Self-Regulatory Organizations; NASDAQ OMX PHLX LLC; Order Granting Approval to Proposed Rule Change Relating to the Discontinuation of the Differentiation of Price Improvement XL Orders of Less Than 50 Contracts, 62891-62893 [2013-24649]

Download as PDF Federal Register / Vol. 78, No. 204 / Tuesday, October 22, 2013 / Notices listed companies. By offering products and services on a complimentary basis and ensuring that it is offering the services most valued by its listed issuers, the Exchange will improve the quality of the services that listed companies receive. Because Tier B Companies are typically smaller organizations that pay lower listing fees to the Exchange than other categories of listed companies, the Exchange believes it is reasonable to keep the suite of complimentary products and services offered to Tier B Companies unchanged. With respect to the addition of the two corporate governance packages, the Exchange believes that it is reasonable, equitable and not unfairly discriminatory to allow companies to choose whether they receive corporate governance products or one of the other complimentary products offered by the Exchange. With respect to the addition of the data room services and virtual investor relation tools, the Exchange believes it is reasonable, equitable and not unfairly discriminatory to offer an additional product to all listed companies. The Exchange further notes that the proposed rule change is equitable and not unfairly discriminatory because the criteria for satisfying the tiers are the same for all similarly situated companies. Companies are not forced or required to utilize the complimentary products and services as a condition of listing. All companies will continue to receive some level of free services. sroberts on DSK5SPTVN1PROD with FRONT MATTER B. Self-Regulatory Organization’s Statement on Burden on Competition The Exchange does not believe that the proposed rule change will impose any burden on competition that is not necessary or appropriate in furtherance of the purposes of the Act. The proposed change simply expands the universe of products and services offered to certain listed companies. While the value of complimentary products and services offered by the Exchange will increase marginally, such increased value will be offered to all listed companies without regard to size or status. Accordingly, the Exchange does not believe that the proposed change will impose any burden on competition. C. Self-Regulatory Organization’s Statement on Comments on the Proposed Rule Change Received From Members, Participants, or Others No written comments were solicited or received with respect to the proposed rule change. VerDate Mar<15>2010 21:08 Oct 21, 2013 Jkt 232001 III. Date of Effectiveness of the Proposed Rule Change and Timing for Commission Action Within 45 days of the date of publication of this notice in the Federal Register or within such longer period (i) as the Commission may designate up to 90 days of such date if it finds such longer period to be appropriate and publishes its reasons for so finding or (ii) as to which the self-regulatory organization consents, the Commission will: (A) By order approve or disapprove the proposed rule change, or (B) Institute proceedings to determine whether the proposed rule change should be disapproved. 62891 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–NYSE– 2013–68 and should be submitted on or before November 12, 2013. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.9 Kevin M. O’Neill, Deputy Secretary. [FR Doc. 2013–24637 Filed 10–21–13; 8:45 am] 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– NYSE–2013–68 on the subject line. BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–70654; File No. SR–Phlx– 2013–76] Self-Regulatory Organizations; NASDAQ OMX PHLX LLC; Order Granting Approval to Proposed Rule Change Relating to the Discontinuation of the Differentiation of Price Improvement XL Orders of Less Than 50 Contracts Paper Comments October 10, 2013. • 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–NYSE–2013–68. This file number should be included on the subject line if email is used. To help the Commission process and review your comments more efficiently, please use only one method. The Commission will post all comments on the Commission’s Internet Web site (https://www.sec.gov/ rules/sro.shtml). Copies of the submission, all subsequent amendments, all written statements with respect to the proposed rule change that are filed with the Commission, and all written communications relating to the proposed rule change between the Commission and any person, other than those that may be withheld from the public in accordance with the provisions of 5 U.S.C. 552, will be available for Web site viewing and printing in the Commission’s Public Reference Room, 100 F Street NE., Washington, DC 20549 on official business days between the hours of I. Introduction PO 00000 Frm 00309 Fmt 4703 Sfmt 4703 On August 16, 2013, NASDAQ OMX PHLX LLC (the ‘‘Exchange’’ or ‘‘Phlx’’) filed with the Securities and Exchange Commission (‘‘Commission’’) pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (‘‘Act’’)1 and Rule 19b–4 thereunder,2 a proposed rule change to end the different treatment of orders of less than 50 contracts entered into Phlx’s Price Improvement XL auction (‘‘PIXL,’’ ‘‘PIXL Auction,’’ or ‘‘Auction’’). The proposed rule change was published for comment in the Federal Register on August 27, 2013.3 The Commission received no comments on the proposal. This order approves the proposed rule change. II. Description of the Proposal Phlx Rule 1080(n) provides a price improvement mechanism in which a member (an ‘‘Initiating Member’’) may electronically submit for execution an order it represents as agent on behalf of 9 17 CFR 200.30–3(a)(12). U.S.C. 78s(b)(1). 2 17 CFR 240.19b–4. 3 See Securities Exchange Act Release No. 70242 (August 21, 2013), 78 FR 52991 (August 27, 2013) (‘‘Notice’’). 1 15 E:\FR\FM\22OCN1.SGM 22OCN1 sroberts on DSK5SPTVN1PROD with FRONT MATTER 62892 Federal Register / Vol. 78, No. 204 / Tuesday, October 22, 2013 / Notices a public customer, broker-dealer, or any other entity (the ‘‘PIXL Order’’) against principal interest or against any other order it represents as agent, provided that such Initiating Member submits the PIXL Order for electronic execution into the one-second long PIXL Auction. Phlx rules currently provide that if a PIXL Order 4 is a public customer order and is for 50 contracts or more, the Initiating Member must stop the entire PIXL Order at a price that is equal to or better than the National Best Bid or Offer (‘‘NBBO’’) on the opposite side of the market from the PIXL Order, provided that such price must be at least one minimum price improvement increment (as determined by the Exchange but not smaller than one cent) better than any limit order on the limit order book on the same side of the market as the PIXL Order.5 Phlx rules also provide that if the PIXL Order is for a non-public customer and is for 50 contracts or more, the Initiating Member must stop the entire PIXL Order at a price that is the better of: (i) the PBBO price improved by at least one minimum price improvement increment on the same side of the market as the PIXL Order; or (ii) the PIXL Order’s limit price (if the order is a limit order), provided in either case that such price is at or better than the NBBO.6 However, Phlx rules currently provide different treatment if the PIXL Order is for fewer than 50 contracts. Specifically, if the PIXL Order is a public customer order and is less than 50 contracts, the Initiating Member must stop the entire PIXL Order at a price that is the better of: (i) the PBBO price on the opposite side of the market from the PIXL Order, improved by at least one minimum price improvement increment; or (ii) the PIXL Order’s limit price (if the order is a limit order), provided in either case that such price is at or better than the NBBO, and at least one price improvement increment better than any limit order on the book on the same side of the market as the PIXL Order.7 Phlx rules also provide that if the PIXL Order is for a non-public customer and is for less than 50 contracts, the Initiating Member must stop the entire PIXL Order at a price that is the better of: (i) the PBBO price improved by at least one minimum price improvement increment on the same side of the market as the PIXL Order; or (ii) the PIXL Order’s limit price (if the order is 4 Phlx Rule 1080(n)(1)(A)–(B) does not apply to Complex Orders. For Complex Orders, see Phlx Rule 1080(n)(i)(C). 5 Phlx Rule 1080(n)(i)(A)(1). 