[Federal Register Volume 76, Number 107 (Friday, June 3, 2011)]
[Notices]
[Pages 32255-32257]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2011-13776]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-64563; File No. SR-Phlx-2011-70]
Self-Regulatory Organizations; NASDAQ OMX PHLX LLC; Notice of
Filing and Immediate Effectiveness of Proposed Rule Change To Modify
the Functionality of NASDAQ OMX PSX's Post-Only Order
May 27, 2011.
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 19, 2011, NASDAQ OMX PHLX LLC (the ``Exchange'' or ``PHLX'')
filed with the Securities and Exchange Commission (``Commission'') the
proposed rule change as described in Items I and II 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 the
Substance of the Proposed Rule Change
The Exchange is filing this proposed rule change to modify the
functionality of the Post-Only Order on NASDAQ OMX PSX (``PSX''). PHLX
proposes to implement the rule change thirty days after the date of
filing or as soon thereafter as practicable. The text of the proposed
rule change is available at http://nasdaqomxphlx.cchwallstreet.com/NASDAQOMXPHLX/Filings/, 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 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
[[Page 32256]]
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
PHLX proposes to modify the functionality associated with its
existing Post-Only Order on PSX. Currently, if a Post-Only Order would
lock an order on PSX at the time of entry, the order is re-priced and
displayed by the System to one minimum price increment (i.e., $0.01 or
$0.0001) below the current low offer (for bids) or above the current
best bid (for offers). Thus, if the best bid and best offer on the PSX
book were $10.00 x $10.05, and a market participant entered a Post-Only
Order to buy at $10.05, the order would be re-priced and displayed at
$10.04. This aspect of the functionality of the order is not changing.
In addition, if a Post-Only Order would cross an order on the System,
the order will be repriced as described above unless the value of price
improvement associated with executing against a resting order equals or
exceeds the sum of fees charged for such execution and the value of any
rebate that would be provided if the order posted to the book and
subsequently provided liquidity, in which case the order will execute.
As provided by Rule 3307, price improvement accrues to the party
entering the order. Thus, if a sell order is on the book at $10 and a
Post-Only Order to buy at $10.01 is entered, the order will execute at
$10. This aspect of the order's functionality is also not changing.\3\
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\3\ The functionality was described in the original filing to
establish a Post-Only Order on The NASDAQ Stock Market LLC
(``NASDAQ'') but was not fully reflected in the text of NASDAQ Rule
4751. See Securities Exchange Act Release No. 59392 (February 11,
2009), 74 FR 7943 (February 20, 2009) (SR-NASDAQ-2009-006).
Subsequently, PHLX adopted identical rule text when it established
PSX as its new facility for trading cash equity securities.
Securities Exchange Act Release No. 62877 (September 9, 2010), 75 FR
56633 (September 16, 2010) (SR-PHLX-2010-79). Accordingly, the rule
is being amended to provide a complete description of the order's
current behavior when crossing an existing order on the System. PHLX
also notes that NASDAQ has filed an identical proposed rule change
to modify its Post-Only Order. See SR-NASDAQ-2011-070 (May 19,
2011).
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At present, however, the order is repriced in a similar manner if
the order would lock or cross a protected quotation of another market
center. Thus, if the national best offer of $10.05 is being displayed
on another market center but not on PSX, at present an order to buy at
$10.05 would be repriced and displayed at $10.04. Under the changed
functionality that PHLX is proposing, if the order locks or crosses the
other market center, the order will be accepted at the locking price
(i.e., the current low offer (for bids) or to the current best bid (for
offers)) and displayed by the System to one minimum price increment
(i.e., $0.01 or $0.0001) below the current low offer (for bids) or
above the current best bid (for offers). Thus, if the national best bid
and offer, as displayed on another market center, was $10 x $10.05, an
order to buy at $10.05 or higher would be accepted at the locking price
of $10.05, but would be displayed at $10.04. Subsequently, an incoming
order to sell at $10.05 or lower would be matched against the Post-Only
buy order. In this case, the incoming sell order would receive price
improvement.
