Self-Regulatory Organizations; NASDAQ OMX PHLX LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change Regarding the Limitation on Entering Electronic Limit Orders From Off the Floor of the Exchange, 28561-28564 [2014-11295]
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Federal Register / Vol. 79, No. 95 / Friday, May 16, 2014 / Notices
for submission of information under the
Rules. The Commission estimates that it
takes a whistleblower, on average, one
and one-half hours to complete Form
TCR. Based on the receipt of 3,120
annual responses on average for the past
two fiscal years,3 the Commission
estimates that the annual PRA burden of
Form TCR is 4,680 hours.
Form WB–APP is a form that is
submitted by whistleblowers filing a
claim for a whistleblower award. Form
WB–APP is required for application for
an award under the Rules. The
Commission estimates that it takes a
whistleblower, on average, two hours to
complete Form WB–APP. The
completion time depends largely on the
complexity of the alleged violation and
the amount of information the
whistleblower possesses in support of
his or her application for an award.
Based on the receipt of 53 annual
responses on average for the past two
fiscal years, the Commission estimates
that the annual PRA burden of Form
WB–APP is 106 hours.
SECURITIES AND EXCHANGE
COMMISSION
the most significant aspects of such
statements.
[Release No. 34–72152; File No. SR–Phlx–
2014–32]
A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
Self-Regulatory Organizations;
NASDAQ OMX PHLX LLC; Notice of
Filing and Immediate Effectiveness of
Proposed Rule Change Regarding the
Limitation on Entering Electronic Limit
Orders From Off the Floor of the
Exchange
May 12, 2014.
Pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934
(‘‘Act’’),1 and Rule 19b–4 2 thereunder,
notice is hereby given that on May 2,
2014, NASDAQ OMX PHLX LLC
(‘‘Phlx’’ or ‘‘Exchange’’) filed with the
Securities and Exchange Commission
(‘‘SEC’’ or ‘‘Commission’’) the proposed
rule change as described in Items I, 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 the Substance
of the Proposed Rule Change
Written comments are invited on: (a)
Whether this collection of information
is necessary for the proper performance
of the functions of the agency, including
whether the information will have
practical utility; (b) the accuracy of the
agency’s estimate of the burden imposed
by the collection of information; (c)
ways to enhance the quality, utility, and
clarity of the information collected; and
(d) ways to minimize the burden of the
collection of information on
respondents, including through the use
of automated collection techniques or
other forms of information technology.
Consideration will be given to
comments and suggestions submitted in
writing within 60 days of this
publication. Please direct your written
comments to Thomas Bayer, Director/
Chief Information Officer, Securities
and Exchange Commission, c/o Remi
Pavlik-Simon, 100 F St. NE.,
Washington, DC 20549; or send an email
to: PRA_Mailbox@sec.gov.
EMCDONALD on DSK67QTVN1PROD with NOTICES
Estimated annual reporting burden =
4,786 hours
The Exchange is filing with the
Commission a proposal to amend Phlx
Rule 1080 (Phlx XL and Phlx XL II) to
change the limitation on Exchange
members entering, or facilitating entry
of, electronic limit orders in the same
option series from off the floor of the
Exchange, so that the limitation does
not apply to off floor broker dealers or
Professionals as defined in Rule
1000(b)(14).3
The text of the proposed rule change
is available on the Exchange’s Web site
at https://nasdaqomxphlx.cchwall
street.com, at the principal office of the
Exchange, and at the Commission’s
Public Reference Room.
Dated: May 12, 2014.
Kevin M. O’Neill,
Deputy Secretary.
[FR Doc. 2014–11298 Filed 5–15–14; 8:45 am]
BILLING CODE 8011–01–P
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
1 15
3 Fiscal
Year 2012 marks the first full year of
whistleblower program data since the enactment of
the Rules.
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U.S.C. 78s(b)(1).
CFR 240.19b–4.
3 As discussed in the proposal, the limitation will
continue to apply to Professional all-or-none orders.
2 17
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1. Purpose
The purpose of the proposed rule
change is to amend Phlx Rule 1080(j) to
change the limitation on Exchange
members entering, or facilitating entry
of, electronic limit orders in the same
option series from off the floor of the
Exchange (known as ‘‘limitation’’ or
‘‘limitation on orders’’), so that the
limitation does not apply to off floor
broker dealers or Professionals as
defined in Rule 1000(b)(14).4
This proposal will align the Exchange
with other options markets that do not
limit the entry of off floor broker dealer
and Professional limit orders, and
effectively acting as market makers.5
There are, along with specialists,
several types of Registered Option
Traders (‘‘ROTs’’) on the Exchange.
These include market makers that are
Streaming Quote Traders (‘‘SQTs’’),6
Directed Streaming Quote Traders
(‘‘DSQTs’’), Remote Streaming Quote
Traders (‘‘RSQTs’’) 7 and Directed
Remote Streaming Quote Traders
(‘‘DRSQTs’’).8 Specialists may function
4 Per 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).
5 See subsection (b) of International Securities
Exchange (‘‘ISE’’) Rule 717 (Limitations on Orders).
As discussed, while the language of the ISE Rule
717 and Exchange Rule 1080(j) is different, as a
result of this filing the practical effect of the rules
will be similar.
6 An SQT is an ROT who has received permission
from the Exchange to generate and submit option
quotations electronically in eligible options to
which such SQT is assigned. An SQT may only
submit such quotations while such SQT is
physically present on the floor of the Exchange. See
Phlx Rule 1014(b)(ii)(A).
