Self-Regulatory Organizations; NASDAQ OMX PHLX LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change to Rule 1080.08, 33977-33981 [2014-13823]
Download as PDF
<![CDATA[
Federal Register / Vol. 79, No. 114 / Friday, June 13, 2014 / Notices
Pilot should be structured in the future;
and will serve to promote regulatory
clarity and consistency, thereby
reducing burdens on the marketplace
and facilitating investor protection. The
Pilot is an industry wide initiative
supported by all other option
exchanges. The Exchange believes that
extending the Pilot will allow for
continued competition between market
participants on the Exchange trading
similar products as their counterparts
on other exchanges, while at the same
time allowing the Exchange to continue
to compete for order flow with other
exchanges in option issues trading as
part of the Pilot.
C. Self-Regulatory Organization’s
Statement on Comments on the
Proposed Rule Change Received From
Members, Participants, or Others
The Exchange has neither solicited
nor received comments on the proposed
rule change.
III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
The Exchange has filed the proposed
rule change pursuant to paragraph (A) of
section 19(b)(3) of the Exchange Act 6
and Rule 19b–4(f)(6) thereunder.7
Because the proposed rule change does
not: (i) Significantly affect the
protection of investors or the public
interest; (ii) impose any significant
burden on competition; and (iii) become
operative for 30 days after the date of
the filing, or such shorter time as the
Commission may designate if consistent
with the protection of investors and the
public interest, the proposed rule
change has become effective pursuant to
Section 19(b)(3)(A) of the Act 8 and Rule
19b–4(f)(6)(iii) thereunder.9
A proposed rule change filed under
Rule 19b–4(f)(6) normally does not
become operative prior to 30 days after
the date of filing.10 However, pursuant
to Rule 19b–4(f)(6)(iii),11 the
Commission may designate a shorter
time if such action is consistent with the
protection of investors and the public
interest. The Exchange has asked the
Commission to waive the 30-day
6 15
U.S.C. 78s(b)(3)(A).
CFR 240.19b–4(f)(6).
8 15 U.S.C. 78s(b)(3)(A).
9 17 CFR 240.19b–4(f)(6)(iii).
10 17 CFR 240.19b–4(f)(6). In addition, Rule 19b–
4(f)(6)(iii) requires the Exchange to give the
Commission written notice of the Exchange’s intent
to file the proposed rule change along with a brief
description and the text of the proposed rule
change, at least five business days prior to the date
of filing of the proposed rule change, or such
shorter time as designated by the Commission. The
Exchange has satisfied this pre-filing requirement.
11 17 CFR 240.19b–4(f)(6)(iii).
mstockstill on DSK4VPTVN1PROD with NOTICES
7 17
VerDate Mar<15>2010
18:01 Jun 12, 2014
Jkt 232001
operative delay so that the proposal may
become operative immediately upon
filing. The Commission believes that
waiving the 30-day operative delay is
consistent with the protection of
investors and the public interest
because doing so will allow the Pilot
Program to continue without
interruption in a manner that is
consistent with the Commission’s prior
approval of the extension and expansion
of the Pilot Program and would allow
replacement of Penny Pilot classes that
have been delisted. Accordingly, the
Commission designates the proposed
rule change as operative upon filing
with the Commission.12
At any time within 60 days of the
filing of the proposed rule change, the
Commission summarily may
temporarily suspend such rule change if
it appears to the Commission that such
action is necessary or appropriate in the
public interest, for the protection of
investors, or otherwise in furtherance of
the purposes of the Act. If the
Commission takes such action, the
Commission shall institute proceedings
to determine whether the proposed rule
should be approved or disapproved.
IV. Solicitation of Comments
Interested persons are invited to
submit written data, views and
arguments concerning the foregoing,
including whether the proposed rule
change is consistent with the Act.
