[Federal Register Volume 78, Number 60 (Thursday, March 28, 2013)]
[Notices]
[Pages 19031-19034]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2013-07183]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-69218; File No. SR-Phlx-2013-26]
Self-Regulatory Organizations; NASDAQ OMX PHLX LLC; Notice of
Filing and Immediate Effectiveness of Proposed Rule Change To Amend
Exchange Rule 3100
March 22, 2013.
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 March 11, 2013, 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 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
The Exchange is filing with the Commission a proposal to amend
Exchange Rule 3100 to establish rules to comply with the requirements
of the Plan to Address Extraordinary Market Volatility submitted to the
Commission pursuant to Rule 608 of Regulation NMS.
The text of the proposed rule change is available on the Exchange's
Web site at http://nasdaqomxphlx.cchwallstreet.com, at the principal
office of the Exchange, at the Commission's Public Reference Room, and
on the Commission's Web site at http://www.sec.gov.
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 Exchange proposes to amend Exchange Rule 3100 to establish
rules to comply with the requirements of the Plan to Address
Extraordinary Market Volatility submitted to the Commission pursuant to
Rule 608 of Regulation NMS under the Act (the ``Plan'').\3\
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\3\ See Securities Exchange Act Release No. 68953 (Feb. 20,
2013) (Notice of Filing and Immediate Effectiveness of the Second
Amendment to the National Market System Plan to Address
Extraordinary Market Volatility, File No. 4-631).
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Background
Since May 6, 2010, when the markets experienced excessive
volatility in an abbreviated time period, i.e., the ``flash crash,''
the equities exchanges and FINRA have implemented market-wide measures
designed to restore investor confidence by reducing the potential for
excessive market volatility. Among the measures adopted include pilot
plans for stock-by-stock trading pauses \4\ and
[[Page 19032]]
related changes to the equities market clearly erroneous execution
rules \5\ and more stringent equities market maker quoting
requirements. On May 31, 2012, the Commission approved the Plan, as
amended, on a one-year pilot basis.\6\ In addition, the Commission
approved changes to the equities market-wide circuit breaker rules on a
pilot basis to coincide with the pilot period for the Plan.\7\
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\4\ See, e.g., PSX Rule 3100.
\5\ See, e.g., PSX Rule 3312.
\6\ See Securities Exchange Act Release No. 67091 (May 31,
2012), 77 FR 33498 (June 6, 2012) (File No. 4-631) (Order Approving,
on a Pilot Basis, the National Market System Plan To Address
Extraordinary Market Volatility).
\7\ See Securities Exchange Act Release No. 67090 (May 31,
2012), 77 FR 33531 (June 6, 2012) (SR-BATS-2011-038; SR-BYX-2011-
025; SR-BX-2011-068; SR-CBOE-2011-087; SR-C2-2011-024; SR-CHX-2011-
30; SR-EDGA-2011-31; SR-EDGX-2011-30; SR-FINRA-2011-054; SR-ISE-
2011-61; SR-NASDAQ-2011-131; SR-NSX-2011-11; SR-NYSE-2011-48; SR-
NYSEAmex-2011-73; SR-NYSEArca-2011-68; SR-Phlx-2011-129).
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The Plan is designed to prevent trades in individual NMS Stocks
from occurring outside of specified Price Bands.\8\ As described more
fully below, the requirements of the Plan are coupled with Trading
Pauses to accommodate more fundamental price moves (as opposed to
erroneous trades or momentary gaps in liquidity). All trading centers
in NMS Stocks, including both those operated by Participants and those
operated by members of Participants, are required to establish,
maintain, and enforce written policies and procedures that are
reasonably designed to comply with the requirements specified in the
Plan.\9\ As set forth in more detail in the Plan, Price Bands
consisting of a Lower Price Band and an Upper Price Band for each NMS
Stock are calculated by the Processors.\10\ When the National Best Bid
(Offer) is below (above) the Lower (Upper) Price Band, the Processors
shall disseminate such National Best Bid (Offer) with an appropriate
flag identifying it as non-executable. When the National Best Bid
(Offer) is equal to the Upper (Lower) Price Band, the Processors shall
distribute such National Best Bid (Offer) with an appropriate flag
identifying it as a Limit State Quotation.\11\ All trading centers in
NMS Stocks must maintain written policies and procedures that are
reasonably designed to prevent the display of offers below the Lower
Price Band and bids above the Upper Price Band for NMS Stocks.
