Self-Regulatory Organizations; NASDAQ OMX PHLX LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Provide Additional Trading Information and Rule Clarity to Phlx Participants, 54340-54346 [2013-21299]
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Products on a more timely basis than it
makes available the data to all Exchange
participants that receive such data feeds
or that is provided to the SIPs for
consolidation and dissemination, nor
will IDC have any special or different
access to the Exchange’s data as a result
of IDC’s arrangement with the Exchange.
In addition, the Exchange represents
that IDC has not (and will not) receive
any preferential treatment as a result of
IDC’s arrangement with the Exchange.
C. Self-Regulatory Organization’s
Statement on Comments on the
Proposed Rule Change Received From
Members, Participants, or Others
The Exchange has neither solicited
nor received written comments on the
proposed rule change.
III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
Because the foregoing proposed rule
change does not: (i) Significantly affect
the protection of investors or the public
interest; (ii) impose any significant
burden on competition; and (iii) become
operative for 30 days from the date on
which it was filed, or such shorter time
as the Commission may designate, it has
become effective pursuant to Section
19(b)(3)(A)(ii) of the Act 10 and
subparagraph (f)(6) of Rule 19b–4
thereunder.11
A proposed rule change filed under
Rule 19b–4(f)(6) 12 normally does not
become operative for 30 days after the
date of filing. However, pursuant to
Rule 19b–4(f)(6)(iii),13 the Commission
may designate a shorter time if such
action is consistent with the protection
of investors and the public interest. The
Exchange has requested that the
Commission waive the 30-day operative
delay so that the proposed rule change
may become operative upon filing. The
Exchange believe that such a waiver
would allow it to immediately offer the
Private Labeled Products to market
participants enabling them to make
better-informed and more efficient
trading decisions. In addition, the
Exchange notes that the Private Labeled
10 15
U.S.C. 78s(b)(3)(A)(ii).
CFR 240.19b–4(f)(6). Pursuant to Rule 19b–
4(f)(6)(iii), the Exchange is required to provide the
Commission with written notice of its intent to file
the proposed rule change, along with a brief
description and the text of the proposed rule
change, at least five business days prior to the date
of filing of the proposed rule change, or such
shorter time as designated by the Commission. The
Commission has determined to waive the
requirement that BATS provide the Commission
with written notice of its intent to file the proposed
rule change at least five business days prior to the
filing date.
12 17 CFR 240.19b–4(f)(6).
13 Rule 19b–4(f)(6)(iii).
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Products are optional and can be used
by a wide variety of market participants
for a wide variety of purposes. For these
reasons, the Commission designates the
proposed rule change to be operative
upon filing.14
At any time within 60 days of the
filing of the proposed rule change, the
Commission summarily may
temporarily suspend such rule change if
it appears to the Commission that such
action is necessary or appropriate in the
public interest, for the protection of
investors, or otherwise in furtherance of
the purposes of the Act. If the
Commission takes such action, the
Commission shall institute proceedings
to determine whether the proposed rule
should be approved or disapproved.
IV. Solicitation of Comments
Interested persons are invited to
submit written data, views, and
arguments concerning the foregoing,
including whether the proposed rule
change is consistent with the Act.
Comments may be submitted by any of
the following methods:
Electronic Comments
• Use the Commission’s Internet
comment form (https://www.sec.gov/
rules/sro.shtml); or
• Send an email to rule-comments@
sec.gov. Please include File Number SR–
BATS–2013–045 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–BATS–2013–045. 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
14 For purposes only of waiving the 30-day
operative delay, the Commission has also
considered the proposed rule’s impact on
efficiency, competition, and capital formation. See
15 U.S.C. 78c(f).
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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–BATS–
2013–045, and should be submitted on
or before September 24, 2013.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.15
Kevin M. O’Neill,
Deputy Secretary.
[FR Doc. 2013–21295 Filed 8–30–13; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–70271; File No. SR–Phlx–
2013–88]
Self-Regulatory Organizations;
NASDAQ OMX PHLX LLC; Notice of
Filing and Immediate Effectiveness of
Proposed Rule Change To Provide
Additional Trading Information and
Rule Clarity to Phlx Participants
August 27, 2013.
Pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934
(‘‘Act’’),1 and Rule 19b–4 thereunder,2
notice is hereby given that on August
22, 2013, NASDAQ OMX PHLX LLC
(‘‘Phlx’’ or ‘‘Exchange’’) filed with the
Securities and Exchange Commission
(‘‘Commission’’) the proposed rule
change as described in Items I, II, and
III below, which Items have been
prepared by the Exchange. The
Commission is publishing this notice to
solicit comments on the proposed rule
change from interested persons.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The Exchange proposes [sic] provide
additional trading information and rule
clarity to Phlx Participants to attract
their Complex Orders to the Exchange.
The text of the proposed rule change
is below. Proposed new language is
15 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
1 15
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italicized; proposed deletions are in
brackets.
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Rule 1080. Phlx XL and Phlx XL II
(a)–(p) No change.
••• Commentary:------------.01–.07 No change.
.08 Complex Orders on Phlx XL.
(a)–(d) No change.
(e) Process for Complex Order Live
Auction (‘‘COLA’’). Complex Orders on
the Complex Order Book (‘‘CBOOK,’’ as
defined below) may be subject to an
automated auction process.
(i) No change.
(ii) Initiation of a COLA. Upon the
identification of the COLA-eligible order
by the Phlx XL system, the Exchange
will send a broadcast message to Phlx
XL participants indicating that a COLA
has been initiated. The broadcast
message will identify the Complex
Order Strategy, and the size, side and
price of the COLA-eligible order and
any contingencies, if applicable (such
as, without limitation, All-Or-None)[,
but will not identify the side of the
market or the price].
(iii)–(vi) No change.
(vii) Firm Quote Requirement for
COLA-Eligible Orders. COLA Sweeps in
response to a COLA broadcast represent
non-firm interest that can be modified at
any time prior to the end of the COLA
Timer. At the end of the COLA Timer,
COLA Sweeps shall be firm only with
respect to the COLA-eligible order for
which it is submitted, provided that
COLA Sweeps that exceed the size of a
COLA-eligible order are also eligible to
trade with other incoming COLAeligible orders, COLA Sweeps and any
other interest [that are] received during
the COLA Timer after the initial COLAeligible order has been executed in its
entirety. Remaining interest trades at its
entered price. If such interest crosses,
the execution price is based on the price
of the smaller sized interest. If the
interest is equal in size, the execution
price is the midpoint of the two prices,
rounded, if necessary, up to the closest
minimum trading increment. Any COLA
Sweeps not accepted in whole or in a
permissible ratio will expire at the end
of the COLA Timer once all executions
are complete.
(viii) Complex Orders resting on the
CBOOK, and incoming electronic
Complex Orders and COLA Sweeps that
are received prior to the expiration of
the COLA Timer, (collectively, for
purposes of this rule, ‘‘incoming
Complex Orders’’) representing the
same Complex Order Strategy as a
COLA-eligible order will impact the
original COLA as follows:
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(A) At the end of the COLA Timer, the
Phlx XL system will determine the price
and size of COLA Sweeps and any
orders that were received during the
COLA Timer that are unrelated to the
COLA but nonetheless are eligible to
participate in the COLA as set forth
below.
(B) Incoming Complex Orders on the
same side of the market as the COLAeligible order. Incoming Complex
Orders that were received during the
COLA Timer for the same Complex
Order Strategy as the COLA-eligible
order that are on the same side of the
market will join the COLA. The original
COLA-eligible order has priority at all
price points (i.e., multiple COLA Sweep
Prices) over the incoming Complex
Order(s), regardless of the price of the
incoming Complex Order. The incoming
Complex Order shall not be eligible for
execution against interest on the
opposite side of the market from the
COLA-eligible order until the COLAeligible order is executed in its entirety.
If the incoming Complex Order is not
executed in its entirety, the system will
not initiate a new COLA. Any remaining
contracts, other than COLA Sweeps, will
be placed on the CBOOK, subject to
other instructions.
(C) Incoming Complex Orders on the
opposite side of the market from the
COLA-eligible order.
(1) Incoming customer Complex
Orders that are received during the
COLA Timer on the opposite side of the
market from the COLA-eligible order
with a price equal to or better than the
best priced Complex Order or COLA
Sweep [Price] will be executed against
the COLA eligible order (which will be
executed in its entirety first as described
in sub-paragraph (B) above) or other
Complex Orders or COLA Sweeps as
follows:
(a) If such incoming customer
Complex Order is a limit order at the
same price as the best priced Complex
Order or COLA Sweep [Price], the
incoming Complex Order will be
executed at such [the Sweep P]price.
(b) If such incoming Complex Order is
a limit order that improved the best
priced Complex Order or COLA Sweep
[Price], the incoming customer Complex
Order will be executed at the mid-point
of the best priced Complex Order or
COLA Sweep [Price] and the limit order
price, rounded, if necessary, to the
closest minimum trading increment to
the benefit of the COLA-eligible order.
(c) If such incoming customer
Complex Order is a market order or a
limit order that crosses the cPBBO, the
incoming Complex Order will be
executed at the mid-point of the cPBBO
on the same side of the market as the
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COLA-eligible order and the best priced
Complex Order or COLA Sweep [Price],
rounded, if necessary, to the closest
minimum trading increment to the
benefit of the COLA-eligible order.