6 Phlx Rule 1080(n)(i)(B)(1) 7 Phlx Rule 1080(n)(i)(A)(2) VerDate Mar<15>2010 21:08 Oct 21, 2013 Jkt 232001 a limit order), provided in either case that such price is at or better than the NBBO and at least one price improvement increment better than the PBBO on the opposite side of the market from the PIXL Order.8 The Exchange is proposing to discontinue the differentiation between PIXL Orders for less than 50 contracts and PIXL Orders for 50 contracts or greater.9 As a result, all PIXL Orders, regardless of their size, will be treated the same as PIXL Orders that are 50 contracts or greater.10 To initiate an Auction for public customer orders, the Initiating Member will be required to stop the entire PIXL Order at a price that is equal to or better than the NBBO on the opposite side of the market from the PIXL Order, provided that such price was at least one price improvement increment (no smaller than one cent) better than any limit order on the limit order book on the same side of the market as the PIXL Order. To initiate an Auction for non-public customer orders where the order is for the account of a broker-dealer or any other person or entity that is not a public customer, the Initiating Member will be required to stop the entire PIXL Order at a price that is the better of: (i) the PBBO price improved by at least one minimum price improvement increment on the same side of the market as the PIXL Order; or (ii) the PIXL Order’s limit price (if the order is a limit order), provided that in either case that such price is at or better than the NBBO. All public customers will continue to have priority at each price level in accordance with Phlx Rule 1080(n)(ii)(E).11 Consistent with the current treatment of PIXL Orders of 50 contracts or greater in size, Phlx will consider resting quotes and orders for allocation at the end of the Auction with all prices that improve the stop price being considered first. At each given price point, Phlx will execute public customer interest in a price/time fashion such that all public customer interest that was resting on the order book is satisfied before any other interest that arrived after the Auction was initiated. After public customer interest at a given 8 Phlx Rule 1080(n)(i)(B)(2). Exchange is making conforming changes throughout subsection (n) of Rule 1080 to delete any rule text that differentiates PIXL procedures based on size. 10 This proposal does not affect the pilot program established in Phlx Rule 1080(n)(vii) regarding no required minimum size for orders to be eligible for PIXL Auctions. The Exchange notes that it will continue periodically providing the pilot reports to the Commission through July 18, 2014, or as required pursuant to the subsection (n)(vii) pilot. See Notice, supra note 3, at 78 FR 52992, fn. 5. 11 See Notice, supra note 3, at 78 FR 52992. 9 The PO 00000 Frm 00310 Fmt 4703 Sfmt 4703 price point has been satisfied, remaining contracts will be allocated among all Exchange quotes, orders and Auction responses in accordance with the rules set forth in 1080(n)(ii)(E)(2) based on the manner in which the PIXL Order was submitted. III. Discussion and Commission Findings After carefully considering the proposal, the Commission finds that the proposed rule change is consistent with the requirements of the Act and the rules and regulations thereunder applicable to a national securities exchange 12 and, in particular, the requirements of Section 6 of the Act.13 Specifically, the Commission finds that the proposed rule change is consistent with Section 6(b)(5) of the Act,14 which requires, among other things, that the rules of a national securities exchange be designed to promote just and equitable principles of trade, remove impediments to and perfect the mechanisms of a free and open market and a national market system and, in general, to protect investors and the public interest. Under this proposal, a PIXL Order submitted to the PIXL Auction, regardless of its size, will be guaranteed an execution price of at least the NBBO and, moreover, will be given an opportunity to receive an execution at a price better than the NBBO. Public customer orders of fewer than 50 contracts will not, however, be guaranteed price improvement over the NBBO. In the Notice, the Exchange explained that, when it first implemented PIXL, the differentiation provision ‘‘was a means to ensure some level of price improvement for smaller orders.’’ 