Self-Regulatory Organizations; NASDAQ OMX PHLX, Inc.; Notice of Filing and Immediate Effectiveness of Proposed Rule Change Relating to the Extension of a Pilot Program Concerning Disseminated Quotations, 73150-73153 [2010-29907]

Download as PDF 73150 Federal Register / Vol. 75, No. 228 / Monday, November 29, 2010 / Notices C. Self-Regulatory Organization’s Statement on Comments on the Proposed Rule Change Received From Members, Participants, or Others No written comments were solicited or received with respect to the proposed rule change. 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 up to 90 days (i) as the Commission may designate if it finds such longer period to be appropriate and publishes its reasons for so finding or (ii) as to which the self-regulatory organization consents, the Commission will: (A) By order approve or disapprove the proposed rule change, or (B) Institute proceedings to determine whether the proposed rule change should be disapproved. IV. Solicitation of Comments 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 20549–1090 on official business days between 10 a.m. and 3 p.m. Copies of the filing will also be available for inspection and copying at the Exchange’s principal office. 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–NYSEArca–2010–103 and should be submitted on or before December 20, 2010. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.21 Elizabeth M. Murphy, Secretary. [FR Doc. 2010–29906 Filed 11–26–10; 8:45 am] 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 (https://www.sec.gov/ rules/sro.shtml); or • Send an e-mail to rulecomments@sec.gov. Please include File Number SR–NYSEArca–2010–103 on the subject line. BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–63350; File No. SR–Phlx– 2010–156] Self-Regulatory Organizations; NASDAQ OMX PHLX, Inc.; Notice of Filing and Immediate Effectiveness of Proposed Rule Change Relating to the Extension of a Pilot Program Concerning Disseminated Quotations November 19, 2010. Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (‘‘Act’’)1, and Rule 19b–42 thereunder, • Send paper comments in triplicate notice is hereby given that on November to Elizabeth M. Murphy, Secretary, 10, 2010, NASDAQ OMX PHLX, Inc. Securities and Exchange Commission, (‘‘Phlx’’ or ‘‘Exchange’’) filed with the 100 F Street, NE., Washington, DC Securities and Exchange Commission 20549–1090. (‘‘Commission’’) the proposed rule All submissions should refer to File change as described in Items I, II, and Number SR–NYSEArca–2010–103. This III, below, which Items have been file number should be included on the prepared by the Exchange. The subject line if e-mail is used. To help the Commission is publishing this notice to Commission process and review your solicit comments on the proposed rule comments more efficiently, please use change from interested persons. only one method. The Commission will post all comments on the Commission’s I. Self-Regulatory Organization’s Statement of the Terms of Substance of Internet Web site (https://www.sec.gov/ the Proposed Rule Change rules/sro.shtml). Copies of the submission, all subsequent The Exchange proposes to amend amendments, all written statements Exchange Rules 1017, Openings in with respect to the proposed rule Options, and 1082, Firm Quotations, to change that are filed with the extend, through March 31, 2011, a pilot Commission, and all written communications relating to the 21 17 CFR 200.30–3(a)(12). 1 15 U.S.C. 78s(b)(1). proposed rule change between the 2 17 CFR 240.19b–4. Commission and any person, other than mstockstill on DSKH9S0YB1PROD with NOTICES Paper Comments VerDate Mar<15>2010 17:57 Nov 26, 2010 Jkt 223001 PO 00000 Frm 00124 Fmt 4703 Sfmt 4703 program (the ‘‘pilot’’) under which the Exchange’s rules describe the manner in which the PHLX XL® automated options trading system 3 disseminates quotations when (i) there is an opening imbalance in a particular series, and (ii) there is a Quote Exhaust (as described below) or a Market Exhaust (as described below) quote condition present in a particular series. The current pilot is scheduled to expire November 30, 2010. The text of the proposed rule change is available on the Exchange’s Web site at https://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 extend the pilot through March 31, 2011. Background In June, 2009, the Exchange added several significant enhancements to its automated options trading platform (now known as PHLX XL), and adopted rules to reflect those enhancements.4 As part of the system enhancements, the Exchange proposed to disseminate a ‘‘non-firm’’ quote condition on a bid or offer whose size is exhausted in certain situations. The non-exhausted side of 3 This proposal refers to ‘‘PHLX XL’’ as the Exchange’s automated options trading system. In May 2009 the Exchange enhanced the system and adopted corresponding rules referring to the system as ‘‘Phlx XL II.’’ See Securities Exchange Act Release No. 59995 (May 28, 2009), 74 FR 26750 (June 3, 2009) (SR–Phlx–2009–32). The Exchange intends to submit a separate technical proposed rule change that would change all references to the system from ‘‘Phlx XL II’’ to ‘‘PHLX XL’’ for branding purposes. 4 See Securities Exchange Act Release No. 59995 (May 28, 2009), 74 FR 26750 (June 3, 2009) (SR– Phlx–2009–32). E:\FR\FM\29NON1.SGM 29NON1 Federal Register / Vol. 75, No. 228 / Monday, November 29, 2010 / Notices the Exchange’s disseminated quotation would remain firm up to its disseminated size. Currently, however, the Options Price Reporting Authority (‘‘OPRA’’) only disseminates option quotations for which both sides of the quotation are marked ‘‘non-firm.’’ OPRA currently does not disseminate a ‘‘nonfirm’’ condition for one side of a quotation while the other side of the quotation remains firm.5 Accordingly, the Exchange proposed, for a pilot period scheduled to expire November 30, 2009, and later extended through September 30, 2010,6 to disseminate quotations in such a circumstance with (i) a bid price of $0.00, with a size of one contract if the remaining size is a seller, or (ii) an offer price of $200,000, with a size of one contract if the remaining size is a buyer. The Exchange subsequently modified the manner in which the PHLX XL system disseminates quotes when one side of the quote is exhausted but the opposite side still has marketable size at the disseminated price, as described in detail below.7 On October 7, 2010, the U.S. options exchanges, as participants in the OPRA Plan, voted to make technological changes that would enable OPRA to support a one-sided non-firm quote condition. These technological changes require OPRA and the participants to design, test, and deploy modifications to their systems, and to establish connectivity with quotation vendors, that will support the one-sided non-firm quote condition. The Exchange set a target date for its completion of the changes by the end of January, 2011. The Exchange is proposing to extend the current pilot through March 31, 2011, in order to account for the time required to complete the changes, and to account for the possibility that issues could arise that might delay the process beyond the end of January target date. mstockstill on DSKH9S0YB1PROD with NOTICES Opening Imbalance An opening ‘‘imbalance’’ occurs when all opening marketable size cannot be completely executed at or within an established Opening Quote Range (‘‘OQR’’) for the affected series.8 5 Currently, there is no mechanism for the Options Price Reporting Authority (‘‘OPRA’’) to identify only one side of a quote as non-firm. The Exchange has approached OPRA to attempt to develop the capability to identify and implement such functionality. 6 See supra note 4. 7 See Securities Exchange Act Release No. 63024 (September 30, 2010), 75 FR 61799 (October 6, 2010) (SR–Phlx–2010–134). 8 Where there is an imbalance at the price at which the maximum number of contracts can trade that is also at or within the lowest quote bid and highest quote offer, the PHLX XL system will VerDate Mar<15>2010 17:57 Nov 26, 2010 Jkt 223001 Currently, pursuant to Exchange Rule 1017(l)(v)(C)(7), any unexecuted contracts from the opening imbalance not traded or routed are displayed in the Exchange quote at the opening price for a period not to exceed ten seconds, and subsequently, cancelled back to the entering participant if they remain unexecuted and priced through the opening price, unless the member that submitted the original order has instructed the Exchange in writing to reenter the remaining size, in which case the remaining size will be automatically submitted as a new order. During this display time period, the PHLX XL system disseminates, if the imbalance is a buy imbalance, an offer of $0.00, with a size of zero contracts or, if the imbalance is a sell imbalance, a bid of $0.00, with a size of zero contracts, on the opposite side of the market from remaining unexecuted contracts. The purpose of this provision is to indicate that the Exchange has exhausted all marketable interest, at or within the OQR, on one side of the market during the opening process yet has remaining unexecuted contracts on the opposite side of the market that are firm at the disseminated price and size. Rule 1017(l)(v)(C)(7) is subject to the pilot, which is scheduled to expire November 30, 2010. The Exchange proposes to extend the pilot through March 31, 2011. Quote Exhaust Quote Exhaust occurs when the market at a particular price level on the Exchange includes a quote, and such market is exhausted by an inbound contra-side quote or order (‘‘initiating quote or order’’), and following such exhaustion, contracts remain to be executed from the initiating quote or order.9 Rather than immediately executing at the next available price, the PHLX XL system employs a timer (a ‘‘Quote Exhaust Timer’’), not to exceed one second, in order to allow market participants to refresh their quotes. During the Quote Exhaust Timer, PHLX XL currently disseminates the ‘‘Reference Price’’ (the most recent execution price) for the remaining size, provided that such price does not lock an away market, in which case, the Exchange currently disseminates a bid and offer that is one Minimum Price Variation (‘‘MPV’’) from the away market price. During the Quote Exhaust Timer, the Exchange disseminates: (i) A bid calculate an OQR for a particular series, outside of which the PHLX XL system will not execute. See Exchange Rule 1017(l)(iii) and (iv). 9 See Exchange Rule 1082(a)(ii)(B)(3). PO 00000 Frm 00125 Fmt 4703 Sfmt 4703 73151 price of $0.00, with a size of zero contracts if the remaining size is a seller, or (ii) an offer price of $0.00, with a size of zero contracts if the remaining size is a buyer. Currently, Exchange Rules 1082(a)(ii)(B)(3)(g)(iv)(A)(3), 1082(a)(ii)(B)(3)(g)(iv)(A)(4), 1082(a)(ii)(B)(3)(g)(iv)(B)(2), and 1082(a)(ii)(B)(3)(g)(iv)(C) describe various scenarios under which the PHLX XL system trades, routes, or posts unexecuted contracts after determining the ‘‘Best Price’’ following a Quote Exhaust. These rules permit an up to 10 second time period during which participants may revise their quotes prior to the PHLX XL system taking action. In all of these scenarios, during the up to 10 second time period, the PHLX XL system currently disseminates an offer of $0.00, with a size of zero contracts if the remaining size is a buyer or, if the remaining size is a seller, a bid of $0.00, with a size of zero contracs, on the opposite side of the market from remaining unexecuted contracts. Exchange Rules 1082(a)(ii)(B)(3)(g)(iv)(A)(3), 1082(a)(ii)(B)(3)(g)(iv)(A)(4), 1082(a)(ii)(B)(3)(g)(iv)(B)(2), and 1082(a)(ii)(B)(3)(g)(iv)(C) are subject to the pilot, which is scheduled to expire November 30, 2010. The Exchange proposes to extend the pilot through March 31, 2011. Current Rule 1082(a)(ii)(B)(3)(g)(vi) describes what the PHLX XL system does if, after trading at the