[Federal Register Volume 77, Number 198 (Friday, October 12, 2012)]
[Notices]
[Pages 62287-62289]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2012-25104]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-67991; File No. SR-Phlx-2012-116]
Self-Regulatory Organizations; NASDAQ OMX PHLX LLC; Notice of
Filing and Immediate Effectiveness of Proposed Rule Change To Amend
Exchange Rule 3315(a)(1)(A) To Reflect a Change in Its Routing
Functionality To Allow Routable Orders to Simultaneously Execute
Against Exchange Available Shares and Route to Other Markets for
Execution of the Remainder of the Order
October 5, 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 September 25, 2012, NASDAQ OMX PHLX LLC (``PHLX'' or ``Exchange'')
filed with the Securities and Exchange Commission (``Commission'') a
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 Substance
of the Proposed Rule Change
PHLX proposes to amend Rule 3315(a)(1)(A) to reflect a change in
its routing functionality. The Exchange is proposing to implement the
rule change as soon as practicable, but in no case later than thirty
calendar days from the filing date of this proposal. The text of the
proposed rule change is available at http://nasdaqomxphlx.cchwallstreet.com, 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 IV 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 proposing to amend Rule 3315(a)(1)(A) to reflect a change
in PHLX's order routing functionality, which will allow routable orders
\3\ to simultaneously execute against PHLX available shares and route
to other markets for execution of the remainder of the order.
Currently, when a routable order is entered into the PHLX system, the
PHLX book is first checked for available shares. If such an order is
not filled or filled only partially, then the order is routed to away
markets with the best bid or best offer pursuant to PHLX's System
routing table.\4\ For example, if a PHLX member submitted an order to
buy 5,000 shares of a security, and PHLX had 500 shares displayed with
another 500 shares undisplayed, under the current routing process 1,000
shares
[[Page 62288]]
would be executed on PHLX. Thereafter, PHLX would route the remaining
4,000 shares of the order to other markets for execution.
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\3\ For purposes of this filing, a ``routable order'' is an
order entered into the PHLX System, which is not of an Order Type
precluded from routing to other markets.
\4\ The ``System routing table'' is the proprietary process for
determining the specific trading venues to which the System routes
orders and the order in which it routes them. See Rule
3315(a)(1)(A).
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PHLX has observed that upon partial execution of a routable order
at PHLX, as in the example above, market participants often react to
the order by cancelling their orders on other markets and entering new
orders at inferior prices. This occurs because the current process
directs the order to PHLX before attempting to access available
liquidity at other markets and thereby allows market participants to
react to the execution (an effect known as ``market impact'' or
``information leakage''). As a consequence, the available shares at the
away market are no longer available, resulting in a lower likelihood of
successfully accessing liquidity on away markets (i.e., the ``fill
rate'') and an increased likelihood of ultimately receiving an
execution at an inferior price. As such, PHLX is addressing this
problem by changing how the routing process will operate.
PHLX is proposing to execute routable orders against the PHLX book
for available shares and to simultaneously route any remaining shares
to additional markets. Specifically, under the proposed change a
routable order would attempt to execute against the available shares at
PHLX and, to the extent the order would not be filled by such available
shares, PHLX would simultaneously route the remainder of the order to
other venues, according to PHLX's System routing table, in a manner
consistent with Regulation NMS (i.e., satisfying all displayed
protected quotes). For example, using the scenario above, if a member
enters a routable order to buy 5,000 shares of a security and PHLX is
displaying 500 shares of that security, with 500 undisplayed, PHLX
would execute against the 500 displayed shares and 500 undisplayed
shares, while simultaneously routing the remaining 4,000 shares to
other venues for execution. In the event that the amount of shares on
other markets is insufficient to completely fill the order, or the
order fails to completely execute, PHLX would then post the remaining
shares on the PHLX book or cancel the remaining shares per the routed
order's instructions. PHLX believes that this simultaneous execution
against PHLX available shares and routing to other venues' shares will
avoid the deleterious effect of market impact discussed above and
result in overall faster and better executions of its members' routable
orders.
