[Federal Register Volume 76, Number 49 (Monday, March 14, 2011)]
[Notices]
[Pages 13678-13681]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2011-5775]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-64056; File No. SR-Phlx-2011-29]
Self-Regulatory Organizations; NASDAQ OMX PHLX LLC; Notice of
Filing and Immediate Effectiveness of Proposed Rule Change Relating to
the Extension of a Pilot Program Concerning Disseminated Quotations
March 8, 2011.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act''),\1\ and Rule 19b-4 \2\ thereunder, notice is hereby given
that on February 24, 2011, NASDAQ OMX PHLX LLC (``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.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange proposes to amend Exchange Rules 1017, Openings in
Options, and 1082, Firm Quotations, to extend, through July 31, 2011, a
pilot program (the ``pilot'') under which the Exchange's rules describe
the manner in which the PHLX XL[supreg] automated options trading
system \3\ disseminates quotations when (i) there is an opening
imbalance in a particular series, and (ii) there is a Quote Exhaust (as
described below) or a Market Exhaust (as described below) quote
condition present in a particular series.
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\3\ This proposal refers to ``PHLX XL'' as the Exchange's
automated options trading system. In May 2009 the Exchange enhanced
the system and adopted corresponding rules referring to the system
as ``Phlx XL II.'' See Securities Exchange Act Release No. 59995
(May 28, 2009), 74 FR 26750 (June 3, 2009) (SR-Phlx-2009-32). The
Exchange intends to submit a separate technical proposed rule change
that would change all references to the system from ``Phlx XL II''
to ``PHLX XL'' for branding purposes.
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The current pilot is scheduled to expire March 31, 2011.
The text of the proposed rule change is available on the Exchange's
Web site at http://www.nasdaqtrader.com/micro.aspx?id=PHLXRulefilings,
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 purpose of the proposed rule change is to extend the pilot
through July 31, 2011.
Background
In June, 2009, the Exchange added several significant enhancements
to its automated options trading platform (now known as PHLX XL), and
adopted rules to reflect those enhancements.\4\ As part of the system
enhancements, the Exchange proposed to disseminate a ``non-firm'' quote
condition on a bid or offer whose size is exhausted in certain
situations. The non-exhausted side of the Exchange's disseminated
quotation would remain firm up to its disseminated size. At the time
the Exchange proposed the ``one-sided non-firm'' quote condition, the
Options Price Reporting Authority (``OPRA'') was only capable of
disseminating option quotations for which both sides of the quotation
are marked ``non-firm.'' OPRA does not disseminate a ``non-firm''
condition for one side of a quotation while the other side of the
quotation remains firm.\5\
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\4\ See Securities Exchange Act Release No. 59995 (May 28,
2009), 74 FR 26750 (June 3, 2009) (SR-Phlx-2009-32).
\5\ Currently, there is no mechanism for the Options Price
Reporting Authority (``OPRA'') to identify only one side of a quote
as non-firm. The Exchange has approached OPRA to attempt to develop
the capability to identify and implement such functionality. The
Exchange has asked the Commission to revise this footnote by
deleting the prior sentence and replace it with the following: ``In
November, 2010, OPRA filed for immediate effectiveness to enable its
systems to support such functionality. See Securities Exchange Act
Release No. 63400 (November 30, 2010), 75 FR 76058 (December 7,
2010)(SR-OPRA-2010-04).'' See e-mail from Richard S. Rudolph,
Associate General Counsel, NASDAQ OMX PHLX, to David Liu, Senior
Special Counsel, Commission, dated March 8, 2011.
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[[Page 13679]]
Accordingly, the Exchange proposed, for a pilot period scheduled to
expire November 30, 2009, and later extended through September 30,
2010,\6\ and then through March 31, 2011,\7\ to disseminate quotations
in such a circumstance with (i) a bid price of $0.00, with a size of
one contract if the remaining size is a seller, or (ii) an offer price
of $200,000, with a size of one contract if the remaining size is a
buyer.
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\6\ See supra n.4.