(d) If multiple customer Complex
Orders are received on the opposite side
of the market from the COLA-eligible
order, such orders will be executed in
the order in which they were received
at each price level.
(e) If the COLA-eligible order is
executed in its entirety and there are
remaining bids or offers from the
incoming Complex Order(s), the Phlx
XL system will execute such interest
against other Complex Orders or COLA
Sweeps in the COLA and subsequently
place [such] residual bids or offers,
other than COLA Sweeps, onto the
CBOOK, subject to other instructions.
(2) Incoming non-customer Complex
Orders that are received during the
COLA Timer on the opposite side of the
market from the COLA-eligible order
with a price equal to or better than the
best priced Complex Order or COLA
Sweep [Price] will be executed against
the COLA eligible order (which will be
executed in its entirety first as described
in sub-paragraph (B) above) or other
Complex Orders or COLA Sweeps as
follows:
(a) If such incoming non-customer
Complex Order is a limit order at the
same price as the best priced Complex
Order or COLA Sweep [Price], the
incoming non-customer Complex Order
will be executed at such [the Sweep
P]price, subject to the provisions set
forth sub-paragraph (e) above.
(b) If such incoming non-customer
Complex Order is a limit order that
improved the best priced Complex
Order or COLA Sweep [Price], the
incoming non-customer Complex Order
will be executed at the limit order price.
(c) If such incoming non-customer
Complex Order is a market order or a
limit order that crosses the cPBBO, the
incoming non-customer Complex Order
will be executed at a price of $0.01
better than the cPBBO on the same side
of the market as the COLA-eligible
order.
(d) If multiple non-customer Complex
Orders are received on the opposite side
of the market from the COLA-eligible
order, such orders will be executed in
the order in which they were received
at each price level.
(e) If the COLA-eligible order is
executed in its entirety and there are
remaining bids or offers from the
incoming non-customer Complex
Order(s), the Phlx XL system will
execute such interest against other
Complex Orders or COLA Sweeps in the
COLA and subsequently place [such]
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residual bids or offers, other than COLA
Sweeps, onto the CBOOK, subject to
other instructions.
(3) Incoming Complex Orders that
were received during the COLA Timer
on the opposite side of the market from
the COLA-eligible order with a price
inferior to any other COLA Sweep
[Price(s)] or Complex Order will be
executed against the COLA-eligible
order after all interest at the better
[COLA Sweep P]price(s) has/have been
executed. After the initial COLA-eligible
order has been executed in its entirety,
incoming Complex Orders remaining
unexecuted shall be eligible to trade
with other Complex Orders and COLA
Sweeps at their entered price. If, after
the COLA-eligible order has been
executed, there exist Complex Orders
and/or COLA Sweeps on the opposite
side of the market from the COLAeligible order which cross the price of
other Complex Orders or COLA Sweeps
on the same side of the market from the
COLA-eligible order, the execution price
of such crossing interest is based on the
price of the smaller sized interest. If the
crossing interest is equal in size, the
execution price is the midpoint of the
two prices, rounded, if necessary, up to
the closest minimum trading increment.
The system will treat any unexecuted
remaining contracts in the incoming
Complex Order as a new Complex
Order, and will not initiate a new
COLA. Such unexecuted remaining
contracts, other than COLA Sweeps, will
be placed on the CBOOK, subject to
other instructions.
(ix) No change.
(f)–(i) No change.
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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 proposal is to
provide additional trading information
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and rule clarity to Phlx Participants to
attract their Complex Orders to the
Exchange. The Exchange’s Complex
Order System, which is governed by
Rule 1080.08, includes the COLA, an
automated auction for seeking
additional liquidity and price
improvement for Complex Orders.
When the Exchange receives a COLAeligible order that triggers a COLA, the
system broadcasts information about the
COLA-eligible order—the ‘‘COLA
Message.’’ The duration of the COLA is
fixed and measured by the COLA Timer.
During the COLA Timer, Phlx XL
participants 3 may submit ‘‘COLA
Sweeps,’’ which are bids and/or offers
on either or both side(s) of the market
by submitting one or more bids or offers
that improve the cPBBO. Also during
the COLA Timer, Phlx members may
enter other Complex Orders or COLA
Sweeps at any price, as explained
further below. These COLA Sweeps and
Complex Orders may or may not be
submitted in direct response to the
COLA-eligible-order. How the XL
System processes such COLA Messages
and COLA Sweeps is explained further
below.
COLA Message
Currently, upon the identification of
the COLA-eligible order by the Phlx XL
system, the Exchange will broadcast a
COLA Message to Phlx XL participants
indicating that a COLA has been
initiated. The COLA Message identifies
the Complex Order Strategy, the size of
the COLA-eligible order, and any
contingencies, if applicable (such as,
without limitation, All-Or-None), but it
does not identify the side of the market
or the price. The COLA Message is sent
over TOPO Plus Orders,4 the Exchange’s
market data feed for subscribers
interested in the detailed information it
offers, including messages relating to
Complex Orders. The Specialized Quote
Feed (‘‘SQF’’) also contains COLA
Messages.5 Like auction messages on
multiple exchanges, the COLA Message
is designed to attract responsive
interest.
The Exchange now proposes to add
the side and price of the Complex Order
to the COLA Message. The Exchange
3 COLA Sweeps can only be entered by Phlx XL
Participants who quote electronically as market
makers for their own account (Streaming Quote
Traders (‘‘SQTs’’), Remote Streaming Quote Traders
(‘‘RSQTs’’) and specialists). Because non-SQT ROTs
do not quote electronically, they cannot enter COLA
Sweeps, which are electronic. See Rule
1014(b)(ii)(C) and Rule 1080.08(e)(ix).
4 Securities Exchange Act Release No. 60877
(October 26, 2009), 74 FR 56255 (October 30, 2009)
(SR–Phlx–2009–92).
5 Securities Exchange Act Release No. 63034
(October 2 [sic], 2010), 75 FR 62441 (October 8,
2010) (SR–Phlx–2010–124).
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believes that including the side and
price of the order is helpful to users,
may attract additional auction
responses, and therefore increase
Complex Order fill rates. The Exchange
notes that other exchanges include such
additional information (side and price)
respecting their various auctions and,
therefore, that broadcasting such
information is consistent with the
Exchange Act.6
COLA Responses and Processing
Currently, during the COLA,
participant responses can be entered at
multiple prices and can take the form of
Complex Orders or COLA Sweeps.
Specifically, Complex Orders can be
entered into the COLA 7 by non-brokerdealer customers, non-market-maker offfloor broker-dealers,8 Floor Brokers,9
professional customers 10 and non-Phlx
market makers,11 as well as Exchange
SQTs, RSQTs, non-SQT ROTs and
specialists (together, market makers) 12
Exchange SQTs, RSQTs, and specialists
also can participate in a COLA by
submitting COLA Sweeps.
Today, in the absence of information
about the price and side of a COLAeligible order, orders submitted in
response to a COLA Message can be on
either the same side or the opposite side
of the COLA-eligible order. When a
market maker submits a COLA Sweep or
a Complex Order on the opposite side
of the market from the COLA-eligible
order during a COLA, those orders are
treated identically in the COLA, except
that unexecuted COLA Sweeps expire
and unexecuted Complex Orders are
eligible for the Complex Order Book
(‘‘CBOOK’’).13 In other words, there is
6 See CBOE Rule 6.53C(d)(ii) and ISE Rule 723(c).
However, the CBOE does not broadcast the price of
the complex order and rejects same side responses
to its COA under its Rule 6.53C(d)(iii)(1). ISE sends
a broadcast message when there is a crossing
transaction in ISE’s Price Improvement Mechanism
that includes the series, size, side and price of the
order (including complex orders).
7 In each case, Complex Orders can be entered,
generally, not just into the COLA, by all of these
types of market participants.
8 Rule 1080.08(b)(i).
9 Rule 1080.08(b)(iii).
10 Rule 1000(b)(14). The term ‘‘professional’’
means any person or entity that (i) is not a broker
or dealer in securities, and (ii) places more than 390
orders in listed options per day on average during
a calendar month for its own beneficial account(s).
A professional will be treated in the same manner
as an off-floor broker-dealer for purposes of Rule
1080.08.
11 Rule 1080.08(b)(ii).
12 Rules 1014(b) and 1080.08(b)(ii).
13 See Rules 1080.08(e)(vii), (viii)(B),
(viii)(C)(1)(e), and (viii)(C)(2)(e). The Exchange
represents that this sentence is an accurate
description of how the system operates, which
differs from the Exchange rule text. The Exchange
commits to filing a proposed rule change to
conform its rule text with respect to the priority of
COLA sweeps and orders. See email to Kathleen
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no meaningful advantage to submitting
a COLA Sweep versus a Complex Order.
The same is true regarding Complex
Orders submitted during a COLA.
Because Complex Orders are not
specifically marked as ‘‘COLA
responses,’’ the Phlx XL System cannot
identify which Complex Orders are
truly intended to respond to the auction
and which are merely coincidental.14 In
any case, there is no difference in
treatment between any participant
submitting a Complex Order (or in the
case of certain market makers, a COLA
Sweep), whether intended to respond to
a COLA message or submitted
coincidentally.
