Self-Regulatory Organizations; NASDAQ OMX PHLX LLC; Notice of Filing and Immediate Effectiveness of a Proposal with Respect to the Authority of the Exchange or Nasdaq Options Services LLC (“NOS”) To Cancel Options Orders when a Technical or System Issue Occurs and To Describe the Operation of an Error Account for NOS, 74520-74524 [2012-30168]
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Federal Register / Vol. 77, No. 241 / Friday, December 14, 2012 / Notices
200.402(a)(2) and (6), permit
consideration of the scheduled matter at
the Closed Meeting.
Commissioner Walter, as duty officer,
voted to consider the item listed for the
Closed Meeting in closed session, and
determined that no earlier notice thereof
was possible.
At times, changes in Commission
priorities require alterations in the
scheduling of meeting items. For further
information and to ascertain what, if
any, matters have been added, deleted
or postponed, please contact the Office
of the Secretary at (202) 551–5400.
Dated: December 12, 2012.
Elizabeth M. Murphy,
Secretary.
[FR Doc. 2012–30326 Filed 12–12–12; 4:15 pm]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[File No. 500–1]
In the Matter of the Hartcourt
Companies, Inc., Hawksdale Financial
Visions, Inc. (n/k/a Advanced Medical
Institute, Inc.), Healthcare Providers
Direct, Inc., Heartland Oil & Gas Corp.,
Hellenic Solutions Corp., and HIV–
VAC, Inc. (n/k/a Grupo International,
Inc.); Order of Suspension of Trading
mstockstill on DSK4VPTVN1PROD with
December 12, 2012.
It appears to the Securities and
Exchange Commission that there is a
lack of current and accurate information
concerning the securities of The
Hartcourt Companies, Inc. because it
has not filed any periodic reports since
the period ended November 30, 2009.
It appears to the Securities and
Exchange Commission that there is a
lack of current and accurate information
concerning the securities of Hawksdale
Financial Visions, Inc. (n/k/a Advanced
Medical Institute, Inc.) because it has
not filed any periodic reports since the
period ended December 31, 2009.
It appears to the Securities and
Exchange Commission that there is a
lack of current and accurate information
concerning the securities of Healthcare
Providers Direct, Inc. because it has not
filed any periodic reports since
September 30, 2008.
It appears to the Securities and
Exchange Commission that there is a
lack of current and accurate information
concerning the securities of Heartland
Oil & Gas Corp. because it has not filed
any periodic since the period ended
June 30, 2008.
It appears to the Securities and
Exchange Commission that there is a
lack of current and accurate information
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16:41 Dec 13, 2012
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concerning the securities of Hellenic
Solutions Corp. because it has not filed
any periodic reports since the period
ended September 30, 2010.
It appears to the Securities and
Exchange Commission that there is a
lack of current and accurate information
concerning the securities of HIV–VAC,
Inc. (n/k/a Grupo International, Inc.)
because it has not filed any periodic
reports since the period ended
December 31, 2010.
The Commission is of the opinion that
the public interest and the protection of
investors require a suspension of trading
in the securities of the above-listed
companies.
Therefore, it is ordered, pursuant to
Section 12(k) of the Securities Exchange
Act of 1934, that trading in the
securities of the above-listed companies
is suspended for the period from 9:30
a.m. EST on December 12, 2012,
through 11:59 p.m. EST on December
26, 2012.
By the Commission.
Jill M. Peterson,
Assistant Secretary.
[FR Doc. 2012–30301 Filed 12–12–12; 4:15 pm]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[File No. 500–1]
Encore Clean Energy, Inc., Energy &
Engine Technology Corp., Equity
Media Holdings Corporation,
eTotalSource, Inc., Extensions, Inc.,
Firepond, Inc., and GNC Energy
Corporation; Order Withdrawing
Trading Suspension as to Extensions,
Inc.
December 12, 2012.
The Securities and Exchange
Commission hereby withdraws the
trading suspension order as to the
securities of Extensions, Inc. (‘‘EXTI’’)
entered November 29, 2012 (‘‘November
29, 2012 Order’’).
This order shall be effective
immediately.
The remainder of the November 29,
2012 Order remains in full force and
effect according to its original terms.
By the Commission.
Kevin M. O’Neill,
Deputy Secretary.
[FR Doc. 2012–30299 Filed 12–12–12; 4:15 pm]
BILLING CODE 8011–01–P
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SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–68393; File No. SR–Phlx–
2012–134]
Self-Regulatory Organizations;
NASDAQ OMX PHLX LLC; Notice of
Filing and Immediate Effectiveness of
a Proposal with Respect to the
Authority of the Exchange or Nasdaq
Options Services LLC (‘‘NOS’’) To
Cancel Options Orders when a
Technical or System Issue Occurs and
To Describe the Operation of an Error
Account for NOS
December 10, 2012.
Pursuant to Section 19(b)(1) 1 of the
Securities Exchange Act of 1934 (the
‘‘Act’’) 2 and Rule 19b–4 thereunder,3
notice is hereby given that, on
November 30, 2012, NASDAQ OMX
PHLX LLC (‘‘PHLX’’ or ‘‘Exchange’’)
filed with the Securities and Exchange
Commission (the ‘‘Commission’’) the
proposed rule change as described in
Items I and II below, which Items have
been prepared by the self-regulatory
organization. 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 filing a proposal with
respect to the authority of the Exchange
or NOS to cancel options orders when
a technical or system issue occurs and
to describe the operation of an error
account for NOS. The text of the
proposed rule change is available at
https://
nasdaqomxphlx.cchwallstreet.com, at
PHLX’s principal office, and at the
Commission’s Public Reference Room.
II. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
In its filing with the Commission, the
Exchange included statements
concerning the purpose of, and basis for,
the proposed rule change and discussed
any comments it received on the
proposed rule change. The text of those
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.
1 15
U.S.C.78s(b)(1).
U.S.C. 78a.
3 17 CFR 240.19b–4.
2 15
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A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
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1. Purpose
The Exchange proposes to amend
Rule 1080(m) by adding a new
subparagraph (v) that addresses the
authority of the Exchange or NOS to
cancel options orders when a technical
or systems issue occurs and to describe
the operation of an error account for
NOS.4
NOS is the approved routing broker of
the Exchange, subject to the conditions
listed in Rule 1080(m). The Exchange
relies on NOS to provide outbound
routing services from itself to routing
destinations of NOS (‘‘routing
destinations’’).5 When NOS routes
orders to a routing destination, it does
so by sending a corresponding order in
its own name to the routing destination.