As a result of the change, the order will resemble more closely
PSX's Price to Comply order, which uses a similar logic of retaining a
locking price but displaying at a non-locking price. The modified Post-
Only Order will serve to allow the market participant entering the
order to post its order at its desired price, unless the price would
lock or cross the PSX book, in which case the order will execute or be
repriced, as is currently the case, to avoid the internal lock/cross.
The revised order type is designed to provide market participants with
better control over their execution costs and to provide them with a
means to offer price improvement opportunities to other market
participants.
2. Statutory Basis
PHLX believes that the proposed rule change is consistent with the
provisions of Section 6 of the Act,\4\ in general, and with Section
6(b)(5) of the Act,\5\ in particular, in that the proposal is designed
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. PHLX also believes that the
modified order is consistent with Rule 610(d) under Regulation NMS.\6\
Rule 610(d) requires exchanges to establish, maintain, and enforce
rules that require members reasonably to avoid ``[d]isplaying
quotations that lock or cross any protected quotation in an NMS
stock.'' Such rules must be ``reasonably designed to assure the
reconciliation of locked or crossed quotations in an NMS stock,'' and
must ``prohibit * * * members from engaging in a pattern or practice of
displaying quotations that lock or cross any quotation in an NMS
stock.'' Rule 600 under Regulation NMS \7\ defines a ``quotation'' as a
``bid or offer,'' and in turn defines ``bid or offer'' to mean ``the
bid price or the offer price communicated by a member * * * to any
broker or dealer, or to any customer, at which it is willing to buy or
sell one or more round lots of an NMS security * * *.'' Thus, the
hidden price of the Post-Only Order is not a quotation under Regulation
NMS, and is therefore covered neither by the provisions of Rule 610
pertaining to displayed quotations nor by the provision requiring rules
to assure reconciliation of locked or crossed quotations. In this
respect, the order is similar to PSX's existing Price to Comply order,
which uses a hidden locking price and a displayed non-locking price to
ensure compliance with this rule. It is also similar to the Post Only
Order of the BATS Exchange and the BATS-Y Exchange, as described in
BATS Exchange Rule 11.9(c)(4) and (6) and BATS-Y Exchange Rule
11.9(c)(4) and (6), and the Post Only Order of the EDGA Exchange and
EDGX Exchange, as described in EDGA Exchange Rule 11.5(c)(4) and (5)
and EDGX Exchange Rule 11.5(c)(4) and (5).
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\4\ 15 U.S.C. 78f.
\5\ 15 U.S.C. 78f(b)(5).
\6\ 17 CFR 242.610(d).
\7\ 17 CFR 242.600.
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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. Rather, the change
will promote greater competition by allowing PHLX to adopt
functionality already in use at competing national securities
exchanges.
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.
[[Page 32257]]
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 from the date on which it was filed, or
such shorter time as the Commission may designate, it has become
effective pursuant to Section 19(b)(3)(A) of the Act \8\ and Rule 19b-
4(f)(6) thereunder.\9\
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\8\ 15 U.S.C. 78s(b)(3)(A).
\9\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)(iii)
requires a self-regulatory organization to provide the Commission
with written notice of its intent to file the proposed rule change,
along with a brief description and text of 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 fulfilled 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 change 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-2011-70 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-2011-70. 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 (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 website viewing and
printing in the Commission's Public Reference Room on official business
days between the hours of 10 a.m. and 3 p.m. Copies of such filing also
will be available for inspection and copying at the principal 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-2011-70, and should be submitted on or before June 24, 2011.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\10\
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\10\ 17 CFR 200.30-3(a)(12).
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Cathy H. Ahn,
Deputy Secretary.
[FR Doc. 2011-13776 Filed 6-2-11; 8:45 am]
BILLING CODE 8011-01-P