This is true of orders on both the same
side of the market as the COLA-eligible
order as well as those on the opposite
side.15 The Exchange currently takes
into account COLA responses and
Complex Orders on the same side of the
market as the COLA-eligible order and
it will continue to do so. Again, market
makers can submit Complex Orders or
COLA Sweeps on the same side of the
market as the COLA-eligible order. Such
orders are treated the same, except
COLA Sweeps expire.16 As with
opposite side interest, there is no
advantage to submitting a COLA Sweep
versus a Complex Order on the same
side of the market.17
Both currently and under this
proposal, orders submitted on the same
side of the market as the COLA-eligible
order are and will be considered for
execution only after the Complex Order
that initiated the COLA is executed.18
Today, orders may be submitted on the
same side of the COLA-eligible order
because market participants are
unaware of whether the COLA-eligible
order is a buy or a sell order. Same-side
interest does not and will not interact
with the COLA-eligible order; however,
it may still interact with orders on the
opposite side of the market that are
Gross and Yue Ding, Division of Trading and
Markets, Commission, from Edith Hallahan,
Exchange, dated August 27, 2013 (‘‘Phlx Email’’).
14 See e.g., Rule 1080.08(e)(viii)(B), which
addresses incoming Complex Orders on the same
side of the market as the COLA-eligible order. The
Exchange is modifying the term ‘‘incoming
Complex Order’’ to provide that it includes both
responsive Complex Orders and COLA Sweeps, as
well as Complex Orders [sic].
15 See e.g., Rule 1080.08(e)(viii)(C), which the
Exchange is amending to address incoming
Complex Orders on the opposite side of the market
as the COLA-eligible order, which includes both
Complex Orders and COLA Sweeps.
16 See Phlx Email, supra note 13.
17 See id.
18 See Rule 1080.08(e)(viii)(C)(3), which the
Exchange is modifying to explain in greater detail
how the Phlx XL system currently processes orders
on either side of the COLA-eligible order after the
COLA-eligible order is fully executed.
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submitted during the COLA Timer. This
would occur when the COLA is oversubscribed. This ensures that the COLAeligible order that initiated the COLA
maintains priority over any interest that
was entered during the COLA on the
same side as the COLA-eligible order. It
also ensures that there is no advantage
to submitting interest on the same side
as the COLA-eligible order. This
structure maximizes the interest
executed in the COLA, whether on the
same side of the market or the opposite
side of the market from the COLAeligible order, and whether it is a
responsive Complex Order, a COLA
Sweep, or a coincidental Complex
Order.
Under the proposal, participants will
still be permitted to submit orders on
the same side of the market as the
COLA-eligible order even though they
will be aware of whether the COLAeligible order is a buy or a sell order.
Such behavior is neither irrational nor
nefarious because, as stated above, same
side interest may be executed in the
COLA after the COLA-eligible order has
been fully executed. While some
options exchanges do not accept same
side interest or responses from certain
types of market participants in their
respective auctions for complex orders,
the Exchange opted not to change its
current practice of accepting same side
interest for several reasons. First,
accepting same side interest is rational
and consistent with the Exchange Act,
given the possibility of execution.
Second, the Exchange believes that
continuing to allow the entry of sameside interest does not increase the
potential for manipulation or gaming
because same-side interest, along with
all other interest, is processed according
to strict and transparent priority rules.19
Third, continuing to accept same side
interest will not affect the outcome of
the COLA; conversely, a change to
current behavior could cause issues for
participants currently utilizing the Phlx
Complex Orders system.
The Exchange also notes that the
proposal to show the price of the COLAeligible order does not provide any
advantage to same side or opposite side
COLA Sweeps or Complex Orders in
relation to their execution. COLA
executions will continue to occur at best
price(s) available at the end of the COLA
Timer. However, it would not be
irrational to submit responsive COLA
Sweeps or Complex Orders that are
priced inferior to the COLA-eligible
19 The Exchange will, of course, monitor COLAs,
including the entry and execution of such same side
orders, to detect and punish gaming and
manipulation.
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order because such interest may be
executed in the COLA after the COLAeligible order is fully executed. Interest
that is priced away from the COLAeligible order will only be executed if it
is executable against other remaining
interest after the COLA-eligible order
has been executed in its entirety. Again,
the Exchange believes that there is no
increased potential for gaming and
manipulation in this case, and the
Exchange will surveil to ensure that this
is true in practice.
COLA Sweeps Trading with COLA
Sweeps
The Exchange proposes to amend
Rule 1080.08(e)(vii) and (viii) to provide
that COLA Sweeps can trade not only
with the COLA-eligible order, but also
with COLA Sweeps and other Complex
Orders, both on the same side and on
the opposite side of the market as the
COLA-eligible order.20 The proposed
new language in Rule 1080.08(e)(vii)
and (viii) is consistent with the current
processing and purposes of the COLA,
which is to attract and execute as much
interest as possible at the best price(s)
without causing some responses to
remain unexecuted. The Exchange also
proposes to amend Rule 1080.08(e)(viii)
to provide that the COLA-eligible order
is executed at the best prices available,
inclusive of both COLA Sweeps and
Complex Orders, at the end of the COLA
Timer. The Exchange currently takes
into account both COLA Sweeps and
Complex Orders at the best prices when
executing the COLA-eligible order. The
proposed new language in Rule
1080.08(e)(viii) provides that both
COLA Sweeps and Complex Orders at
the best prices are considered for
execution at the end of the COLA.
Execution Prices
The Exchange is proposing to add to
Rule 1080.08(e)(vii) and (viii) language
stating that, at the end of the COLA,
remaining interest trades at its entered
price. If such interest crosses, the
execution price is based on the price of
the smaller sized interest. If the interest
is equal in size, the execution price is
20 Rule 1080.08(e)(viii)(A) currently states that at
the end of the COLA Timer, the Phlx XL system
will determine the price and size of COLA Sweeps
and any orders that were received during the COLA
Timer that are unrelated to the COLA but
nonetheless are eligible to participate in the COLA.
This was intended to cover COLA Sweeps both on
the opposite side and on the same side of the
market as the COLA-eligible order. The Exchange
never intended to disregard COLA Sweeps on the
same side of the market as the COLA-eligible order,
and, instead, believes that this language
contemplated including all interest received in
response to a COLA regardless of the side of the
market. Nonetheless, the Exchange is modifying
Rule 1080.08(e)(viii) in multiple places to establish
its proper application to orders on either side of the
market as the COLA-eligible order.
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the midpoint of the two prices, rounded,
if necessary, up to the closest minimum
trading increment. The COLA-eligible
order is executed first and then all other
interest is addressed, taking into
account its price.21 The Rule does not
currently specify how the execution
prices of the remaining interest are
determined.
2. Statutory Basis
emcdonald on DSK67QTVN1PROD with NOTICES
The Exchange believes the proposed
rule change is consistent with the
provisions of Section 6 of the Act,22 in
general, and with Section 6(b)(5) of the
Act,23 in particular, which requires,
among other things, that the rules of an
exchange be designed to promote just
and equitable principles of trade and
foster cooperation and coordination
with persons engaged in regulating,
clearing, settling, processing
information with respect to, and
facilitating transactions in securities.
Specifically, providing additional
information to market participants
interested in Complex Orders should
promote just and equitable principles of
trade by reducing the risk that a COLAeligible Complex Order does not trade
and increasing the potential for
responses to the COLA. It should also
foster cooperation and coordination
with persons engaged in facilitating
transactions in securities, particularly
the COLA-eligible order, by attracting
additional responsive interest and
thereby increasing the likelihood of a
trade. More responsive interest should
result in more trading and more efficient
trading. By providing more information,
the proposal should also result in better
prices, as responding market
participants will be better able to
manage their capital and focus on
responding to orders they are truly
interested in trading against. Because
the proposal is likely to lead to an
increase in Exchange volume, it is procompetitive and should enable the
Exchange to better compete against
other markets that provide complex
order functionality. Accordingly,
consistent with Section 6(b)(8),24 the
Exchange believes that the proposal
does not impose a burden on
competition not necessary or
appropriate in furtherance of the
21 Pursuant to Rule 1080.08(e)(viii)(A), at the end
of the COLA Timer, the Phlx XL system will
determine the price and size of COLA Sweeps and
any orders that were received during the COLA
Timer that are unrelated to the COLA but
nonetheless are eligible to participate.
22 15 U.S.C. 78f.
23 15 U.S.C. 78f(b)(5).
24 15 U.S.C. 78f(b)(8).
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17:57 Aug 30, 2013
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purposes of the Act, as described further
below.
The Exchange is also proposing to
correct the rule text to reflect that COLA
Sweeps on the same side of the market
as a COLA-eligible Complex Order can
be executed in the COLA, and that
COLA Sweeps can trade with other
COLA Sweeps. The Exchange believes
that it is consistent with promoting just
and equitable principles of trade to
include same side COLA Sweeps in the
COLA, because it results in more
interest being executed in the COLA.