15 Phlx now believes the differentiation provision ‘‘is unnecessary and indeed is counterproductive to the [Exchange’s] goal of treating all PIXL Orders equally regardless of PIXL Order size.’’ 16 Phlx argued that, while the proposal removes the guarantee of price improvement for smaller initiating orders, it should benefit customers ‘‘because it will encourage the entry of more orders into PIXL, thus it is more likely that such orders may receive price improvement.’’ 17 Phlx asserted that its proposal is consistent with the 12 In approving this proposed rule change the Commission has considered the proposed rule’s impact on efficiency, competition, and capital formation. 15 U.S.C. 78c(f). 13 15 U.S.C. 78f. 14 15 U.S.C. 78f(b)(5). 15 Notice, supra note 3, at 78 FR 52992. 16 Id. 17 Id. at 52993. E:\FR\FM\22OCN1.SGM 22OCN1 sroberts on DSK5SPTVN1PROD with FRONT MATTER Federal Register / Vol. 78, No. 204 / Tuesday, October 22, 2013 / Notices Exchange Act because, among other things, Phlx ‘‘believes strongly that it should encourage such price discovery, and the removal of the [d]ifferentiation [p]rovision would help to achieve this and more generally, benefit investors by offering more opportunities for customers and non-customers to receive price improvement.’’ 18 Thus, Phlx believes that removing the differentiation provision ‘‘will attract new order flow that might not currently be afforded any price improvement opportunity into PIXL.’’ 19 In further support of its proposal, Phlx noted that other exchanges, including the International Securities Exchange and the BOX Options Exchange, do not guarantee price improvement over the NBBO today, and that Phlx is at a competitive disadvantage in continuing the differentiation provision.20 Phlx also cited to the BOX Options Exchange as having rules that do not differentiate price improvement opportunities based on the order size.21 While Phlx’s proposal will eliminate the current guarantee of price improvement it provides to public customer orders of fewer than 50 contracts, the Commission notes that some other exchanges do not provide such benefit in their price improvement mechanisms.22 Phlx asserts that removal of the differentiation provision may remove this competitive disadvantage and may increase the likelihood of members entering orders into PIXL, which can benefit such orders by exposing them for price improvement. For example, a member may only be willing to trade with a PIXL Order at the NBBO but not better than the NBBO. In that scenario, Phlx’s proposal could remove the disincentive for such member to submit the order to a PIXL Auction, which ultimately could result in price improvement for the PIXL Order if a competitive responder to the Auction offers to trade with the PIXL Order at an improved price. The Commission therefore believes that, to the extent it may encourage greater submission of customer orders to the PIXL price improvement auction, Phlx’s proposal is designed to promote just and equitable principles of trade and protect investors and the public interest. The Commission notes that Phlx is not proposing to change any other provision of PIXL in this proposal. For example, orders entered into PIXL will 18 Id. at 52992. id. at 52993. 21 See id. at 52992. 22 See, e.g., BOX Rule 7150 and ISE Rule 723. continue to be exposed to all Phlx members before the initiating member can execute against the PIXL order. Further, Phlx is not proposing any changes to the fact that public customer orders are afforded priority at each price point in a PIXL Auction. Further, once an order is entered into PIXL, it may not be cancelled by the initiating member and thus is exposed for possible price improvement. In addition, the PIXL Order will still be guaranteed an execution price of at least the NBBO. The Commission also notes that the proposal does not have any impact on the pilot program established in Phlx Rule 1080(n)(vii) regarding no required minimum size for orders to be eligible for the PIXL. Thus, the Commission and the Exchange will continue to have access to data that will help assess competition within the PIXL. IV. Conclusion VerDate Mar<15>2010 21:08 Oct 21, 2013 Jkt 232001 19b–4(n)(1)(i) 2 thereunder.3 On April 19, 2013, NSCC filed with the Commission