Self-Regulatory Organizations; NASDAQ OMX PHLX LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change Relating to Quality Opening Markets, 12191-12193 [2011-4897]

Download as PDF Federal Register / Vol. 76, No. 43 / Friday, March 4, 2011 / Notices as the Commission may designate up to 90 days of such date if it finds such longer period to be appropriate and publishes its reasons for so finding or (ii) as to which the Exchange consents, the Commission shall: (a) By order approve or disapprove such proposed rule change, or (b) institute proceedings to determine whether the proposed rule change should be 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: jlentini on DSKJ8SOYB1PROD with NOTICES Electronic Comments • Use the Commission’s Internet comment form (http://www.sec.gov/ rules/sro.shtml); or • Send an e-mail to rulecomments@sec.gov. Please include File Number SR–Phlx–2011–13 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–2011–13. 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 (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 a.m. and 3 p.m. Copies of the 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 VerDate Mar<15>2010 19:16 Mar 03, 2011 Jkt 223001 information that you wish to make available publicly. All submissions should refer to File Number SR–Phlx–2011–13 and should be submitted on or before March 25, 2011. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.68 Cathy H. Ahn, Deputy Secretary. [FR Doc. 2011–4898 Filed 3–3–11; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–63979; File No. SR–Phlx– 2011–21] Self-Regulatory Organizations; NASDAQ OMX PHLX LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change Relating to Quality Opening Markets February 25, 2011. 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 February 16, 2011, 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. I. Self-Regulatory Organization’s Statement of the Terms of Substance of the Proposed Rule Change The Exchange, pursuant to Section 19(b)(1) of the Act 3 and Rule 19b–4 thereunder,4 proposes to amend Rule 1017, Openings in Options, to reflect a system change under which the PHLX XL® automated options trading system 5 will initiate an opening ‘‘imbalance process’’ during the opening of trading in an option series when: (i) No other U.S. options exchange has opened the 68 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)(1). 4 17 CFR 240.19b–4. 5 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. 1 15 PO 00000 Frm 00179 Fmt 4703 Sfmt 4703 12191 affected series for trading, and (ii) there is not a ‘‘quality opening market’’ (as defined below) present on the Exchange in such option series. The text of the proposed rule change is available on the Exchange’s Web site at http://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 improve the quality of executions that take place on the Exchange during the Opening Process when no other market center is open for trading in the affected series, by amending Exchange Rule 1017. Specifically, the Exchange’s PHLX XL system will initiate an imbalance process when marketable opening orders on the Exchange could be executed against valid width quotes (defined in Exchange Rule 1014) 6 but there is not a ‘‘quality opening market’’ 6 A ‘‘valid width quote’’ for options on equities and index options means bidding and/or offering so as to create differences of no more than $.25 between the bid and the offer for each option contract for which the prevailing bid is less than $2; no more than $.40 where the prevailing bid is $2 or more but less than $5; no more than $.50 where the prevailing bid is $5 or more but less than $10; no more than $.80 where the prevailing bid is $10 or more but less than $20; and no more than $1 where the prevailing bid is $20 or more, provided that, in the case of equity options, the bid/ask differentials stated above shall not apply to in-themoney series where the market for the underlying security is wider than the differentials set forth above. For such series, the bid/ask differentials may be as wide as the quotation for the underlying security on the primary market, or its decimal equivalent rounded up to the nearest minimum increment. The Exchange may establish differences other than the above for one or more series or classes of options. See Exchange Rule 1014(c)(i)(A)(1)(a). E:\FR\FM\04MRN1.SGM 04MRN1 12192 Federal Register / Vol. 76, No. 43 / Friday, March 4, 2011 / Notices (as set forth in a table posted on the Exchange’s Web site). jlentini on DSKJ8SOYB1PROD with NOTICES Quality Opening Market A ‘‘quality opening market ’’ is a bid and offer on the Exchange comprised of the highest bid of all valid width opening quotes on the Exchange and the lowest offer of all valid width opening quotes on the Exchange, with a specific bid/ask differential that is narrower than the bid/ask differential of a valid width quote. A quality opening market is calculated by determining the bid/ask differential of the best available bid and the best available offer on the Exchange. If such bid/ask differential is equal to or less than a specific range as defined in a table published by the Exchange, the available top of book quotation is considered to be a ‘‘quality opening market’’. For example, currently for options priced under $2.00, a valid width quote is defined as a quote with a bid/ask differential that is not greater than $0.25. Assume at the opening on the Exchange, the Exchange’s market is $0.00 bid, $0.25 offer for 500 contracts in an option