PHLX and/ or routing, there are unexecuted contracts from the initiating order that are still marketable. In this situation, remaining contracts are posted for a period of time not to exceed 10 seconds and then cancelled after such period of time has elapsed, unless the member that submitted the original order has instructed the Exchange in writing to reenter the remaining size, in which case the remaining size will be automatically submitted as a new order. During the up to 10 second time period, the Exchange will disseminate, on the opposite side of the market from remaining unexecuted contracts: (i) A bid price of $0.00, with a size of zero contracts if the remaining size is a seller, or (ii) an offer price of $0.00, with a size of zero contracts if the remaining size is a buyer. Rule 1082(a)(ii)(B)(3)(g)(vi) is subject to the pilot. The Exchange proposes to extend the pilot through March 31, 2011. Market Exhaust Market Exhaust occurs when there are no PHLX XL participant quotations in the Exchange’s disseminated market for a particular series and an initiating E:\FR\FM\29NON1.SGM 29NON1 73152 Federal Register / Vol. 75, No. 228 / Monday, November 29, 2010 / Notices mstockstill on DSKH9S0YB1PROD with NOTICES order in the series is received. In such a circumstance, the PHLX XL system initiates a ‘‘Market Exhaust Auction’’ for the initiating order.10 In this situation, the PHLX XL system will first determine if the initiating order, or a portion thereof, can be executed on the PHLX. Thereafter, if there are unexecuted contracts remaining in the initiating order the PHLX XL system will initiate a Market Exhaust Timer. During the Market Exhaust Timer, the Exchange disseminates any unexecuted size of the initiating order at the ‘‘Reference Price,’’ which is the execution price of a portion of the initiating order, or one MPV from a better-priced away market price if the Reference Price would lock the away market. The PHLX XL system currently disseminates, on the opposite side of the market from the remaining unexecuted contracts: (i) A bid price of $0.00, with a size of zero contracts if the remaining size is a seller, or (ii) an offer price of $0.00, with a size of zero contracts if the remaining size is a buyer. This provision is subject to the pilot. The Exchange proposes to extend the pilot through March 31, 2011. Provisional Auction Exchange Rule 1082(a)(ii)(B)(4)(d)(iv)(E) describes what PHLX XL does after it has explored all alternatives and there still remain unexecuted contracts. During the ‘‘Provisional Auction,’’ any unexecuted contracts from the initiating order are displayed in the Exchange quote for the remaining size for a brief period not to exceed ten seconds and subsequently cancelled back to the entering participant if they remain unexecuted, unless the member that submitted the original order has instructed the Exchange in writing to re-enter the remaining size, in which case the remaining size will be automatically submitted as a new order. During the brief period, the PHLX XL system currently disseminates, on the opposite side of the market from remaining unexecuted contracts: (i) A bid price of $0.00, with a size of zero contracts if the remaining size is a seller, or (ii) an offer price of $0.00, with a size of zero contracts if the remaining size is a buyer. Rule 1082(a)(ii)(B)(4)(d)(iv)(E) is subject to the pilot. The Exchange proposes to extend the pilot through March 31, 2011. The Exchange believes that the pilot benefits customers and the marketplace as a whole by enabling PHLX to effectively reflect the market interest the 10 See Exchange Rule 1082(a)(ii)(B)(4)(b). VerDate Mar<15>2010 17:57 Nov 26, 2010 Jkt 223001 Exchange has that is firm and executable, while at the same time indicating the other side of the Exchange market is not firm and therefore not executable. This allows the Exchange to protect orders on its book and attempt to attract interest to execute against such order. 2. Statutory Basis The Exchange believes that its proposal is consistent with Section 6(b) of the Act 11 in general, and furthers the objectives of Section 6(b)(5) of the Act 12 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. The Exchange further believes that the proposal is consistent with the SEC Quote Rule’s provisions regarding nonfirm quotations.13 Specifically, Rule 602(a)(3)(i) provides that if, at any time a national securities exchange is open for trading, the exchange determines, pursuant to rules approved by the Commission, that the level of trading activities or the existence of unusual market conditions is such that the exchange is incapable of collecting, processing, and making available to vendors the data for a subject security required to be made available in a manner that accurately reflects the current state of the market on such exchange, such exchange shall immediately notify all specified persons of that determination and, upon such notification, the exchange is relieved of its obligations under paragraphs (a)(1) and (2) of Rule 602 relating to collecting and disseminating quotations, subject to certain other provisions of Rule 602(a)(3). By disseminating a bid of $0.00 for a size of zero contracts, or an offer of $0.00 for a size of zero contracts in certain situations delineated above in the Exchange’s rules, the Exchange believes that it is adequately communicating that it is non-firm on that side of the market in compliance with the Quote Rule. 