Amendment No. 1 to the Advance Notice, which the Commission published for comment in the Federal Register on May 1, 2013.4 On May 20, 2013, the Commission extended the period of review of the Advance Notice, as modified by Amendment No. 1.5 On June 11, 2013, NSCC filed with the Commission Amendment No. 2 to the Advance Notice, as previously modified by Amendment No. 1, which the Commission published for comment in the Federal Register on July 15, 2013.6 As of October 15, 2013, the Commission had received 22 comment letters on the proposal contained in the Advance Notice and its related Proposed Rule Change,7 including NSCC’s two responses to the comment letters received as of August 20, 2013.8 2 17 CFR 240.19b–4(n)(1)(i). also filed the proposal contained in the Advance Notice as proposed rule change SR– NSCC–2013–02 (‘‘Proposed Rule Change’’) under Section 19(b)(1) of the Securities and Exchange Act of 1934 (‘‘Exchange Act’’) and Rule 19b–4 thereunder. Release No. 34–69313 (Apr. 4, 2013), 78 FR 21487 (Apr. 10, 2013). On April 19, 2013, NSCC filed Amendment No. 1 to the Proposed Rule Change, which, on May 22, 2013, the Commission published notice of and designated a longer period of review for Commission action on the Proposed Rule Change, as modified by Amendment No. 1. Release No. 34–69620 (May 22, 2013), 78 FR 32292 (May 29, 2013). On June 11, 2013, NSCC filed Amendment No. 2 to the Proposed Rule Change, which the Commission published notice of with an order instituting proceedings to determine whether to approve or disapprove the Proposed Rule Change (‘‘Order Instituting Proceedings’’). Release No. 34– 69951 (Jul. 9, 2013), 78 FR 42140 (Jul. 15, 2013). On September 25, 2013, the Commission designated a longer period of review for Commission action on the Order Instituting Proceedings. Release No. 34– 70501 (Sep. 25, 2013), 78 FR 60347 (Oct. 1, 2013). On October 7, 2013, NSCC filed Amendment No. 3 to the Proposed Rule Change, of which the Commission published notice. Release No. 34– 70688 (Oct. 15, 2013). The proposal in the Advance Notice, as amended, and the Proposed Rule Change, as amended, shall not take effect until all regulatory actions required with respect to the proposal are completed. 4 Release No. 34–69451 (Apr. 25, 2013), 78 FR 25496 (May 1, 2013). 5 Release No. 34–69605 (May 20, 2013), 78 FR 31616 (May 24, 2013). 6 Release No. 34–69954 (Jul. 9, 2013), 78 FR 42127 (Jul. 15, 2013). 7 See Comments Received on File Nos. SR– NSCC–2013–02 (https://sec.gov/comments/sr-nscc2013-02/nscc201302.shtml) and SR–NSCC–2013– 802 (https://sec.gov/comments/sr-nscc-2013-802/ nscc2013802.shtml). Since the proposal contained in the Advance Notice was also filed as a Proposed Rule Change, see Release No. 34–69313, supra note 3, the Commission is considering all public comments received on the proposal regardless of whether the comments are submitted to the Advance Notice, as amended, or the Proposed Rule Change, as amended. 8 NSCC also received a comment letter directly prior to filing the Advance Notice and related Proposed Rule Change with the Commission, which NSCC provided to the Commission in Amendment 3 NSCC It is therefore ordered, pursuant to Section 19(b)(2) of the Act,23 that the proposed rule change (SR–Phlx–2013– 76) be, and hereby is, approved. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.24 Kevin M. O’Neill, Deputy Secretary. [FR Doc. 2013–24649 Filed 10–21–13; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–70689; File No. SR–NSCC– 2013–802] Self-Regulatory Organizations; National Securities Clearing Corporation; Notice of Filing Amendment No. 3 to Advance Notice, as Previously Modified by Amendment Nos. 1 and 2, To Institute Supplemental Liquidity Deposits to Its Clearing Fund Designed To Increase Liquidity Resources To Meet Its Liquidity Needs October 15, 2013. On March 21, 2013, National Securities Clearing Corporation (‘‘NSCC’’) filed with the Securities and Exchange Commission (‘‘Commission’’) advance notice SR–NSCC–2013–802 (‘‘Advance Notice’’) pursuant to Section 806(e)(1) of the Payment, Clearing, and Settlement Supervision Act of 2010 (‘‘Clearing Supervision Act’’) 1 and Rule 19 Id. 20 See 62893 23 15 U.S.C. 78s(b)(2). CFR 200.30–3(a)(12). 1 12 U.S.C. 5465(e)(1). 24 17 PO 00000 Frm 00311 Fmt 4703 Sfmt 4703 Continued E:\FR\FM\22OCN1.SGM 22OCN1