that is quoted and traded in increments of $0.01 (a ‘‘penny pilot option’’). Despite having a ‘‘valid width’’ quote on the Exchange, a market or marketable limit order to buy with equal or smaller size than the valid width quote size would be executed against the valid width quote offer of $0.25 if there were no other options markets open for trading in the affected series.7 An execution of $0.25 in a penny pilot option that is normally quoted with, for example, a $0.03 or $0.04 bid/ask differential, may be considered unacceptable. The Exchange has experienced situations where, following such an execution, additional PHLX market participants submit quotes in the affected series at a significantly better level than the opening price. This result is unacceptable to both the Exchange and its customers. The Exchange believes that the ‘‘quality opening market’’ requirement should reduce, the number of occurrences of, or preclude, this result, especially in the case of outof-the-money options series and relatively illiquid options. Another example of the result the proposed rule change addresses concerns options having up to thirtynine months from the time they are 7 If there are other options markets open for trading in the affected series, the Exchange would route the order to better-priced away markets following a one-second ‘‘Route Timer.’’ See, e.g., Exchange Rule 1017(l)(iv)(B). VerDate Mar<15>2010 19:16 Mar 03, 2011 Jkt 223001 listed until expiration.8 Strike price interval, bid/ask differential and continuity rules do not apply to such options series until the time to expiration is less than nine months.9 Options series with expirations of nine months or more may be quoted with any bid/ask differential. Assume at the opening on the Exchange, the Exchange’s market in such an option series is $0.00 bid, $5.00 offer for 50 contracts. A market or marketable limit order to buy with a size of 50 or fewer contracts would execute at $5.00, absent an imbalance process seeking a ‘‘quality opening market’’ on the Exchange. In order to ensure quality opening executions in this circumstance, proposed Rule 1017(l)(v)(B) would state that, if there is no imbalance, and (1) no other U.S. options exchange has opened the affected series for trading, and (2) there is no ‘‘quality opening market’’ (as defined in a table to be determined by the Exchange and published on the Exchange’s Web site), present on the Exchange in such option series, the PHLX XL system will begin the imbalance process 10 in order to seek additional valid width quotes that result in a ‘‘quality opening market’’ on the Exchange. During the imbalance process, the Exchange broadcasts ‘‘Imbalance Notices’’ seeking fresh quotations from participants at up to 3-second intervals.11 In this situation, the PHLX XL system will execute contra-side interest when either: (i) A ‘‘quality opening market ’’ is present on the Exchange, (ii) another options exchange opens for trading in the affected series, or (iii) the imbalance process is complete. Once a ‘‘quality opening market’’ is present on the Exchange, or another options exchange opens for trading in the affected series, the imbalance process will be terminated and the contra-side marketable order interest will be executed in accordance with Exchange Rule 1017. If no ‘‘quality opening market’’ is present during the imbalance process, and no other options exchange has opened for trading in the affected series during the imbalance process, contraside marketable order interest will be executed against valid width quotes present on the Exchange in accordance 8 Such options are referred to as Long Term Equity AnticiPation Securities (‘‘LEAPS’’). 9 See Exchange Rule 1012, Commentary .03. 10 Although there is not a true ‘‘imbalance’’ in this situation, the Exchange believes that the imbalance process is the most efficient way to communicate to participants that it is seeking fresh quotations that would result in a quality opening market on the Exchange. 11 See current Exchange Rule 1017(l)(v). PO 00000 Frm 00180 Fmt 4703 Sfmt 4703 with Exchange Rule 1017 upon the termination of the imbalance process.12 The Exchange believes that, if no ‘‘quality opening market’’ is present during the imbalance process (and no other options exchange has opened for trading in the affected series), the valid width quote is the best opening price and therefore it is appropriate to execute at the valid width quote price. The Exchange also proposes technical re-numbering changes to Rule 1017 to address proposed new Rule 1017(l)(v). The Exchange believes that this proposal to ‘‘force’’ an imbalance process when there are no other markets open for trading in the affected series, and there is no ‘‘quality opening market’’ present on the Exchange, will enhance the opening price discovery process and encourage participants to submit high quality quotes at the opening of trading. This in turn should enhance the quality of executions at the opening of trading on the Exchange, all to the benefit of the investing public. The Exchange further believes that the proposal will promote increased customer confidence in the PHLX opening process, and should attract more opening order flow to the Exchange. 2. Statutory Basis The Exchange believes that its proposal is consistent with Section 6(b) of the Act 13 in general, and furthers the objectives of Section 6(b)(5) of the Act 14 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. Specifically, the Exchange believes that the proposal benefits customers by improving prices and market efficiency at the opening of trading. 