7 An RSQT is an ROT that is a member or member
organization with no physical trading floor
presence who has received permission from the
Exchange to generate and submit option quotations
electronically in eligible options to which such
RSQT has been assigned. An RSQT may only
submit such quotations electronically from off the
floor of the Exchange. See Phlx Rule 1014(b)(ii)(B).
As many as three RSQTs may be affiliated with an
RSQT Organization.
8 A DSQT is an SQT and a DRSQT is an RSQT
that receives a Directed Order. Exchange Phlx Rule
1080(l)(i)(A) defines Directed Order as any
customer order (other than a stop or stop-limit order
as defined in Phlx Rule 1066) to buy or sell which
has been directed to a particular specialist, RSQT,
or SQT by an Order Flow Provider and delivered
to the Exchange via its electronic quoting, execution
and trading system.
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EMCDONALD on DSK67QTVN1PROD with NOTICES
on the floor of the Exchange as well as
off floor (‘‘Remote Specialists’’).9
Current Phlx Rule 1080 developed
from a decades-old pilot program to
operate the Exchange’s Automated
Options market (‘‘AUTOM’’) system to
allow electronic delivery of options
orders from member firms directly to
the appropriate specialist on the
Exchange options trading floor (with
electronic confirmation of order
executions).10 The AUTOM order
delivery system grew over the years into
the current fully automated Phlx
options trading system XL II 11 that is
codified in Phlx Rule 1080. In addition
to XL II, Phlx Rule 1080 deals with,
among other things, eligibility and
processing of electronic orders, how
PIXL works, complex PIXL orders,12
qualified contingent cross orders,13 and
acceptable trade range.14
Subsection (j) of Phlx Rule 1080 sets
forth the limitation on orders.
Subsection (j) states that members 15
shall not enter, or facilitate entry into
AUTOM, as principal or agent, limit
orders in the same options series from
off the floor of the Exchange, for the
account or accounts of the same or
9 A Remote Specialist is an options specialist in
one or more classes that does not have a physical
presence on an Exchange floor and is approved by
the Exchange pursuant to Phlx Rule 501. Phlx Rule
1020.
10 See Securities Exchange Act Release No. 25540,
53 FR 11390 (April 6, 1988) (SR–Phlx–88–10) (order
granting approval of pilot program establishing
AUTOM). See also Phlx Rule 1080(a) discussing
AUTOM: (a) AUTOM is the Exchange’s electronic
order delivery and reporting system, which
provides for the automatic entry and routing of
Exchange-listed equity options, index options and
U.S. dollar-settled foreign currency options orders
to the Exchange trading floor. Orders delivered
through AUTOM may be executed manually, or
certain orders are eligible for AUTOM’s automatic
execution feature, AUTO–X, in accordance with the
provisions of this Rule. Equity option, index option
and U.S. dollar-settled foreign currency option
specialists are required by the Exchange to
participate in AUTOM and its features and
enhancements. Option orders entered by Exchange
member organizations into AUTOM are routed to
the appropriate specialist unit on the Exchange
trading floor. AUTOM and AUTO–X were replaced
by the Phlx XL System, such that references to both
terms refer to Phlx XL.
11 See Securities Exchange Act Release No. 50100
(July 27, 2004), 69 FR 46612 (August 3, 2004) (SR–
Phlx–2003–59) (order granting approval of the
Exchange’s new electronic trading system Phlx XL,
now known as XL II). The electronic trading system
has continued being enhanced. See, e.g., Securities
Exchange Act Release Nos. 63027 (October 1, 2010),
75 FR 62160 (October 7, 2010) (SR–Phlx–2010–108)
(order granting approval of Price Improvement XL,
PIXL); and 69845 (June 25, 2013), 78 FR 39429 (July
1, 2013) (SR–Phlx–2013–46) (order granting
approval of Complex Order PIXL).
12 Phlx Rule 1080(n). This section allows sixlegged complex orders into PIXL.
13 Phlx Rule 1080(o).
14 Phlx Rule 1080(p).
15 Phlx Rule 900.2 indicates how potential
members may seek admission to the Exchange.
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related beneficial owners, in such a
manner that the off-floor member or the
beneficial owner(s) effectively is
operating as a market maker by holding
itself out as willing to buy and sell such
options contract on a regular or
continuous basis.16 The current
restriction on all limit orders is no
longer needed or advisable.
The Exchange proposes to change the
limitation in subsection (j) of Phlx Rule
1080 so that it is not applicable to off
floor broker dealer limit orders or
Professional limit orders (except
Professional all-or-none orders).
Specifically, the Exchange proposes at
the end of subsection (j) to state that the
limitation set forth in this rule 1080(j)
does not apply to the accounts of off
floor broker dealers or Professionals as
the term is defined in Rule 1000(b)(14).
Notwithstanding the foregoing, the
limitation set forth in Rule 1080(j) will
continue to apply to all-or-none orders
submitted by Professionals to the
Exchange.17 This is because
Professionals are treated in the same
manner as off-floor broker dealers for
purposes of priority, but would have
priority akin to customers in terms of
all-or none order submitted to the
Exchange.18 Moreover, nonProfessional, non-broker-dealer
customer orders have priority over
Professional orders.19 The proposed
language change would make the
Exchange limitation similar to that
found on another options market,
namely ISE.