Agencies

[Federal Register Volume 78, Number 204 (Tuesday, October 22, 2013)]
[Notices]
[Pages 62891-62893]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2013-24649]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-70654; File No. SR-Phlx-2013-76]


Self-Regulatory Organizations; NASDAQ OMX PHLX LLC; Order 
Granting Approval to Proposed Rule Change Relating to the 
Discontinuation of the Differentiation of Price Improvement XL Orders 
of Less Than 50 Contracts

October 10, 2013.

I. Introduction

    On August 16, 2013, NASDAQ OMX PHLX LLC (the ``Exchange'' or 
``Phlx'') filed with the Securities and Exchange Commission 
(``Commission'') pursuant to Section 19(b)(1) of the Securities 
Exchange Act of 1934 (``Act'')\1\ and Rule 19b-4 thereunder,\2\ a 
proposed rule change to end the different treatment of orders of less 
than 50 contracts entered into Phlx's Price Improvement XL auction 
(``PIXL,'' ``PIXL Auction,'' or ``Auction''). The proposed rule change 
was published for comment in the Federal Register on August 27, 
2013.\3\ The Commission received no comments on the proposal. This 
order approves the proposed rule change.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Securities Exchange Act Release No. 70242 (August 21, 
2013), 78 FR 52991 (August 27, 2013) (``Notice'').
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II. Description of the Proposal

    Phlx Rule 1080(n) provides a price improvement mechanism in which a 
member (an ``Initiating Member'') may electronically submit for 
execution an order it represents as agent on behalf of

[[Page 62892]]

a public customer, broker-dealer, or any other entity (the ``PIXL 
Order'') against principal interest or against any other order it 
represents as agent, provided that such Initiating Member submits the 
PIXL Order for electronic execution into the one-second long PIXL 
Auction. Phlx rules currently provide that if a PIXL Order \4\ is a 
public customer order and is for 50 contracts or more, the Initiating 
Member must stop the entire PIXL Order at a price that is equal to or 
better than the National Best Bid or Offer (``NBBO'') on the opposite 
side of the market from the PIXL Order, provided that such price must 
be at least one minimum price improvement increment (as determined by 
the Exchange but not smaller than one cent) better than any limit order 
on the limit order book on the same side of the market as the PIXL 
Order.\5\ Phlx rules also provide that if the PIXL Order is for a non-
public customer and is for 50 contracts or more, the Initiating Member 
must stop the entire PIXL Order at a price that is the better of: (i) 
the PBBO price improved by at least one minimum price improvement 
increment on the same side of the market as the PIXL Order; or (ii) the 
PIXL Order's limit price (if the order is a limit order), provided in 
either case that such price is at or better than the NBBO.\6\
---------------------------------------------------------------------------

    \4\ Phlx Rule 1080(n)(1)(A)-(B) does not apply to Complex 
Orders. For Complex Orders, see Phlx Rule 1080(n)(i)(C).
    \5\ Phlx Rule 1080(n)(i)(A)(1).
    \6\ Phlx Rule 1080(n)(i)(B)(1)
---------------------------------------------------------------------------

    However, Phlx rules currently provide different treatment if the 
PIXL Order is for fewer than 50 contracts. Specifically, if the PIXL 
Order is a public customer order and is less than 50 contracts, the 
Initiating Member must stop the entire PIXL Order at a price that is 
the better of: (i) the PBBO price on the opposite side of the market 
from the PIXL Order, improved by at least one minimum price improvement 
increment; or (ii) the PIXL Order's limit price (if the order is a 
limit order), provided in either case that such price is at or better 
than the NBBO, and at least one price improvement increment better than 
any limit order on the book on the same side of the market as the PIXL 
Order.\7\
---------------------------------------------------------------------------

    \7\ Phlx Rule 1080(n)(i)(A)(2)
---------------------------------------------------------------------------

    Phlx rules also provide that if the PIXL Order is for a non-public 
customer and is for less than 50 contracts, the Initiating Member must 
stop the entire PIXL Order at a price that is the better of: (i) the 
PBBO price improved by at least one minimum price improvement increment 
on the same side of the market as the PIXL Order; or (ii) the PIXL 
Order's limit price (if the order is a limit order), provided in either 
case that such price is at or better than the NBBO and at least one 
price improvement increment better than the PBBO on the opposite side 
of the market from the PIXL Order.\8\
---------------------------------------------------------------------------