In the normal course, routed orders that
are executed at routing destinations are
submitted for clearance and settlement
in the name of NOS, and NOS arranges
4 NOS is a facility of the Exchange. Accordingly,
under Rule 1080(m), the Exchange is responsible for
filing with the Commission rule changes and fees
relating to NOS’s functions. In addition, the
Exchange is using the phrase ‘‘NOS or the
Exchange’’ in this rule filing to reflect the fact that
a decision to take action with respect to orders
affected by a technical or systems issue may be
made in the capacity of NOS or the Exchange
depending on where those orders are located at the
time of that decision. From time to time, the
Exchange may use non-affiliate third-party brokerdealers to provide outbound routing services (i.e.,
third-party Routing Brokers). In those cases, orders
are submitted to the third-party Routing Broker
through NOS, the third-party Routing Broker routes
the orders to the routing destination in its name,
and any executions are submitted for clearance and
settlement in the name of NOS so that any resulting
positions are delivered to NOS upon settlement. As
described above, NOS normally arranges for any
resulting securities positions to be delivered to the
member that submitted the corresponding order to
the Exchange. If error positions (as defined in
proposed Rule 1080(m)(v)(2)) result in connection
with the Exchange’s use of a third-party Routing
Broker for outbound routing, and those positions
are delivered to NOS through the clearance and
settlement process, NOS would be permitted to
resolve those positions in accordance with
proposed Rule 1080(m)(v). If the third-party
Routing Broker received error positions in
connection with its role as a routing broker for the
Exchange, and the error positions were not
delivered to NOS through the clearance and
settlement process, then the third-party Routing
Broker would resolve the error positions itself, and
NOS would not be permitted to accept the error
positions, as set forth in proposed Rule
1080(m)(v)(2)(B).
5 The Exchange has authority to receive inbound
routes of options orders by NOS from NASDAQ
OMX BX (on a one year pilot basis) and The
NASDAQ Options Market. See Securities Exchange
Act Release Nos. 67294 (June 28, 2012), 77 FR
39771 (July 5, 2012)(SR–Phlx–2012–68); 58179 (July
17, 2008), 73 FR 42874 (July 23, 2008) (SR–Phlx–
2008–31); and 65399 (September 26, 2011), 76 FR
60955 (September 30, 2011)(SR–Phlx–2011–111).
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for any resulting securities positions to
be delivered to the member that
submitted the corresponding order to
the Exchange. From time to time,
however, the Exchange and NOS
encounter situations in which it
becomes necessary to cancel orders and
resolve error positions.6
Examples of Circumstances That May
Lead to Canceled Orders
A technical or systems issue may arise
at NOS, a routing destination, or the
Exchange that may cause the Exchange
or NOS to take steps to cancel orders if
the Exchange or NOS determines that
such action is necessary to maintain a
fair and orderly market. The examples
set forth below describe some of the
circumstances in which the Exchange or
NOS may decide to cancel orders.
Example 1. If NOS or a routing
destination experiences a technical or
systems issue that results in NOS not
receiving responses to immediate or
cancel (‘‘IOC’’) orders that it sent to the
routing destination, and that issue is not
resolved in a timely manner, NOS or the
Exchange would seek to cancel the
routed orders affected by the issue.7 For
instance, if NOS experiences a
connectivity issue affecting the manner
in which it sends or receives order
messages to or from routing
destinations, it may be unable to receive
timely execution or cancellation reports
from the routing destinations, and NOS
or the Exchange may consequently seek
to cancel the affected routed orders.
Once the decision is made to cancel
those routed orders, any cancellation
that a member submitted to the
Exchange on its initial order during
such a situation would be honored.8
6 The examples described in this filing are not
intended to be exclusive. Proposed Rule 1080(m)(v)
would provide general authority for the Exchange
or NOS to cancel orders in order to maintain fair
and orderly markets when technical and systems
issues are occurring, and Rule 1080(m)(v) also
would set forth the manner in which error positions
may be handled by the Exchange or NOS. The
proposed rule change is not limited to addressing
order cancellation or error positions resulting only
from the specific examples described in this filing.
7 In a normal situation (i.e., one in which a
technical or systems issue does not exist), NOS
should receive an immediate response to an IOC
order from a routing destination, and would pass
the resulting fill or cancellation on to the Exchange
member. After submitting an order that is routed to
a routing destination, if a member sends an
instruction to cancel that order, the cancellation is
held by the Exchange until a response is received
from the routing destination. For instance, if the
routing destination executes that order, the
execution would be passed on to the member and
the cancellation instruction would be disregarded.
8 If a member did not submit a cancellation to the
Exchange, however, that initial order would remain
‘‘live’’ and thus be eligible for execution or posting
on the Exchange, and neither the Exchange nor
NOS would treat any execution of that initial order
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Example 2. If the Exchange
experiences a systems issue, the
Exchange may take steps to cancel all
outstanding orders affected by that issue
and notify affected members of the
cancellations. In those cases, the
Exchange would seek to cancel any
routed orders related to the members’
initial orders.
Examples of Circumstances That May
Lead to Error Positions
In some instances, the technical or
systems issue at NOS, a routing
destination, the Exchange, or a nonaffiliate third party Routing Broker may
also result in NOS acquiring an error
position that it must resolve. The
examples set forth below describe some
of the circumstances in which error
positions may arise.
Example A. Error positions may result
from routed orders that the Exchange or
NOS attempts to cancel but that are
executed before the routing destination
receives the cancellation message or that
are executed because the routing
destination is unable to process the
cancellation message. Using the
situation described in Example 1 above,
assume that the Exchange seeks to
cancel orders routed to a routing
destination because it is not receiving
timely execution or cancellation reports
from the routing destination. In such a
situation, NOS may still receive
executions from the routing destination
after connectivity is restored, which it
would not then allocate to members
because of the earlier decision to cancel
the affected routed orders. Instead, NOS
would post those positions into its error
account and resolve the positions in the
manner described below.
Example B. Error positions may result
from an order processing issue at a
routing destination. For instance, if a
routing destination experienced a
systems problem that affects its order
processing, it may transmit back a
message purporting to cancel a routed
order, but then subsequently submit an
execution of that same order (i.e., a
locked-in trade) to The Options Clearing
Corporation (‘‘OCC’’) for clearance and
settlement. In such a situation, the
Exchange would not then allocate the
execution to the member because of the
earlier cancellation message from the
routing destination. Instead, NOS would
post those positions into its error
account and resolve the positions in the
manner described below.