Subsection (j) of Phlx Rule 1080, as
amended, is substantially similar in its
practical effect to ISE Rule 717, which
disallows entry of Priority Customer 20
16 In
determining whether an off-floor member or
beneficial owner effectively is operating as a market
maker, the Exchange will consider, among other
things: The simultaneous or near-simultaneous
entry of limit orders to buy and sell the same
options contract; the multiple acquisition and
liquidation of positions in the same options series
during the same day; and the entry of multiple limit
orders at different prices in the same options series.
Phlx Rule 1080(j).
17 Post filing, in addition to Professional all-ornone orders submitted to the Exchange, the
limitation would continue to apply to nonProfessional customer orders. The Exchange defines
customer per Rule 1083(f) as an individual or
organization that is not a broker dealer; nonProfessional customer refers to an individual or
organization that is neither a Professional nor a
broker dealer.
18 See, e.g., Rule 1014(g).
19 Rule 1014(g)(vii).
20 Unlike ISE, the Exchange does not currently
have a separate category called Priority Customer.
However, as discussed, after this filing the practical
effect of the ISE and Exchange rules will be similar.
As proposed herein the limitation would not be
applicable to broker dealer orders and Professional
Orders, similarly to ISE. See Securities Exchange
Act Release No. 63017 (September 29, 2010), 75 FR
61795 (October 6, 2010) (SR–ISE–2010–95) (ISE
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limit orders in the same options series.
In a similar manner, the Exchange
proposal in subsection (j) disallows
entry of limit orders in the same options
series from off the floor of the Exchange,
except for off floor broker dealers and
Professionals. As such, the proposal is
pro-competitive because it would allow
entry of orders on the Exchange similar
to those that are allowed on other
markets. Changing the limitation to
exclude off floor broker dealers and
Professionals, being competitive in
nature, is beneficial for market
participants and investors.
Moreover, the current limitation for
all limit orders is no longer needed or
desirable. The limitation was added
more than a dozen years ago 21 when
Exchange options trading was rooted in
the on-floor auction model with a
traditional open outcry trading floor.
When the limitation was added for all
limit orders, electronic market makers
such as Remote Specialists, SQTs, and
RSQTs (together known as ‘‘electronic
market makers’’) did not exist; 22 the
options trading floor was principally
populated by on-floor trading crowds.
At the time of the limitation filing,
when rules and processes for electronic
market makers were not yet fully
established, there was a concern that
certain off-floor traders had the ability
to engage in simultaneous or nearsimultaneous entry of limit orders,
thereby effectively functioning as
market makers from off the floor of the
Exchange.23 Over the last eight years,
however, the traditional open outcry
trading floor on the Exchange has
evolved into a robust, predominantly
does not believe necessary to impose ISE Rule 717
limitations on Priority Orders, which exclude
broker dealers, and Voluntary Professionals because
they are not subject to priority that is any better
than market makers). In note 7 of its filing, ISE
noted that the Commission has previously found
that it is consistent with the Act for an options
exchange not to prohibit a user of its market from
effectively operating as a market maker by holding
itself out as willing to buy and sell options
contracts on a regular or continuous basis without
registering as a market maker. See Securities
Exchange Act Release No. 57478 (March 12, 2008),
73 FR 14521 (March 18, 2008) (SR–NASDAQ–2007–
004).
21 See Securities Exchange Act Release No. 43939
(February 7, 2001), 66 FR 10547 (February 15, 2001)
(SR–Phlx–2001–05) (notice of filing and immediate
effectiveness adopting Phlx Rule 1080(j)) (the
‘‘limitation filing’’).
22 Electronic market makers including RSQTs and
Remote Specialists were introduced, and became
prevalent, in the last eight years. See Securities
Exchange Act Release Nos. 51126 (February 2,
2005), 70 FR 6915 (February 9, 2005) (SR–Phlx–
2004–90) (approval order relating to establishment
of RSQTs); and 63717 (January 14, 2011), 76 FR
4141 (January 24, 2011) (SR–Phlx–2010–145)
(approval order relating to establishment of options
Remote Specialists).
23 See 66 FR 10547, 10548.
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Federal Register / Vol. 79, No. 95 / Friday, May 16, 2014 / Notices
electronic trading environment, with
significantly fewer on-floor traders than
off-floor traders and electronic market
makers working through the Exchange’s
electronic trading system, XL II. As
such, although the limitation was
developed for a traditional trading floor
that was only beginning to introduce
electronic trading, the limitation on all
limit orders from off the floor no longer
makes sense in the current welldeveloped, predominantly electronic
trading environment on the Exchange,
where electronic market makers (and
electronic market making including
from off the floor) are no longer the
exception but rather the norm.
The Exchange is also proposing to
change the word ‘‘AUTOM’’ to ‘‘Phlx
XL’’ to conform subsection (j) of Phlx
Rule 1080 to the language of Rule
1080.24 Because AUTOM does not exist
anymore, this change is done for
purposes of clarity and to minimize
potential confusion.
The Exchange notes that changing the
limitation as proposed would ensure
that the current limitation against all
members and market participants
entering limit orders into Phlx XL in the
same options series from off the floor of
the Exchange, does not apply to off floor
broker dealers or Professionals. This
makes sense in the current highlydeveloped electronic trading
environment that operates alongside the
traditional on-floor trading system.25
Off-floor electronic market makers,
including those that are broker dealers
or Professionals, are now a known and
time-tested component of the Exchange
that adds significant liquidity and depth
to the benefit of market participants.