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. II. Date of Effectiveness of the Proposed Rule Change and Timing for Commission Action Pursuant to Section 19(b)(3)(A) of the Act 14 and Rule 19b–4(f)(6) 15 thereunder, the Exchange has designated this proposal as one that effects a change that: (i) Does not significantly affect the protection of investors or the public interest; (ii) does not impose any significant burden on competition; and (iii) by its terms, does not become operative for 30 days after the date of the filing, or such shorter time as the Commission may designate if consistent with the protection of investors and the public interest. The Exchange believes that the current pilot is ‘‘non-controversial’’ and therefore appropriate for filing pursuant to Rule 19b–4(f)(6). Rule 19b–4(f)(6) requires a selfregulatory 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. Furthermore, a proposed rule change filed pursuant to Rule 19b–4(f)(6) under the Act 16 normally does not become operative for 30 days after the date of its filing. However, Rule 19b–4(f)(6) 17 permits the Commission to designate a shorter time if such action is consistent with the protection of investors and the public interest. The Exchange has requested that the Commission waive the 30-day operative delay. The Commission believes that waiving the 30-day operative delay is consistent with the protection of investors and the public interest. The Commission notes the instant proposed rule change does not involve any substantive change to the Exchange’s rules. Rather, the proposed rule change only seeks to extend the current pilot to allow time for OPRA to make technological changes that would enable OPRA to support a one-sided non-firm quote condition and allow the Exchange time to make corresponding changes to its systems. Thus, the Commission believes that the proposed rule change 14 15 11 15 U.S.C. 78f(b). 12 15 U.S.C. 78f(b)(5). 13 See 17 CFR 242.602(a)(3)(i) and (ii). PO 00000 Frm 00126 Fmt 4703 Sfmt 4703 U.S.C. 78s(b)(3)(A). CFR 240.19b–4(f)(6). 16 17 CFR 240.19b–4(f)(6). 17 17 CFR 240.19b–4(f)(6). 15 17 E:\FR\FM\29NON1.SGM 29NON1 Federal Register / Vol. 75, No. 228 / Monday, November 29, 2010 / Notices does not raise any new regulatory issues.18 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 shall institute proceedings to determine whether the proposed rule should be approved or disapproved. Washington, DC. 20549, on official business days between the hours of 10 a.m. and 3 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– 2010–156 and should be submitted on or before December 20, 2010. IV. Solicitation of Comments For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.19 Elizabeth M. Murphy, Secretary. 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 (https://www.sec.gov/ rules/sro.shtml); or • Send an e-mail to rulecomments@sec.gov. Please include File Number SR–Phlx–2010–156 on the subject line. mstockstill on DSKH9S0YB1PROD with NOTICES 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–2010–156. This file number should be included on the subject line if e-mail 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 (https://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., 18 For the 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. 78(c)(f). VerDate Mar<15>2010 17:57 Nov 26, 2010 Jkt 223001 [FR Doc. 2010–29907 Filed 11–26–10; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–63359; File No. SR–BATS– 2010–033] Self-Regulatory Organizations; BATS Exchange, Inc.; Notice of Filing and Immediate Effectiveness of Proposed Rule Change by BATS Exchange, Inc. to Modify the Minor Rule Violation Plan for BATS Options November 22, 2010. Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (the ‘‘Act’’),1 and Rule 19b–4 thereunder,2 notice is hereby given that on November 18, 2010, BATS Exchange, Inc. (the ‘‘Exchange’’ or ‘‘BATS’’) filed with the Securities and Exchange Commission (‘‘Commission’’) the proposed rule change as described in Items I and II below, which Items have been prepared by the Exchange. The Exchange has designated this proposal as a ‘‘noncontroversial’’ proposed rule change pursuant to Section 19(b)(3)(A) of the Act 3 and Rule 19b–4(f)(6)(iii) thereunder,4 which renders it effective upon filing with the Commission. The Commission is publishing this notice to solicit comments on the proposed rule change from interested persons. I. Self-Regulatory Organization’s Statement of the Terms of Substance of the Proposed Rule Change The Exchange is proposing to amend BATS Rule 25.3, entitled ‘‘Penalty for 19 17 CFR 200.30–3(a)(12). U.S.C. 78s(b)(1). 2 17 CFR 240.19b–4. 3 15 U.S.C. 78s(b)(3)(A). 4 17 CFR 240.19b–4(f)(6)(iii). 1 15 PO 00000 Frm 00127 Fmt 4703 Sfmt 4703 73153 Minor Rule Violations’’, to expand the list of violations eligible for disposition under the Exchange’s Minor Rule Violation Plan (‘‘MRVP’’) as it relates to the equity options platform operated by the Exchange (‘‘BATS Options’’). The text of the proposed rule change is available at the Exchange’s Web site at https://www.batstrading.com, at the principal office of the Exchange, on the Commission’s Web site at https:// www.sec.gov 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 parts 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 Rule 25.3, entitled ‘‘Penalty for Minor Rule Violations’’, to expand the list of violations eligible for disposition under the Exchange’s Minor Rule Violation Plan (‘‘MRVP’’) as it relates to options in order to improve the consistency of the Exchange’s MRVP with other options exchanges. All options exchanges have entered into a plan pursuant to Rule 17d–2 of the Act (the ‘‘Plan’’) under which the exchanges have agreed to allocate regulatory responsibility for certain rules common to all options exchanges, which Plan is administered by a committee known as the Options Surveillance Group (the ‘‘OSG’’). Adding the proposed rules to the MRVP makes the Exchange’s MRVP more consistent with the minor rule violation plans of other self-regulatory organizations, including with respect to rules that are classified as common rules pursuant to the Plan (the ‘‘OSG 17d–2’’). The Exchange believes that its MRVP with respect to violations of rules that are common rules pursuant to the OSG 17d–2 should be consistent with the other options exchanges that are parties to the OSG 17d–2. Consistent with the goal of improved consistency between the Exchange’s E:\FR\FM\29NON1.SGM 29NON1