Example C. Error positions may result
if NOS receives an execution report
from a routing destination but does not
or any subsequent routed order related to that
initial order as an error.
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Federal Register / Vol. 77, No. 241 / Friday, December 14, 2012 / Notices
receive clearing instructions for the
execution from the routing destination.
For instance, assume that a member
sends the Exchange an order to buy 100
contracts overlying ABC stock, which
causes NOS to send an order to a
routing destination that is subsequently
executed, cleared, and closed out by
that routing destination, and the
execution is ultimately communicated
back to that member. On the next
trading day (T+1), if the routing
destination does not provide clearing
instructions for that execution, NOS
would still be responsible for settling
that member’s purchase, but would be
left with a short position in its error
account.9 NOS would resolve the
position in the manner described below.
Example D. Error positions may result
from a technical or systems issue that
causes orders to be executed in the
name of NOS that are not related to
NOS’s function as the Exchange’s
routing broker and are not related to any
corresponding orders of members. As a
result, NOS would not be able to assign
any positions resulting from such an
issue to members. Instead, NOS would
post those positions into its error
account and resolve the positions in the
manner described below.
Example E. Error positions may result
from a technical or systems issue
through which the Exchange does not
receive sufficient notice that a member
that has executed trades on the
Exchange has lost the ability to clear
trades through OCC. In such a situation,
the Exchange would not have valid
clearing information, which would
prevent the trade from being
automatically processed for clearance
and settlement on a locked-in basis.
Accordingly, NOS would assume that
member’s side of the trades so that the
counterparties can settle the trades.
NOS would post those positions into its
error account and resolve the positions
in the manner described below.
Example F. Error positions may result
from a technical or systems issue at the
Exchange that does not involve routing
of orders through NOS. For example, a
situation may arise in which a posted
quote/order was validly cancelled but
the system erroneously matched that
quote/order with an order that was
seeking to access it. In such a situation,
NOS would have to assume the side of
the trade opposite the order seeking to
access the cancelled quote/order. NOS
would post the position in its error
account and resolve the position in the
manner described below.
9 To the extent that NOS incurred a loss in
covering its short position, it would submit a
reimbursement claim to that routing destination.
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In the circumstances described above,
neither the Exchange nor NOS may
learn about an error position until T+1,
either: (1) During the clearing process
when a routing destination has
submitted to OCC a transaction for
clearance and settlement for which NOS
never received an execution
confirmation; or (2) when a routing
destination does not recognize a
transaction submitted to OCC for
clearance and settlement. Moreover, the
affected members’ trade may not be
nullified absent express authority under
Exchange rules.10
Proposed Amendments to Rule 1080(m)
The Exchange proposes to amend
Rule 1080(m) to add new subparagraph
(v) to address the cancellation of orders
due to technical or systems issues and
the use of an error account by NOS.
Specifically, under subparagraph
(v)(1) of the proposed rule, the Exchange
or NOS would be expressly authorized
to cancel orders as may be necessary to
maintain fair and orderly markets if a
technical or systems issue occurred at
the Exchange, NOS, or a routing
destination.11 The Exchange or NOS
would be required to provide notice of
the cancellation to affected members as
soon as practicable.
Subparagraph (v)(2) of the proposed
rule would permit NOS to maintain an
error account for the purpose of
addressing positions that result from a
technical or systems issue at NOS, the
Exchange, a routing destination, or a
non-affiliate third-party Routing Broker
that affects one or more orders (‘‘error
positions’’). By definition, an error
position would not include any position
that results from an order submitted by
a member to the Exchange that is
executed on the Exchange and
automatically processed for clearance
and settlement on a locked-in basis.
NOS also would not be permitted to
accept any positions in its error account
from an account of a member and could
not permit any member to transfer any
positions from the member’s account to
NOS’s error account under the proposed
rule.12 However, if a technical or
10 See,
e.g., Rule 1092.
a situation may not cause the Exchange
to declare self-help against the routing destination
pursuant to Rule 1084(b)(i). If the Exchange or NOS
determines to cancel orders routed to a routing
destination under proposed Rule 1080(m)(v), but
does not declare self-help against that routing
destination, the Exchange would continue to be
subject to the trade-through requirements in the
Options Order Protection and Locked/Crossed
Markets Plan and Rule 1084 with respect to that
routing destination.
12 The purpose of this provision is to clarify that
NOS may address error positions under the
proposed rule that are caused by a technical or
11 Such
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systems issue results in the Exchange
not having valid clearing instructions
for a member to a trade, NOS may
assume that member’s side of the trade
so that the trade can be processed for
clearance and settlement on a locked-in
basis.13
Under subparagraph (v)(3), in
connection with a particular technical
or systems issue, NOS or the Exchange
would be permitted to either (i) assign
all resulting error positions to members,
or (ii) have all resulting error positions
liquidated, as described below. Any
determination to assign or liquidate
error positions, as well as any resulting
assignments, would be required to be
made in a nondiscriminatory fashion.
NOS or the Exchange would be
required to assign all error positions
resulting from a particular technical or
systems issue to the applicable members
affected by that technical or systems
issue if NOS or the Exchange:
• Determined that it has accurate and
sufficient information (including valid
clearing information) to assign the
positions to all of the applicable
members affected by that technical or
systems issue;
• Determined that it has sufficient
time pursuant to normal clearance and
settlement deadlines to evaluate the
information necessary to assign the
positions to all of the applicable
members affected by that technical or
systems issue; and
• Had not determined to cancel all
orders affected by that technical or
systems issue.
For example, a technical or systems
issue of limited scope or duration may
occur at a routing destination, and the
resulting trades may be submitted for
clearance and settlement by such
routing destination to OCC. If there were
a small number of trades, there may be
sufficient time to match positions with
member orders and avoid using the
error account.
systems issue, but that NOS may not accept from
a member positions that are delivered to the
member through the clearance and settlement
process, even if those positions may have been
related to a technical or systems issue at NOS, the
Exchange, a routing destination of NOS, or a nonaffiliate third-party Routing Broker. This provision
would not apply, however, to situations like the one
described in Example C in which NOS incurred a
short position to settle a member’s purchase, as the
member did not yet have a position in its account
as a result of the purchase at the time of NOS’s
action (i.e., NOS’s action was necessary for the
purchase to settle into the member’s account).
Similarly, the provision would not apply to
situations like the one described in Example F,
where a system issue caused one member to receive
an execution for which there was not an available
contraparty, in which case action by NOS would be
necessary for the position to settle into that
member’s account.