\7\ See Securities Exchange Act Release No. 63350 (November 19,
2010), 75 FR 73150 (November 29, 2010) (SR-Phlx-2010-156).
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The Exchange subsequently modified the manner in which the PHLX XL
system disseminates quotes when one side of the quote is exhausted but
the opposite side still has marketable size at the disseminated price,
as described in detail below.\8\
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\8\ See Securities Exchange Act Release No. 63024 (September 30,
2010), 75 FR 61799 (October 6, 2010) (SR-Phlx-2010-134).
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On October 7, 2010, the U.S. options exchanges, as participants in
the OPRA Plan, voted to make technological changes that would enable
OPRA to support a one-sided non-firm quote condition. These
technological changes provide the opportunity for OPRA and the
participants to design, test, and deploy modifications to their
systems, and to establish connectivity with quotation vendors, that
will support the one-sided non-firm quote condition. The Exchange is
proposing to extend the current pilot through July 31, 2011, in order
to account for the time required to complete the changes, and to
account for the possibility that issues could arise that might delay
the process.
Opening Imbalance
An opening ``imbalance'' occurs when all opening marketable size
cannot be completely executed at or within an established Opening Quote
Range (``OQR'') for the affected series.\9\ Currently, pursuant to
Exchange Rule 1017(l)(v)(C)(7), any unexecuted contracts from the
opening imbalance not traded or routed are displayed in the Exchange
quote at the opening price for a period not to exceed ten seconds, and
subsequently, cancelled back to the entering participant if they remain
unexecuted and priced through the opening price, unless the member that
submitted the original order has instructed the Exchange in writing to
re-enter the remaining size, in which case the remaining size will be
automatically submitted as a new order. During this display time
period, the PHLX XL system disseminates, if the imbalance is a buy
imbalance, an offer of $0.00, with a size of zero contracts or, if the
imbalance is a sell imbalance, a bid of $0.00, with a size of zero
contracts, on the opposite side of the market from remaining unexecuted
contracts.
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\9\ Where there is an imbalance at the price at which the
maximum number of contracts can trade that is also at or within the
lowest quote bid and highest quote offer, the PHLX XL system will
calculate an OQR for a particular series, outside of which the PHLX
XL system will not execute. See Exchange Rule 1017(l)(iii) and (iv).
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The purpose of this provision is to indicate that the Exchange has
exhausted all marketable interest, at or within the OQR, on one side of
the market during the opening process yet has remaining unexecuted
contracts on the opposite side of the market that are firm at the
disseminated price and size.
Rule 1017(l)(v)(C)(7) is subject to the pilot, which is scheduled
to expire March 31, 2011. The Exchange proposes to extend the pilot
through July 31, 2011.
Quote Exhaust
Quote Exhaust occurs when the market at a particular price level on
the Exchange includes a quote, and such market is exhausted by an
inbound contra-side quote or order (``initiating quote or order''), and
following such exhaustion, contracts remain to be executed from the
initiating quote or order.\10\
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\10\ See Exchange Rule 1082(a)(ii)(B)(3).
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Rather than immediately executing at the next available price, the
PHLX XL system employs a timer (a ``Quote Exhaust Timer''), not to
exceed one second, in order to allow market participants to refresh
their quotes. During the Quote Exhaust Timer, PHLX XL currently
disseminates the ``Reference Price'' (the most recent execution price)
for the remaining size, provided that such price does not lock an away
market, in which case, the Exchange currently disseminates a bid and
offer that is one Minimum Price Variation (``MPV'') from the away
market price. During the Quote Exhaust Timer, the Exchange
disseminates: (i) A bid price of $0.00, with a size of zero contracts
if the remaining size is a seller, or (ii) an offer price of $0.00,
with a size of zero contracts if the remaining size is a buyer.