Agencies

SECURITIES AND EXCHANGE COMMISSION

[Federal Register Volume 75, Number 228 (Monday, November 29, 2010)]
[Notices]
[Pages 73150-73153]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2010-29907]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-63350; File No. SR-Phlx-2010-156]


Self-Regulatory Organizations; NASDAQ OMX PHLX, Inc.; Notice of 
Filing and Immediate Effectiveness of Proposed Rule Change Relating to 
the Extension of a Pilot Program Concerning Disseminated Quotations

November 19, 2010.
    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 November 10, 2010, NASDAQ OMX PHLX, Inc. (``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.
---------------------------------------------------------------------------

    \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 Rules 1017, Openings in 
Options, and 1082, Firm Quotations, to extend, through March 31, 2011, 
a pilot program (the ``pilot'') under which the Exchange's rules 
describe the manner in which the PHLX XL[supreg] automated options 
trading system \3\ disseminates quotations when (i) there is an opening 
imbalance in a particular series, and (ii) there is a Quote Exhaust (as 
described below) or a Market Exhaust (as described below) quote 
condition present in a particular series.
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    \3\ This proposal refers to ``PHLX XL'' as the Exchange's 
automated options trading system. In May 2009 the Exchange enhanced 
the system and adopted corresponding rules referring to the system 
as ``Phlx XL II.'' See Securities Exchange Act Release No. 59995 
(May 28, 2009), 74 FR 26750 (June 3, 2009) (SR-Phlx-2009-32). The 
Exchange intends to submit a separate technical proposed rule change 
that would change all references to the system from ``Phlx XL II'' 
to ``PHLX XL'' for branding purposes.
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    The current pilot is scheduled to expire November 30, 2010.
    The text of the proposed rule change is available on the Exchange's 
Web site at https://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 extend the pilot 
through March 31, 2011.
Background
    In June, 2009, the Exchange added several significant enhancements 
to its automated options trading platform (now known as PHLX XL), and 
adopted rules to reflect those enhancements.\4\ As part of the system 
enhancements, the Exchange proposed to disseminate a ``non-firm'' quote 
condition on a bid or offer whose size is exhausted in certain 
situations. The non-exhausted side of