13 See Example E above.
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There may be scenarios, however,
where NOS determines that it is unable
to assign all error positions resulting
from a particular technical or systems
issue to all of the affected members, or
determines to cancel all affected routed
orders. For example, in some cases, the
volume of questionable executions and
positions resulting from a technical or
systems issue might be such that the
research necessary to determine which
members to assign those executions to
could be expected to extend past the
normal settlement cycle for such
executions. Furthermore, if a routing
destination experiences a technical or
systems issue after NOS has transmitted
IOC orders to it that prevents NOS from
receiving responses to those orders,
NOS or the Exchange may determine to
cancel all routed orders affected by that
issue. In such a situation, NOS or the
Exchange would not pass on to the
members any executions on the routed
orders received from the routing
destination.
The proposed rule also would require
NOS to liquidate error positions as soon
as practicable.14 In liquidating error
positions, NOS would be required to
provide complete time and price
discretion for the trading to liquidate
the error positions to a third-party
broker-dealer and could not attempt to
exercise any influence or control over
the timing or methods of trading to
liquidate the error positions.15 NOS also
would be required to establish and
enforce policies and procedures
reasonably designed to restrict the flow
of confidential and proprietary
information between the third-party
broker-dealer and NOS/the Exchange
associated with the liquidation of the
error positions.
Under proposed subparagraph (v)(4),
NOS and the Exchange would be
required to make and keep records to
document all determinations to treat
positions as error positions and all
determinations for the assignment of
error positions to members or the
liquidation of error positions, as well as
records associated with the liquidation
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14 If
NOS determines in connection with a
particular technical or systems issue that some error
positions can be assigned to some affected members
but other error positions cannot be assigned, NOS
would be required under the proposed rule to
liquidate all such error positions (including those
positions that could be assigned to the affected
members).
15 This provision is not intended to preclude NOS
from providing the third-party broker with standing
instructions with respect to the manner in which
it should handle all error account transactions. For
example, NOS might instruct the broker to treat all
orders as ‘‘not held’’ and to attempt to minimize
any market impact on the price of the stock being
traded.
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of error positions through the thirdparty broker-dealer.
B. Self-Regulatory Organization’s
Statement on Burden on Competition
2. Statutory Basis
The Exchange does not believe that
the proposed rule change will impose
any burden on competition not
necessary or appropriate in furtherance
of the purposes of the Act.
The proposed rule change is
consistent with Section 6(b) 16 of the
Securities Exchange Act of 1934 (the
‘‘Act’’), in general, and furthers the
objectives of Section 6(b)(5),17 in
particular, in that it is designed to
prevent fraudulent and manipulative
acts and practices, to promote just and
equitable principles of trade, to foster
cooperation and coordination with
persons engaged in facilitating
transactions in securities, to remove
impediments to and perfect the
mechanism of a free and open market
and a national market system and, in
general, to protect investors and the
public interest, and it is not designed to
permit unfair discrimination among
customers, brokers, or dealers. The
Exchange believes that this proposal is
in keeping with those principles
because NOS’s or the Exchange’s ability
to cancel orders during a technical or
systems issue and to maintain an error
account facilitates the smooth and
efficient operations of the market.
Specifically, the Exchange believes that
allowing NOS or the Exchange to cancel
orders during a technical or systems
issue would allow the Exchange to
maintain fair and orderly markets.
Moreover, the Exchange believes that
allowing NOS to assume error positions
in an error account and to liquidate
those positions, subject to the
conditions set forth in the proposed
amendments to Rule 1080(m), would be
the least disruptive means to correct
these errors, except in cases where NOS
can assign all such error positions to all
affected members of the Exchange.
Overall, the proposed amendments are
designed to ensure full trade certainty
for market participants and to avoid
disrupting the clearance and settlement
process. The proposed amendments are
also designed to provide a consistent
methodology for handling error
positions in a manner that does not
discriminate among members. The
proposed amendments are also
consistent with Section 6 of the Act
insofar as they would require NOS to
establish controls to restrict the flow of
any confidential information between
the third-party broker and NOS/the
Exchange associated with the
liquidation of error positions.
16 15
17 15
PO 00000
U.S.C. 78f(b).
U.S.C. 78f(b)(5).
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C. Self-Regulatory Organization’s
Statement on Comments on the
Proposed Rule Change Received From
Members, Participants, or Others
Written comments were neither
solicited nor received.
III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
Because the foregoing proposed rule
change does not: (i) Significantly affect
the protection of investors or the public
interest; (ii) impose any significant
burden on competition; and (iii) become
operative for 30 days after the date of
the filing, or such shorter time as the
Commission may designate, it has
become effective pursuant to Section
19(b)(3)(A) of the Act 18 and Rule 19b–
4(f)(6) 19 thereunder.
Phlx has requested that the
Commission waive the 30-day operative
delay.20 The Commission believes that
waiver of the operative delay is
consistent with the protection of
investors and the public interest. Such
waiver would allow the Exchange,
without delay, to implement the
proposed rule change, which is
designed to provide a consistent
methodology for handling error
positions in a manner that does not
discriminate among members. The
Commission also notes that the
proposed rule change is based on, and
substantially similar to, Phlx Rule
3315(d), which the Commission recently
approved.21 Accordingly, the
Commission designates the proposal
operative upon filing.22
At any time within 60 days of the
filing of the proposed rule change, the
Commission summarily may
temporarily suspend such rule change if
18 15
U.S.C. 78s(b)(3)(A).
CFR 240.19b–4(f)(6). In addition, Rule 19b–
4(f)(6) requires a self-regulatory organization to give
the Commission written notice of its intent to file
the proposed rule change at least five business days
prior to the date of filing of the proposed rule
change, or such shorter time as designated by the
Commission. The Exchange has satisfied this
requirement.
20 17 CFR 240.19b–4(f)(6)(iii).
21 See Securities Exchange Act Release No. 67654
(August 14, 2012), 77 FR 50187 (August 20, 2012)
(SR–Phlx–2012–81).
22 For purposes only of waiving the 30-day
operative delay, the Commission has considered the
proposed rule change’s impact on efficiency,
competition, and capital formation. 15 U.S.C. 78c(f).
19 17
E:\FR\FM\14DEN1.SGM
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Federal Register / Vol. 77, No. 241 / Friday, December 14, 2012 / Notices
it appears to the Commission that such
action is necessary or appropriate in the
public interest, for the protection of
investors, or otherwise in furtherance of
the purposes of the Act.
IV. Solicitation of Comments
Interested persons are invited to
submit written data, views, and
arguments concerning the foregoing,
including whether the proposed rule
change is consistent with the Act.