The Exchange believes that changing the
limitation should result in tighter bid
ask spreads for all market participants
wishing to access posted liquidity.
EMCDONALD on DSK67QTVN1PROD with NOTICES
2. Statutory Basis
The Exchange believes that its
proposal is consistent with Section 6(b)
of the Act 26 in general, and furthers the
objectives of Section 6(b)(5) of the Act 27
in particular, in that it is designed to
promote just and equitable principles of
trade, to remove impediments to and
perfect the mechanism of a free and
open market and a national market
system, and, in general to protect
investors and the public interest, by
changing the current order limitation so
24 See
supra note 10.
25 The Exchange notes that like other older
options markets (e.g., Chicago Board Options
Exchange), it continues to operate a hybrid trading
system.
26 15 U.S.C. 78f(b).
27 15 U.S.C. 78f(b)(5).
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that the limitation no longer applies to
off floor broker dealers or Professionals.
First, although the limitation on
orders was added more than a dozen
years ago when Exchange options
trading was rooted in the on-floor
auction model with a traditional open
outcry trading floor, the Exchange
trading system has developed into the
robust, predominantly electronic trading
system where most orders, whether
limit or other orders, are entered from
off the floor of the Exchange. The
current expansive limitation is no
longer needed, and is counterproductive in its current form. Second,
because broker dealer and Professional
orders, which tend to increase liquidity,
are not subject to priority on the
Exchange that is any better than other
market makers, or, for that matter, nonProfessional customers (except for
Professional all-or-none orders), the
Exchange does not believe that it is
necessary to impose the Rule 1080(j)
restrictions on the entry of off floor
broker dealer or Professional limit
orders (except for Professional all-ornone orders). In that non-Professional
customer orders are provided with
certain benefits such as priority on the
Exchange, see Phlx Rule 1014(g) and
1080(n)(ii)(E), the Exchange believes
that the limitation applicable to nonProfessional customers is
counterbalanced by their priority and it
is proper for the limitation to continue
to apply. The Exchange believes that the
removal of the limitation on off floor
broker dealers and Professionals, while
continuing to apply the limitation to allor-none orders submitted by
Professionals to the Exchange 28 will
permit entry of orders on both sides of
the market more freely, resulting in
more orders on the Exchange book and
therefore increase liquidity on the
Exchange market, all to the benefit of
investors. And third, changing the
limitation is competitive vis a vis other
options exchanges that have a limitation
that, as proposed herein, effectively
does not apply to off floor broker dealers
or Professionals. By promoting
competition, the proposal may also lead
to tighter, more efficient markets to the
benefit of market participants including
public investors that engage in trading
and hedging on the Exchange.
B. Self-Regulatory Organization’s
Statement on Burden on Competition
The Exchange does not believe that
the proposed rule change will impose
any burden on competition not
necessary or appropriate in furtherance
28 See supra notes 18 and 19 and text regarding
priority.
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28563
of the purposes of the Act. To the
contrary, the proposal further promotes
competition on the Exchange which
should lead to tighter, more efficient
markets to the benefit of market
participants including public investors
that engage in trading and hedging on
the Exchange, and thereby make the
Exchange a desirable market vis a vis
other options exchanges.
C. Self-Regulatory Organization’s
Statement on Comments on the
Proposed Rule Change Received From
Members, Participants, or Others
No written comments were either
solicited or received.
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 29 and
subparagraph (f)(6) of Rule 19b–4
thereunder.30
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.
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
15 U.S.C. 78s(b)(3)(a) [sic].
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
30
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• Send an email to rule-comments@
sec.gov. Please include File Number SR–
Phlx–2014–32 on the subject line.
Paper Comments
• Send paper comments in triplicate
to Secretary, Securities and Exchange
Commission, 100 F Street NE.,
Washington, DC 20549–1090.
All submissions should refer to File
Number SR–Phlx–2014–32. This file
number should be included on the
subject line if email is used. To help the
Commission process and review your
comments more efficiently, please use
only one method. The Commission will
post all comments on the Commission’s
Internet Web site (https://www.sec.gov/
rules/sro.shtml). Copies of the
submission, all subsequent
amendments, all written statements
with respect to the proposed rule
change that are filed with the
Commission, and all written
communications relating to the
proposed rule change between the
Commission and any person, other than
those that may be withheld from the
public in accordance with the
provisions of 5 U.S.C. 552, will be
available for Web site viewing and
printing in the Commission’s Public
Reference Room, 100 F Street NE.,
Washington, DC 20549, on official
business days between the hours of
10:00 a.m. and 3:00 p.m. Copies of such
filing also will be available for
inspection and copying at the principal
offices 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–
2014–32, and should be submitted on or
before June 6, 2014.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.31
Kevin M. O’Neill,
Deputy Secretary.
[FR Doc. 2014–11295 Filed 5–15–14; 8:45 am]
[Release No. 34–72149; File No. SR–BX–
2014–024]
Self-Regulatory Organizations;
NASDAQ OMX BX, Inc.; Notice of Filing
and Immediate Effectiveness of
Proposed Rule Change To Consolidate
Certain Committee Functions Into the
BX Review Council
May 12, 2014.
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 April 30,
2014, NASDAQ OMX BX, Inc. (‘‘BX’’ 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 the Substance
of the Proposed Rule Change
BX proposes a rule change to
consolidate responsibilities of certain
committees of the Board of Directors
and to make related changes to the
Exchange By-Laws and Rules.