    \8\ Phlx Rule 1080(n)(i)(B)(2).
---------------------------------------------------------------------------

    The Exchange is proposing to discontinue the differentiation 
between PIXL Orders for less than 50 contracts and PIXL Orders for 50 
contracts or greater.\9\ As a result, all PIXL Orders, regardless of 
their size, will be treated the same as PIXL Orders that are 50 
contracts or greater.\10\ To initiate an Auction for public customer 
orders, the Initiating Member will be required to stop the entire PIXL 
Order at a price that is equal to or better than the NBBO on the 
opposite side of the market from the PIXL Order, provided that such 
price was at least one price improvement increment (no smaller than one 
cent) better than any limit order on the limit order book on the same 
side of the market as the PIXL Order. To initiate an Auction for non-
public customer orders where the order is for the account of a broker-
dealer or any other person or entity that is not a public customer, the 
Initiating Member will be required to stop the entire PIXL Order at a 
price that is the better of: (i) the PBBO price improved by at least 
one minimum price improvement increment on the same side of the market 
as the PIXL Order; or (ii) the PIXL Order's limit price (if the order 
is a limit order), provided that in either case that such price is at 
or better than the NBBO.
---------------------------------------------------------------------------

    \9\ The Exchange is making conforming changes throughout 
subsection (n) of Rule 1080 to delete any rule text that 
differentiates PIXL procedures based on size.
    \10\ This proposal does not affect the pilot program established 
in Phlx Rule 1080(n)(vii) regarding no required minimum size for 
orders to be eligible for PIXL Auctions. The Exchange notes that it 
will continue periodically providing the pilot reports to the 
Commission through July 18, 2014, or as required pursuant to the 
subsection (n)(vii) pilot. See Notice, supra note 3, at 78 FR 52992, 
fn. 5.
---------------------------------------------------------------------------

    All public customers will continue to have priority at each price 
level in accordance with Phlx Rule 1080(n)(ii)(E).\11\ Consistent with 
the current treatment of PIXL Orders of 50 contracts or greater in 
size, Phlx will consider resting quotes and orders for allocation at 
the end of the Auction with all prices that improve the stop price 
being considered first. At each given price point, Phlx will execute 
public customer interest in a price/time fashion such that all public 
customer interest that was resting on the order book is satisfied 
before any other interest that arrived after the Auction was initiated. 
After public customer interest at a given price point has been 
satisfied, remaining contracts will be allocated among all Exchange 
quotes, orders and Auction responses in accordance with the rules set 
forth in 1080(n)(ii)(E)(2) based on the manner in which the PIXL Order 
was submitted.
---------------------------------------------------------------------------

    \11\ See Notice, supra note 3, at 78 FR 52992.
---------------------------------------------------------------------------

III. Discussion and Commission Findings

    After carefully considering the proposal, the Commission finds that 
the proposed rule change is consistent with the requirements of the Act 
and the rules and regulations thereunder applicable to a national 
securities exchange \12\ and, in particular, the requirements of 
Section 6 of the Act.\13\ Specifically, the Commission finds that the 
proposed rule change is consistent with Section 6(b)(5) of the Act,\14\ 
which requires, among other things, that the rules of a national 
securities exchange be designed to promote just and equitable 
principles of trade, remove impediments to and perfect the mechanisms 
of a free and open market and a national market system and, in general, 
to protect investors and the public interest.
---------------------------------------------------------------------------