Comments may be submitted by any of
the following methods:
Electronic Comments
• Use the Commission’s Internet
comment form (https://www.sec.gov/
rules/sro.shtml); or
• Send an email to rulecomments@sec.gov. Please include File
Number SR–Phlx–2012–134 on the
subject line.
Paper Comments
mstockstill on DSK4VPTVN1PROD with
• 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–2012–134. This file
number should be included on the
subject line if email is used. To help the
Commission process and review your
comments more efficiently, please use
only one method. The Commission will
post all comments on the Commission’s
Internet Web site (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
10:00 a.m. and 3:00 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–
VerDate Mar<15>2010
16:41 Dec 13, 2012
Jkt 229001
2012–134 and should be submitted on
or before January 4, 2013.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.23
Kevin M. O’Neill,
Deputy Secretary.
[FR Doc. 2012–30168 Filed 12–13–12; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–68394; File No. SR–BX–
2012–073]
Self-Regulatory Organizations;
NASDAQ OMX BX, Inc.; Notice of Filing
and Immediate Effectiveness of
Proposed Rule Change With Respect
to the Authority of the Exchange or
Nasdaq Options Services LLC (‘‘NOS’’)
To Cancel Options Orders When a
Technical or System Issue Occurs and
To Describe the Operation of an Error
Account for NOS
December 10, 2012.
Pursuant to Section 19(b)(1) 1 of the
Securities Exchange Act of 1934 (the
‘‘Act’’) 2 and Rule 19b–4 thereunder,3
notice is hereby given that, on
November 29, 2012, NASDAQ OMX BX,
Inc. (the ‘‘Exchange’’ or ‘‘BX’’) filed with
the Securities and Exchange
Commission (the ‘‘Commission’’) the
proposed rule change as described in
Items I and II below, which Items have
been prepared by the self-regulatory
organization. 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 proposes a rule change
with respect to the authority of the
Exchange or Nasdaq Options Services
LLC (‘‘NOS’’) to cancel options orders
when a technical or system issue occurs
and to describe the operation of an error
account for NOS. The text of the
proposed rule change is available at
https://nasdaqomxbx.cchwallstreet.com,
at the Exchange’s principal office, and at
the Commission’s Public Reference
Room.
23 17
CFR 200.30–3(a)(12).
U.S.C.78s(b)(1).
2 15 U.S.C. 78a.
3 17 CFR 240.19b–4.
1 15
PO 00000
Frm 00071
Fmt 4703
Sfmt 4703
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 Exchange proposes to amend
Chapter VI, Section 11, Order Routing,
by adding a new paragraph (g) that
addresses the authority of the Exchange
or NOS to cancel options orders when
a technical or systems issue occurs and
to describe the operation of an error
account for NOS.4
NOS is the approved routing broker of
the Exchange, subject to the conditions
listed in Chapter VI, Section 11. The
Exchange relies on NOS to provide
4 NOS is a facility of the Exchange. Accordingly,
under Chapter VI, Section 11, the
Exchange is responsible for filing with the
Commission rule changes and fees relating to NOS’s
functions. In addition, the Exchange is using the
phrase ‘‘NOS or the Exchange’’ in this rule filing to
reflect the fact that a decision to take action with
respect to orders affected by a technical or systems
issue may be made in the capacity of NOS or the
Exchange depending on where those orders are
located at the time of that decision.
From time to time, the Exchange may use nonaffiliate third-party broker-dealers to provide
outbound routing services (i.e., third-party Routing
Brokers). In those cases, orders are submitted to the
third-party Routing Broker through NOS, the thirdparty Routing Broker routes the orders to the
routing destination in its name, and any executions
are submitted for clearance and settlement in the
name of NOS so that any resulting positions are
delivered to NOS upon settlement. As described
above, NOS normally arranges for any resulting
securities positions to be delivered to the member
that submitted the corresponding order to the
Exchange. If error positions (as defined in proposed
Chapter VI, Section 11(g)(2)) result in connection
with the Exchange’s use of a third-party Routing
Broker for outbound routing, and those positions
are delivered to NOS through the clearance and
settlement process, NOS would be permitted to
resolve those positions in accordance with
proposed Chapter VI, Section 11(g). If the thirdparty Routing Broker received error positions in
connection with its role as a routing broker for the
Exchange, and the error positions were not
delivered to NOS through the clearance and
settlement process, then the third-party Routing
Broker would resolve the error positions itself, and
NOS would not be permitted to accept the error
positions, as set forth in proposed Chapter VI,
Section 11(g) (2)(B).
E:\FR\FM\14DEN1.SGM
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]]>Agencies
[Federal Register Volume 77, Number 241 (Friday, December 14, 2012)]
[Notices]
[Pages 74520-74524]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2012-30168]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-68393; File No. SR-Phlx-2012-134]
Self-Regulatory Organizations; NASDAQ OMX PHLX LLC; Notice of
Filing and Immediate Effectiveness of a Proposal with Respect to the
Authority of the Exchange or Nasdaq Options Services LLC (``NOS'') To
Cancel Options Orders when a Technical or System Issue Occurs and To
Describe the Operation of an Error Account for NOS
December 10, 2012.
Pursuant to Section 19(b)(1) \1\ of the Securities Exchange Act of
1934 (the ``Act'') \2\ and Rule 19b-4 thereunder,\3\ notice is hereby
given that, on November 30, 2012, NASDAQ OMX PHLX LLC (``PHLX'' or
``Exchange'') filed with the Securities and Exchange Commission (the
``Commission'') the proposed rule change as described in Items I and II
below, which Items have been prepared by the self-regulatory
organization. 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\ 15 U.S.C. 78a.
\3\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------
I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange is filing a proposal with respect to the authority of
the Exchange or NOS to cancel options orders when a technical or system
issue occurs and to describe the operation of an error account for NOS.
The text of the proposed rule change is available at https://nasdaqomxphlx.cchwallstreet.com, at PHLX's principal office, and at the
Commission's Public Reference Room.
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, the Exchange included statements
concerning the purpose of, and basis for, the proposed rule change and
discussed any comments it received on the proposed rule change. The
text of those 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.