The text of the proposed rule change
is available from BX’s Web site at https://
nasdaqomxbx.cchwallstreet.com, at
BX’s principal office, and at the
Commission’s Public Reference Room.
II. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
In its filing with the Commission, the
Exchange included statements
concerning the purpose of and basis for
the proposed rule change and discussed
any comments it received on the
proposed rule change. The text of 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
BILLING CODE 8011–01–P
EMCDONALD on DSK67QTVN1PROD with NOTICES
SECURITIES AND EXCHANGE
COMMISSION
1. Purpose
The Exchange is proposing to expand
the regulatory responsibilities of the
1 15
31
17 CFR 200.30–3(a)(12).
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2 17
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U.S.C. 78s(b)(1).
CFR 240.19b–4.
Frm 00092
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Exchange Review Council (the ‘‘Review
Council’’), a committee of the Exchange
Board of Directors (the ‘‘Board’’) not
composed solely of Directors, to include
responsibilities of other Board
committees not composed solely of
Directors and consequently sunset those
committees. The Exchange’s committee
structure and related Exchange By-Laws
are largely based on those of its sister
exchange NASDAQ,3 which are largely
based on those of NASD (now known as
FINRA) and were adopted pursuant to
NASDAQ’s approval as a national
securities exchange.4 The Exchange is
proposing to make its committee
structure more efficient and effective by
vesting the Review Council, which is a
committee of the Board with both
adjudicatory and policy responsibilities,
with the adjudicatory responsibilities of
the Market Operations Review
Committee (‘‘MORC’’) and with the
advisory role of the Market Regulation
Committee.
Review Council
The Review Council is a Board
committee charged with considering
and making recommendations to the
Board on policy and rule changes
relating to business and sales practices
of members and associated persons and
enforcement policies, including policies
with respect to fines and other
sanctions. The Review Council is also
an adjudicatory body, responsible for
the review of appeals of disciplinary
proceedings, statutory disqualification
proceedings, or membership
proceedings.5 In addition, the Review
Council may review offers of settlement,
letters of acceptance, waiver and
consent, and minor rule violation plan
letters, exercises of exemptive authority,
and such proceedings or actions as may
be authorized by the Exchange’s rules.
The Review Council is comprised of no
fewer than eight and no more than
twelve members, whereby at least
twenty percent of the members must be
nominated by the Board’s Member
Nominating Committee.6 Moreover, the
3 Securities Exchange Act Release No. 59154
(December 23, 2008), 73 FR 80468 (December 31,
2008) (SR–BSE–2008–48).
4 Securities Exchange Act Release No. 53128
(January 13, 2006), 71 FR 3550 (January 23, 2006).
5 Decisions issued by the Review Council may be
reviewed by the Board. See, e.g., Rule 9351. If the
Board does not call the proceeding for review, the
proposed written decision of the Review Council
shall constitute the final disciplinary action of BX
for purposes of Exchange Act Rule 19d–1(c)(1),
unless the Review Council remands the proceeding.
See, e.g., Rule 9349(c).
6 Pursuant to the By-Laws, the Board’s Member
Nominating Committee is responsible for the
nomination of candidates for each Member
Representative Director position on the Board in
accordance with Section 4.4 of the By-Laws, and
E:\FR\FM\16MYN1.SGM
16MYN1
Agencies
[Federal Register Volume 79, Number 95 (Friday, May 16, 2014)]
[Notices]
[Pages 28561-28564]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2014-11295]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-72152; File No. SR-Phlx-2014-32]
Self-Regulatory Organizations; NASDAQ OMX PHLX LLC; Notice of
Filing and Immediate Effectiveness of Proposed Rule Change Regarding
the Limitation on Entering Electronic Limit Orders From Off the Floor
of the Exchange
May 12, 2014.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act''),\1\ and Rule 19b-4 \2\ thereunder, notice is hereby given
that on May 2, 2014, NASDAQ OMX PHLX LLC (``Phlx'' or ``Exchange'')
filed with the Securities and Exchange Commission (``SEC'' or
``Commission'') the proposed rule change as described in Items I, 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.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of the
Substance of the Proposed Rule Change
The Exchange is filing with the Commission a proposal to amend Phlx
Rule 1080 (Phlx XL and Phlx XL II) to change the limitation on Exchange
members entering, or facilitating entry of, electronic limit orders in
the same option series from off the floor of the Exchange, so that the
limitation does not apply to off floor broker dealers or Professionals
as defined in Rule 1000(b)(14).\3\
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\3\ As discussed in the proposal, the limitation will continue
to apply to Professional all-or-none orders.
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The text of the proposed rule change is available on the Exchange's
Web site at https://nasdaqomxphlx.cchwallstreet.com, at the principal
office of the Exchange, and at the Commission's Public Reference Room.
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, the Exchange included statements
concerning the purpose of and basis for the proposed rule change and
discussed any comments it received on the proposed rule change. The
text of these statements may be examined at the places specified in
Item IV below. The Exchange has prepared summaries, set forth in
sections A, B, and C below, of the most significant aspects of such
statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
The purpose of the proposed rule change is to amend Phlx Rule
1080(j) to change the limitation on Exchange members entering, or
facilitating entry of, electronic limit orders in the same option
series from off the floor of the Exchange (known as ``limitation'' or
``limitation on orders''), so that the limitation does not apply to off
floor broker dealers or Professionals as defined in Rule
1000(b)(14).\4\
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\4\ Per 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).