The Exchange also believes that the
proposal is not unfairly discriminatory,
because it includes same side COLA
Sweeps in executions after the COLA.
At the same time, the COLA-eligible
order which initiated the COLA
maintains priority over any interest that
was received during the COLA on the
same side as the COLA-eligible order,
which ensures that there is no
advantage to submitting interest on the
same side as the COLA-eligible order.
Thus, the Exchange believes that this is
consistent with just and equitable
principles of trade.
The Exchange believes that its
proposal to add to the rule text the price
at which remaining interest is executed
is consistent with the Act. Specifically,
Rule 1080.08(e)(vii) and (viii) will
provide that, at the end of the COLA,
remaining interest trades at its entered
price, and if such prices cross each
other, the execution price is based on
the price of the smaller sized interest. If
the interest is equal in size, the
execution price is the midpoint of the
two prices, rounded, if necessary, up to
the closest minimum trading increment.
The COLA-eligible order is executed
first and all other interest is addressed,
taking into account its price.25 The
Exchange believes that this approach is
consistent with promoting just and
equitable principles of trade, because
responsive interest is addressed in a
reasonable way, after the COLA-eligible
order is executed, at the best prices
possible and executing as much of the
interest as possible. The Exchange
believes that this approach is
reasonable, because, in a situation
where a choice has to be made between
execution prices, the Exchange has
chosen to benefit the smaller sized
order, execute at the midpoint and
round up, all of which are choices based
on what the Exchange deemed a fair
approach given the choice of benefitting
25 Pursuant to Rule 1080.08(e)(viii)(A), at the end
of the COLA Timer, the Phlx XL system will
determine the price and size of COLA Sweeps and
any orders that were received during the COLA
Timer that are unrelated to the COLA but
nonetheless are eligible to participate.
PO 00000
Frm 00113
Fmt 4703
Sfmt 4703
the larger order, not executing at all, or
rounding down. Most importantly, the
Exchange seeks to execute as much of
the remaining interest as possible. This
should facilitate more executions of
Complex Orders.
The Exchange further believes that the
proposed modifications to Rule
1080.08(e)(viii) are consistent with the
Act. That subsection has always
governed the processing of orders
resting on the CBOOK and entered
during a COLA; has always permitted
the entry of such orders on the same
side of the market as the COLA-eligible
order; and has always permitted the
entry of Complex Orders and COLA
Sweeps at prices both superior and
inferior to the COLA-eligible order. The
proposed changes to subsection (e)(viii)
do not alter the current processing of
COLA Sweeps or other Complex Orders.
As stated above,26 the Exchange
believes that it is consistent with the
Act to continue to permit the entry of
orders on both sides of the COLAeligible order when the COLA Message
reveals the side of the COLA-eligible
order. As stated above, it is rational for
participants to enter orders on the same
side of the market as the COLA-eligible
order or at inferior prices to the COLAeligible order because such orders can
participate in the COLA after the COLAeligible order is fully executed. COLA
executions continue to occur at best
price(s) available at the end of the COLA
with the COLA-eligible order being
executed first with interest on the same
side of the market as the COLA-eligible
order or interest at prices inferior to the
COLA-eligible order considered for
execution only after the COLA-eligible
order has been satisfied. Thus,
maintaining the current functionality
will facilitate transactions in securities
by maximizing opportunities for order
execution in the COLA. Allowing such
behavior is consistent with just and
equitable principles of trade because the
behavior is not advantaged in the Phlx
XL system; for this reason, the Exchange
does not believe that the system
processing of such orders is subject to
manipulation or gaming. The Exchange
will, of course, surveil COLAs diligently
to guard against manipulation and
gaming.
B. Self-Regulatory Organization’s
Statement on Burden on Competition
The Exchange does not believe that
the proposed rule change will result in
any burden on competition that is not
necessary or appropriate in furtherance
of the purposes of the Act, as amended.
Specifically, the proposal does not
26 See
E:\FR\FM\03SEN1.SGM
supra at text accompanying note 19.
03SEN1
Federal Register / Vol. 78, No. 170 / Tuesday, September 3, 2013 / Notices
impose an intra-market burden on
competition, because it will be available
to all Phlx participants who receive
Complex Order Messages and such
messages are available to those who
choose to subscribe, for a fee.
Furthermore, the proposal should
promote competition for complex orders
by drawing more and better responses to
the COLA, which, in turn, should make
the COLA more robust and competitive.
Nor will the proposal impose a burden
on competition among the options
exchanges, because, in addition to the
vigorous competition for order flow
among the options exchanges, the
proposal adds information that certain
other options exchanges broadcast,
which should be helpful to market
participants.
With respect to the aspect of the
proposal that adds reference to COLA
Sweeps, the Exchange believes that this
change does not impose a burden on
competition, because it includes same
side COLA Sweeps in executions after
the COLA; it merely addresses how
COLA Sweeps execute against each
other. With respect to the aspect of the
proposal that addresses the price at
which remaining interest is executed,
the Exchange believes that the proposal
does not impose a burden on
competition, because it merely specifies,
in connection with executing as much
interest as possible, the prices at which
such interest trades, regardless of the
type of market participant submitting
such interest. To the extent that market
participants disagree with the particular
approach taken by the Exchange herein,
market participants can easily and
readily direct complex order flow to
competing venues.
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.
emcdonald on DSK67QTVN1PROD with NOTICES
III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
Because the foregoing proposed rule
change does not: (i) Significantly affect
the protection of investors or the public
interest; (ii) impose any significant
burden on competition; and (iii) become
operative for 30 days from the date on
which it was filed, or such shorter time
as the Commission may designate, it has
become effective pursuant to Section
19(b)(3)(A)(ii) [sic] of the Act 27 and
27 15
U.S.C. 78s(b)(3)(a)(ii) [sic].
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17:57 Aug 30, 2013
Jkt 229001
subparagraph (f)(6) of Rule 19b–4
thereunder.28
Phlx believes that the proposal to add
side and price information does not
significantly affect the protection of
investors or the public interest and does
not impose any significant burden on
competition because it does not raise
any novel regulatory issues, as it is
similar to messages sent by other
exchanges. The proposal adds certain
information to a broadcast message,
which benefits market participants. To
the extent that the ISE’s Price
Improvement Mechanism is different
than the COLA, the Exchange does not
believe that this difference raises any
new regulatory issues, because the
purpose of adding the price to the
message is to attract relevant responses,
which is likely also the purpose of ISE
showing the price of an order in its
Price Improvement Mechanism. Because
the purposes are the same, the Exchange
does not believe that the fact that ISE’s
Price Improvement Mechanism is
different from the COLA is material to
considering whether a message should
contain price.
The Exchange further believes that
continuing to allow same-side
responses, unlike the CBOE, which
rejects same-side responses, does not
significantly affect the protection of
investors or the public interest, and
does not impose a significant burden on
competition, because same-side
Complex Orders on the Exchange are
treated, generally, the same as COLA
Sweeps, and the same whether
submitted in direct response to a COLA
message or not.29 More specifically, as
discussed above,30 there is no advantage
to using one over the other, nor is there
any advantage to submitting a Complex
Order in response to a COLA as opposed
to coincidentally. Thus, the Exchange
believes that maintaining the current
functionality will maximize
opportunities for execution of trading
interest without creating opportunities
for manipulation or gaming. Moreover,
the Exchange does not believe that the
resulting structure of the Exchange’s
auction burdens competition because it
provides a competitive alternative to
CBOE; to the extent that this change
benefits the Exchange, CBOE may
28 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.
29 However, COLA Sweeps expire at the end of
the COLA, while Complex Orders can go on the
CBOOK.
30 See supra at text accompanying notes 13–18.
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54345
readily respond by adjusting its own
rules.
The correction that permits COLA
Sweeps to trade with other COLA
Sweeps does not significantly affect the
protection of investors and the public
interest or impose a significant burden
on competition, because it maximizes
the interest that trades after a COLA.
The change to specify the prices used to
execute remaining interest after a COLA
also does not significantly affect the
protection of investors and the public
interest or impose a significant burden
on competition, because it lays out a
reasonable method for pricing such
interest, as explained above.31
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.
At any time within 60 days of the
filing of the proposed rule change, the
Commission summarily may
temporarily suspend such rule change if
it appears to the Commission that such
action is: (i) Necessary or appropriate in
the public interest; (ii) for the protection
of investors; or (iii) otherwise in
furtherance of the purposes of the Act.
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–2013–88 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–2013–88. 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
31 See
E:\FR\FM\03SEN1.SGM
supra at text accompanying note 19 [sic].
03SEN1
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Federal Register / Vol. 78, No. 170 / Tuesday, September 3, 2013 / Notices
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–
2013–88 and should be submitted on or
before September 24, 2013.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.32
Kevin M. O’Neill,
Deputy Secretary.
[FR Doc. 2013–21299 Filed 8–30–13; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–70270; File No. SR–Phlx–
2013–84]
Self-Regulatory Organizations;
NASDAQ OMX PHLX LLC; Notice of
Filing and Immediate Effectiveness of
Proposed Rule Change to Amend Phlx
Rule 910 and Related Phlx Rules
emcdonald on DSK67QTVN1PROD with NOTICES
August 27, 2013.
Pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934
(‘‘Act’’) 1 and Rule 19b–4 thereunder,2
notice is hereby given that on August
14, 2013, NASDAQ OMX PHLX LLC
(‘‘Phlx’’ or ‘‘Exchange’’) filed with the
Securities and Exchange Commission
(‘‘Commission’’) a proposed rule change
as described in Items I, II, and III below,
which Items have been prepared by the
Exchange. The Commission is
publishing this notice to solicit
32 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
1 15
VerDate Mar<15>2010
17:57 Aug 30, 2013
Jkt 229001
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 to amend
Phlx Rule 910 (Qualification as Member
Organization) and related Phlx rules.
The text of the proposed rule change is
below. Proposed additions are in italics
and proposed deletions are in brackets.
Rule 900.2. Membership Applications
(a)–(c) No change.
(d) [If the Membership Department
does not approve a membership
application or permit application, the
department will notify the applicant in
writing of the specific grounds for
denial and the applicant shall have a
right to a hearing. Any appeal from a
decision of the Membership Department
shall be heard by a special committee of
the Board of Directors composed of
three (3) Directors, of whom at least one
(1) shall be a Public Director. The
person requesting review may appeal by
filing a written notice thereof with the
Secretary of the Exchange within ten
(10) days after a decision. The person
requesting review shall be permitted to
submit a written statement to this
special committee. The Secretary of the
Exchange shall certify the record of the
proceeding, if any and the written
decision and shall submit these
documents to the special committee.
The special committee’s review of the
action shall be based solely on the
record, the written decision and any
statement submitted by the person
requesting the review. The special
committee shall prepare and deliver to
such person a written decision and
reasons therefor. If the special
committee affirms the action, the action
shall become effective ten (10) days
from the date of the special committee’s
decision. There shall be no appeal to the
Board of Directors from any decision of
the special committee.
(e)] Absent a showing of good cause,
an application filed pursuant to this
Rule shall lapse after a 90 calendar day
period if an applicant fails to provide
the requisite documentation provided
for in this Rule or any subsequent
written request for information or
documents pursuant to this Rule within
such time period agreed to by the
Membership Department. If such time
period elapses, an applicant seeking
membership to the Exchange shall be
required to file a new application
pursuant to this Rule. The applicant
will be required to pay an additional
application fee at that time. The
Exchange will not refund any fees for
lapsed applications.
PO 00000
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Fmt 4703
Sfmt 4703
[(f)] (e) The provisions of this Rule
900.2 shall not apply to a corporation
pursuant to Rule 798.
*
*
*
*
*
Rule 910. Qualification as Member
Organization
(a)–(e) No change.
(f)(1) To obtain and maintain the
status of a member organization, an
organization shall: (i) Be a broker or
dealer duly registered under the
Exchange Act; (ii) be duly qualified by
a permit holder who is primarily
affiliated with such organization for
purposes of nominating as provided in
the By-Laws; (iii) have submitted to the
Membership Department an application
for such status in the form approved by
the Membership Department and any
other information and materials
requested by the Membership
Department; (iv) have had such
application approved by the
Membership Department; and (v) meet
such other requirements as are set forth
in these By-Laws or the Rules of the
Exchange.
(2) To obtain and maintain the status
of a Market Maker on PSX, a member
organization whose market making has
not previously been approved by FINRA
under the NASD Rule 1000 Series (or
such successor FINRA Rules as may be
adopted by FINRA), NASDAQ under the
NASDAQ Rule 1000 Series, or NASDAQ
OMX BX under the BX Rule 1000 Series
shall: (i) Have submitted to the
Membership Department an application
for such status in the form approved by
the Membership Department and any
other information and material
requested by the Membership
Department; (ii) have had such
application approved by the
Membership Department; and (iii) meet
such other requirements as are set forth
in the By-Laws or Rules of the Exchange.
The information to be provided shall
include a business plan, an
organizational chart, written
supervisory procedures reflecting the
change, and such other information as
the Membership Department may
request.
(g)–(j) No change.
*
*
*
*
*
Rule 923. [Reserved] Review of
Membership Department Decisions
If the Membership Department takes
an adverse action with respect to a
membership application, permit
application, or other matter for which
the Membership Department has
responsibility, the department will
notify the applicant in writing of the
specific grounds for denial and the
applicant shall have a right to a hearing.
Any appeal from a decision of the
E:\FR\FM\03SEN1.SGM
03SEN1
]]>Agencies
[Federal Register Volume 78, Number 170 (Tuesday, September 3, 2013)]
[Notices]
[Pages 54340-54346]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2013-21299]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-70271; File No. SR-Phlx-2013-88]
Self-Regulatory Organizations; NASDAQ OMX PHLX LLC; Notice of
Filing and Immediate Effectiveness of Proposed Rule Change To Provide
Additional Trading Information and Rule Clarity to Phlx Participants
August 27, 2013.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that
on August 22, 2013, NASDAQ OMX PHLX LLC (``Phlx'' or ``Exchange'')
filed with the Securities and Exchange Commission (``Commission'') the
proposed rule change as described in Items I, II, and III below, which
Items have been prepared by the Exchange. The Commission is publishing
this notice to solicit comments on the proposed rule change from
interested persons.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------
I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange proposes [sic] provide additional trading information
and rule clarity to Phlx Participants to attract their Complex Orders
to the Exchange.
The text of the proposed rule change is below. Proposed new
language is
[[Page 54341]]
italicized; proposed deletions are in brackets.
* * * * *
Rule 1080. Phlx XL and Phlx XL II
(a)-(p) No change.
Commentary:-------------
.01-.07 No change.
.08 Complex Orders on Phlx XL.
(a)-(d) No change.
(e) Process for Complex Order Live Auction (``COLA''). Complex
Orders on the Complex Order Book (``CBOOK,'' as defined below) may be
subject to an automated auction process.
(i) No change.
(ii) Initiation of a COLA. Upon the identification of the COLA-
eligible order by the Phlx XL system, the Exchange will send a
broadcast message to Phlx XL participants indicating that a COLA has
been initiated. The broadcast message will identify the Complex Order
Strategy, and the size, side and price of the COLA-eligible order and
any contingencies, if applicable (such as, without limitation, All-Or-
None)[, but will not identify the side of the market or the price].
(iii)-(vi) No change.
(vii) Firm Quote Requirement for COLA-Eligible Orders. COLA Sweeps
in response to a COLA broadcast represent non-firm interest that can be
modified at any time prior to the end of the COLA Timer. At the end of
the COLA Timer, COLA Sweeps shall be firm only with respect to the
COLA-eligible order for which it is submitted, provided that COLA
Sweeps that exceed the size of a COLA-eligible order are also eligible
to trade with other incoming COLA-eligible orders, COLA Sweeps and any
other interest [that are] received during the COLA Timer after the
initial COLA-eligible order has been executed in its entirety.
Remaining interest trades at its entered price. If such interest
crosses, the execution price is based on the price of the smaller sized
interest. If the interest is equal in size, the execution price is the
midpoint of the two prices, rounded, if necessary, up to the closest
minimum trading increment. Any COLA Sweeps not accepted in whole or in
a permissible ratio will expire at the end of the COLA Timer once all
executions are complete.
(viii) Complex Orders resting on the CBOOK, and incoming electronic
Complex Orders and COLA Sweeps that are received prior to the
expiration of the COLA Timer, (collectively, for purposes of this rule,
``incoming Complex Orders'') representing the same Complex Order
Strategy as a COLA-eligible order will impact the original COLA as
follows:
(A) At the end of the COLA Timer, the Phlx XL system will determine
the price and size of COLA Sweeps and any orders that were received
during the COLA Timer that are unrelated to the COLA but nonetheless
are eligible to participate in the COLA as set forth below.
(B) Incoming Complex Orders on the same side of the market as the
COLA-eligible order. Incoming Complex Orders that were received during
the COLA Timer for the same Complex Order Strategy as the COLA-eligible
order that are on the same side of the market will join the COLA. The
original COLA-eligible order has priority at all price points (i.e.,
multiple COLA Sweep Prices) over the incoming Complex Order(s),
regardless of the price of the incoming Complex Order. The incoming
Complex Order shall not be eligible for execution against interest on
the opposite side of the market from the COLA-eligible order until the
COLA-eligible order is executed in its entirety. If the incoming
Complex Order is not executed in its entirety, the system will not
initiate a new COLA. Any remaining contracts, other than COLA Sweeps,
will be placed on the CBOOK, subject to other instructions.
(C) Incoming Complex Orders on the opposite side of the market from
the COLA-eligible order.
(1) Incoming customer Complex Orders that are received during the
COLA Timer on the opposite side of the market from the COLA-eligible
order with a price equal to or better than the best priced Complex
Order or COLA Sweep [Price] will be executed against the COLA eligible
order (which will be executed in its entirety first as described in
sub-paragraph (B) above) or other Complex Orders or COLA Sweeps as
follows:
(a) If such incoming customer Complex Order is a limit order at the
same price as the best priced Complex Order or COLA Sweep [Price], the
incoming Complex Order will be executed at such [the Sweep P]price.
