[Federal Register Volume 80, Number 123 (Friday, June 26, 2015)]
[Notices]
[Pages 36873-36875]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2015-15689]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-75256; File No. SR-Phlx-2015-51]
Self-Regulatory Organizations; NASDAQ OMX PHLX LLC; Notice of
Filing and Immediate Effectiveness of Proposed Rule Change Relating to
Order Price Protection
June 22, 2015.
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 June 12, 2015, 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 proposes to amend section (p)(3), Order Price
Protection, of Exchange Rule 1080, Obligations and Restrictions
Applicable to Specialists and Registered Options Traders.
The text of the proposed rule change is below; proposed new
language is italicized; proposed deletions are in brackets.
* * * * *
Rule 1080 Obligations and Restrictions Applicable to Specialists
and Registered Options Traders
(a)-(o) No change.
(p)
(1)-(2) No change.
(3) Order Price Protection (``OPP''). OPP is a feature of Phlx XL
that prevents certain day limit, good til cancelled, immediate or
cancel, and all-or-none orders at prices outside of pre-set standard
limits from being accepted by the system. OPP applies to all options
but does not apply to market orders, stop limit orders, Intermarket
Sweep Orders or complex orders.
(A) OPP is operational each trading day after the opening until the
close of trading, except during trading halts. [The Exchange may also
temporarily deactivate OPP from time to time on an intraday basis at
its discretion if it determines that volatility warrants deactivation.
Members will be notified of intraday OPP deactivation due to volatility
and any subsequent intraday reactivation by the Exchange through the
issuance of system status messages.]
(B) OPP will reject incoming orders that exceed certain parameters
according to the following algorithm.
(i) If the better of the NBBO or the internal market BBO (the
``Reference BBO'') on the contra-side of an incoming order is greater
than $1.00, orders with a limit more than 50% through such contraside
[NBBO] Reference BBO will be rejected by Phlx XL upon receipt. For
example, if the [NBBO] Reference BBO on the offer side is $1.10, an
order to buy options for more than $1.65 would be rejected. Similarly,
if the [NBBO] Reference BBO on the bid side is $1.10, an order to sell
options for less than $0.55 will be rejected.
(ii) If the [NBBO] Reference BBO on the contra-side of an incoming
order is less than or equal to $1.00, orders with a limit more than
100% through such contra-side [NBBO] Reference BBO will be rejected by
Phlx XL upon receipt. For example, if the [NBBO] Reference BBO on the
offer side is $1.00, an order to buy options for more than $2.00 would
[[Page 36874]]
be rejected. However, if the [NBBO] Reference BBO of the bid side of an
incoming order to sell is less than or equal to $1.00, the OPP limits
set forth above will result in all incoming sell orders being accepted
regardless of their limit. To illustrate, if the [NBBO] Reference BBO
on the bid side is equal to $1.00, the OPP limits provide protection
such that all orders to sell with a limit less than $0.00 would be
rejected.
(iii) No change.
* * * Commentary
No change.
* * * * *
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 amend and correct
Exchange Rule 1080(p)(3) which describes Order Price Protection
(``OPP''), a feature of the Phlx XL trading system that prevents
certain day limit, good till cancelled, immediate or cancel and all-or-
none orders at prices outside of pre-set standard limits from being
accepted by the system. The amendments also remove language providing
for the temporary deactivation of OPP from time to time on an intraday
basis at the Exchange's discretion if the Exchange determines that
volatility warrants deactivation.
OPP applies to all options but does not apply to market orders,
stop limit orders, Intermarket Sweep Orders or complex orders. OPP is
operational each trading day after the opening until the close of
trading, except during trading halts. Rule 1080(p)(3)(A) also currently
provides that the Exchange may also temporarily deactivate OPP from
time to time on an intraday basis at its discretion if it determines
that volatility warrants deactivation. Participants are notified of
intraday OPP deactivation due to volatility and any subsequent intraday
reactivation by the Exchange through the issuance of system status
messages.\3\
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\3\ See Rule 1080(p)(3)(A).
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OPP rejects incoming orders that exceed certain parameters.
Currently, Rule 1080(p)(3)(B) establishes those parameters with
reference to the NBBO. It states that if the NBBO on the contra-side of
an incoming order is greater than $1.00, orders with a limit more than
50% through such contraside NBBO will be rejected by Phlx XL upon
receipt. For example, the rule provides that if the NBBO on the offer
side is $1.10, an order to buy options for more than $1.65 would be
rejected. Similarly, the rule states that if the NBBO on the bid side
is $1.10, an order to sell options for less than $0.55 will be
rejected. The rule provides that if the NBBO on the contra-side of an
incoming order is less than or equal to $1.00, orders with a limit more
than 100% through such contra-side NBBO will be rejected by Phlx XL
upon receipt. For example, under the rule if the NBBO on the offer side
is $1.00, an order to buy options for more than $2.00 would be
rejected. However, the rule provides that if the NBBO of the bid side
of an incoming order to sell is less than or equal to $1.00, the OPP
limits set forth above will result in all incoming sell orders being
accepted regardless of their limit.
