[Federal Register Volume 78, Number 140 (Monday, July 22, 2013)]
[Notices]
[Pages 43950-43953]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2013-17468]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-69989; File No. SR-Phlx-2013-74]
Self-Regulatory Organizations; NASDAQ OMX PHLX LLC; Notice of
Filing and Immediate Effectiveness of Proposed Rule Change Relating to
the Extension of a Pilot Program Regarding Price Improvement XL
July 16, 2013.
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 July 12, 2013, 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
The Exchange proposes to amend Exchange Rule 1080(n), Price
Improvement XL (``PIXL\SM\'') to extend, through July 18, 2014, a pilot
program (the ``pilot'') concerning (i) the early conclusion of the PIXL
Auction (as described below), and (ii) permitting orders of fewer than
50 contracts into the PIXL Auction. The current pilot is scheduled to
expire July 18, 2013.\3\
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\3\ The extension of the pilot relates to several subparagraphs
of Rule 1080(n) in respect of PIXL and Complex Order PIXL, as
discussed below.
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Proposed new text is italicized. Deleted text is [bracketed].
* * * * *
NASDAQ OMX PHLX LLC Rules
Options Rules
* * * * *
Rule 1080. Phlx XL and Phlx XL II
(a)-(m) No change.
(n) Price Improvement XL (``PIXL'')
A member may electronically submit for execution an order it
represents as agent on behalf of a public customer, broker-dealer, or
any other entity (``PIXL Order'') against principal interest or against
any other order (except as provided in sub-paragraph (n)(i)(F) below)
it represents as agent (an ``Initiating Order'') provided it submits
the PIXL Order for electronic execution into the PIXL Auction
(``Auction'') pursuant to this Rule. The contract size specified in
Rule 1080(n) as applicable to PIXL Orders shall apply to Mini Options.
(i) Auction Eligibility Requirements. All options traded on the
Exchange are eligible for PIXL. A member (the ``Initiating Member'')
may initiate an Auction provided all of the following are met:
(A) if the PIXL Order (except if it is a Complex Order) is for the
account of a public customer:
(1) No change.
(2) and is for a size of less than 50 contracts, the Initiating
Member must stop the entire PIXL Order (except if it is a Complex
Order) at a price that is the better of: (i) the Exchange's Best Bid or
Offer (``PBBO'') price on the opposite side of the market from the PIXL
Order improved by at least one minimum price improvement increment, or
(ii) the PIXL Order's limit price (if the order is a limit order),
provided in either case that such price is at or better than the NBBO,
and at least one minimum price improvement increment better than any
limit order on the book on the same side
[[Page 43951]]
of the market as the PIXL Order. This sub-paragraph (A)(2) shall be
effective for a pilot period scheduled to expire July 18, 201[3]4.
(B) If the PIXL Order (except if it is a Complex Order) is for the
account of a broker dealer or any other person or entity that is not a
public customer:
(1) No change.
(2) and is for a size of less than 50 contracts, the Initiating
Member must stop the entire PIXL Order (except if it is a Complex
Order) at a price that is the better of: (i) the PBBO price improved by
at least one minimum price improvement increment on the same side of
the market as the PIXL Order, or (ii) the PIXL Order's limit price (if
the order is a limit order), provided in either case that such price is
at or better than the NBBO and at least one minimum improvement
increment better than the PBBO on the opposite side of the market from
the PIXL Order. This sub-paragraph (B)(2) shall be effective for a
pilot period scheduled to expire July 18, 201[3]4.
(C) If the PIXL Order is a Complex Order and of a conforming ratio,
as defined in Commentary.08(a)(i) and (a)(ix) to Rule 1080, the
Initiating Member must stop the entire PIXL order at a price that is
better than the best net price (debit or credit) (i) available on the
Complex Order book regardless of the Complex Order book size; and (ii)
achievable from the best Phlx bids and offers for the individual
options (an ``improved net price''), provided in either case that such
price is equal to or better than the PIXL Order's limit price. Complex
Orders consisting of a ratio other than a conforming ratio will not be
accepted. This sub-paragraph (C) shall apply to all Complex Orders
submitted into PIXL. This sub-paragraph (C), where applied to Complex
Orders where the smallest leg is less than 50 contracts in size, shall
be effective for a pilot period scheduled to expire July 18, 201[3]4.