[[Page 74521]]
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
The Exchange proposes to amend Rule 1080(m) by adding a new
subparagraph (v) that addresses the authority of the Exchange or NOS to
cancel options orders when a technical or systems issue occurs and to
describe the operation of an error account for NOS.\4\
---------------------------------------------------------------------------
\4\ NOS is a facility of the Exchange. Accordingly, under Rule
1080(m), the Exchange is responsible for filing with the Commission
rule changes and fees relating to NOS's functions. In addition, the
Exchange is using the phrase ``NOS or the Exchange'' in this rule
filing to reflect the fact that a decision to take action with
respect to orders affected by a technical or systems issue may be
made in the capacity of NOS or the Exchange depending on where those
orders are located at the time of that decision. From time to time,
the Exchange may use non-affiliate third-party broker-dealers to
provide outbound routing services (i.e., third-party Routing
Brokers). In those cases, orders are submitted to the third-party
Routing Broker through NOS, the third-party Routing Broker routes
the orders to the routing destination in its name, and any
executions are submitted for clearance and settlement in the name of
NOS so that any resulting positions are delivered to NOS upon
settlement. As described above, NOS normally arranges for any
resulting securities positions to be delivered to the member that
submitted the corresponding order to the Exchange. If error
positions (as defined in proposed Rule 1080(m)(v)(2)) result in
connection with the Exchange's use of a third-party Routing Broker
for outbound routing, and those positions are delivered to NOS
through the clearance and settlement process, NOS would be permitted
to resolve those positions in accordance with proposed Rule
1080(m)(v). If the third-party Routing Broker received error
positions in connection with its role as a routing broker for the
Exchange, and the error positions were not delivered to NOS through
the clearance and settlement process, then the third-party Routing
Broker would resolve the error positions itself, and NOS would not
be permitted to accept the error positions, as set forth in proposed
Rule 1080(m)(v)(2)(B).
---------------------------------------------------------------------------
NOS is the approved routing broker of the Exchange, subject to the
conditions listed in Rule 1080(m). The Exchange relies on NOS to
provide outbound routing services from itself to routing destinations
of NOS (``routing destinations'').\5\ When NOS routes orders to a
routing destination, it does so by sending a corresponding order in its
own name to the routing destination. In the normal course, routed
orders that are executed at routing destinations are submitted for
clearance and settlement in the name of NOS, and NOS arranges for any
resulting securities positions to be delivered to the member that
submitted the corresponding order to the Exchange. From time to time,
however, the Exchange and NOS encounter situations in which it becomes
necessary to cancel orders and resolve error positions.\6\
---------------------------------------------------------------------------
\5\ The Exchange has authority to receive inbound routes of
options orders by NOS from NASDAQ OMX BX (on a one year pilot basis)
and The NASDAQ Options Market. See Securities Exchange Act Release
Nos. 67294 (June 28, 2012), 77 FR 39771 (July 5, 2012)(SR-Phlx-2012-
68); 58179 (July 17, 2008), 73 FR 42874 (July 23, 2008) (SR-Phlx-
2008-31); and 65399 (September 26, 2011), 76 FR 60955 (September 30,
2011)(SR-Phlx-2011-111).
\6\ The examples described in this filing are not intended to be
exclusive. Proposed Rule 1080(m)(v) would provide general authority
for the Exchange or NOS to cancel orders in order to maintain fair
and orderly markets when technical and systems issues are occurring,
and Rule 1080(m)(v) also would set forth the manner in which error
positions may be handled by the Exchange or NOS. The proposed rule
change is not limited to addressing order cancellation or error
positions resulting only from the specific examples described in
this filing.
---------------------------------------------------------------------------
Examples of Circumstances That May Lead to Canceled Orders
A technical or systems issue may arise at NOS, a routing
destination, or the Exchange that may cause the Exchange or NOS to take
steps to cancel orders if the Exchange or NOS determines that such
action is necessary to maintain a fair and orderly market. The examples
set forth below describe some of the circumstances in which the
Exchange or NOS may decide to cancel orders.
Example 1. If NOS or a routing destination experiences a technical
or systems issue that results in NOS not receiving responses to
immediate or cancel (``IOC'') orders that it sent to the routing
destination, and that issue is not resolved in a timely manner, NOS or
the Exchange would seek to cancel the routed orders affected by the
issue.\7\ For instance, if NOS experiences a connectivity issue
affecting the manner in which it sends or receives order messages to or
from routing destinations, it may be unable to receive timely execution
or cancellation reports from the routing destinations, and NOS or the
Exchange may consequently seek to cancel the affected routed orders.
Once the decision is made to cancel those routed orders, any
cancellation that a member submitted to the Exchange on its initial
order during such a situation would be honored.\8\
---------------------------------------------------------------------------
\7\ In a normal situation (i.e., one in which a technical or
systems issue does not exist), NOS should receive an immediate
response to an IOC order from a routing destination, and would pass
the resulting fill or cancellation on to the Exchange member. After
submitting an order that is routed to a routing destination, if a
member sends an instruction to cancel that order, the cancellation
is held by the Exchange until a response is received from the
routing destination. For instance, if the routing destination
executes that order, the execution would be passed on to the member
and the cancellation instruction would be disregarded.
\8\ If a member did not submit a cancellation to the Exchange,
however, that initial order would remain ``live'' and thus be
eligible for execution or posting on the Exchange, and neither the
Exchange nor NOS would treat any execution of that initial order or
any subsequent routed order related to that initial order as an
error.
---------------------------------------------------------------------------
Example 2. If the Exchange experiences a systems issue, the
Exchange may take steps to cancel all outstanding orders affected by
that issue and notify affected members of the cancellations. In those
cases, the Exchange would seek to cancel any routed orders related to
the members' initial orders.
Examples of Circumstances That May Lead to Error Positions
In some instances, the technical or systems issue at NOS, a routing
destination, the Exchange, or a non-affiliate third party Routing
Broker may also result in NOS acquiring an error position that it must
resolve. The examples set forth below describe some of the
circumstances in which error positions may arise.
Example A. Error positions may result from routed orders that the
Exchange or NOS attempts to cancel but that are executed before the
routing destination receives the cancellation message or that are
executed because the routing destination is unable to process the
cancellation message. Using the situation described in Example 1 above,
assume that the Exchange seeks to cancel orders routed to a routing
destination because it is not receiving timely execution or
cancellation reports from the routing destination. In such a situation,
NOS may still receive executions from the routing destination after
connectivity is restored, which it would not then allocate to members
because of the earlier decision to cancel the affected routed orders.
Instead, NOS would post those positions into its error account and
resolve the positions in the manner described below.
Example B. Error positions may result from an order processing
issue at a routing destination. For instance, if a routing destination
experienced a systems problem that affects its order processing, it may
transmit back a message purporting to cancel a routed order, but then
subsequently submit an execution of that same order (i.e., a locked-in
trade) to The Options Clearing Corporation (``OCC'') for clearance and
settlement. In such a situation, the Exchange would not then allocate
the execution to the member because of the earlier cancellation message
from the routing destination. Instead, NOS would post those positions
into its error account and resolve the positions in the manner
described below.