    \12\ In approving this proposed rule change the Commission has 
considered the proposed rule's impact on efficiency, competition, 
and capital formation. 15 U.S.C. 78c(f).
    \13\ 15 U.S.C. 78f.
    \14\ 15 U.S.C. 78f(b)(5).
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    Under this proposal, a PIXL Order submitted to the PIXL Auction, 
regardless of its size, will be guaranteed an execution price of at 
least the NBBO and, moreover, will be given an opportunity to receive 
an execution at a price better than the NBBO. Public customer orders of 
fewer than 50 contracts will not, however, be guaranteed price 
improvement over the NBBO.
    In the Notice, the Exchange explained that, when it first 
implemented PIXL, the differentiation provision ``was a means to ensure 
some level of price improvement for smaller orders.'' \15\ Phlx now 
believes the differentiation provision ``is unnecessary and indeed is 
counterproductive to the [Exchange's] goal of treating all PIXL Orders 
equally regardless of PIXL Order size.'' \16\ Phlx argued that, while 
the proposal removes the guarantee of price improvement for smaller 
initiating orders, it should benefit customers ``because it will 
encourage the entry of more orders into PIXL, thus it is more likely 
that such orders may receive price improvement.'' \17\ Phlx asserted 
that its proposal is consistent with the

[[Page 62893]]

Exchange Act because, among other things, Phlx ``believes strongly that 
it should encourage such price discovery, and the removal of the 
[d]ifferentiation [p]rovision would help to achieve this and more 
generally, benefit investors by offering more opportunities for 
customers and non-customers to receive price improvement.'' \18\ Thus, 
Phlx believes that removing the differentiation provision ``will 
attract new order flow that might not currently be afforded any price 
improvement opportunity into PIXL.'' \19\
---------------------------------------------------------------------------

    \15\ Notice, supra note 3, at 78 FR 52992.
    \16\ Id.
    \17\ Id. at 52993.
    \18\ Id.
    \19\ Id. at 52992.
---------------------------------------------------------------------------

    In further support of its proposal, Phlx noted that other 
exchanges, including the International Securities Exchange and the BOX 
Options Exchange, do not guarantee price improvement over the NBBO 
today, and that Phlx is at a competitive disadvantage in continuing the 
differentiation provision.\20\ Phlx also cited to the BOX Options 
Exchange as having rules that do not differentiate price improvement 
opportunities based on the order size.\21\
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    \20\ See id. at 52993.
    \21\ See id. at 52992.
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    While Phlx's proposal will eliminate the current guarantee of price 
improvement it provides to public customer orders of fewer than 50 
contracts, the Commission notes that some other exchanges do not 
provide such benefit in their price improvement mechanisms.\22\ Phlx 
asserts that removal of the differentiation provision may remove this 
competitive disadvantage and may increase the likelihood of members 
entering orders into PIXL, which can benefit such orders by exposing 
them for price improvement. For example, a member may only be willing 
to trade with a PIXL Order at the NBBO but not better than the NBBO. In 
that scenario, Phlx's proposal could remove the disincentive for such 
member to submit the order to a PIXL Auction, which ultimately could 
result in price improvement for the PIXL Order if a competitive 
responder to the Auction offers to trade with the PIXL Order at an 
improved price. The Commission therefore believes that, to the extent 
it may encourage greater submission of customer orders to the PIXL 
price improvement auction, Phlx's proposal is designed to promote just 
and equitable principles of trade and protect investors and the public 
interest.
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    \22\ See, e.g., BOX Rule 7150 and ISE Rule 723.
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    The Commission notes that Phlx is not proposing to change any other 
provision of PIXL in this proposal. For example, orders entered into 
PIXL will continue to be exposed to all Phlx members before the 
initiating member can execute against the PIXL order. Further, Phlx is 
not proposing any changes to the fact that public customer orders are 
afforded priority at each price point in a PIXL Auction. Further, once 
an order is entered into PIXL, it may not be cancelled by the 
initiating member and thus is exposed for possible price improvement. 
In addition, the PIXL Order will still be guaranteed an execution price 
of at least the NBBO.
    The Commission also notes that the proposal does not have any 
impact on the pilot program established in Phlx Rule 1080(n)(vii) 
regarding no required minimum size for orders to be eligible for the 
PIXL. Thus, the Commission and the Exchange will continue to have 
access to data that will help assess competition within the PIXL.

IV. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\23\ that the proposed rule change (SR-Phlx-2013-76) be, and hereby 
is, approved.
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    \23\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\24\
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    \24\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2013-24649 Filed 10-21-13; 8:45 am]
BILLING CODE 8011-01-P
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