[Federal Register Volume 77, Number 223 (Monday, November 19, 2012)]
[Notices]
[Pages 69525-69527]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2012-28066]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-68217; File No. SR-Phlx-2012-130]
Self-Regulatory Organizations; NASDAQ OMX PHLX LLC; Notice of
Filing of Proposed Rule Change Relating to SQT and RSQT Evaluations
November 13, 2012.
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 October 31, 2012, NASDAQ OMX PHLX LLC (``Phlx'' or
``Exchange'') filed with the Securities and Exchange Commission
(``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 Rule 510 titled ``SQT and RSQT
Performance Evaluation'' to provide a different method for reviewing
quote submissions in evaluating member organizations to determine
whether they have fulfilled performance standards relating to the
quality of markets.
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 amend a standard by
which Streaming Quote Traders \3\ and Remote Streaming Quote Traders
\4\ are evaluated to determine whether they have fulfilled performance
standards relating to, among other things, quality of markets,
efficient quote submission to the Exchange (including quotes submitted
through a third party vendor), competition, observance of ethical
standards, and administrative factors. Specifically, with respect to
quote submission, the Exchange is proposing to amend its methodology
for evaluating a factor of the Performance Evaluation with quote
submissions.
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\3\ A Streaming Quote Trader (``SQT'') is defined in Exchange
Rule 1014(b)(ii)(A) as an Registered Options Trader (``ROT'') who
has received permission from the Exchange to generate and submit
option quotations electronically in options to which such SQT is
assigned.
\4\ A Remote Streaming Quote Trader (``RSQT'') is defined
Exchange Rule in 1014(b)(ii)(B) as a ROT that is a member or member
organization with no physical trading floor presence who has
received permission from the Exchange to generate and submit option
quotations electronically in options to which such RSQT has been
assigned. An RSQT may only submit such quotations electronically
from off the floor of the Exchange.
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By way of background, Rule 510 establishes specific criteria for
each option assigned to an SQT or RSQT that would be regularly
evaluated by the Exchange. The Exchange periodically conducts an
evaluation of member organizations that have SQTs and RSQTs, as defined
in Exchange Rule 1014,\5\ to determine whether they have fulfilled
performance standards relating to, among other things, efficient quote
submission to the Exchange.\6\ The Exchange may review the Performance
Evaluations and consider other relevant information including, but not
limited to, trading data, regulatory history and
[[Page 69526]]
such other factors and data as may be pertinent in the
circumstances.\7\
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\5\ Rule 1014 titled ``Obligations and Restrictions Applicable
to Specialists and Registered Options Traders'' provides that
transactions of a Specialist and a ROT should constitute a course of
dealings reasonably calculated to contribute to the maintenance of a
fair and orderly market, and those members should not enter into
transactions or make bids or offers that are inconsistent with such
a course of dealings. See Rule 1014.
\6\ This would include quotes that are submitted through a third
party vendor.
\7\ See Rule 510(b). If the Exchange finds any failure by the
SQTs and RSQTs to meet Minimum Performance Standards, the Exchange
may restrict assignments or suspend or terminate an assignment or
registration, after written notice and after opportunity for an
informal meeting.
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With respect to Performance Evaluations, Commentary .01 to Rule 510
specifies that the Exchange will evaluate Minimum Performance Standards
on a monthly basis for each SQT and RSQT. Among other factors, the
Exchange would review the percentage of total quotes that represent the
PBBO, quoting requirements pursuant to Rule 1014, the number of
requests for a quote spread parameter and efficient quote submission.
This proposal seeks to amend the method by which the Exchange
reviews efficient quote submission. Today the Exchange considers how an
SQT or RSQT optimizes the submission of quotes through the Specialized
Quote Feed,\8\ by evaluating the number of individual quotes per quote
block \9\ received by the Exchange. The Exchange believes that this
measure of efficiency may be outdated because it focuses more on
technological ``load balance'' that may be unrelated to actual number
of quotes submitted. The Exchange proposes to replace this measure with
quote-to-trade and quote-to-contracts traded ratios to evaluate how an
SQT or RSQT optimizes the submission of quotes submitted to the
Exchange pursuant to Rule 1014. The Exchange believes that this method
would be more useful in that it would allow the Exchange to better
evaluate the efficiency with which an SQT or RSQT submits quotes and
the quality of those quotes. For example, the Exchange would capture
the following data in a report for each SQT and RSQT: Executed
contracts, trade count, total quotes, executed contract to quote ratio
and trade count to quote ratio. The Exchange believes that this
information would provide the Exchange with additional data that is not
captured today. The number of contracts executed would be analyzed in
addition to the number of quotes received by the Exchange. Today, only
quotes are analyzed. The executed contract to quote ratio would provide
the Exchange with efficiency information. For example, an SQT could be
evaluated in comparison to other liquidity providers to determine how
much of their quote usage is actually resulting in liquidity being
accessed by participants in the marketplace. The trade count to quote
ratio would provide an additional subset of information that would
reflect participation at the NBBO. This information is relevant because
smaller participants may execute lesser size, but may provide value due
to their presence at the top of the market.
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\8\ A Specialist, RSQT or SQT may establish an option pricing
model via a specialized connection, which is known as a specialized
quote feed (``SQF''). See Commentary .01 to Rule 1080.
\9\ A block contains up to 200 quotes.
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The Exchange believes that updating the methodology utilized to
review quote submissions with different statistical information,
specifically quote-to-trade and quote-to-contracts traded ratios, would
allow the Exchange to obtain more precise information with which to
evaluate SQTs and RSQTs and determine Performance Evaluations.
2. Statutory Basis
The Exchange believes that its proposal is consistent with Section
6(b) of the Act \10\ in general, and furthers the objectives of Section
6(b)(5) of the Act \11\ in particular, in that it 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 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.
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\10\ 15 U.S.C. 78f(b).
\11\ 15 U.S.C. 78f(b)(5).
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The Exchange believes that the proposed rule change would be
beneficial because it would provide the Exchange with a better means to
evaluate quote submissions in comparison to other liquidity providers
to evaluate how much their quote usage is actually resulting in
liquidity being accessed by participants in the marketplace. The trade
count to quote ratio would provide an additional subset of information
that would reflect participation at the NBBO. This information, which
relates to efficiency, would allow the Exchange to obtain more precise
information with which to evaluate the performance of SQTs and RSQTs,
particularly market participants that execute at a lesser size. The
information would allow the Exchange to evaluate the value provided to
the marketplace. The Exchange believes that the quote-to-trade and
quote-to-contract data would provide valuable information to utilize in
evaluations as compared to the number of individual quotes per quote
block because the Exchange believes the proposed information would
provide better metrics overall.
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
Within 45 days of the date of publication of this notice in the
Federal Register or within such longer period (i) as the Commission may
designate up to 90 days of such date if it finds such longer period to
be appropriate and publishes its reasons for so finding or (ii) as to
which the Exchange consents, the Commission shall: (a) By order approve
or disapprove such proposed rule change, or (b) institute proceedings
to determine whether the proposed rule change should be 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 email to [email protected]. Please include
File Number SR-Phlx-2012-130 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-2012-130. 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
[[Page 69527]]
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-2012-130 and should be submitted on or before
December 10, 2012.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\12\
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\12\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2012-28066 Filed 11-16-12; 8:45 am]
BILLING CODE 8011-01-P