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. 12 The PHLX XL system may repeat the imbalance process up to three times (as established by the Exchange). See current Exchange Rule 1017(l)(v)(C)(6). 13 15 U.S.C. 78f(b). 14 15 U.S.C. 78f(b)(5). E:\FR\FM\04MRN1.SGM 04MRN1 Federal Register / Vol. 76, No. 43 / Friday, March 4, 2011 / Notices jlentini on DSKJ8SOYB1PROD with NOTICES III. Date of Effectiveness of the Proposed Rule Change and Timing for Commission Action Pursuant to Section 19(b)(3)(A) 15 of the Act and Rule 19b–4(f)(6) 16 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. 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. The Exchange notes that the instant proposal to establish a ‘‘quality opening market’’ and to publish a table of acceptable opening bid/ask differentials on its Web site is substantially similar to its previously approved proposed rule change to establish an Opening Quote Range and an Acceptable Quote Range, and to publish those ranges in a table on its Web site.17 The Opening Quote Range and the Acceptable Quote Range substantially track the quality opening market standard. Furthermore, because the table that describes the bid/ ask differential required for a quality opening market is intended to be dynamic and subject to market conditions, the Exchange believes that it is appropriate to display the table on its Web site, just as it does with the Opening Quote Range and the Acceptable Quote Range. 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. 15 15 U.S.C. 78s(b)(3)(A). CFR 240.19b–4(f)(6). 17 See Securities Exchange Act Release No. 59995 (May 28, 2009), 74 FR 26750 (June 3, 2009) (SR– Phlx–2009–32). 16 17 VerDate Mar<15>2010 19:16 Mar 03, 2011 Jkt 223001 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: 12193 For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.18 Cathy H. Ahn, Deputy Secretary. [FR Doc. 2011–4897 Filed 3–3–11; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION Electronic Comments • Use the Commission’s Internet comment form (http://www.sec.gov/ rules/sro.shtml); or • Send an e-mail to rulecomments@sec.gov. Please include File Number SR–Phlx–2011–21 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. [Release No. 34–63978; File No. SR–Phlx– 2011–25] Self-Regulatory Organizations; NASDAQ OMX PHLX; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Adopt New Rule 3303 To Implement the Amendments to Regulation SHO February 25, 2011. 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 February 18, 2011, The NASDAQ OMX PHLX All submissions should refer to File LLC (‘‘PSX’’ or ‘‘Exchange’’) filed with Number SR–Phlx–2011–21. This file the Securities and Exchange number should be included on the subject line if e-mail is used. To help the Commission (‘‘SEC’’ or ‘‘Commission’’) the proposed rule change as described Commission process and review your in Items I and II below, which Items comments more efficiently, please use only one method. The Commission will have been substantially prepared by the post all comments on the Commission’s Exchange. The Commission is publishing this notice to solicit Internet Web site (http://www.sec.gov/ comments on the proposed rule change rules/sro.shtml). Copies of the from interested persons. submission, all subsequent amendments, all written statements I. Self-Regulatory Organization’s with respect to the proposed rule Statement of the Terms of Substance of change that are filed with the the Proposed Rule Change Commission, and all written The Exchange, pursuant to Section communications relating to the 19(b)(1) of the Act 3 and Rule 19b–4 4 proposed rule change between the thereunder, proposes to adopt new Rule Commission and any person, other than 3303 as a written policy or procedure to those that may be withheld from the implement the amendments to Rules public in accordance with the 200(g) and 201 of Regulation SHO.5 provisions of 5 U.S.C. 552, will be The text of the proposed rule change available for Web site viewing and is available on the Exchange’s Web site printing in the Commission’s Public at http:// Reference Room, 100 F Street, NE., nasdaqomxphlx.cchwallstreet.com/ Washington, DC 20549, on official NASDAQOMXPHLX/Filings/, at the business days between the hours of 10 principal office of the Exchange, and at a.m. and 3 p.m. Copies of the filing also the Commission’s Public Reference will be available for inspection and Room. copying at the principal office of the Exchange. All comments received will 1 15 U.S.C. 78s(b)(1). be posted without change; the 2 17 CFR 240.19b–4. 3 15 U.S.C. 78s(b)(1). Commission does not edit personal 4 17 CFR 240.19b–4. identifying information from 5 17 CFR 242.200(g); 17 CFR 242.201. See submissions. You should submit only Securities Exchange Act Release No. 61595 (Feb. 26, information that you wish to make 2010), 75 FR 11232 (Mar. 10, 2010) (amending available publicly. All submissions Rules 201 and 200 of Regulation SHO to adopt a should refer to File Number SR–Phlx– short sale price test restriction and ‘‘short exempt’’ 2011–21 and should be submitted on or marking requirement). See also Securities Exchange Act Release No. 63247 (Nov. 4, 2010), 75 FR 68702 before March 25, 2011. 18 17 PO 00000 CFR 200.30–3(a)(12). Frm 00181 Fmt 4703 Sfmt 4703 (Nov. 9, 2010) (extending the compliance date of the amendments to Rules 201 and 200 of Regulation SHO until February 28, 2011). E:\FR\FM\04MRN1.SGM 04MRN1