Notwithstanding this requirement, the Processor shall display an offer
below the Lower Price Band or a bid above the Upper Price Band, but
with a flag that it is non-executable. Such bids or offers shall not be
included in the National Best Bid or National Best Offer
calculations.\12\
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\8\ Unless otherwise specified, capitalized terms used in this
rule filing are based on the defined terms of the Plan.
\9\ The Exchange is a Participant in the Plan.
\10\ See Section (V)(A) of the Plan.
\11\ See Section VI(A) of the Plan.
\12\ See Section VI(A)(3) of the Plan.
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Trading in an NMS Stock immediately enters a Limit State if the
National Best Offer (Bid) equals but does not cross the Lower (Upper)
Price Band.\13\ Trading for an NMS stock exits a Limit State if, within
15 seconds of entering the Limit State, all Limit State Quotations were
executed or canceled in their entirety. If the market does not exit a
Limit State within 15 seconds, then the Primary Listing Exchange would
declare a five-minute Trading Pause pursuant to Section VII of the LULD
Plan, which would be applicable to all markets trading the
security.\14\ In addition, the Plan defines a Straddle State as when
the National Best Bid (Offer) is below (above) the Lower (Upper) Price
Band and the NMS Stock is not in a Limit State. For example, assume the
Lower Price Band for an NMS Stock is $9.50 and the Upper Price Band is
$10.50, such NMS stock would be in a Straddle State if the National
Best Bid were below $9.50, and therefore non-executable, and the
National Best Offer were above $9.50 (including a National Best Offer
that could be above $10.50). If an NMS Stock is in a Straddle State and
trading in that stock deviates from normal trading characteristics, the
Primary Listing Exchange may declare a Trading Pause for that NMS
Stock.
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\13\ See Section VI(B)(1) of the Plan.
\14\ The primary listing market would declare a trading pause in
an NMS Stock; upon notification by the primary listing market, the
Processor would disseminate this information to the public. No
trades in that NMS Stock could occur during the trading pause, but
all bids and offers may be displayed. See Section VII(A) of the
Plan.
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Proposed Amendment to Rule 3100
The Exchange is required by the Plan to establish, maintain, and
enforce written policies and procedures that are reasonably designed to
comply with the limit up-limit down and trading pause requirements
specified in the Plan. In response to the new Plan, the Exchange
proposes to amend its Rules accordingly.
The Exchange proposes to add Rule 3100(a)(5)(A)(1) to define that
``Plan'' means the Plan to Address Extraordinary Market Volatility
Submitted to the Securities and Exchange Commission Pursuant to Rule
608 of Regulation NMS under the Securities Exchange Act of 1934,
Exhibit A to Securities Exchange Act Release No. 67091 (May 31, 2012),
77 FR 33498 (June 6, 2012). In addition, proposed Rule 3100(a)(5)(A)(2)
provides that all capitalized terms not otherwise defined in this Rule
shall have the meanings set forth in the Plan or Exchange rules, as
applicable.
The Exchange proposes to add Rule 3100(a)(5)(C) to provide that
Exchange members shall comply with the applicable provisions of the
Plan. The Exchange believes that this requirement will help ensure the
compliance by its members with the provisions of the Plan as required
pursuant to Section II(B) of the Plan.\15\
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\15\ See Section II(B) of the Plan.
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The Exchange proposes to add Rule 3100(a)(5)(D) to provide that
Exchange systems shall not display or execute buy (sell) interest above
(below) the Upper (Lower) Price Bands, unless such interest is
specifically exempted under the Plan. The Exchange believes that this
requirement is reasonably designed to help ensure the compliance with
the limit up-limit down and trading pause requirements specified in the
Plan, by preventing executions outside the Price Bands as required
pursuant to Section VI(A)(1) of the Plan.\16\
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\16\ See Section VI(A)(1) of the Plan.
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The Exchange proposes Rules regarding the treatment of certain
trading interest on the Exchange in order to prevent executions outside
the Price Bands and to comply with the new LULD Plan. In particular,
the Exchange proposes to add Rule 3100(a)(5)(E) to provide that
Exchange systems shall re-price or cancel buy (sell) interest that is
priced or could be executed above (below) the Upper (Lower) Price Band.