(b) If such incoming Complex Order is a limit order that improved
the best priced Complex Order or COLA Sweep [Price], the incoming
customer Complex Order will be executed at the mid-point of the best
priced Complex Order or COLA Sweep [Price] and the limit order price,
rounded, if necessary, to the closest minimum trading increment to the
benefit of the COLA-eligible order.
(c) If such incoming customer Complex Order is a market order or a
limit order that crosses the cPBBO, the incoming Complex Order will be
executed at the mid-point of the cPBBO on the same side of the market
as the COLA-eligible order and the best priced Complex Order or COLA
Sweep [Price], rounded, if necessary, to the closest minimum trading
increment to the benefit of the COLA-eligible order.
(d) If multiple customer Complex Orders are received on the
opposite side of the market from the COLA-eligible order, such orders
will be executed in the order in which they were received at each price
level.
(e) If the COLA-eligible order is executed in its entirety and
there are remaining bids or offers from the incoming Complex Order(s),
the Phlx XL system will execute such interest against other Complex
Orders or COLA Sweeps in the COLA and subsequently place [such]
residual bids or offers, other than COLA Sweeps, onto the CBOOK,
subject to other instructions.
(2) Incoming non-customer Complex Orders that are received during
the COLA Timer on the opposite side of the market from the COLA-
eligible order with a price equal to or better than the best priced
Complex Order or COLA Sweep [Price] will be executed against the COLA
eligible order (which will be executed in its entirety first as
described in sub-paragraph (B) above) or other Complex Orders or COLA
Sweeps as follows:
(a) If such incoming non-customer Complex Order is a limit order at
the same price as the best priced Complex Order or COLA Sweep [Price],
the incoming non-customer Complex Order will be executed at such [the
Sweep P]price, subject to the provisions set forth sub-paragraph (e)
above.
(b) If such incoming non-customer Complex Order is a limit order
that improved the best priced Complex Order or COLA Sweep [Price], the
incoming non-customer Complex Order will be executed at the limit order
price.
(c) If such incoming non-customer Complex Order is a market order
or a limit order that crosses the cPBBO, the incoming non-customer
Complex Order will be executed at a price of $0.01 better than the
cPBBO on the same side of the market as the COLA-eligible order.
(d) If multiple non-customer Complex Orders are received on the
opposite side of the market from the COLA-eligible order, such orders
will be executed in the order in which they were received at each price
level.
(e) If the COLA-eligible order is executed in its entirety and
there are remaining bids or offers from the incoming non-customer
Complex Order(s), the Phlx XL system will execute such interest against
other Complex Orders or COLA Sweeps in the COLA and subsequently place
[such]
[[Page 54342]]
residual bids or offers, other than COLA Sweeps, onto the CBOOK,
subject to other instructions.
(3) Incoming Complex Orders that were received during the COLA
Timer on the opposite side of the market from the COLA-eligible order
with a price inferior to any other COLA Sweep [Price(s)] or Complex
Order will be executed against the COLA-eligible order after all
interest at the better [COLA Sweep P]price(s) has/have been executed.
After the initial COLA-eligible order has been executed in its
entirety, incoming Complex Orders remaining unexecuted shall be
eligible to trade with other Complex Orders and COLA Sweeps at their
entered price. If, after the COLA-eligible order has been executed,
there exist Complex Orders and/or COLA Sweeps on the opposite side of
the market from the COLA-eligible order which cross the price of other
Complex Orders or COLA Sweeps on the same side of the market from the
COLA-eligible order, the execution price of such crossing interest is
based on the price of the smaller sized interest. If the crossing
interest is equal in size, the execution price is the midpoint of the
two prices, rounded, if necessary, up to the closest minimum trading
increment. The system will treat any unexecuted remaining contracts in
the incoming Complex Order as a new Complex Order, and will not
initiate a new COLA. Such unexecuted remaining contracts, other than
COLA Sweeps, will be placed on the CBOOK, subject to other
instructions.
(ix) No change.
(f)-(i) No change.
* * * * *
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 proposal is to provide additional trading
information and rule clarity to Phlx Participants to attract their
Complex Orders to the Exchange. The Exchange's Complex Order System,
which is governed by Rule 1080.08, includes the COLA, an automated
auction for seeking additional liquidity and price improvement for
Complex Orders. When the Exchange receives a COLA-eligible order that
triggers a COLA, the system broadcasts information about the COLA-
eligible order--the ``COLA Message.'' The duration of the COLA is fixed
and measured by the COLA Timer. During the COLA Timer, Phlx XL
participants \3\ may submit ``COLA Sweeps,'' which are bids and/or
offers on either or both side(s) of the market by submitting one or
more bids or offers that improve the cPBBO. Also during the COLA Timer,
Phlx members may enter other Complex Orders or COLA Sweeps at any
price, as explained further below. These COLA Sweeps and Complex Orders
may or may not be submitted in direct response to the COLA-eligible-
order. How the XL System processes such COLA Messages and COLA Sweeps
is explained further below.
---------------------------------------------------------------------------
\3\ COLA Sweeps can only be entered by Phlx XL Participants who
quote electronically as market makers for their own account
(Streaming Quote Traders (``SQTs''), Remote Streaming Quote Traders
(``RSQTs'') and specialists). Because non-SQT ROTs do not quote
electronically, they cannot enter COLA Sweeps, which are electronic.
See Rule 1014(b)(ii)(C) and Rule 1080.08(e)(ix).
---------------------------------------------------------------------------
COLA Message
Currently, upon the identification of the COLA-eligible order by
the Phlx XL system, the Exchange will broadcast a COLA Message to Phlx
XL participants indicating that a COLA has been initiated. The COLA
Message identifies the Complex Order Strategy, the size of the COLA-
eligible order, and any contingencies, if applicable (such as, without
limitation, All-Or-None), but it does not identify the side of the
market or the price. The COLA Message is sent over TOPO Plus Orders,\4\
the Exchange's market data feed for subscribers interested in the
detailed information it offers, including messages relating to Complex
Orders. The Specialized Quote Feed (``SQF'') also contains COLA
Messages.\5\ Like auction messages on multiple exchanges, the COLA
Message is designed to attract responsive interest.
---------------------------------------------------------------------------
\4\ Securities Exchange Act Release No. 60877 (October 26,
2009), 74 FR 56255 (October 30, 2009) (SR-Phlx-2009-92).
\5\ Securities Exchange Act Release No. 63034 (October 2 [sic],
2010), 75 FR 62441 (October 8, 2010) (SR-Phlx-2010-124).
---------------------------------------------------------------------------
The Exchange now proposes to add the side and price of the Complex
Order to the COLA Message. The Exchange believes that including the
side and price of the order is helpful to users, may attract additional
auction responses, and therefore increase Complex Order fill rates. The
Exchange notes that other exchanges include such additional information
(side and price) respecting their various auctions and, therefore, that
broadcasting such information is consistent with the Exchange Act.\6\
---------------------------------------------------------------------------
\6\ See CBOE Rule 6.53C(d)(ii) and ISE Rule 723(c). However, the
CBOE does not broadcast the price of the complex order and rejects
same side responses to its COA under its Rule 6.53C(d)(iii)(1). ISE
sends a broadcast message when there is a crossing transaction in
ISE's Price Improvement Mechanism that includes the series, size,
side and price of the order (including complex orders).
---------------------------------------------------------------------------
COLA Responses and Processing
Currently, during the COLA, participant responses can be entered at
multiple prices and can take the form of Complex Orders or COLA Sweeps.
Specifically, Complex Orders can be entered into the COLA \7\ by non-
broker-dealer customers, non-market-maker off-floor broker-dealers,\8\
Floor Brokers,\9\ professional customers \10\ and non-Phlx market
makers,\11\ as well as Exchange SQTs, RSQTs, non-SQT ROTs and
specialists (together, market makers) \12\ Exchange SQTs, RSQTs, and
specialists also can participate in a COLA by submitting COLA Sweeps.
---------------------------------------------------------------------------
\7\ In each case, Complex Orders can be entered, generally, not
just into the COLA, by all of these types of market participants.
\8\ Rule 1080.08(b)(i).
\9\ Rule 1080.08(b)(iii).
\10\ Rule 1000(b)(14). The term ``professional'' means any
person or entity that (i) is not a broker or dealer in securities,
and (ii) places more than 390 orders in listed options per day on
average during a calendar month for its own beneficial account(s). A
professional will be treated in the same manner as an off-floor
broker-dealer for purposes of Rule 1080.08.
\11\ Rule 1080.08(b)(ii).
\12\ Rules 1014(b) and 1080.08(b)(ii).
---------------------------------------------------------------------------
Today, in the absence of information about the price and side of a
COLA-eligible order, orders submitted in response to a COLA Message can
be on either the same side or the opposite side of the COLA-eligible
order. When a market maker submits a COLA Sweep or a Complex Order on
the opposite side of the market from the COLA-eligible order during a
COLA, those orders are treated identically in the COLA, except that
unexecuted COLA Sweeps expire and unexecuted Complex Orders are
eligible for the Complex Order Book (``CBOOK'').\13\ In other words,
there is
[[Page 54343]]
no meaningful advantage to submitting a COLA Sweep versus a Complex
Order.