(D)-(G) No change.
(ii) Auction Process. Only one Auction may be conducted at a time
in any given series or strategy. Once commenced, an Auction may not be
cancelled and shall proceed as follows:
(A) No change.
(B) Conclusion of Auction. The PIXL Auction shall conclude at the
earlier to occur of (1) through (4) below, with the PIXL Order
executing pursuant to paragraph (C)(1) through (3) below.
(1)-(4) No change.
(5) Sub-paragraphs (B)(2), (B)(3) and (B)(4) above shall be
effective for a pilot period scheduled to expire July 18, 201[3]4.
(C) No change.
(D) An unrelated market or marketable limit order (against the
PBBO) on the opposite side of the market from the PIXL Order received
during the Auction will not cause the Auction to end early and will
execute against interest outside of the Auction. In the case of a
Complex PIXL Auction, an unrelated market or marketable limit Complex
Order on the opposite side of the market from the Complex PIXL Order as
well as orders for the individual components of the Complex Order
received during the Auction will not cause the Auction to end early and
will execute against interest outside of the Auction. If contracts
remain from such unrelated order at the time the Auction ends, they
will be considered for participation in the order allocation process
described in sub-paragraph (E) below. This sub-paragraph shall be
effective for a pilot period scheduled to expire on July 18, 201[3]4.
(E)-(J) No change.
(iii)-(vi) No change.
(vii) Initially, and for at least a Pilot Period expiring on July
18, 201[3]4, there will be no minimum size requirement for orders to be
eligible for the Auction. During this Pilot Period, the Exchange will
submit certain data, periodically as required by the Commission, to
provide supporting evidence that, among other things, there is
meaningful competition for all size orders and that there is an active
and liquid market functioning on the Exchange outside of the Auction
mechanism. Any data which is submitted to the Commission will be
provided on a confidential basis.
* * * * *
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, 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 extend the pilot
through July 18, 2014.
Background
The Exchange adopted PIXL in October 2010 as a price-improvement
mechanism on the Exchange.\4\ PIXL is a component of the Exchange's
fully automated options trading system, PHLX XL[supreg] that allows an
Exchange member (an ``Initiating Member'') to electronically submit for
execution an order it represents as agent on behalf of a public
customer, broker dealer, or any other entity (``PIXL Order'') against
principal interest or against any other order it represents as agent
(an ``Initiating Order'') provided it submits the PIXL Order for
electronic execution into the PIXL Auction (``Auction'') pursuant to
the Rule.
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\4\ See Securities Exchange Act Release Nos. 63027 (October 1,
2010), 75 FR 62160 (October 7, 2010) (SR-Phlx-2010-108) (Order
Granting Approval to a Proposed Rule Change Relating to a Proposed
Price Improvement System, Price Improvement XL); 65043 (August 5,
2011), 76 FR 49824 (August 11, 2011) (SR-Phlx-2011-104) (Order
Extending Pilot for Price Improvement System, Price Improvement XL);
67399 (July 11, 2012), 77 FR 42048 (July 17, 2012) (SR-Phlx-2012-94)
(Order Extending Pilot for Price Improvement System, Price
Improvement XL); and 69845 (June 25, 2013), 78 FR 39429 (July 1,
2013) (SR-Phlx-2013-46) (Order Granting Approval To Proposed Rule
Change, as Modified by Amendment No. 1, Regarding Complex Order
PIXL).
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An Initiating Member may initiate a PIXL Auction by submitting a
PIXL Order, which is not a Complex Order, in one of three ways:
First, the Initiating Member could submit a PIXL Order
specifying a single price at which it seeks to execute the PIXL Order
(a ``stop price'').
