Daily Rules, Proposed Rules, and Notices of the Federal Government
Phlx proposes to modify Phlx's fee schedule governing order execution on its NASDAQ OMX PSX ("PSX") facility. Phlx will implement the proposed change on August 1, 2012. The text of the proposed rule change is available at
In its filing with the Commission, the self-regulatory organization included statements concerning the purpose of, and basis for, the proposed rule change and discussed any comments it received on the proposed rule change. The text of those statements may be examined at the places specified in Item IV below. The Exchange has prepared summaries, set forth in sections A, B, and C below, of the most significant parts of such statements.
Phlx is proposing to modify its fee schedule governing order execution on PSX. Effective July 2, 2012, Phlx made a number of modifications to the PSX fee schedule.
Under the fee schedule in effect during July 2012, for securities priced at $1 or more per share, an order that accessed liquidity through a market participant identifier ("MPID") through which a market participant provided an average daily volume of 25,000 or more shares of liquidity or accessed an average daily volume of 3.5 million or more shares of liquidity during the month paid no fee when accessing liquidity. Other orders that accessed liquidity paid $0.0005 per share executed. For securities priced at less than $1, the fee was 0.10% of the total transaction cost. Under the prior schedule, to which PSX is reverting, PSX will charge $0.0019 per share executed for orders that access liquidity in securities listed on the New York Stock Exchange ("NYSE") priced at $1 or more per share; and $0.0027 per share executed for other liquidity-accessing orders priced at $1 or more per share. For securities priced under $1, PSX will revert to the prior fee of 0.20% of the total transaction cost.
Also, during July 2012, for securities priced at $1 or more per share, Phlx charged $0.0002 per share executed for an order that provided liquidity through an MPID through which a market participant provided an average daily volume of 10 million or more shares of liquidity during the month, and charged $0.0005 per share executed for other orders that provided liquidity. Under the prior schedule, to which PSX is reverting, PSX will offer a credit to liquidity providers in securities priced at $1 or more per share that varies based on the type and size of the liquidity-providing order and the market on which the stock is listed. Specifically:
* For liquidity provided through displayed orders with an original order size
* For liquidity provided through displayed orders with an original order size of less than 2,000 shares, the credit will be $0.0016 per share executed for securities listed on NYSE and $0.0024 per share executed for other orders;
* For liquidity provided through Minimum Life Orders,
* For liquidity provided through non-displayed orders, the credit will be $0.0005 per share executed for securities listed on NYSE and $0.0010 per share executed for other orders.
For securities priced below $1, Phlx will continue neither to charge a fee nor to pay a rebate with respect to orders that provide liquidity. This aspect of the PSX fee schedule was not changed in July.
Phlx believes that the proposed rule change is consistent with the provisions of Section 6 of the Act,
The pricing change that PSX made for July 2012 was premised on the belief that market participants might be attracted to a pricing model under which both liquidity accessors and liquidity providers were assessed a very low fee (ranging from $0 to $0.0005). In fact, the decrease in market share experienced by PSX has demonstrated that PSX's market participants preferred the maker-taker model that was previously in effect. Under that model, accessors of liquidity are charged a fee ranging from $0.0019 to $0.0027 per share executed for stocks priced at $1 or more, and 0.20% of the transaction cost for lower priced stocks. The Exchange
Phlx further believes that the proposed rebates for liquidity providers are reasonable because they are set at levels that had previously been effective at attracting liquidity-providing orders to PSX. In addition, Phlx believes that the proposed rebates reflect an equitable allocation of fees because they are slightly lower than the corresponding access fees. Moreover, to the extent that the level of rebates varies based on the type of order providing liquidity, the Exchange believes that the variation is not unreasonably discriminatory. Specifically, the Exchange will pay higher rebates with respect to Minimum Life Orders and displayed orders with an original size of 2,000 or more shares because the Exchange believes that the market benefits from the presence of stable orders and orders with larger size; specifically, the Exchange believes that such orders have the potential to allow market participants to trade larger volumes at more predictable prices. Accordingly, the Exchange believes that it is not unreasonably discriminatory to pay higher rebates with respect to such orders, while paying lower rebates with respect to smaller orders and non-displayed orders. Phlx also believes that it is not unreasonably discriminatory to pay lower rebates for NYSE-listed securities than for other securities, since the rebates paid must be correspondingly lower to allow PSX to charge a lower access fee with respect to such securities.
Finally, Phlx notes that it operates in a highly competitive market in which market participants can readily favor competing venues if they deem fee levels at a particular venue to be excessive. In such an environment, Phlx must continually adjust its fees to remain competitive with other exchanges and with alternative trading systems that have been exempted from compliance with the statutory standards applicable to exchanges. Phlx believes that the proposed rule change reflects this competitive environment because it is designed to create pricing incentives for greater use of PSX's trading services.
Phlx does not believe that the proposed rule change will result in any burden on competition that is not necessary or appropriate in furtherance of the purposes of the Act, as amended. Because the market for order execution is extremely competitive, members may readily opt to disfavor Phlx's execution services if they believe that alternatives offer them better value. The proposed change is designed to enhance competition by using pricing incentives to encourage greater use of PSX's trading services.
Written comments were neither solicited nor received.
The foregoing rule change has become effective pursuant to Section 19(b)(3)(A)(ii) of the Act.
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:
* Use the Commission's Internet comment form (
* Send an email to
* Send paper comments in triplicate to Elizabeth M. Murphy, Secretary, Securities and Exchange Commission, 100 F Street NE., Washington, DC 20549-1090.