Any interest that is repriced pursuant to this Rule shall receive a new
time stamp and new execution priority.\17\ Specifically, the Exchange
proposes the following provisions regarding the repricing or canceling
of certain trading interest:
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\17\ PSX believes it is appropriate for re-priced orders to
receive a new time stamp and new execution priority rather than jump
ahead of previously-entered orders. In effect, an adjustment in
price is equivalent to the entry of a new order; that function is
simply being automated.
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Market Orders. If a market order with a time in force
other than Immediate or Cancel cannot be fully executed at or within
the Price Bands, Exchange systems shall post the unexecuted portion of
the buy (sell) market order at the Upper (Lower) Price Band.
Limit-priced Interest. Both displayable and non-
displayable incoming limit-priced interest to buy (sell) that is priced
above (below) the Upper (Lower) Price Band shall be
[[Page 19033]]
repriced to the Upper (Lower) Price Band. The treatment of limit-priced
interest will depend upon its order entry protocol. For limit-priced
orders entered via the OUCH protocol, the order shall be re-priced upon
entry only if the Price Bands are such that the price of the limit-
priced interest to buy (sell) would be above (below) the upper (lower)
Price Band. Once slid, the treatment of that interest will further
depend upon whether it becomes passive or aggressive interest.
Specifically, if the order becomes passively priced such that the Price
Bands move and the price of the order to buy (sell) would be below
(below) the lower (upper) Price Band, the order will not be re-priced
again. Rather, the order will either remain on the book at the same
price or be cancelled back to the entering party, depending on how the
entering party has configured its order entry port. If the interest
becomes aggressively priced such that the Price Bands move and the
price of the order to buy (sell) would be above (below) the upper
(lower) Price Band, the order will not be re-priced again. Rather, the
order will be cancelled.
For limit-priced orders entered via RASH or FIX protocols,
the order shall priced upon order entry and then shall be eligible to
be repriced by the system multiple times if the Price Bands move such
that the price of resting limit-priced interest to buy (sell) would be
above (below) the upper (lower) Price Band. Once slid, if the Price
Bands move such that the price of resting limit interest to buy (sell)
would be below (above) the upper (lower) Price Band the order will
continue to be repriced either to its original limit price or to the
new price bands, whichever is less aggressive.\18\
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\18\ The NASDAQ system will treat limit-priced orders
differently depending upon whether the entering firm uses the OUCH
protocol on one hand or the RASH or FIX protocols on the other. This
different treatment stems from the ultimate destination for orders
entered via those protocols. Orders entered via OUCH are destined
for direct entry to the NASDAQ matching engine. As such, they are
not eligible for special treatments or calculations, including re-
pricing. Orders entered via RASH (short for ``routing and special
handling'') and FIX are destined for the indirect entry into the
matching engine. They are eligible for special treatments and
calculations, including re-pricing. This difference in the protocols
is longstanding and well-known to NASDAQ members.
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IOC Orders. If an IOC order cannot be fully executed at or
within the Price Bands, Exchange systems shall cancel any unexecuted
portion of the IOC Order.
Routable Orders. Exchange systems shall not route buy
(sell) interest to an away market displaying a sell (buy) quote that is
above (below) the Upper (Lower) Price Band. Orders that are eligible to
be routed to away destinations will be price slid before routing if the
buy (sell) is priced above (below) the Upper (Lower) Price Band.
Sell Short Orders. During a Short Sale Price Test, as
defined in Rule 4763(b), Short Sale Orders priced below the Lower Price
Band shall be repriced to the higher of the Lower Price Band or the
Permitted Price, as defined in Rule 4763(b).
The Exchange believes these provisions are reasonably designed to
prevent executions outside the Price Bands as required by the limit up-
limit down and trading pause requirements specified in the Plan.
The Exchanges also proposes to amend Rule 3100(a)(4) regarding
Trading Pauses to correspond with the LULD Plan. The proposed change
clarifies that the Exchange will continue to follow pauses called by
the primary listing market for each security until such time as the
LULP Plan is fully implemented. As a result, during Phase 1 of the LULD
Plan, a Trading Pause in Tier 1 NMS Stocks shall be subject to the
requirements of the LULD Plan and a Trading Pause in Tier 2 NMS Stocks
shall be subject to the requirements set forth in Exchange 3100(a)(4).
