarding Regulatory Reponses 
to the Market Events of May 6, 2010, Joint CFTC-SEC Advisory 
Committee on Emerging Regulatory Issues, at 11 (February 18, 2011) 
(``The SEC and CFTC should also consider addressing the 
disproportionate impact that [high frequency trading] has on 
Exchange message traffic and market surveillance costs. * * *. The 
Committee recognizes that there are valid reasons for algorithmic 
strategies to drive high cancellation rates, but we believe that 
this is an area that deserves further study. At a minimum, we 
believe that the participants of those strategies should properly 
absorb the externalized costs of their activity.'').
    \4\ Cf. FINRA Sanctions Trillium Brokerage Services, LLC, 
Director of Trading, Chief Compliance Officer, and Nine Traders 
$2.26 Million for Illicit Equities Trading Strategy (September 13, 
2010) (available at https://www.finra.org/Newsroom/News Releases/
2010/P121951). The fee proposed in this filing will not in any way 
substitute for, or result in a diminution of, Phlx's surveillance 
program for market manipulation.
---------------------------------------------------------------------------

    The fee will be imposed on market participant identifiers 
(``MPID'') that have characteristics indicative of inefficient order 
entry practices. In general, the determination of whether to impose the 
fee on a particular MPID will be made by calculating the ratio between 
(i) entered orders, weighted by the distance of the order from the 
national best bid or offer (``NBBO''), and (ii) orders that execute in 
whole or in part. The fee is imposed on MPIDs with an ``Order Entry 
Ratio'' of more than 100. The Order Entry Ratio is calculated, and the 
Excess Order Fee imposed, on a monthly basis.
    For each MPID, the Order Entry Ratio is the ratio of (i) the MPID's 
``Weighted Order Total'' to (ii) the greater of one (1) or the number 
of displayed, non-marketable orders \5\ sent to PSX through the MPID 
that execute in full or in part.\6\ The Weighted Order Total is the 
number of displayed, non-marketable orders sent to PSX through the 
MPID, as adjusted by a ``Weighting Factor.'' The applicable Weighting 
Factor is applied to each order based on its price in comparison to the 
NBBO at the time of order entry:
---------------------------------------------------------------------------

    \5\ The fee focuses on displayed orders since they have the most 
significant impact on investor confusion and the quality of market 
data.
    \6\ Thus, in an extreme case where no orders entered through the 
MPID executed, this component of the ratio would be assumed to be 1, 
so as to avoid the impossibility of dividing by zero.

------------------------------------------------------------------------
                                                               Weighting
             Order's Price versus NBBO at entry                 factor
------------------------------------------------------------------------
Less than 0.20% away........................................          0x
0.20% to 0.99% away.........................................          1x
1.00% to 1.99% away.........................................          2x
2.00% or more away..........................................          3x
------------------------------------------------------------------------

    Thus, in calculating the Weighted Order Total, an order that was 
more than 2.0% away from the NBBO would be equivalent to three orders 
that were 0.50% away. Due to the applicable Weighting Factor of 0x, 
orders entered less than 0.20% away from the NBBO would not be included 
in the Weighted Order Total, but would be included in the ``executed'' 
orders component of the Order Entry Ratio if they execute in full or 
part.\7\ MPIDs with a daily average Weighted Order Total of less than 
100,000 during the month will not be subject to the Excess Order 
Fee.\8\
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    \7\ An analogous fee that was recently filed by The NASDAQ Stock 
Market LLC (``NASDAQ'') includes an exclusion from both components 
of the ratio for orders sent by market makers in securities in which 
they are registered, through the MPID applicable to the 
registration. Because Phlx rules governing PSX currently do not 
allow for market maker registration, Phlx is not proposing a 
comparable exemption.
    \8\ Phlx believes that this exclusion is reasonable because an 
MPID with an extremely low volume of entered orders has only a de 
minimis impact on the market.
---------------------------------------------------------------------------

    The following example illustrates the calculation of the Order 
Entry Ratio:
     A member enters 15,000,000 displayed, liquidity-providing 
orders:
     [cir] 10,000,000 orders are entered at the NBBO. The Weighting 
Factor for these orders is 0x.
     [cir] 5,000,000 orders are entered at a price that is 1.50% away 
from the NBBO. The Weighting Factor for these orders is 2x.
     Of the 15,000,000 orders, 90,000 are executed.
     The Weighted Order Total is (10,000,000 x 0) + (5,000,000 
x 2) = 10,000,000. The Order Entry Ratio is 10,000,000/90,000 = 111
    If an MPID has an Order Entry Ratio of more than 100, the amount of 
the Order Entry Fee will be calculated by determining the MPID's 
``Excess Weighted Orders.'' Excess Weighted Orders are calculated by 
subtracting (i) the Weighted Order Total that would result in the MPID 
having an Order Entry Ratio of 100 from (ii) the MPID's actual Weighted 
Order Total. In the example above, the Weighted Order Total that would 
result in an Order Entry Ratio of 100 is 9,000,000, since 9,000,000/
90,000 = 100. Accordingly,