[[Page 73151]]

the Exchange's disseminated quotation would remain firm up to its 
disseminated size. Currently, however, the Options Price Reporting 
Authority (``OPRA'') only disseminates option quotations for which both 
sides of the quotation are marked ``non-firm.'' OPRA currently does not 
disseminate a ``non-firm'' condition for one side of a quotation while 
the other side of the quotation remains firm.\5\
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    \4\ See Securities Exchange Act Release No. 59995 (May 28, 
2009), 74 FR 26750 (June 3, 2009) (SR-Phlx-2009-32).
    \5\ Currently, there is no mechanism for the Options Price 
Reporting Authority (``OPRA'') to identify only one side of a quote 
as non-firm. The Exchange has approached OPRA to attempt to develop 
the capability to identify and implement such functionality.
---------------------------------------------------------------------------

    Accordingly, the Exchange proposed, for a pilot period scheduled to 
expire November 30, 2009, and later extended through September 30, 
2010,\6\ to disseminate quotations in such a circumstance with (i) a 
bid price of $0.00, with a size of one contract if the remaining size 
is a seller, or (ii) an offer price of $200,000, with a size of one 
contract if the remaining size is a buyer.
---------------------------------------------------------------------------

    \6\ See supra note 4.
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    The Exchange subsequently modified the manner in which the PHLX XL 
system disseminates quotes when one side of the quote is exhausted but 
the opposite side still has marketable size at the disseminated price, 
as described in detail below.\7\
---------------------------------------------------------------------------

    \7\ See Securities Exchange Act Release No. 63024 (September 30, 
2010), 75 FR 61799 (October 6, 2010) (SR-Phlx-2010-134).
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    On October 7, 2010, the U.S. options exchanges, as participants in 
the OPRA Plan, voted to make technological changes that would enable 
OPRA to support a one-sided non-firm quote condition. These 
technological changes require OPRA and the participants to design, 
test, and deploy modifications to their systems, and to establish 
connectivity with quotation vendors, that will support the one-sided 
non-firm quote condition. The Exchange set a target date for its 
completion of the changes by the end of January, 2011. The Exchange is 
proposing to extend the current pilot through March 31, 2011, in order 
to account for the time required to complete the changes, and to 
account for the possibility that issues could arise that might delay 
the process beyond the end of January target date.
Opening Imbalance
    An opening ``imbalance'' occurs when all opening marketable size 
cannot be completely executed at or within an established Opening Quote 
Range (``OQR'') for the affected series.\8\ Currently, pursuant to 
Exchange Rule 1017(l)(v)(C)(7), any unexecuted contracts from the 
opening imbalance not traded or routed are displayed in the Exchange 
quote at the opening price for a period not to exceed ten seconds, and 
subsequently, cancelled back to the entering participant if they remain 
unexecuted and priced through the opening price, unless the member that 
submitted the original order has instructed the Exchange in writing to 
re-enter the remaining size, in which case the remaining size will be 
automatically submitted as a new order. During this display time 
period, the PHLX XL system disseminates, if the imbalance is a buy 
imbalance, an offer of $0.00, with a size of zero contracts or, if the 
imbalance is a sell imbalance, a bid of $0.00, with a size of zero 
contracts, on the opposite side of the market from remaining unexecuted 
contracts.
---------------------------------------------------------------------------

    \8\ Where there is an imbalance at the price at which the 
maximum number of contracts can trade that is also at or within the 
lowest quote bid and highest quote offer, the PHLX XL system will 
calculate an OQR for a particular series, outside of which the PHLX 
XL system will not execute. See Exchange Rule 1017(l)(iii) and (iv).
---------------------------------------------------------------------------

    The purpose of this provision is to indicate that the Exchange has 
exhausted all marketable interest, at or within the OQR, on one side of 
the market during the opening process yet has remaining unexecuted 
contracts on the opposite side of the market that are firm at the 
disseminated price and size.
    Rule 1017(l)(v)(C)(7) is subject to the pilot, which is scheduled 
to expire November 30, 2010. The Exchange proposes to extend the pilot 
through March 31, 2011.
Quote Exhaust
    Quote Exhaust occurs when the market at a particular price level on 
the Exchange includes a quote, and such market is exhausted by an 
inbound contra-side quote or order (``initiating quote or order''), and 
following such exhaustion, contracts remain to be executed from the 
initiating quote or order.\9\
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    \9\ See Exchange Rule 1082(a)(ii)(B)(3).
---------------------------------------------------------------------------