Second, an Initiating Member could submit a PIXL Order
specifying that it is willing to automatically match as principal or as
agent on behalf of an Initiating Order the price and size of all
trading interest and responses to the PIXL Auction Notification
(``PAN,'' as described below) (``auto-match''), in which case the PIXL
Order will be stopped at the National Best Bid/Offer (``NBBO'') on the
Initiating Order side of the market (if 50 contracts or greater) or, if
less than 50 contracts, the better of: (i) The PHLX Best Bid/Offer
(``PBBO'') price on the opposite side of the market from the PIXL Order
improved by at least one minimum price improvement increment, or (ii)
the PIXL Order's limit price (if the order is a limit order),
[[Page 43952]]
provided in either case that such price is at or better than the NBBO
and that such price is at least one increment better than the limit of
an order on the book on the same side as the PIXL Order.
Third, an Initiating Member could submit a PIXL Order
specifying that it is willing to either: (i) Stop the entire order at a
single stop price and auto-match PAN responses, as described below,
together with trading interest, at a price or prices that improve the
stop price to a specified price above or below which the Initiating
Member will not trade (a ``Not Worse Than'' or ``NWT'' price); (ii)
stop the entire order at a single stop price and auto-match all PAN
responses and trading interest at or better than the stop price; or
(iii) stop the entire order at the NBBO on the Initiating Order side
(if 50 contracts or greater) or the better of: (A) The PBBO price on
the opposite side of the market from the PIXL Order improved by one
minimum price improvement increment, or (B) the PIXL Order's limit
price (if the order is a limit order) on the Initiating Order side
provided in either case that such price is at or better than the NBBO
(if for less than 50 contracts), and auto-match PAN responses and
trading interest are at a price or prices that improve the stop price
up to the NWT price. In all cases, if the PBBO on the same side of the
market as the PIXL Order represents a limit order on the book, the stop
price must be at least one minimum price improvement increment better
than the booked limit order's limit price.
In addition, an Initiating Member may initiate a PIXL Auction by
submitting a Complex Order which is of a conforming ratio, as defined
in Commentary .08(a)(i) and (a)(ix) to Rule 1080. When submitting a
Complex Order, the Initiating Member must stop the PIXL order at a
price that is better than the best net price (debit or credit) (i)
available on the Complex Order book regardless of the Complex Order
book size; and (ii) achievable from the best PHLX bids and offers for
the individual options (an ``improved net price''), provided in either
case that such price is equal to or better than the PIXL Order's limit
price.
After the PIXL Order is entered, a PAN is broadcast and a one-
second blind Auction ensues. Anyone may respond to the PAN by sending
orders or quotes. At the conclusion of the Auction, the PIXL Order will
be allocated at the best price(s).
Once the Initiating Member has submitted a PIXL Order for
processing, such PIXL Order may not be modified or cancelled. Under any
of the above circumstances, the Initiating Member's stop price or NWT
price may be improved to the benefit of the PIXL Order during the
Auction, but may not be cancelled.
After a PIXL Order has been submitted, a member organization
submitting the order has no ability to control the timing of the
execution. The execution is carried out by the Exchange's PHLX
XL[supreg] automated options trading system and pricing is determined
solely by the other orders and quotes that are present in the Auction.
The Pilot
Three components of the PIXL system were approved by the Commission
on a pilot basis: (1) Paragraphs (n)(i)(A)(2),\5\ (n)(i)(B)(2), and
(n)(i)(C) of Rule 1080, relating to auction eligibility requirements;
(2) paragraphs (n)(ii)(B)(5) and (n)(ii)(D) of Rule 1080, relating to
the early conclusion of the PIXL Auction; and (3) paragraph (n)(vii) of
Rule 1080, stating that there shall be no minimum size requirement of
orders entered into PIXL. The pilots were approved for a pilot period
expiring on July 18, 2013.\6\ The Exchange notes that during the pilot
period it has been required to submit, and has been submitting, certain
data periodically as required by the Commission, to provide supporting
evidence that, among other things, there is meaningful competition for
all size orders and that there is an active and liquid market
functioning on the Exchange outside of the Auction mechanism.\7\ The
Exchange will continue to provide such data. The Exchange believes
that, because the pilot has been operating for a relatively short
amount of time, the proposed extension should afford the Commission
additional time to evaluate the pilot.
