[Federal Register Volume 76, Number 133 (Tuesday, July 12, 2011)]
[Notices]
[Pages 40976-40978]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2011-17428]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-64822; File No. SR-Phlx-2011-91]
Self-Regulatory Organizations; Notice of Filing and Immediate
Effectiveness of Proposed Rule Change by NASDAQ OMX PHLX LLC Relating
to Routing Priority
July 6, 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 June 27, 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 correct Rule 1080(m) to reflect the
priority of routed orders that are not executed on the destination
exchange, as described further below.
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
[[Page 40977]]
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 more accurately
reflect the priority of routed orders in Rule 1080. Currently, Rule
1080(m) governs the routing of orders on the Exchange and describes
when orders are routed. Specifically, it provides that the System will
route only customer FIND and SRCH Orders with no other contingencies,
that IOC Orders will be cancelled immediately if not executed and will
not be routed and that eligible orders can be designated as either
available for routing or not available for routing. Customer FIND and
SRCH Orders, as defined in Rule 1080(m)(iv), designated as available
for routing will first be checked by the System for available contracts
for potential execution. After checking the System for available
contracts, orders are sent to other available market centers for
potential execution. When checking the book, the System will seek to
execute at the price at which it would send the order to a destination
market center.
In situations where the Exchange's disseminated bid or offer is
inferior to the NBBO price, the System will contemporaneously: (i)
Route an order marked as an ISO to each away market disseminating
prices better than the Exchange's price, for the lesser of: (a) The
disseminated size of such away markets, or (b) the order size and, (ii)
if order size remains after such routing, trade at the Exchange's
disseminated bid or offer up to its disseminated size. If contracts
still remain unexecuted after routing, they are posted on the book.
Once on the book, should the order subsequently be locked or crossed by
another market center, the System will not route the order to the
locking or crossing market center, except as specified in Rule 1080(m).
Because the System routes the lesser of the disseminated size of
the away markets or the order size, it is possible for part of an order
to be routed, with a portion of the order remaining on the Exchange.
Respecting the part of an order that is routed (``routed order''), that
order can either be executed in full, in part or not at all on the
destination exchange.
Currently, Rule 1080(m)(i) describes the priority of routed orders
as follows: orders sent to other markets do not retain time priority
with respect to other orders in the System and the System shall
continue to execute other orders while routed orders are away at
another market center. It further provides that once routed by the
System, an order becomes subject to the rules and procedures of the
destination market including, but not limited to, order cancellation.
If a routed order is subsequently returned, in whole or in part, that
order, or its remainder, shall receive a new time stamp reflecting the
time of its return to the System.
However, there is a situation where the order does not receive a
new time stamp. Specifically, as described above, a routed order can be
for less than the original incoming order's size with a portion of the
order remaining on the Exchange. If a routed order is subsequently
returned, in whole or in part, that routed order, or its remainder,
will not receive a new time stamp reflecting the time of its return to
the System if any portion of the original order remains on the System
when the routed order returns to the System, in which case the routed
order shall retain its timestamp and its priority; specifically, the
routed order, when returned, retains the timestamp and priority of the
order which remains on the Exchange. The Exchange proposes to codify
this in Rule 1080(m)(i).
Where the original incoming order resides on the book when the
routed order returns unexecuted or executed in part, the Exchange's
System does not treat the routed order as a new order but rather
resumes treating it as part of the original incoming order, thereby
retaining its original timestamp and priority, as though the
unsuccessful routing had never occurred. The Exchange does not believe
that this result is problematic or raises regulatory issues. In fact,
in situations where a portion of an order remains on the Exchange and a
portion is routed, the Exchange routes such order so as to execute it
and comply with the regulatory requirements to avoid trade-throughs and
locked and crossed markets. Various market conditions determine the
destination(s) to which an order is routed, the portion of the order
that should be routed, and whether or not the routed order results in
an execution. Accordingly, the Exchange believes that its processes to
route and timestamp routed orders, which are spelled out in its rules,
are intended to make clear to market participants the various outcomes
that result, depending on various market conditions.
2. Statutory Basis
The Exchange believes that its proposal is consistent with Section
6(b) of the Act \3\ in general, and furthers the objectives of Section
6(b)(5) of the Act \4\ 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.
By more accurately reflecting the priority of routed orders, the rules
will be clearer; at the same time, the Exchange also believes that
retaining the original timestamp on a partially routed order is
designed to promote just and equitable principles of trade and protect
investors and the public interest, because maintaining the original
order as a single order is the simplest method of handling the order,
which should help entering firms manage their order flow. Respecting
routable orders, market conditions, not the entering firm, determine
whether the order is routed, and ultimately whether it is executed on
the destination market, such that the Exchange believes that it is
simpler and more logical to treat the unexecuted portion of a routed
order together with the original order. In addition, retaining the
original timestamp on a partially routed order does not disadvantage
other orders on the book, because the partially routed order had time
priority and is merely returning, in effect, to its original place in
time priority on the book. The portion of the order that was not routed
and remained on the book is available for execution; if it is executed
in full before the routed portion returns to the Exchange, the
returned, routed portion receives a new timestamp book.
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\3\ 15 U.S.C. 78f(b).
\4\ 15 U.S.C. 78f(b)(5).
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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 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
[[Page 40978]]
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\5\ and Rule 19b-4(f)(6)\6\ thereunder.
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\5\ 15 U.S.C. 78s(b)(3)(A).
\6\ 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-2011-91 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-2011-91. 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 Web site 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-2011-91, and should be submitted on or before August 2, 2011.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\7\
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\7\ 17 CFR 200.30-3(a)(12).
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Cathy H. Ahn,
Deputy Secretary.
[FR Doc. 2011-17428 Filed 7-11-11; 8:45 am]
BILLING CODE 8011-01-P