[Federal Register Volume 79, Number 133 (Friday, July 11, 2014)]
[Notices]
[Pages 40175-40177]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2014-16189]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-72546; File No. SR-Phlx-2014-40]
Self-Regulatory Organizations; NASDAQ OMX PHLX LLC; Notice of
Filing and Immediate Effectiveness of Proposed Rule Change To Eliminate
the Midpoint Peg Post-Only Order and Modify the Minimum Quantity Order
on NASDAQ OMX PSX
July 7, 2014.
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 23, 2014, 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 eliminate the Midpoint Peg Post-Only Order
and to modify the functioning of the Minimum Quantity Order on NASDAQ
OMX PSX (``PSX''). The text of the proposed rule change is available at
http://nasdaqomxphlx.cchwallstreet.com/nasdaqomxphlx/phlx/, at the
Exchange'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 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
[[Page 40176]]
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
Phlx is proposing two modifications to order types on PSX. First,
Phlx is proposing to eliminate the Midpoint Peg Post-Only Order. Like a
regular Midpoint Pegged Order, a Midpoint Peg Post-Only Order is a non-
displayed order that is priced at the midpoint between the national
best bid and best offer (``NBBO''). However, like a Post-Only Order,
the Midpoint Peg Post-Only Order does not remove liquidity from PSX
upon entry if it would lock a non-displayed order on PSX. Rather, the
Midpoint Peg Post-Only Order posts and locks the pre-existing order,
but remains undisplayed. If a Midpoint Peg Post-Only Order would cross
a pre-existing order, however, the crossing orders will execute. A
Midpoint Peg Post-Only Order that posts to the book and locks a pre-
existing non-displayed order executes against an incoming order only if
the price of the incoming buy (sell) order is higher (lower) than the
price of the pre-existing order. If a Midpoint Pegged Order and a
Midpoint Peg Post-Only Order are locked, and a Midpoint Pegged Order is
entered on the same side of the market as the Midpoint Peg Post-Only
Order, the new order executes against the original Midpoint Pegged
Order, because the market participant entering the Midpoint Peg Post-
Only Order has expressed its intention not to execute against posted
liquidity, and therefore cedes execution priority to the new order.
In a pricing environment characterized by fees on one side of a
trade being used to fund rebates on the other side, the Midpoint Peg
Post-Only Order and similar orders were introduced on PSX and various
other markets to allow market participants to structure their trading
activity in a manner that is more likely to avoid a fee and earn a
rebate. In exchange, the party entering the order also generally
provides price improvement to its counterparty. In order to simplify
order processing and evaluate the effect of the order type on overall
market quality, however, PSX is proposing to eliminate the Midpoint Peg
Post-Only Order, while retaining the Midpoint Pegged Order as a means
by which market participants may offer hidden liquidity with price
improvement at the midpoint between the NBBO.\3\
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\3\ In addition to eliminating the order description from Rule
3301, Phlx is also making conforming changes to Rule 3305 and the
NASDAQ OMX PHLX LLC Pricing Schedule.
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Phlx is also proposing to modify the functioning of PSX's Minimum
Quantity Order. A Minimum Quantity Order is an order that will not
execute unless a specified minimum quantity of shares can be obtained.
Minimum Quantity Orders are not displayed, and upon entry must have a
size and a minimum quantity condition of at least one round lot. In the
event that the shares remaining in the size of the order following a
partial execution thereof are less than the minimum quantity specified
by the market participant entering the order, the minimum quantity
value of the order is reduced to the number of shares remaining. Phlx
is proposing to modify this final condition, so that if the shares
remaining in the size of the order are less than one round lot, the
minimum quantity condition will be removed from the order. The change
will simplify processing of Minimum Quantity Orders by ensuring that
once a partially executed order is reduced in size to less than one
round lot (generally 100 shares), no restrictions prevent execution of
the remainder of the order. The change is also consistent with the
existing requirement that a Minimum Quantity Order must be entered with
a size and a minimum quantity restriction of at least one round lot.
Phlx believes that the change will improve the efficiency of order
processing on PSX by limiting the extent to which small Minimum
Quantity Orders remain on the PSX book.
Phlx proposes to implement the rule change on or shortly after a
date that is thirty days after the date of this proposed rule change,
and will notify members of the date of implementation through a widely
disseminated notice.
2. Statutory Basis
Phlx believes that the proposed rule change is consistent with the
provisions of Section 6 of the Act,\4\ in general, and with Section
6(b)(5) of the Act,\5\ in particular, in that the proposal 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 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.
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\4\ 15 U.S.C. 78f.
\5\ 15 U.S.C. 78f(b)(5).
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Although the availability of the Midpoint Peg Post-Only Order is
consistent with the Act because the order type was designed to provide
market participants with better control over their execution costs and
to provide a means to offer price improvement opportunities, Phlx
believes that the elimination of the order type, together with the
continued availability of the Midpoint Pegged Order are likewise
consistent with the Act. Specifically, the proposal would allow market
participants that seek to provide liquidity at the midpoint between the
NBBO to use the Midpoint Pegged Order to do so. Accordingly, the change
is designed to facilitate 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, by reducing the complexity of order-type interaction
on PSX while still allowing for liquidity provision with price
improvement at the midpoint.
The proposed change to Minimum Quantity Orders is consistent with
the Act because it will promote the complete execution of partially
executed Minimum Quantity Orders once the order is reduced in size to
less than one round lot. The change will thereby remove impediments to
a free and open market by promoting order interaction and reducing the
complexity of PSX's order processing.
B. Self-Regulatory Organization's Statement on Burden on Competition
Phlx 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. The change to
eliminate the Midpoint Peg Post-Only Order will provide a means by
which PSX may distinguish itself from trading venues that offer orders
similar to the Midpoint Peg Post-Only Order. Accordingly, the change
has the potential to promote competition by allowing PSX to
differentiate itself from other trading venues. Similarly, the proposed
change to the Midpoint Peg Post-Only Order and Minimum Quantity Orders
has the potential to promote competition by enhancing the efficiency of
PSX's processing of orders. In both instances, the changes would not
affect the ability of market participants to avail themselves of
alternative order-type
[[Page 40177]]
processing at other trading venues, and therefore would not impose any
burden on competition.
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
Because the foregoing 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 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 \6\ and
subparagraph (f)(6) of Rule 19b-4 thereunder.\7\
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\6\ 15 U.S.C. 78s(b)(3)(a)(ii) [sic].
\7\ 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: (i)
necessary or appropriate in the public interest; (ii) for the
protection of investors; or (iii) 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, as amended, 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-2014-40 on the subject line.
Paper Comments
Send paper comments in triplicate to Secretary, Securities
and Exchange Commission, 100 F Street NE., Washington, DC 20549-1090.
All submissions should refer to File Number SR-Phlx-2014-40. 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 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-2014-40, and should be submitted on or before August 1, 2014.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\8\
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\8\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2014-16189 Filed 7-10-14; 8:45 am]
BILLING CODE 8011-01-P