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\5\ On March 9, 2012, the Exchange filed a proposed rule change
to clarify Exchange Rule 1080(n)(i)(A)(2). See Securities Exchange
Act Release No. 66583 (March 13, 2012), 77 FR 16108 (March 19, 2012)
(SR-Phlx-2012-032) (Notice of Filing and Immediate Effectiveness of
Proposed Rule Change Amending Price Improvement System, Price
Improvement XL). The amendment reflected the correct price--at or
better than the NBBO--at which an Initiating Member must guarantee
the execution of a PIXL Order that the Initiating Member submits
into a PIXL Auction.
\6\ See supra note 4.
\7\ See Exchange Rule 1080(n)(vii).
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The Exchange proposes to extend the pilot through July 18, 2014.
2. Statutory Basis
The Exchange believes that the proposed rule change is consistent
with the provisions of Section 6 of the Act,\8\ in general and with
Section 6(b)(5) of the Act,\9\ in that it is designed 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; and is not designed to
permit unfair discrimination between customers, issuers, brokers, or
dealers, or to regulate by virtue of any authority conferred by the Act
matters not related to the purposes of the Act or the administration of
the Exchange.
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\8\ 15 U.S.C. 78f.
\9\ 15 U.S.C. 78f(b)(5).
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The Exchange believes that the proposed rule change is also
consistent with Section 6(b)(8) of the Act \10\ in that it does not
impose any burden on competition not necessary or appropriate in
furtherance of the purposes of the Act.
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\10\ 15 U.S.C. 78f(b)(8).
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Specifically, the Exchange believes that PIXL, including the rules
to which the pilot applies, results in increased liquidity available at
improved prices, with competitive final pricing out of the Initiating
Member's complete control. The Exchange believes that PIXL promotes and
fosters competition and affords the opportunity for price improvement
to more options contracts. The extension proposal allows additional
time for the Commission to evaluate the pilot.
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. The proposal extends an
existing pilot that applies to all Exchange members, and enables the
Exchange to be competitive in respect of other option exchanges that
have similar programs.
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 the protection of investors or the public
interest; (ii) impose any significant
[[Page 43953]]
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)(ii)
of the Act \11\ and subparagraph (f)(6) of Rule 19b-4 thereunder.\12\
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\11\ 15 U.S.C. 78s(b)(3)(A)(ii).
\12\ 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
Commission deems this requirement to have been met.
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A proposed rule change filed under Rule 19b-4(f)(6) \13\ normally
does not become operative for 30 days after the date of filing.
However, pursuant to Rule 19b-4(f)(6)(iii) \14\ the Commission may
designate a shorter time if such action is consistent with the
protection of investors and the public interest. The Exchange requested
that the Commission waive the 30-day operative delay. The Exchange
noted that such waiver will permit the PIXL pilot to continue without
interruption.
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\13\ 17 CFR 240.19b-4(f)(6).
\14\ 17 CFR 240.19b-4(f)(6)(iii).
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The Commission believes that waiving the 30-day operative delay is
consistent with the protection of investors and the public interest, as
it will allow the PIXL pilot to continue uninterrupted, thereby
avoiding any potential investor confusion that could result from a
temporary interruption in the pilot. Therefore, the Commission
designates the proposed rule change to be operative on July 18,
2013.\15\
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\15\ 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 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.
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-2013-74 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-2013-74. 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, on official
business days between the hours of 10:00 a.m. and 3:00 p.m., located at
100 F Street NE., Washington, DC 20549. 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-2013-74 and should be submitted on or before August 12, 2013.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\16\
Kevin M. O'Neill,
Deputy Secretary.
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\16\ 17 CFR 200.30-3(a)(12).
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[FR Doc. 2013-17468 Filed 7-19-13; 8:45 am]
BILLING CODE 8011-01-P