Currently, Exchange Rules 1082(a)(ii)(B)(3)(g)(iv)(A)(3),
1082(a)(ii)(B)(3)(g)(iv)(A)(4), 1082(a)(ii)(B)(3)(g)(iv)(B)(2), and
1082(a)(ii)(B)(3)(g)(iv)(C) describe various scenarios under which the
PHLX XL system trades, routes, or posts unexecuted contracts after
determining the ``Best Price'' following a Quote Exhaust. These rules
permit an up to 10-second time period during which participants may
revise their quotes prior to the PHLX XL system taking action. In all
of these scenarios, during the up to 10-second time period, the PHLX XL
system currently disseminates an offer of $0.00, with a size of zero
contracts if the remaining size is a buyer or, if the remaining size is
a seller, a bid of $0.00, with a size of zero contracts, on the
opposite side of the market from remaining unexecuted contracts.
Exchange Rules 1082(a)(ii)(B)(3)(g)(iv)(A)(3),
1082(a)(ii)(B)(3)(g)(iv)(A)(4), 1082(a)(ii)(B)(3)(g)(iv)(B)(2), and
1082(a)(ii)(B)(3)(g)(iv)(C) are subject to the pilot, which is
scheduled to expire March 31, 2011. The Exchange proposes to extend the
pilot through July 31, 2011.
Current Rule 1082(a)(ii)(B)(3)(g)(vi) describes what the PHLX XL
system does if, after trading at the PHLX and/or routing, there are
unexecuted contracts from the initiating order that are still
marketable. In this situation, remaining contracts are posted for a
period of time not to exceed 10 seconds and then cancelled after such
period of time has elapsed, unless the member that submitted the
original order has instructed the Exchange in writing to re-enter the
remaining size, in which case the remaining size will be automatically
submitted as a new order. During the up to 10-second time period, the
Exchange will disseminate, on the opposite side of the market from
remaining unexecuted contracts: (i) a bid price of $0.00, with a size
of zero contracts if the remaining size is a seller, or (ii) an offer
price of $0.00, with a size of zero contracts if the remaining size is
a buyer.
Rule 1082(a)(ii)(B)(3)(g)(vi) is subject to the pilot. The Exchange
proposes to extend the pilot through July 31, 2011.
Market Exhaust
Market Exhaust occurs when there are no PHLX XL participant
quotations in the Exchange's disseminated market for a particular
series and an initiating order in the series is received. In such a
circumstance, the PHLX XL system initiates a ``Market Exhaust Auction''
for the initiating order.\11\
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\11\ See Exchange Rule 1082(a)(ii)(B)(4)(b).
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In this situation, the PHLX XL system will first determine if the
initiating
[[Page 13680]]
order, or a portion thereof, can be executed on the PHLX. Thereafter,
if there are unexecuted contracts remaining in the initiating order the
PHLX XL system will initiate a Market Exhaust Timer. During the Market
Exhaust Timer, the Exchange disseminates any unexecuted size of the
initiating order at the ``Reference Price,'' which is the execution
price of a portion of the initiating order, or one MPV from a better-
priced away market price if the Reference Price would lock the away
market. The PHLX XL system currently disseminates, on the opposite side
of the market from the remaining unexecuted contracts: (i) A bid price
of $0.00, with a size of zero contracts if the remaining size is a
seller, or (ii) an offer price of $0.00, with a size of zero contracts
if the remaining size is a buyer. This provision is subject to the
pilot. The Exchange proposes to extend the pilot through July 31, 2011.
Provisional Auction
Exchange Rule 1082(a)(ii)(B)(4)(d)(iv)(E) describes what PHLX XL
does after it has explored all alternatives and there still remain
unexecuted contracts. During the ``Provisional Auction,'' any
unexecuted contracts from the initiating order are displayed in the
Exchange quote for the remaining size for a brief period not to exceed
ten seconds and subsequently cancelled back to the entering participant
if they remain unexecuted, unless the member that submitted the
original order has instructed the Exchange in writing to re-enter the
remaining size, in which case the remaining size will be automatically
submitted as a new order. During the brief period, the PHLX XL system
currently disseminates, on the opposite side of the market from
remaining unexecuted contracts: (i) A bid price of $0.00, with a size
of zero contracts if the remaining size is a seller, or (ii) an offer
price of $0.00, with a size of zero contracts if the remaining size is
a buyer.