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This proposal will align the Exchange with other options markets
that do not limit the entry of off floor broker dealer and Professional
limit orders, and effectively acting as market makers.\5\
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\5\ See subsection (b) of International Securities Exchange
(``ISE'') Rule 717 (Limitations on Orders). As discussed, while the
language of the ISE Rule 717 and Exchange Rule 1080(j) is different,
as a result of this filing the practical effect of the rules will be
similar.
---------------------------------------------------------------------------
There are, along with specialists, several types of Registered
Option Traders (``ROTs'') on the Exchange. These include market makers
that are Streaming Quote Traders (``SQTs''),\6\ Directed Streaming
Quote Traders (``DSQTs''), Remote Streaming Quote Traders (``RSQTs'')
\7\ and Directed Remote Streaming Quote Traders (``DRSQTs'').\8\
Specialists may function
[[Page 28562]]
on the floor of the Exchange as well as off floor (``Remote
Specialists'').\9\
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\6\ An SQT is an ROT who has received permission from the
Exchange to generate and submit option quotations electronically in
eligible options to which such SQT is assigned. An SQT may only
submit such quotations while such SQT is physically present on the
floor of the Exchange. See Phlx Rule 1014(b)(ii)(A).
\7\ An RSQT is an ROT that is a member or member organization
with no physical trading floor presence who has received permission
from the Exchange to generate and submit option quotations
electronically in eligible options to which such RSQT has been
assigned. An RSQT may only submit such quotations electronically
from off the floor of the Exchange. See Phlx Rule 1014(b)(ii)(B). As
many as three RSQTs may be affiliated with an RSQT Organization.
\8\ A DSQT is an SQT and a DRSQT is an RSQT that receives a
Directed Order. Exchange Phlx Rule 1080(l)(i)(A) defines Directed
Order as any customer order (other than a stop or stop-limit order
as defined in Phlx Rule 1066) to buy or sell which has been directed
to a particular specialist, RSQT, or SQT by an Order Flow Provider
and delivered to the Exchange via its electronic quoting, execution
and trading system.
\9\ A Remote Specialist is an options specialist in one or more
classes that does not have a physical presence on an Exchange floor
and is approved by the Exchange pursuant to Phlx Rule 501. Phlx Rule
1020.
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Current Phlx Rule 1080 developed from a decades-old pilot program
to operate the Exchange's Automated Options market (``AUTOM'') system
to allow electronic delivery of options orders from member firms
directly to the appropriate specialist on the Exchange options trading
floor (with electronic confirmation of order executions).\10\ The AUTOM
order delivery system grew over the years into the current fully
automated Phlx options trading system XL II \11\ that is codified in
Phlx Rule 1080. In addition to XL II, Phlx Rule 1080 deals with, among
other things, eligibility and processing of electronic orders, how PIXL
works, complex PIXL orders,\12\ qualified contingent cross orders,\13\
and acceptable trade range.\14\
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\10\ See Securities Exchange Act Release No. 25540, 53 FR 11390
(April 6, 1988) (SR-Phlx-88-10) (order granting approval of pilot
program establishing AUTOM). See also Phlx Rule 1080(a) discussing
AUTOM: (a) AUTOM is the Exchange's electronic order delivery and
reporting system, which provides for the automatic entry and routing
of Exchange-listed equity options, index options and U.S. dollar-
settled foreign currency options orders to the Exchange trading
floor. Orders delivered through AUTOM may be executed manually, or
certain orders are eligible for AUTOM's automatic execution feature,
AUTO-X, in accordance with the provisions of this Rule. Equity
option, index option and U.S. dollar-settled foreign currency option
specialists are required by the Exchange to participate in AUTOM and
its features and enhancements. Option orders entered by Exchange
member organizations into AUTOM are routed to the appropriate
specialist unit on the Exchange trading floor. AUTOM and AUTO-X were
replaced by the Phlx XL System, such that references to both terms
refer to Phlx XL.
\11\ See Securities Exchange Act Release No. 50100 (July 27,
2004), 69 FR 46612 (August 3, 2004) (SR-Phlx-2003-59) (order
granting approval of the Exchange's new electronic trading system
Phlx XL, now known as XL II). The electronic trading system has
continued being enhanced. See, e.g., Securities Exchange Act Release
Nos. 63027 (October 1, 2010), 75 FR 62160 (October 7, 2010) (SR-
Phlx-2010-108) (order granting approval of Price Improvement XL,
PIXL); and 69845 (June 25, 2013), 78 FR 39429 (July 1, 2013) (SR-
Phlx-2013-46) (order granting approval of Complex Order PIXL).
\12\ Phlx Rule 1080(n). This section allows six-legged complex
orders into PIXL.
\13\ Phlx Rule 1080(o).
\14\ Phlx Rule 1080(p).
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Subsection (j) of Phlx Rule 1080 sets forth the limitation on
orders. Subsection (j) states that members \15\ shall not enter, or
facilitate entry into AUTOM, as principal or agent, limit orders in the
same options series from off the floor of the Exchange, for the account
or accounts of the same or related beneficial owners, in such a manner
that the off-floor member or the beneficial owner(s) effectively is
operating as a market maker by holding itself out as willing to buy and
sell such options contract on a regular or continuous basis.\16\ The
current restriction on all limit orders is no longer needed or
advisable.
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\15\ Phlx Rule 900.2 indicates how potential members may seek
admission to the Exchange.