    Rather than immediately executing at the next available price, the 
PHLX XL system employs a timer (a ``Quote Exhaust Timer''), not to 
exceed one second, in order to allow market participants to refresh 
their quotes. During the Quote Exhaust Timer, PHLX XL currently 
disseminates the ``Reference Price'' (the most recent execution price) 
for the remaining size, provided that such price does not lock an away 
market, in which case, the Exchange currently disseminates a bid and 
offer that is one Minimum Price Variation (``MPV'') from the away 
market price. During the Quote Exhaust Timer, the Exchange 
disseminates: (i) A bid price of $0.00, with a size of zero contracts 
if the remaining size is a seller, or (ii) an offer price of $0.00, 
with a size of zero contracts if the remaining size is a buyer.
    Currently, Exchange Rules 1082(a)(ii)(B)(3)(g)(iv)(A)(3), 
1082(a)(ii)(B)(3)(g)(iv)(A)(4), 1082(a)(ii)(B)(3)(g)(iv)(B)(2), and 
1082(a)(ii)(B)(3)(g)(iv)(C) describe various scenarios under which the 
PHLX XL system trades, routes, or posts unexecuted contracts after 
determining the ``Best Price'' following a Quote Exhaust. These rules 
permit an up to 10 second time period during which participants may 
revise their quotes prior to the PHLX XL system taking action. In all 
of these scenarios, during the up to 10 second time period, the PHLX XL 
system currently disseminates an offer of $0.00, with a size of zero 
contracts if the remaining size is a buyer or, if the remaining size is 
a seller, a bid of $0.00, with a size of zero contracs, on the opposite 
side of the market from remaining unexecuted contracts.
    Exchange Rules 1082(a)(ii)(B)(3)(g)(iv)(A)(3), 
1082(a)(ii)(B)(3)(g)(iv)(A)(4), 1082(a)(ii)(B)(3)(g)(iv)(B)(2), and 
1082(a)(ii)(B)(3)(g)(iv)(C) are subject to the pilot, which is 
scheduled to expire November 30, 2010. The Exchange proposes to extend 
the pilot through March 31, 2011.
    Current Rule 1082(a)(ii)(B)(3)(g)(vi) describes what the PHLX XL 
system does if, after trading at the PHLX and/or routing, there are 
unexecuted contracts from the initiating order that are still 
marketable. In this situation, remaining contracts are posted for a 
period of time not to exceed 10 seconds and then cancelled after such 
period of time has elapsed, unless the member that submitted the 
original order has instructed the Exchange in writing to re-enter the 
remaining size, in which case the remaining size will be automatically 
submitted as a new order. During the up to 10 second time period, the 
Exchange will disseminate, on the opposite side of the market from 
remaining unexecuted contracts: (i) A bid price of $0.00, with a size 
of zero contracts if the remaining size is a seller, or (ii) an offer 
price of $0.00, with a size of zero contracts if the remaining size is 
a buyer.
    Rule 1082(a)(ii)(B)(3)(g)(vi) is subject to the pilot. The Exchange 
proposes to extend the pilot through March 31, 2011.
Market Exhaust
    Market Exhaust occurs when there are no PHLX XL participant 
quotations in the Exchange's disseminated market for a particular 
series and an initiating

[[Page 73152]]

order in the series is received. In such a circumstance, the PHLX XL 
system initiates a ``Market Exhaust Auction'' for the initiating 
order.\10\
---------------------------------------------------------------------------

    \10\ See Exchange Rule 1082(a)(ii)(B)(4)(b).
---------------------------------------------------------------------------

    In this situation, the PHLX XL system will first determine if the 
initiating order, or a portion thereof, can be executed on the PHLX. 
Thereafter, if there are unexecuted contracts remaining in the 
initiating order the PHLX XL system will initiate a Market Exhaust 
Timer. During the Market Exhaust Timer, the Exchange disseminates any 
unexecuted size of the initiating order at the ``Reference Price,'' 
which is the execution price of a portion of the initiating order, or 
one MPV from a better-priced away market price if the Reference Price 
would lock the away market. The PHLX XL system currently disseminates, 
on the opposite side of the market from the remaining unexecuted 
contracts: (i) A bid price of $0.00, with a size of zero contracts if 
the remaining size is a seller, or (ii) an offer price of $0.00, with a 
size of zero contracts if the remaining size is a buyer. This provision 
is subject to the pilot. The Exchange proposes to extend the pilot 
through March 31, 2011.
Provisional Auction
    Exchange Rule 1082(a)(ii)(B)(4)(d)(iv)(E) describes what PHLX XL 
does after it has explored all alternatives and there still remain 
unexecuted contracts. During the ``Provisional Auction,'' any 
unexecuted contracts from the initiating order are displayed in the 
Exchange quote for the remaining size for a brief period not to exceed 
ten seconds and subsequently cancelled back to the entering participant 
if they remain unexecuted, unless the member that submitted the 
original order has instructed the Exchange in writing to re-enter the 
remaining size, in which case the remaining size will be automatically 
submitted as a new order. During the brief period, the PHLX XL system 
currently disseminates, on the opposite side of the market from 
remaining unexecuted contracts: (i) A bid price of $0.00, with a size 
of zero contracts if the remaining size is a seller, or (ii) an offer 
price of $0.00, with a size of zero contracts if the remaining size is 
a buyer.
    Rule 1082(a)(ii)(B)(4)(d)(iv)(E) is subject to the pilot. The 
Exchange proposes to extend the pilot through March 31, 2011.
    The Exchange believes that the pilot benefits customers and the 
marketplace as a whole by enabling PHLX to effectively reflect the 
market interest the Exchange has that is firm and executable, while at 
the same time indicating the other side of the Exchange market is not 
firm and therefore not executable. This allows the Exchange to protect 
orders on its book and attempt to attract interest to execute against 
such order.
2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act \11\ in general, and furthers the objectives of Section 
6(b)(5) of the Act \12\ 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.
---------------------------------------------------------------------------