Rule 1082(a)(ii)(B)(4)(d)(iv)(E) is subject to the pilot. The
Exchange proposes to extend the pilot through July 31, 2011.
The Exchange believes that the pilot benefits customers and the
marketplace as a whole by enabling PHLX to effectively reflect the
market interest the Exchange has that is firm and executable, while at
the same time indicating the other side of the Exchange market is not
firm and therefore not executable. This allows the Exchange to protect
orders on its book and attempt to attract interest to execute against
such order.
2. Statutory Basis
The Exchange believes that its proposal is consistent with Section
6(b) of the Act \12\ in general, and furthers the objectives of Section
6(b)(5) of the Act \13\ in particular, in that it is designed to
promote just and equitable principles of trade, 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.
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\12\ 15 U.S.C. 78f(b).
\13\ 15 U.S.C. 78f(b)(5).
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The Exchange further believes that the proposal is consistent with
the SEC Quote Rule's provisions regarding non-firm quotations.\14\
Specifically, Rule 602(a)(3)(i) provides that if, at any time a
national securities exchange is open for trading, the exchange
determines, pursuant to rules approved by the Commission, that the
level of trading activities or the existence of unusual market
conditions is such that the exchange is incapable of collecting,
processing, and making available to vendors the data for a subject
security required to be made available in a manner that accurately
reflects the current state of the market on such exchange, such
exchange shall immediately notify all specified persons of that
determination and, upon such notification, the exchange is relieved of
its obligations under paragraphs (a)(1) and (2) of Rule 602 relating to
collecting and disseminating quotations, subject to certain other
provisions of Rule 602(a)(3).
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\14\ See 17 CFR 242.602(a)(3)(i) and (ii).
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By disseminating a bid of $0.00 for a size of zero contracts, or an
offer of $0.00 for a size of zero contracts in certain situations
delineated above in the Exchange's rules, the Exchange believes that it
is adequately communicating that it is non-firm on that side of the
market in compliance with the Quote Rule.
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 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
Because the foregoing proposed rule change does not: (i)
Significantly affect the protection of investors or the public
interest; (ii) impose any significant burden on competition; and (iii)
become operative for 30 days after the date of the filing, or such
shorter time as the Commission may designate, it has become effective
pursuant to 19(b)(3)(A) of the Act \15\ and Rule 19b-4(f)(6) \16\
thereunder.
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\15\ 15 U.S.C. 78s(b)(3)(A).
\16\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)
requires a self-regulatory organization to give the Commission
written notice of its intent to file the proposed rule change at
least five business days prior to the date of filing of the proposed
rule change, or such shorter time as designated by the Commission.
The Exchange has satisfied this requirement.
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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 (http://www.sec.gov/rules/sro.shtml); or
Send an e-mail to [email protected]. Please include
File Number SR-Phlx-2011-29 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-2011-29. 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
[[Page 13681]]
Internet Web site (http://www.sec.gov/rules/sro.shtml). Copies of the
submission, all subsequent amendments, all written statements with
respect to the proposed rule change that are filed with the Commission,
and all written communications relating to the proposed rule change
between the Commission and any person, other than those that may be
withheld from the public in accordance with the provisions of 5 U.S.C.
552, will be available for Web site viewing and printing in the
Commission's Public Reference Room, 100 F Street, NE., Washington, DC
20549, on official business days between the hours of 10 a.m. and 3
p.m. Copies of the filing also will be available for inspection and
copying at the principal office of the Exchange. All comments received
will be posted without change; the Commission does not edit personal
identifying information from submissions. You should submit only
information that you wish to make available publicly. All submissions
should refer to File Number SR-Phlx-2011-29 and should be submitted on
or before April 4, 2011.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\17\
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\17\ 17 CFR 200.30-3(a)(12).
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Cathy H. Ahn,
Deputy Secretary.
[FR Doc. 2011-5775 Filed 3-11-11; 8:45 am]
BILLING CODE 8011-01-P