\16\ In determining whether an off-floor member or beneficial
owner effectively is operating as a market maker, the Exchange will
consider, among other things: The simultaneous or near-simultaneous
entry of limit orders to buy and sell the same options contract; the
multiple acquisition and liquidation of positions in the same
options series during the same day; and the entry of multiple limit
orders at different prices in the same options series. Phlx Rule
1080(j).
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The Exchange proposes to change the limitation in subsection (j) of
Phlx Rule 1080 so that it is not applicable to off floor broker dealer
limit orders or Professional limit orders (except Professional all-or-
none orders). Specifically, the Exchange proposes at the end of
subsection (j) to state that the limitation set forth in this rule
1080(j) does not apply to the accounts of off floor broker dealers or
Professionals as the term is defined in Rule 1000(b)(14).
Notwithstanding the foregoing, the limitation set forth in Rule 1080(j)
will continue to apply to all-or-none orders submitted by Professionals
to the Exchange.\17\ This is because Professionals are treated in the
same manner as off-floor broker dealers for purposes of priority, but
would have priority akin to customers in terms of all-or none order
submitted to the Exchange.\18\ Moreover, non-Professional, non-broker-
dealer customer orders have priority over Professional orders.\19\ The
proposed language change would make the Exchange limitation similar to
that found on another options market, namely ISE.
---------------------------------------------------------------------------
\17\ Post filing, in addition to Professional all-or-none orders
submitted to the Exchange, the limitation would continue to apply to
non-Professional customer orders. The Exchange defines customer per
Rule 1083(f) as an individual or organization that is not a broker
dealer; non-Professional customer refers to an individual or
organization that is neither a Professional nor a broker dealer.
\18\ See, e.g., Rule 1014(g).
\19\ Rule 1014(g)(vii).
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Subsection (j) of Phlx Rule 1080, as amended, is substantially
similar in its practical effect to ISE Rule 717, which disallows entry
of Priority Customer \20\ limit orders in the same options series. In a
similar manner, the Exchange proposal in subsection (j) disallows entry
of limit orders in the same options series from off the floor of the
Exchange, except for off floor broker dealers and Professionals. As
such, the proposal is pro-competitive because it would allow entry of
orders on the Exchange similar to those that are allowed on other
markets. Changing the limitation to exclude off floor broker dealers
and Professionals, being competitive in nature, is beneficial for
market participants and investors.
---------------------------------------------------------------------------
\20\ Unlike ISE, the Exchange does not currently have a separate
category called Priority Customer. However, as discussed, after this
filing the practical effect of the ISE and Exchange rules will be
similar. As proposed herein the limitation would not be applicable
to broker dealer orders and Professional Orders, similarly to ISE.
See Securities Exchange Act Release No. 63017 (September 29, 2010),
75 FR 61795 (October 6, 2010) (SR-ISE-2010-95) (ISE does not believe
necessary to impose ISE Rule 717 limitations on Priority Orders,
which exclude broker dealers, and Voluntary Professionals because
they are not subject to priority that is any better than market
makers). In note 7 of its filing, ISE noted that the Commission has
previously found that it is consistent with the Act for an options
exchange not to prohibit a user of its market from effectively
operating as a market maker by holding itself out as willing to buy
and sell options contracts on a regular or continuous basis without
registering as a market maker. See Securities Exchange Act Release
No. 57478 (March 12, 2008), 73 FR 14521 (March 18, 2008) (SR-NASDAQ-
2007-004).
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Moreover, the current limitation for all limit orders is no longer
needed or desirable. The limitation was added more than a dozen years
ago \21\ when Exchange options trading was rooted in the on-floor
auction model with a traditional open outcry trading floor. When the
limitation was added for all limit orders, electronic market makers
such as Remote Specialists, SQTs, and RSQTs (together known as
``electronic market makers'') did not exist; \22\ the options trading
floor was principally populated by on-floor trading crowds. At the time
of the limitation filing, when rules and processes for electronic
market makers were not yet fully established, there was a concern that
certain off-floor traders had the ability to engage in simultaneous or
near-simultaneous entry of limit orders, thereby effectively
functioning as market makers from off the floor of the Exchange.\23\
Over the last eight years, however, the traditional open outcry trading
floor on the Exchange has evolved into a robust, predominantly
[[Page 28563]]
electronic trading environment, with significantly fewer on-floor
traders than off-floor traders and electronic market makers working
through the Exchange's electronic trading system, XL II. As such,
although the limitation was developed for a traditional trading floor
that was only beginning to introduce electronic trading, the limitation
on all limit orders from off the floor no longer makes sense in the
current well-developed, predominantly electronic trading environment on
the Exchange, where electronic market makers (and electronic market
making including from off the floor) are no longer the exception but
rather the norm.
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\21\ See Securities Exchange Act Release No. 43939 (February 7,
2001), 66 FR 10547 (February 15, 2001) (SR-Phlx-2001-05) (notice of
filing and immediate effectiveness adopting Phlx Rule 1080(j)) (the
``limitation filing'').
\22\ Electronic market makers including RSQTs and Remote
Specialists were introduced, and became prevalent, in the last eight
years. See Securities Exchange Act Release Nos. 51126 (February 2,
2005), 70 FR 6915 (February 9, 2005) (SR-Phlx-2004-90) (approval
order relating to establishment of RSQTs); and 63717 (January 14,
2011), 76 FR 4141 (January 24, 2011) (SR-Phlx-2010-145) (approval
order relating to establishment of options Remote Specialists).