Agencies

[Federal Register Volume 76, Number 43 (Friday, March 4, 2011)]
[Notices]
[Pages 12191-12193]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2011-4897]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-63979; File No. SR-Phlx-2011-21]


Self-Regulatory Organizations; NASDAQ OMX PHLX LLC; Notice of 
Filing and Immediate Effectiveness of Proposed Rule Change Relating to 
Quality Opening Markets

February 25, 2011.
    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 February 16, 2011, 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.
---------------------------------------------------------------------------

    \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, pursuant to Section 19(b)(1) of the Act \3\ and Rule 
19b-4 thereunder,\4\ proposes to amend Rule 1017, Openings in Options, 
to reflect a system change under which the PHLX XL[supreg] automated 
options trading system \5\ will initiate an opening ``imbalance 
process'' during the opening of trading in an option series when: (i) 
No other U.S. options exchange has opened the affected series for 
trading, and (ii) there is not a ``quality opening market'' (as defined 
below) present on the Exchange in such option series.
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    \3\ 15 U.S.C. 78s(b)(1).
    \4\ 17 CFR 240.19b-4.
    \5\ 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.
---------------------------------------------------------------------------

    The text of the proposed rule change is available on the Exchange's 
Web site at http://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 improve the quality 
of executions that take place on the Exchange during the Opening 
Process when no other market center is open for trading in the affected 
series, by amending Exchange Rule 1017. Specifically, the Exchange's 
PHLX XL system will initiate an imbalance process when marketable 
opening orders on the Exchange could be executed against valid width 
quotes (defined in Exchange Rule 1014) \6\ but there is not a ``quality 
opening market''

[[Page 12192]]