[[Page 30583]]

the Excess Weighted Orders would be 10,000,000 - 9,000,000 = 1,000,000.
    The Excess Order Fee charged to the member will then be determined 
by multiplying the ``Applicable Rate'' by the number of Excess Weighted 
Orders. The Applicable Rate is determined based on the MPID's Order 
Entry Ratio:

------------------------------------------------------------------------
                                                              Applicable
                     Order entry ratio                           rate
------------------------------------------------------------------------
101-1,000..................................................       $0.005
More than 1,000............................................         0.01
------------------------------------------------------------------------

    In the example above, the Applicable Rate would be $0.005, based on 
the MPID's Order Entry Ratio of 111. Accordingly, the monthly Excess 
Order Fee would be 1,000,000 x $0.005 = $5,000.
2. Statutory Basis
    Phlx believes that the proposed rule change is consistent with the 
provisions of Section 6 of the Act,\9\ in general, and with Sections 
6(b)(4) and 6(b)(5) of the Act,\10\ 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, is not designed to permit 
unfair discrimination between customers, issuers, brokers, or dealers.
---------------------------------------------------------------------------

    \9\ 15 U.S.C. 78f.
    \10\ 15 U.S.C. 78f(b)(4) and (5).
---------------------------------------------------------------------------

    Phlx believes that the Order Entry Fee is reasonable because it is 
designed to achieve improvements in the quality of displayed liquidity 
and market data that will benefit all market participants. In addition, 
although the level of the fee may theoretically be very high, the fee 
is reasonable because market participants may readily avoid the fee by 
making improvements in their order entry practices that reduce the 
number of orders they enter, bring the prices of their orders closer to 
the NBBO, and/or increase the percentage of their orders that execute. 
For similar reasons, the fee is consistent with an equitable allocation 
of fees, because although the fee may apply to only a small number of 
market participants, the fee would be applied to them in order to 
encourage better order entry practices that will benefit all market 
participants. Ideally, the fee will be applied to no one, because 
market participants will adjust their behavior in order to avoid the 
fee. Finally, Phlx believes that the fee is not unfairly 
discriminatory. Although the fee may apply to only a small number of 
market participants, it will be imposed because of the negative 
externalities that such market participants impose on others through 
inefficient order entry practices. Accordingly, Phlx believes that it 
is fair to impose the fee on these market participants in order to 
incentivize them to modify their behavior and thereby benefit the 
market.
    Finally, Phlx believes that the fee will help to prevent fraudulent 
and manipulative acts and practices, to promote just and equitable 
principles of trade, to foster cooperation and coordination with 
persons engaged in regulating, clearing, settling, processing 
information with respect to, and facilitating transactions in 
securities, to remove impediments to and perfect the mechanism of a 
free and open market and a national market system, and, in general, to 
protect investors and the public interest, because the fee is designed 
to reduce the extent of non-actionable orders in the market, thereby 
promoting greater order interaction, increasing the quality of market 
data, and inhibiting potentially abusive trading practices.

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. Specifically, Phlx 
believes that the fee will constrain market participants from pursuing 
certain inefficient and potentially abusive trading strategies. To the 
extent that this change may be construed as a burden on competition, 
Phlx believes that it is appropriate in order to further the purposes 
of Section 6(b)(5) of the Act.\11\
---------------------------------------------------------------------------

    \11\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

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.\12\ 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.
---------------------------------------------------------------------------

    \12\ 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 (https://www.sec.gov/rules/sro.shtml); or
     Send an email to rule-comments@sec.gov. Please include 
File Number SR-Phlx-2012-64 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-2012-64. 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 (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 Web site 
viewing and printing in the Commission's Public Reference Room on 
official business days between the hours of 10:00 a.m. and 3:00 p.m. 
Copies of such filing also will be available for inspection and copying 
at the principal offices of the Exchange. All comments received will be 
posted without change; the Commission does not edit personal 
identifying information from submissions. You should submit only 
information that you wish to make available publicly. All submissions 
should refer to File Number SR-Phlx-2012-64, and should be submitted on 
or before June 13, 2012.


[[Page 30584]]


    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\13\
---------------------------------------------------------------------------

    \13\ 17 CFR 200.30-3(a)(12).

Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2012-12451 Filed 5-22-12; 8:45 am]
BILLING CODE 8011-01-P
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