PHLX notes that it is not changing the execution and routing
sequence of all routable orders. The PTFY, PMOP, and PCRT orders are
designed to execute serially as part of their strategies, which is
generally to reduce the blended fees associated with transacting on
multiple markets. As such, simultaneous routing of such orders would
not result in a better execution in terms of the goals of these
routable order types.
The proposed change is based on the recently-approved change to the
analogous NASDAQ Stock Market LLC (``NASDAQ'') rule.\5\ Although PHLX
does not have all of the order types that NASDAQ has, it is making the
identical changes applicable to the analogous routable order types
shared in common with NASDAQ. The Exchange will implement the proposed
change as soon as practicable and in no event later than 30 calendar
days from the filing date of this proposal.
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\5\ See Securities Exchange Act Release No. 67639 (August 10,
2012), 77 FR 49034 (August 15, 2012) (SR-NASDAQ-2012-071).
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2. Statutory Basis
The statutory basis for the proposed rule change is Section 6(b)(5)
of the Act,\6\ which requires the rules of an exchange 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. The
Exchange believes that the proposed rule meets these requirements in
that it promotes efficiency in the market, and increases the speed of
execution and likelihood that a routable order will be filled at the
best price possible. In this regard, the Exchange notes that
simultaneous execution minimizes the market impact a routable order has
on other markets under the current multi-step execution and routing
process, thus improving fill rates. Accordingly, the proposed rule
change will serve to improve execution quality for investors sending
their routable orders to the Exchange.
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\6\ 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
result in any burden on competition that is not necessary or
appropriate in furtherance of the purposes of the Act, as amended.
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) of the Act \7\ and Rule 19b-4(f)(6) \8\ thereunder because
the proposal does not: (i) Significantly affect the protection of
investors or the public interest; (ii) impose any significant burden on
competition; and (iii) by its terms, become operative for 30 days from
the date on which it was filed, or such shorter time as the Commission
may designate.\9\
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\7\ 15 U.S.C. 78s(b)(3)(A).
\8\ 17 CFR 240.19b-4(f)(6).
\9\ In addition, Rule 19b-4(f)(6)(iii) requires the Exchange to
give the Commission written notice of the Exchange's 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 satisfied this
requirement.
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A proposed rule change filed under Rule 19b-4(f)(6) normally may
not become operative prior to 30 days after the date of filing.
However, Rule 19b-4(f)(6)(iii) \10\ permits the Commission to designate
a shorter time if such action is consistent with the protection of
investors and the public interest. The Exchange has requested that the
Commission waive the 30-day operative delay period. The Commission
believes that waiver of the 30-day operative delay period is consistent
with the protection of investors and the public interest. Specifically,
the Commission believes that the proposal should increase the
likelihood that a routable order would receive a more complete fill and
should improve the Exchange's ability to process such orders. For these
reasons, the Commission believes that waiving the 30-day operative
delay is consistent with the protection of investors and the public
interest. Therefore, the Commission designates the proposed rule change
to be operative upon filing with the Commission.\11\
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\10\ 17 CFR 240.19b-4(f)(6)(iii).
\11\ For purposes only of waiving the operative delay for this
proposal, the Commission has considered the proposed rule's impact
on efficiency, competition, and capital formation. See 15 U.S.C.
78c(f).
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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.\12\
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\12\ 15 U.S.C. 78s(b)(3)(C).
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[[Page 62289]]
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 email to [email protected]. Please include
File Number SR-Phlx-2012-116 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-2012-116. 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 (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
10:00 a.m. and 3:00 p.m. Copies of such 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-2012-116 and should be
submitted on or before November 2, 2012.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\13\
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\13\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2012-25104 Filed 10-11-12; 8:45 am]
BILLING CODE 8011-01-P