\23\ See 66 FR 10547, 10548.
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The Exchange is also proposing to change the word ``AUTOM'' to
``Phlx XL'' to conform subsection (j) of Phlx Rule 1080 to the language
of Rule 1080.\24\ Because AUTOM does not exist anymore, this change is
done for purposes of clarity and to minimize potential confusion.
---------------------------------------------------------------------------
\24\ See supra note 10.
---------------------------------------------------------------------------
The Exchange notes that changing the limitation as proposed would
ensure that the current limitation against all members and market
participants entering limit orders into Phlx XL in the same options
series from off the floor of the Exchange, does not apply to off floor
broker dealers or Professionals. This makes sense in the current
highly-developed electronic trading environment that operates alongside
the traditional on-floor trading system.\25\ Off-floor electronic
market makers, including those that are broker dealers or
Professionals, are now a known and time-tested component of the
Exchange that adds significant liquidity and depth to the benefit of
market participants. The Exchange believes that changing the limitation
should result in tighter bid ask spreads for all market participants
wishing to access posted liquidity.
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\25\ The Exchange notes that like other older options markets
(e.g., Chicago Board Options Exchange), it continues to operate a
hybrid trading system.
---------------------------------------------------------------------------
2. Statutory Basis
The Exchange believes that its proposal is consistent with Section
6(b) of the Act \26\ in general, and furthers the objectives of Section
6(b)(5) of the Act \27\ in particular, in that it is designed to
promote just and equitable principles of trade, to remove impediments
to and perfect the mechanism of a free and open market and a national
market system, and, in general to protect investors and the public
interest, by changing the current order limitation so that the
limitation no longer applies to off floor broker dealers or
Professionals.
---------------------------------------------------------------------------
\26\ 15 U.S.C. 78f(b).
\27\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------
First, although the limitation on orders was added more than a
dozen years ago when Exchange options trading was rooted in the on-
floor auction model with a traditional open outcry trading floor, the
Exchange trading system has developed into the robust, predominantly
electronic trading system where most orders, whether limit or other
orders, are entered from off the floor of the Exchange. The current
expansive limitation is no longer needed, and is counter-productive in
its current form. Second, because broker dealer and Professional
orders, which tend to increase liquidity, are not subject to priority
on the Exchange that is any better than other market makers, or, for
that matter, non-Professional customers (except for Professional all-
or-none orders), the Exchange does not believe that it is necessary to
impose the Rule 1080(j) restrictions on the entry of off floor broker
dealer or Professional limit orders (except for Professional all-or-
none orders). In that non-Professional customer orders are provided
with certain benefits such as priority on the Exchange, see Phlx Rule
1014(g) and 1080(n)(ii)(E), the Exchange believes that the limitation
applicable to non-Professional customers is counterbalanced by their
priority and it is proper for the limitation to continue to apply. The
Exchange believes that the removal of the limitation on off floor
broker dealers and Professionals, while continuing to apply the
limitation to all-or-none orders submitted by Professionals to the
Exchange \28\ will permit entry of orders on both sides of the market
more freely, resulting in more orders on the Exchange book and
therefore increase liquidity on the Exchange market, all to the benefit
of investors. And third, changing the limitation is competitive vis a
vis other options exchanges that have a limitation that, as proposed
herein, effectively does not apply to off floor broker dealers or
Professionals. By promoting competition, the proposal may also lead to
tighter, more efficient markets to the benefit of market participants
including public investors that engage in trading and hedging on the
Exchange.
---------------------------------------------------------------------------
\28\ See supra notes 18 and 19 and text regarding priority.
---------------------------------------------------------------------------
B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the proposed rule change will
impose any burden on competition not necessary or appropriate in
furtherance of the purposes of the Act. To the contrary, the proposal
further promotes competition on the Exchange which should lead to
tighter, more efficient markets to the benefit of market participants
including public investors that engage in trading and hedging on the
Exchange, and thereby make the Exchange a desirable market vis a vis
other options exchanges.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
No written comments were either solicited or received.
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 \29\ and
subparagraph (f)(6) of Rule 19b-4 thereunder.\30\
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\29\ 15 U.S.C. 78s(b)(3)(a) [sic].
\30\ 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.
---------------------------------------------------------------------------
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. 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
[[Page 28564]]
Send an email to rule-comments@sec.gov. Please include
File Number SR-Phlx-2014-32 on the subject line.
Paper Comments
Send paper comments in triplicate to Secretary, Securities
and Exchange Commission, 100 F Street NE., Washington, DC 20549-1090.
All submissions should refer to File Number SR-Phlx-2014-32. This file
number should be included on the subject line if email is used. To help
the Commission process and review your comments more efficiently,
please use only one method. The Commission will post all comments on
the Commission's Internet Web site (https://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, all
written statements with respect to the proposed rule change that are
filed with the Commission, and all written communications relating to
the proposed rule change between the Commission and any person, other
than those that may be withheld from the public in accordance with the
provisions of 5 U.S.C. 552, will be available for Web site viewing and
printing in the Commission's Public Reference Room, 100 F Street NE.,
Washington, DC 20549, on official business days between the hours of
10:00 a.m. and 3:00 p.m. Copies of such filing also will be available
for inspection and copying at the principal offices 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-2014-32,
and should be submitted on or before June 6, 2014.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\31\
---------------------------------------------------------------------------
\31\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2014-11295 Filed 5-15-14; 8:45 am]
BILLING CODE 8011-01-P