The Exchange has determined that a discrepancy exists between this
rule description of how the OPP process works and how the system
actually functions in cases where certain legging orders have been
generated by the system pursuant to Rule 1080.07(f)(iii)(C).\4\ The
trading system may generate Legging Orders in $0.01 increments on the
Exchange regardless of the minimum price variation (``MPV'') of the
option. These legging orders are considered part of the Exchange's
internal market BBO at their non-MPV limit and are displayed at the
allowable MPV price as part of the NBBO. While Rule 1080(p)(3)(B)
states that the NBBO is used for OPP determinations as described above,
the system is actually basing OPP determinations on the better of (a)
the NBBO, or (b) the Exchange's internal market BBO, which may differ
from the NBBO due to the presence of legging orders. The Exchange is
proposing to correct this discrepancy by deleting the term ``NBBO'' in
each instance where it appears in Rule 1080(p)(3)(B) and replacing it
with the term ``Reference BBO'' which will be defined in Rule
1080(p)(3)(B)(i) as the better of the NBBO or the internal market BBO.
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\4\ Generally, a legging order is a limit order on the regular
order book in an individual series that represents one leg of a two-
legged complex order to buy or sell an equal quantity of two option
series resting on the Exchange's Complex Order Book. Legging orders
are firm orders that are included in the Exchange's displayed best
bid or offer. Legging orders are designed to increase the
opportunity for complex orders to execute by ``legging'' into the
market, whereby all of the legs of the complex order execute against
the best bids or offers on the Exchange for the individual options
series. See Exchange Rule 1080.07(f)(iii)(C).
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Finally, the Exchange is removing from Rule 1080(p)(3)(A) the
statements that the Exchange may temporarily deactivate OPP from time
to time on an intraday basis at its discretion if it determines that
volatility warrants deactivation, and that members will be notified of
intraday OPP deactivation due to volatility and any subsequent intraday
reactivation by the Exchange through the issuance of system status
messages. The Exchange currently lacks the technology to implement
intraday OPP deactivation and is deleting the language which suggests
that it has such capability.
2. Statutory Basis
The Exchange believes that its proposal is consistent with section
6(b) of the Act \5\ in general, and furthers the objectives of section
6(b)(5) of the Act \6\ in particular, in that it is designed 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,
by amending and correcting the rule text to that it accurately reflects
the functioning of the trading system. The amendments concerning the
Reference BBO and the elimination of references to intraday
deactivation of the OPP are both intended to improve the accuracy of
the rule. The Exchange believes that the amendments should promote just
and equitable principles of trade as well as protect investors and the
public interest by making clear how OPP determinations are actually
made on the Exchange, and by eliminating the potential for confusion
inherent in the statement that the Exchange may temporarily deactivate
OPP on an intraday basis when in fact it lacks the technical capacity
to do so. Calculating
[[Page 36875]]
OPP on the basis of the better of the NBBO or the internal market BBO
rather than solely on the basis of the NBBO protects investors and the
public interest by extending the benefits of OPP to orders received in
instances where the internal market BBO is better than the NBBO.
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\5\ 15 U.S.C. 78f(b).
\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
impose any burden on competition not necessary or appropriate in
furtherance of the purposes of the Act, as the amendments to Rule
1080(p)(3)(B) will apply uniformly to all market participants availing
themselves of the OPP feature. Nor will the proposal impose a burden on
competition among the options exchanges, because of the vigorous
competition for order flow among the options exchanges. To the extent
that market participants disagree with the particular approach taken by
the Exchange herein, market participants can easily and readily direct
order flow to competing venues.
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 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) of the Act \7\ and Rule 19b-
4(f)(6) thereunder.\8\
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\7\ 15 U.S.C. 78s(b)(3)(A).
\8\ 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 Commission has determined to waive the five-day pre-filing
period in this case.
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A proposed rule change filed pursuant to Rule 19b-4(f)(6) under the
Act \9\ normally does not become operative for 30 days after the date
of its filing. However, Rule 19b-4(f)(6)\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 believes
that waiving the 30-day operative delay is consistent with the
protection of investors and the public interest because it would allow
the Exchange to immediately correct the inaccuracy with respect to the
NBBO described above, as well as eliminate language suggesting the
Exchange possesses the capability to temporarily deactivate OPP on an
intraday basis when in fact this is not the case. The Exchange believes
that the public interest would not be served by preserving these
inaccuracies in its rules during a notice and comment period for this
proposed rule change. The Commission believes that waiving the 30-day
operative delay \11\ is consistent with the protection of investors and
the public interest and designates the proposal operative on filing.
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\9\ 17 CFR 240.19b-4(f)(6).
\10\ 17 CFR 240.19b-4(f)(6).
\11\ For purposes only of waiving the 30-day 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. If the Commission
takes such action, the Commission will institute proceedings to
determine whether the proposed rule change 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 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-2015-51 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-2015-51. 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-2015-51 and should be
submitted on or before July 17, 2015.
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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Robert W. Errett,
Deputy Secretary.
[FR Doc. 2015-15689 Filed 6-25-15; 8:45 am]
BILLING CODE 8011-01-P