Once the Plan has been fully implemented and all NMS Stocks are subject
to the Plan, a Trading Pause under the Plan shall be subject to
Exchange Rule 3100(a)(5). These proposed changes are designed to comply
with Section VIII of the LULD Plan to ensure implementation of the
Plan's requirements.\19\
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\19\ See Section VIII of the Plan.
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2. Statutory Basis
The Exchange believes the proposed rule change is consistent with
Section 6(b) of the Act \20\ in general, and furthers the objectives of
Section 6(b)(5),\21\ in particular, in that it is designed to promote
just and equitable principles of trade, remove impediments to and
perfect the mechanisms 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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\20\ 15 U.S.C. 78f (b).
\21\ 15 U.S.C. 78f(b)(5).
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The proposal will ensure that the Exchange systems will not display
or execute trading interest outside the Price Bands in a manner that
promotes just and equitable principles of trade and removes impediments
to, and perfects the mechanism of, a free and open market and a
national market system.
The proposal will also ensure that the trading interest on the
Exchange is either repriced or canceled in a manner that is consistent
with just and equitable principles of trade and removes impediments to,
and perfects the mechanism of, a free and open market and a national
market system. Specifically, when trading interest is re-priced to
comply with the requirements of the Plan, that trading interest will
receive a new timestamp and new execution priority. Re-pricing is the
automated equivalent of the entry of a new order which would, if done
manually, result in a new timestamp and placement in the execution
queue. The proposal will help market participants to continue to trade
NMS Stocks within Price Bands in compliance with the Plan with
certainty on how orders and trading interest will be treated. Reducing
uncertainty regarding the treatment and priority of trading interest
with the Price Bands should help encourage market participants to
continue to provide liquidity during extraordinary market volatility.
The proposal will also ensure that orders in NMS Stocks are not
routed to other exchanges in situations where an execution may occur
outside Price Bands, and thus promotes just and equitable principles of
trade and removes impediments to, and perfects the mechanism of, a free
and open market and a national market system.
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 that is not necessary or appropriate
in furtherance of the purposes of the Act. To the contrary, the
proposal is specifically designed to ensure cooperation between and
among all national securities exchanges and FINRA to promote uniform
and effective regulation of the national market system. The proposal is
specifically aimed at reducing competition among exchanges that is
based on differences in regulations, otherwise known as regulatory
arbitrage. In actuality, the proposal is pro-competitive because it
promotes fair and orderly markets and investor protection, which in
turn will restore investor confidence and attract more investors into
U.S. equities markets.
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 19034]]
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
The Exchange has filed the proposed rule change pursuant to Section
19(b)(3)(A)(iii) of the Act \22\ and Rule 19b-4(f)(6) thereunder.\23\
Because the 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 prior to
30 days from the date on which it was filed, or such shorter time as
the Commission may designate, if consistent with the protection of
investors and the public interest, the proposed rule change has become
effective pursuant to Section 19(b)(3)(A) of the Act and Rule 19b-
4(f)(6)(iii) thereunder.
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\22\ 15 U.S.C. 78s(b)(3)(A)(iii).
\23\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)
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) \24\ normally
does not become operative prior to 30 days after the date of the
filing. However, pursuant to Rule 19b4(f)(6)(iii),\25\ the Commission
may designate a shorter time if such action is consistent with the
protection of investors and the public interest. The Exchange has asked
the Commission to designate an operative date of April 8, 2013. The
Commission believes that waiving the operative delay and designating
April 8, 2013 as the operative date of the proposed rule change is
consistent with the protection of investors and the public interest
because such waiver would allow the proposed rule change to be
operative on the initial date of Plan operations. Accordingly, the
Commission hereby grants the Exchange's request and designates an
operative date of April 8, 2013.\26\
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\24\ 17 CFR 240.19b-4(f)(6).
\25\ 17 CFR 240.19b-4(f)(6)(iii).
\26\ For purposes only of waiving the operative delay, 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 such 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.
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-2013-26 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-2013-26. 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 publicly available. All
submissions should refer to File Number SR-Phlx-2013-26 and should be
submitted on or before April 18, 2013.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority. \27\
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\27\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2013-07183 Filed 3-27-13; 8:45 am]
BILLING CODE 8011-01-P