    \11\ 15 U.S.C. 78f(b).
    \12\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

    The Exchange further believes that the proposal is consistent with 
the SEC Quote Rule's provisions regarding non-firm quotations.\13\ 
Specifically, Rule 602(a)(3)(i) provides that if, at any time a 
national securities exchange is open for trading, the exchange 
determines, pursuant to rules approved by the Commission, that the 
level of trading activities or the existence of unusual market 
conditions is such that the exchange is incapable of collecting, 
processing, and making available to vendors the data for a subject 
security required to be made available in a manner that accurately 
reflects the current state of the market on such exchange, such 
exchange shall immediately notify all specified persons of that 
determination and, upon such notification, the exchange is relieved of 
its obligations under paragraphs (a)(1) and (2) of Rule 602 relating to 
collecting and disseminating quotations, subject to certain other 
provisions of Rule 602(a)(3).
---------------------------------------------------------------------------

    \13\ See 17 CFR 242.602(a)(3)(i) and (ii).
---------------------------------------------------------------------------

    By disseminating a bid of $0.00 for a size of zero contracts, or an 
offer of $0.00 for a size of zero contracts in certain situations 
delineated above in the Exchange's rules, the Exchange believes that it 
is adequately communicating that it is non-firm on that side of the 
market in compliance with the Quote Rule.

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.

II. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    Pursuant to Section 19(b)(3)(A) of the Act \14\ and Rule 19b-
4(f)(6) \15\ thereunder, the Exchange has designated this proposal as 
one that effects a change that: (i) Does not significantly affect the 
protection of investors or the public interest; (ii) does not impose 
any significant burden on competition; and (iii) by its terms, does not 
become operative for 30 days after the date of the filing, or such 
shorter time as the Commission may designate if consistent with the 
protection of investors and the public interest. The Exchange believes 
that the current pilot is ``non-controversial'' and therefore 
appropriate for filing pursuant to Rule 19b-4(f)(6).
---------------------------------------------------------------------------

    \14\ 15 U.S.C. 78s(b)(3)(A).
    \15\ 17 CFR 240.19b-4(f)(6).
---------------------------------------------------------------------------

    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. Furthermore, a 
proposed rule change filed pursuant to Rule 19b-4(f)(6) under the Act 
\16\ normally does not become operative for 30 days after the date of 
its filing. However, Rule 19b-4(f)(6) \17\ permits the Commission to 
designate a shorter time if such action is consistent with the 
protection of investors and the public interest.
---------------------------------------------------------------------------

    \16\ 17 CFR 240.19b-4(f)(6).
    \17\ 17 CFR 240.19b-4(f)(6).
---------------------------------------------------------------------------

    The Exchange has requested that the Commission waive the 30-day 
operative delay. The Commission believes that waiving the 30-day 
operative delay is consistent with the protection of investors and the 
public interest. The Commission notes the instant proposed rule change 
does not involve any substantive change to the Exchange's rules. 
Rather, the proposed rule change only seeks to extend the current pilot 
to allow time for OPRA to make technological changes that would enable 
OPRA to support a one-sided non-firm quote condition and allow the 
Exchange time to make corresponding changes to its systems. Thus, the 
Commission believes that the proposed rule change

[[Page 73153]]

does not raise any new regulatory issues.\18\
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    \18\ For the 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. 
78(c)(f).
---------------------------------------------------------------------------

    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 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 is consistent with the Act. Comments may be submitted by any of 
the following methods:

Electronic Comments

     Use the Commission's Internet comment form (https://www.sec.gov/rules/sro.shtml); or
     Send an e-mail to rule-comments@sec.gov. Please include 
File Number SR-Phlx-2010-156 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-2010-156. This file 
number should be included on the subject line if e-mail 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 (https://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 a.m. and 3 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-2010-156 and should be 
submitted on or before December 20, 2010.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\19\
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    \19\ 17 CFR 200.30-3(a)(12).
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Elizabeth M. Murphy,
Secretary.
[FR Doc. 2010-29907 Filed 11-26-10; 8:45 am]
BILLING CODE 8011-01-P

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