Example C. Error positions may result if NOS receives an execution
report from a routing destination but does not
[[Page 74522]]
receive clearing instructions for the execution from the routing
destination. For instance, assume that a member sends the Exchange an
order to buy 100 contracts overlying ABC stock, which causes NOS to
send an order to a routing destination that is subsequently executed,
cleared, and closed out by that routing destination, and the execution
is ultimately communicated back to that member. On the next trading day
(T+1), if the routing destination does not provide clearing
instructions for that execution, NOS would still be responsible for
settling that member's purchase, but would be left with a short
position in its error account.\9\ NOS would resolve the position in the
manner described below.
---------------------------------------------------------------------------
\9\ To the extent that NOS incurred a loss in covering its short
position, it would submit a reimbursement claim to that routing
destination.
---------------------------------------------------------------------------
Example D. Error positions may result from a technical or systems
issue that causes orders to be executed in the name of NOS that are not
related to NOS's function as the Exchange's routing broker and are not
related to any corresponding orders of members. As a result, NOS would
not be able to assign any positions resulting from such an issue to
members. Instead, NOS would post those positions into its error account
and resolve the positions in the manner described below.
Example E. Error positions may result from a technical or systems
issue through which the Exchange does not receive sufficient notice
that a member that has executed trades on the Exchange has lost the
ability to clear trades through OCC. In such a situation, the Exchange
would not have valid clearing information, which would prevent the
trade from being automatically processed for clearance and settlement
on a locked-in basis. Accordingly, NOS would assume that member's side
of the trades so that the counterparties can settle the trades. NOS
would post those positions into its error account and resolve the
positions in the manner described below.
Example F. Error positions may result from a technical or systems
issue at the Exchange that does not involve routing of orders through
NOS. For example, a situation may arise in which a posted quote/order
was validly cancelled but the system erroneously matched that quote/
order with an order that was seeking to access it. In such a situation,
NOS would have to assume the side of the trade opposite the order
seeking to access the cancelled quote/order. NOS would post the
position in its error account and resolve the position in the manner
described below.
In the circumstances described above, neither the Exchange nor NOS
may learn about an error position until T+1, either: (1) During the
clearing process when a routing destination has submitted to OCC a
transaction for clearance and settlement for which NOS never received
an execution confirmation; or (2) when a routing destination does not
recognize a transaction submitted to OCC for clearance and settlement.
Moreover, the affected members' trade may not be nullified absent
express authority under Exchange rules.\10\
---------------------------------------------------------------------------
\10\ See, e.g., Rule 1092.
---------------------------------------------------------------------------
Proposed Amendments to Rule 1080(m)
The Exchange proposes to amend Rule 1080(m) to add new subparagraph
(v) to address the cancellation of orders due to technical or systems
issues and the use of an error account by NOS.
Specifically, under subparagraph (v)(1) of the proposed rule, the
Exchange or NOS would be expressly authorized to cancel orders as may
be necessary to maintain fair and orderly markets if a technical or
systems issue occurred at the Exchange, NOS, or a routing
destination.\11\ The Exchange or NOS would be required to provide
notice of the cancellation to affected members as soon as practicable.
---------------------------------------------------------------------------
\11\ Such a situation may not cause the Exchange to declare
self-help against the routing destination pursuant to Rule
1084(b)(i). If the Exchange or NOS determines to cancel orders
routed to a routing destination under proposed Rule 1080(m)(v), but
does not declare self-help against that routing destination, the
Exchange would continue to be subject to the trade-through
requirements in the Options Order Protection and Locked/Crossed
Markets Plan and Rule 1084 with respect to that routing destination.
---------------------------------------------------------------------------
Subparagraph (v)(2) of the proposed rule would permit NOS to
maintain an error account for the purpose of addressing positions that
result from a technical or systems issue at NOS, the Exchange, a
routing destination, or a non-affiliate third-party Routing Broker that
affects one or more orders (``error positions''). By definition, an
error position would not include any position that results from an
order submitted by a member to the Exchange that is executed on the
Exchange and automatically processed for clearance and settlement on a
locked-in basis. NOS also would not be permitted to accept any
positions in its error account from an account of a member and could
not permit any member to transfer any positions from the member's
account to NOS's error account under the proposed rule.\12\ However, if
a technical or systems issue results in the Exchange not having valid
clearing instructions for a member to a trade, NOS may assume that
member's side of the trade so that the trade can be processed for
clearance and settlement on a locked-in basis.\13\
---------------------------------------------------------------------------
\12\ The purpose of this provision is to clarify that NOS may
address error positions under the proposed rule that are caused by a
technical or systems issue, but that NOS may not accept from a
member positions that are delivered to the member through the
clearance and settlement process, even if those positions may have
been related to a technical or systems issue at NOS, the Exchange, a
routing destination of NOS, or a non-affiliate third-party Routing
Broker. This provision would not apply, however, to situations like
the one described in Example C in which NOS incurred a short
position to settle a member's purchase, as the member did not yet
have a position in its account as a result of the purchase at the
time of NOS's action (i.e., NOS's action was necessary for the
purchase to settle into the member's account). Similarly, the
provision would not apply to situations like the one described in
Example F, where a system issue caused one member to receive an
execution for which there was not an available contraparty, in which
case action by NOS would be necessary for the position to settle
into that member's account.
\13\ See Example E above.
---------------------------------------------------------------------------
Under subparagraph (v)(3), in connection with a particular
technical or systems issue, NOS or the Exchange would be permitted to
either (i) assign all resulting error positions to members, or (ii)
have all resulting error positions liquidated, as described below. Any
determination to assign or liquidate error positions, as well as any
resulting assignments, would be required to be made in a
nondiscriminatory fashion.
NOS or the Exchange would be required to assign all error positions
resulting from a particular technical or systems issue to the
applicable members affected by that technical or systems issue if NOS
or the Exchange:
Determined that it has accurate and sufficient information
(including valid clearing information) to assign the positions to all
of the applicable members affected by that technical or systems issue;
Determined that it has sufficient time pursuant to normal
clearance and settlement deadlines to evaluate the information
necessary to assign the positions to all of the applicable members
affected by that technical or systems issue; and
Had not determined to cancel all orders affected by that
technical or systems issue.
For example, a technical or systems issue of limited scope or
duration may occur at a routing destination, and the resulting trades
may be submitted for clearance and settlement by such routing
destination to OCC. If there were a small number of trades, there may
be sufficient time to match positions with member orders and avoid
using the error account.