---------------------------------------------------------------------------
\13\ See Rules 1080.08(e)(vii), (viii)(B), (viii)(C)(1)(e), and
(viii)(C)(2)(e). The Exchange represents that this sentence is an
accurate description of how the system operates, which differs from
the Exchange rule text. The Exchange commits to filing a proposed
rule change to conform its rule text with respect to the priority of
COLA sweeps and orders. See email to Kathleen Gross and Yue Ding,
Division of Trading and Markets, Commission, from Edith Hallahan,
Exchange, dated August 27, 2013 (``Phlx Email'').
---------------------------------------------------------------------------
The same is true regarding Complex Orders submitted during a COLA.
Because Complex Orders are not specifically marked as ``COLA
responses,'' the Phlx XL System cannot identify which Complex Orders
are truly intended to respond to the auction and which are merely
coincidental.\14\ In any case, there is no difference in treatment
between any participant submitting a Complex Order (or in the case of
certain market makers, a COLA Sweep), whether intended to respond to a
COLA message or submitted coincidentally.
---------------------------------------------------------------------------
\14\ See e.g., Rule 1080.08(e)(viii)(B), which addresses
incoming Complex Orders on the same side of the market as the COLA-
eligible order. The Exchange is modifying the term ``incoming
Complex Order'' to provide that it includes both responsive Complex
Orders and COLA Sweeps, as well as Complex Orders [sic].
---------------------------------------------------------------------------
This is true of orders on both the same side of the market as the
COLA-eligible order as well as those on the opposite side.\15\ The
Exchange currently takes into account COLA responses and Complex Orders
on the same side of the market as the COLA-eligible order and it will
continue to do so. Again, market makers can submit Complex Orders or
COLA Sweeps on the same side of the market as the COLA-eligible order.
Such orders are treated the same, except COLA Sweeps expire.\16\ As
with opposite side interest, there is no advantage to submitting a COLA
Sweep versus a Complex Order on the same side of the market.\17\
---------------------------------------------------------------------------
\15\ See e.g., Rule 1080.08(e)(viii)(C), which the Exchange is
amending to address incoming Complex Orders on the opposite side of
the market as the COLA-eligible order, which includes both Complex
Orders and COLA Sweeps.
\16\ See Phlx Email, supra note 13.
\17\ See id.
---------------------------------------------------------------------------
Both currently and under this proposal, orders submitted on the
same side of the market as the COLA-eligible order are and will be
considered for execution only after the Complex Order that initiated
the COLA is executed.\18\ Today, orders may be submitted on the same
side of the COLA-eligible order because market participants are unaware
of whether the COLA-eligible order is a buy or a sell order. Same-side
interest does not and will not interact with the COLA-eligible order;
however, it may still interact with orders on the opposite side of the
market that are submitted during the COLA Timer. This would occur when
the COLA is over-subscribed. This ensures that the COLA-eligible order
that initiated the COLA maintains priority over any interest that was
entered during the COLA on the same side as the COLA-eligible order. It
also ensures that there is no advantage to submitting interest on the
same side as the COLA-eligible order. This structure maximizes the
interest executed in the COLA, whether on the same side of the market
or the opposite side of the market from the COLA-eligible order, and
whether it is a responsive Complex Order, a COLA Sweep, or a
coincidental Complex Order.
---------------------------------------------------------------------------
\18\ See Rule 1080.08(e)(viii)(C)(3), which the Exchange is
modifying to explain in greater detail how the Phlx XL system
currently processes orders on either side of the COLA-eligible order
after the COLA-eligible order is fully executed.
---------------------------------------------------------------------------
Under the proposal, participants will still be permitted to submit
orders on the same side of the market as the COLA-eligible order even
though they will be aware of whether the COLA-eligible order is a buy
or a sell order. Such behavior is neither irrational nor nefarious
because, as stated above, same side interest may be executed in the
COLA after the COLA-eligible order has been fully executed. While some
options exchanges do not accept same side interest or responses from
certain types of market participants in their respective auctions for
complex orders, the Exchange opted not to change its current practice
of accepting same side interest for several reasons. First, accepting
same side interest is rational and consistent with the Exchange Act,
given the possibility of execution. Second, the Exchange believes that
continuing to allow the entry of same-side interest does not increase
the potential for manipulation or gaming because same-side interest,
along with all other interest, is processed according to strict and
transparent priority rules.\19\ Third, continuing to accept same side
interest will not affect the outcome of the COLA; conversely, a change
to current behavior could cause issues for participants currently
utilizing the Phlx Complex Orders system.
---------------------------------------------------------------------------
\19\ The Exchange will, of course, monitor COLAs, including the
entry and execution of such same side orders, to detect and punish
gaming and manipulation.
---------------------------------------------------------------------------
The Exchange also notes that the proposal to show the price of the
COLA-eligible order does not provide any advantage to same side or
opposite side COLA Sweeps or Complex Orders in relation to their
execution. COLA executions will continue to occur at best price(s)
available at the end of the COLA Timer. However, it would not be
irrational to submit responsive COLA Sweeps or Complex Orders that are
priced inferior to the COLA-eligible order because such interest may be
executed in the COLA after the COLA-eligible order is fully executed.
Interest that is priced away from the COLA-eligible order will only be
executed if it is executable against other remaining interest after the
COLA-eligible order has been executed in its entirety. Again, the
Exchange believes that there is no increased potential for gaming and
manipulation in this case, and the Exchange will surveil to ensure that
this is true in practice.
COLA Sweeps Trading with COLA Sweeps
The Exchange proposes to amend Rule 1080.08(e)(vii) and (viii) to
provide that COLA Sweeps can trade not only with the COLA-eligible
order, but also with COLA Sweeps and other Complex Orders, both on the
same side and on the opposite side of the market as the COLA-eligible
order.\20\ The proposed new language in Rule 1080.08(e)(vii) and (viii)
is consistent with the current processing and purposes of the COLA,
which is to attract and execute as much interest as possible at the
best price(s) without causing some responses to remain unexecuted. The
Exchange also proposes to amend Rule 1080.08(e)(viii) to provide that
the COLA-eligible order is executed at the best prices available,
inclusive of both COLA Sweeps and Complex Orders, at the end of the
COLA Timer. The Exchange currently takes into account both COLA Sweeps
and Complex Orders at the best prices when executing the COLA-eligible
order. The proposed new language in Rule 1080.08(e)(viii) provides that
both COLA Sweeps and Complex Orders at the best prices are considered
for execution at the end of the COLA.
---------------------------------------------------------------------------
\20\ Rule 1080.08(e)(viii)(A) currently states that at the end
of the COLA Timer, the Phlx XL system will determine the price and
size of COLA Sweeps and any orders that were received during the
COLA Timer that are unrelated to the COLA but nonetheless are
eligible to participate in the COLA. This was intended to cover COLA
Sweeps both on the opposite side and on the same side of the market
as the COLA-eligible order. The Exchange never intended to disregard
COLA Sweeps on the same side of the market as the COLA-eligible
order, and, instead, believes that this language contemplated
including all interest received in response to a COLA regardless of
the side of the market. Nonetheless, the Exchange is modifying Rule
1080.08(e)(viii) in multiple places to establish its proper
application to orders on either side of the market as the COLA-
eligible order.
---------------------------------------------------------------------------
Execution Prices
The Exchange is proposing to add to Rule 1080.08(e)(vii) and (viii)
language stating that, at the end of the COLA, remaining interest
trades at its entered price. If such interest crosses, the execution
price is based on the price of the smaller sized interest. If the
interest is equal in size, the execution price is
[[Page 54344]]
the midpoint of the two prices, rounded, if necessary, up to the
closest minimum trading increment. The COLA-eligible order is executed
first and then all other interest is addressed, taking into account its
price.\21\ The Rule does not currently specify how the execution prices
of the remaining interest are determined.
---------------------------------------------------------------------------
\21\ Pursuant to Rule 1080.08(e)(viii)(A), at the end of the
COLA Timer, the Phlx XL system will determine the price and size of
COLA Sweeps and any orders that were received during the COLA Timer
that are unrelated to the COLA but nonetheless are eligible to
participate.
---------------------------------------------------------------------------
2. Statutory Basis
The Exchange believes the proposed rule change is consistent with
the provisions of Section 6 of the Act,\22\ in general, and with
Section 6(b)(5) of the Act,\23\ in particular, which requires, among
other things, that the rules of an exchange be designed to promote just
and equitable principles of trade and foster cooperation and
coordination with persons engaged in regulating, clearing, settling,
processing information with respect to, and facilitating transactions
in securities. Specifically, providing additional information to market
participants interested in Complex Orders should promote just and
equitable principles of trade by reducing the risk that a COLA-eligible
Complex Order does not trade and increasing the potential for responses
to the COLA. It should also foster cooperation and coordination with
persons engaged in facilitating transactions in securities,
particularly the COLA-eligible order, by attracting additional
responsive interest and thereby increasing the likelihood of a trade.
More responsive interest should result in more trading and more
efficient trading. By providing more information, the proposal should
also result in better prices, as responding market participants will be
better able to manage their capital and focus on responding to orders
they are truly interested in trading against. Because the proposal is
likely to lead to an increase in Exchange volume, it is pro-competitive
and should enable the Exchange to better compete against other markets
that provide complex order functionality. Accordingly, consistent with
Section 6(b)(8),\24\ the Exchange believes that the proposal does not
impose a burden on competition not necessary or appropriate in
furtherance of the purposes of the Act, as described further below.