(as set forth in a table posted on the Exchange's Web site).
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    \6\ A ``valid width quote'' for options on equities and index 
options means bidding and/or offering so as to create differences of 
no more than $.25 between the bid and the offer for each option 
contract for which the prevailing bid is less than $2; no more than 
$.40 where the prevailing bid is $2 or more but less than $5; no 
more than $.50 where the prevailing bid is $5 or more but less than 
$10; no more than $.80 where the prevailing bid is $10 or more but 
less than $20; and no more than $1 where the prevailing bid is $20 
or more, provided that, in the case of equity options, the bid/ask 
differentials stated above shall not apply to in-the-money series 
where the market for the underlying security is wider than the 
differentials set forth above. For such series, the bid/ask 
differentials may be as wide as the quotation for the underlying 
security on the primary market, or its decimal equivalent rounded up 
to the nearest minimum increment. The Exchange may establish 
differences other than the above for one or more series or classes 
of options. See Exchange Rule 1014(c)(i)(A)(1)(a).
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Quality Opening Market
    A ``quality opening market '' is a bid and offer on the Exchange 
comprised of the highest bid of all valid width opening quotes on the 
Exchange and the lowest offer of all valid width opening quotes on the 
Exchange, with a specific bid/ask differential that is narrower than 
the bid/ask differential of a valid width quote.
    A quality opening market is calculated by determining the bid/ask 
differential of the best available bid and the best available offer on 
the Exchange. If such bid/ask differential is equal to or less than a 
specific range as defined in a table published by the Exchange, the 
available top of book quotation is considered to be a ``quality opening 
market''.
    For example, currently for options priced under $2.00, a valid 
width quote is defined as a quote with a bid/ask differential that is 
not greater than $0.25. Assume at the opening on the Exchange, the 
Exchange's market is $0.00 bid, $0.25 offer for 500 contracts in an 
option that is quoted and traded in increments of $0.01 (a ``penny 
pilot option''). Despite having a ``valid width'' quote on the 
Exchange, a market or marketable limit order to buy with equal or 
smaller size than the valid width quote size would be executed against 
the valid width quote offer of $0.25 if there were no other options 
markets open for trading in the affected series.\7\ An execution of 
$0.25 in a penny pilot option that is normally quoted with, for 
example, a $0.03 or $0.04 bid/ask differential, may be considered 
unacceptable. The Exchange has experienced situations where, following 
such an execution, additional PHLX market participants submit quotes in 
the affected series at a significantly better level than the opening 
price. This result is unacceptable to both the Exchange and its 
customers. The Exchange believes that the ``quality opening market'' 
requirement should reduce, the number of occurrences of, or preclude, 
this result, especially in the case of out-of-the-money options series 
and relatively illiquid options.
---------------------------------------------------------------------------

    \7\ If there are other options markets open for trading in the 
affected series, the Exchange would route the order to better-priced 
away markets following a one-second ``Route Timer.'' See, e.g., 
Exchange Rule 1017(l)(iv)(B).
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    Another example of the result the proposed rule change addresses 
concerns options having up to thirty-nine months from the time they are 
listed until expiration.\8\ Strike price interval, bid/ask differential 
and continuity rules do not apply to such options series until the time 
to expiration is less than nine months.\9\ Options series with 
expirations of nine months or more may be quoted with any bid/ask 
differential. Assume at the opening on the Exchange, the Exchange's 
market in such an option series is $0.00 bid, $5.00 offer for 50 
contracts. A market or marketable limit order to buy with a size of 50 
or fewer contracts would execute at $5.00, absent an imbalance process 
seeking a ``quality opening market'' on the Exchange.
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    \8\ Such options are referred to as Long Term Equity 
AnticiPation Securities (``LEAPS'').
    \9\ See Exchange Rule 1012, Commentary .03.
---------------------------------------------------------------------------

    In order to ensure quality opening executions in this circumstance, 
proposed Rule 1017(l)(v)(B) would state that, if there is no imbalance, 
and (1) no other U.S. options exchange has opened the affected series 
for trading, and (2) there is no ``quality opening market'' (as defined 
in a table to be determined by the Exchange and published on the 
Exchange's Web site), present on the Exchange in such option series, 
the PHLX XL system will begin the imbalance process \10\ in order to 
seek additional valid width quotes that result in a ``quality opening 
market'' on the Exchange. During the imbalance process, the Exchange 
broadcasts ``Imbalance Notices'' seeking fresh quotations from 
participants at up to 3-second intervals.\11\
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    \10\ Although there is not a true ``imbalance'' in this 
situation, the Exchange believes that the imbalance process is the 
most efficient way to communicate to participants that it is seeking 
fresh quotations that would result in a quality opening market on 
the Exchange.
    \11\ See current Exchange Rule 1017(l)(v).
---------------------------------------------------------------------------