[[Page 74523]]
There may be scenarios, however, where NOS determines that it is
unable to assign all error positions resulting from a particular
technical or systems issue to all of the affected members, or
determines to cancel all affected routed orders. For example, in some
cases, the volume of questionable executions and positions resulting
from a technical or systems issue might be such that the research
necessary to determine which members to assign those executions to
could be expected to extend past the normal settlement cycle for such
executions. Furthermore, if a routing destination experiences a
technical or systems issue after NOS has transmitted IOC orders to it
that prevents NOS from receiving responses to those orders, NOS or the
Exchange may determine to cancel all routed orders affected by that
issue. In such a situation, NOS or the Exchange would not pass on to
the members any executions on the routed orders received from the
routing destination.
The proposed rule also would require NOS to liquidate error
positions as soon as practicable.\14\ In liquidating error positions,
NOS would be required to provide complete time and price discretion for
the trading to liquidate the error positions to a third-party broker-
dealer and could not attempt to exercise any influence or control over
the timing or methods of trading to liquidate the error positions.\15\
NOS also would be required to establish and enforce policies and
procedures reasonably designed to restrict the flow of confidential and
proprietary information between the third-party broker-dealer and NOS/
the Exchange associated with the liquidation of the error positions.
---------------------------------------------------------------------------
\14\ If NOS determines in connection with a particular technical
or systems issue that some error positions can be assigned to some
affected members but other error positions cannot be assigned, NOS
would be required under the proposed rule to liquidate all such
error positions (including those positions that could be assigned to
the affected members).
\15\ This provision is not intended to preclude NOS from
providing the third-party broker with standing instructions with
respect to the manner in which it should handle all error account
transactions. For example, NOS might instruct the broker to treat
all orders as ``not held'' and to attempt to minimize any market
impact on the price of the stock being traded.
---------------------------------------------------------------------------
Under proposed subparagraph (v)(4), NOS and the Exchange would be
required to make and keep records to document all determinations to
treat positions as error positions and all determinations for the
assignment of error positions to members or the liquidation of error
positions, as well as records associated with the liquidation of error
positions through the third-party broker-dealer.
2. Statutory Basis
The proposed rule change is consistent with Section 6(b) \16\ of
the Securities Exchange Act of 1934 (the ``Act''), in general, and
furthers the objectives of Section 6(b)(5),\17\ in particular, in that
it is designed to prevent fraudulent and manipulative acts and
practices, to promote just and equitable principles of trade, to foster
cooperation and coordination with persons engaged in facilitating
transactions in securities, to remove impediments to and perfect the
mechanism of a free and open market and a national market system and,
in general, to protect investors and the public interest, and it is not
designed to permit unfair discrimination among customers, brokers, or
dealers. The Exchange believes that this proposal is in keeping with
those principles because NOS's or the Exchange's ability to cancel
orders during a technical or systems issue and to maintain an error
account facilitates the smooth and efficient operations of the market.
Specifically, the Exchange believes that allowing NOS or the Exchange
to cancel orders during a technical or systems issue would allow the
Exchange to maintain fair and orderly markets. Moreover, the Exchange
believes that allowing NOS to assume error positions in an error
account and to liquidate those positions, subject to the conditions set
forth in the proposed amendments to Rule 1080(m), would be the least
disruptive means to correct these errors, except in cases where NOS can
assign all such error positions to all affected members of the
Exchange. Overall, the proposed amendments are designed to ensure full
trade certainty for market participants and to avoid disrupting the
clearance and settlement process. The proposed amendments are also
designed to provide a consistent methodology for handling error
positions in a manner that does not discriminate among members. The
proposed amendments are also consistent with Section 6 of the Act
insofar as they would require NOS to establish controls to restrict the
flow of any confidential information between the third-party broker and
NOS/the Exchange associated with the liquidation of error positions.
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\16\ 15 U.S.C. 78f(b).
\17\ 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
Written comments were neither solicited nor received.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
Because the foregoing proposed rule change does not: (i)
Significantly affect the protection of investors or the public
interest; (ii) impose any significant burden on competition; and (iii)
become operative for 30 days after the date of the filing, or such
shorter time as the Commission may designate, it has become effective
pursuant to Section 19(b)(3)(A) of the Act \18\ and Rule 19b-4(f)(6)
\19\ thereunder.
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\18\ 15 U.S.C. 78s(b)(3)(A).
\19\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)
requires a self-regulatory organization to give the Commission
written notice of its intent to file the proposed rule change at
least five business days prior to the date of filing of the proposed
rule change, or such shorter time as designated by the Commission.
The Exchange has satisfied this requirement.
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Phlx has requested that the Commission waive the 30-day operative
delay.\20\ The Commission believes that waiver of the operative delay
is consistent with the protection of investors and the public interest.
Such waiver would allow the Exchange, without delay, to implement the
proposed rule change, which is designed to provide a consistent
methodology for handling error positions in a manner that does not
discriminate among members. The Commission also notes that the proposed
rule change is based on, and substantially similar to, Phlx Rule
3315(d), which the Commission recently approved.\21\ Accordingly, the
Commission designates the proposal operative upon filing.\22\
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\20\ 17 CFR 240.19b-4(f)(6)(iii).
\21\ See Securities Exchange Act Release No. 67654 (August 14,
2012), 77 FR 50187 (August 20, 2012) (SR-Phlx-2012-81).
\22\ For purposes only of waiving the 30-day operative delay,
the Commission has considered the proposed rule change's impact on
efficiency, competition, and capital formation. 15 U.S.C. 78c(f).
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At any time within 60 days of the filing of the proposed rule
change, the Commission summarily may temporarily suspend such rule
change if
[[Page 74524]]
it appears to the Commission that such action is necessary or
appropriate in the public interest, for the protection of investors, or
otherwise in furtherance of the purposes of the Act.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
Electronic Comments
Use the Commission's Internet comment form (https://www.sec.gov/rules/sro.shtml); or
Send an email to rule-comments@sec.gov. Please include
File Number SR-Phlx-2012-134 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-2012-134. This file
number should be included on the subject line if email is used. To help
the Commission process and review your comments more efficiently,
please use only one method. The Commission will post all comments on
the Commission's Internet Web site (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
10:00 a.m. and 3:00 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-2012-134 and should be
submitted on or before January 4, 2013.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\23\
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\23\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2012-30168 Filed 12-13-12; 8:45 am]
BILLING CODE 8011-01-P