---------------------------------------------------------------------------
\22\ 15 U.S.C. 78f.
\23\ 15 U.S.C. 78f(b)(5).
\24\ 15 U.S.C. 78f(b)(8).
---------------------------------------------------------------------------
The Exchange is also proposing to correct the rule text to reflect
that COLA Sweeps on the same side of the market as a COLA-eligible
Complex Order can be executed in the COLA, and that COLA Sweeps can
trade with other COLA Sweeps. The Exchange believes that it is
consistent with promoting just and equitable principles of trade to
include same side COLA Sweeps in the COLA, because it results in more
interest being executed in the COLA. The Exchange also believes that
the proposal is not unfairly discriminatory, because it includes same
side COLA Sweeps in executions after the COLA. At the same time, the
COLA-eligible order which initiated the COLA maintains priority over
any interest that was received during the COLA on the same side as the
COLA-eligible order, which ensures that there is no advantage to
submitting interest on the same side as the COLA-eligible order. Thus,
the Exchange believes that this is consistent with just and equitable
principles of trade.
The Exchange believes that its proposal to add to the rule text the
price at which remaining interest is executed is consistent with the
Act. Specifically, Rule 1080.08(e)(vii) and (viii) will provide that,
at the end of the COLA, remaining interest trades at its entered price,
and if such prices cross each other, the execution price is based on
the price of the smaller sized interest. If the interest is equal in
size, the execution price is the midpoint of the two prices, rounded,
if necessary, up to the closest minimum trading increment. The COLA-
eligible order is executed first and all other interest is addressed,
taking into account its price.\25\ The Exchange believes that this
approach is consistent with promoting just and equitable principles of
trade, because responsive interest is addressed in a reasonable way,
after the COLA-eligible order is executed, at the best prices possible
and executing as much of the interest as possible. The Exchange
believes that this approach is reasonable, because, in a situation
where a choice has to be made between execution prices, the Exchange
has chosen to benefit the smaller sized order, execute at the midpoint
and round up, all of which are choices based on what the Exchange
deemed a fair approach given the choice of benefitting the larger
order, not executing at all, or rounding down. Most importantly, the
Exchange seeks to execute as much of the remaining interest as
possible. This should facilitate more executions of Complex Orders.
---------------------------------------------------------------------------
\25\ Pursuant to Rule 1080.08(e)(viii)(A), at the end of the
COLA Timer, the Phlx XL system will determine the price and size of
COLA Sweeps and any orders that were received during the COLA Timer
that are unrelated to the COLA but nonetheless are eligible to
participate.
---------------------------------------------------------------------------
The Exchange further believes that the proposed modifications to
Rule 1080.08(e)(viii) are consistent with the Act. That subsection has
always governed the processing of orders resting on the CBOOK and
entered during a COLA; has always permitted the entry of such orders on
the same side of the market as the COLA-eligible order; and has always
permitted the entry of Complex Orders and COLA Sweeps at prices both
superior and inferior to the COLA-eligible order. The proposed changes
to subsection (e)(viii) do not alter the current processing of COLA
Sweeps or other Complex Orders.
As stated above,\26\ the Exchange believes that it is consistent
with the Act to continue to permit the entry of orders on both sides of
the COLA-eligible order when the COLA Message reveals the side of the
COLA-eligible order. As stated above, it is rational for participants
to enter orders on the same side of the market as the COLA-eligible
order or at inferior prices to the COLA-eligible order because such
orders can participate in the COLA after the COLA-eligible order is
fully executed. COLA executions continue to occur at best price(s)
available at the end of the COLA with the COLA-eligible order being
executed first with interest on the same side of the market as the
COLA-eligible order or interest at prices inferior to the COLA-eligible
order considered for execution only after the COLA-eligible order has
been satisfied. Thus, maintaining the current functionality will
facilitate transactions in securities by maximizing opportunities for
order execution in the COLA. Allowing such behavior is consistent with
just and equitable principles of trade because the behavior is not
advantaged in the Phlx XL system; for this reason, the Exchange does
not believe that the system processing of such orders is subject to
manipulation or gaming. The Exchange will, of course, surveil COLAs
diligently to guard against manipulation and gaming.
---------------------------------------------------------------------------
\26\ See supra at text accompanying note 19.
---------------------------------------------------------------------------
B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the proposed rule change will
result in any burden on competition that is not necessary or
appropriate in furtherance of the purposes of the Act, as amended.
Specifically, the proposal does not
[[Page 54345]]
impose an intra-market burden on competition, because it will be
available to all Phlx participants who receive Complex Order Messages
and such messages are available to those who choose to subscribe, for a
fee. Furthermore, the proposal should promote competition for complex
orders by drawing more and better responses to the COLA, which, in
turn, should make the COLA more robust and competitive. Nor will the
proposal impose a burden on competition among the options exchanges,
because, in addition to the vigorous competition for order flow among
the options exchanges, the proposal adds information that certain other
options exchanges broadcast, which should be helpful to market
participants.
With respect to the aspect of the proposal that adds reference to
COLA Sweeps, the Exchange believes that this change does not impose a
burden on competition, because it includes same side COLA Sweeps in
executions after the COLA; it merely addresses how COLA Sweeps execute
against each other. With respect to the aspect of the proposal that
addresses the price at which remaining interest is executed, the
Exchange believes that the proposal does not impose a burden on
competition, because it merely specifies, in connection with executing
as much interest as possible, the prices at which such interest trades,
regardless of the type of market participant submitting such interest.
To the extent that market participants disagree with the particular
approach taken by the Exchange herein, market participants can easily
and readily direct complex order flow to competing venues.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants or Others
Written comments were neither solicited nor received.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
Because the foregoing proposed rule change does not: (i)
Significantly affect the protection of investors or the public
interest; (ii) impose any significant burden on competition; and (iii)
become operative for 30 days from the date on which it was filed, or
such shorter time as the Commission may designate, it has become
effective pursuant to Section 19(b)(3)(A)(ii) [sic] of the Act \27\ and
subparagraph (f)(6) of Rule 19b-4 thereunder.\28\
---------------------------------------------------------------------------
\27\ 15 U.S.C. 78s(b)(3)(a)(ii) [sic].
\28\ 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.
---------------------------------------------------------------------------
Phlx believes that the proposal to add side and price information
does not significantly affect the protection of investors or the public
interest and does not impose any significant burden on competition
because it does not raise any novel regulatory issues, as it is similar
to messages sent by other exchanges. The proposal adds certain
information to a broadcast message, which benefits market participants.
To the extent that the ISE's Price Improvement Mechanism is different
than the COLA, the Exchange does not believe that this difference
raises any new regulatory issues, because the purpose of adding the
price to the message is to attract relevant responses, which is likely
also the purpose of ISE showing the price of an order in its Price
Improvement Mechanism. Because the purposes are the same, the Exchange
does not believe that the fact that ISE's Price Improvement Mechanism
is different from the COLA is material to considering whether a message
should contain price.
The Exchange further believes that continuing to allow same-side
responses, unlike the CBOE, which rejects same-side responses, does not
significantly affect the protection of investors or the public
interest, and does not impose a significant burden on competition,
because same-side Complex Orders on the Exchange are treated,
generally, the same as COLA Sweeps, and the same whether submitted in
direct response to a COLA message or not.\29\ More specifically, as
discussed above,\30\ there is no advantage to using one over the other,
nor is there any advantage to submitting a Complex Order in response to
a COLA as opposed to coincidentally. Thus, the Exchange believes that
maintaining the current functionality will maximize opportunities for
execution of trading interest without creating opportunities for
manipulation or gaming. Moreover, the Exchange does not believe that
the resulting structure of the Exchange's auction burdens competition
because it provides a competitive alternative to CBOE; to the extent
that this change benefits the Exchange, CBOE may readily respond by
adjusting its own rules.
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\29\ However, COLA Sweeps expire at the end of the COLA, while
Complex Orders can go on the CBOOK.
\30\ See supra at text accompanying notes 13-18.
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The correction that permits COLA Sweeps to trade with other COLA
Sweeps does not significantly affect the protection of investors and
the public interest or impose a significant burden on competition,
because it maximizes the interest that trades after a COLA. The change
to specify the prices used to execute remaining interest after a COLA
also does not significantly affect the protection of investors and the
public interest or impose a significant burden on competition, because
it lays out a reasonable method for pricing such interest, as explained
above.\31\
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\31\ See supra at text accompanying note 19 [sic].
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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.
At any time within 60 days of the filing of the proposed rule
change, the Commission summarily may temporarily suspend such rule
change if it appears to the Commission that such action is: (i)
Necessary or appropriate in the public interest; (ii) for the
protection of investors; or (iii) otherwise in furtherance of the
purposes of the Act.
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-2013-88 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-2013-88. 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
[[Page 54346]]
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-2013-88 and should be
submitted on or before September 24, 2013.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\32\
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\32\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2013-21299 Filed 8-30-13; 8:45 am]
BILLING CODE 8011-01-P