    In this situation, the PHLX XL system will execute contra-side 
interest when either: (i) A ``quality opening market '' is present on 
the Exchange, (ii) another options exchange opens for trading in the 
affected series, or (iii) the imbalance process is complete. Once a 
``quality opening market'' is present on the Exchange, or another 
options exchange opens for trading in the affected series, the 
imbalance process will be terminated and the contra-side marketable 
order interest will be executed in accordance with Exchange Rule 1017.
    If no ``quality opening market'' is present during the imbalance 
process, and no other options exchange has opened for trading in the 
affected series during the imbalance process, contra-side marketable 
order interest will be executed against valid width quotes present on 
the Exchange in accordance with Exchange Rule 1017 upon the termination 
of the imbalance process.\12\ The Exchange believes that, if no 
``quality opening market'' is present during the imbalance process (and 
no other options exchange has opened for trading in the affected 
series), the valid width quote is the best opening price and therefore 
it is appropriate to execute at the valid width quote price.
---------------------------------------------------------------------------

    \12\ The PHLX XL system may repeat the imbalance process up to 
three times (as established by the Exchange). See current Exchange 
Rule 1017(l)(v)(C)(6).
---------------------------------------------------------------------------

    The Exchange also proposes technical re-numbering changes to Rule 
1017 to address proposed new Rule 1017(l)(v).
    The Exchange believes that this proposal to ``force'' an imbalance 
process when there are no other markets open for trading in the 
affected series, and there is no ``quality opening market'' present on 
the Exchange, will enhance the opening price discovery process and 
encourage participants to submit high quality quotes at the opening of 
trading. This in turn should enhance the quality of executions at the 
opening of trading on the Exchange, all to the benefit of the investing 
public. The Exchange further believes that the proposal will promote 
increased customer confidence in the PHLX opening process, and should 
attract more opening order flow to the Exchange.
2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act \13\ in general, and furthers the objectives of Section 
6(b)(5) of the Act \14\ 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. Specifically, the Exchange believes that the proposal 
benefits customers by improving prices and market efficiency at the 
opening of trading.
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    \13\ 15 U.S.C. 78f(b).
    \14\ 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.

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.

[[Page 12193]]

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

    Pursuant to Section 19(b)(3)(A) \15\ of the Act and Rule 19b-
4(f)(6) \16\ 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.
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    \15\ 15 U.S.C. 78s(b)(3)(A).
    \16\ 17 CFR 240.19b-4(f)(6).
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    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.
    The Exchange notes that the instant proposal to establish a 
``quality opening market'' and to publish a table of acceptable opening 
bid/ask differentials on its Web site is substantially similar to its 
previously approved proposed rule change to establish an Opening Quote 
Range and an Acceptable Quote Range, and to publish those ranges in a 
table on its Web site.\17\ The Opening Quote Range and the Acceptable 
Quote Range substantially track the quality opening market standard. 
Furthermore, because the table that describes the bid/ask differential 
required for a quality opening market is intended to be dynamic and 
subject to market conditions, the Exchange believes that it is 
appropriate to display the table on its Web site, just as it does with 
the Opening Quote Range and the Acceptable Quote Range.
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    \17\ See Securities Exchange Act Release No. 59995 (May 28, 
2009), 74 FR 26750 (June 3, 2009) (SR-Phlx-2009-32).
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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 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 (http://www.sec.gov/rules/sro.shtml); or
     Send an e-mail to rule-comments@sec.gov. Please include 
File Number SR-Phlx-2011-21 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-2011-21. 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 (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 
a.m. and 3 p.m. Copies of the 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-2011-21 and should be 
submitted on or before March 25, 2011.
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    \18\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\18\
Cathy H. Ahn,
Deputy Secretary.
[FR Doc. 2011-4897 Filed 3-3-11; 8:45 am]
BILLING CODE 8011-01-P