Comments may be submitted by any of
the following methods:
Electronic Comments
• Use the Commission’s Internet
comment form (https://www.sec.gov/
rules/sro.shtml); or
• Send an email to rule-comments@
sec.gov. Please include File Number SR–
BOX–2014–17 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–BOX–2014–17. 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
12 For purposes only of waiving the operative
delay for this proposal, the Commission has
considered the proposed rule’s impact on
efficiency, competition, and capital formation. See
15 U.S.C. 78c(f).
PO 00000
Frm 00086
Fmt 4703
Sfmt 4703
33977
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
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–BOX–2014–17 and should
be submitted on or before July 7, 2014.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.13
Kevin M. O’Neill,
Deputy Secretary .
[FR Doc. 2014–13820 Filed 6–12–14; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–72351; File No. SR–Phlx–
2014–39]
Self-Regulatory Organizations;
NASDAQ OMX PHLX LLC; Notice of
Filing and Immediate Effectiveness of
Proposed Rule Change to Rule 1080.08
June 9, 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 June 3,
2014, NASDAQ OMX PHLX LLC
(‘‘Phlx’’ or ‘‘Exchange’’) filed with the
Securities and Exchange Commission
(‘‘Commission’’) the proposed rule
change as described in Items I, II, and
III below, which Items have been
prepared by the Exchange. The
Commission is publishing this notice to
solicit comments on the proposed rule
change from interested persons.
13 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
1 15
E:\FR\FM\13JNN1.SGM
13JNN1
33978
Federal Register / Vol. 79, No. 114 / Friday, June 13, 2014 / Notices
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The Exchange proposes to amend
Rule 1080.08 as follows: (1) To exclude
the existence of any contingencies from
the broadcast message; (2) to address the
priority of orders/COLA Sweeps
executing after a COLA; and (3) to add
reference to specific order types and
contingencies applicable to Complex
Orders.
The text of the proposed rule change
is below; proposed new language is
italicized; proposed deletions are in
brackets.
mstockstill on DSK4VPTVN1PROD with NOTICES
*
*
*
*
*
Rule 1080. Phlx XL and Phlx XL II
(a)–(p) No change.
••• Commentary: ——————
.01–.07 No change.
.08 Complex Orders on Phlx XL.
(a) No change.
(b) Complex orders may be entered in
increments of $0.01 with certain ‘‘time in
force’’ designations and as certain order
types with certain contingencies as follows:
(i)–(iv) No change.
(v) Complex Orders may be submitted as:
All-or-none orders—to be executed in its
entirety or not at all. These orders can only
be submitted for non-broker-dealer
customers.
Cancel-replacement orders—require the
immediate cancellation of a previously
received order prior to the replacement of a
new order with new terms and conditions. If
the previously placed order is already filled
partially or in its entirety the replacement
order is automatically canceled or reduced
by such number.
Limit orders—to be executed at a specified
price or better.
Market orders—to be executed at the best
price available at the time of execution.
(c)–(d) No change.
(e) Process for Complex Order Live
Auction (‘‘COLA’’). Complex Orders on the
Complex Order Book (‘‘CBOOK,’’ as defined
below) may be subject to an automated
auction process.
(i) No change.
(ii) Initiation of a COLA. Upon the
identification of the COLA-eligible order by
the Phlx XL system, the Exchange will send
a broadcast message to Phlx XL participants
indicating that a COLA has been initiated.
The broadcast message will identify the
Complex Order Strategy, and the size, side
and price of the COLA-eligible order [and
any contingencies, if applicable (such as,
without limitation, All-Or-None)].
(iii) COLA Timer. The COLA will begin
with a timing mechanism (a ‘‘COLA Timer’’),
which is a counting period not to exceed five
(5) seconds during which Phlx XL
participants may submit bids or offers that
improve the cPBBO. The COLA Timer will be
set for the same number of seconds for all
options trading on the Exchange as
determined by the Exchange and
communicated to membership on the
Exchange’s Web site. Complex Orders may be
VerDate Mar<15>2010
18:01 Jun 12, 2014
Jkt 232001
cancelled at any time prior to the
commencement of a COLA.
(iv) Bidding and Offering in Response to a
COLA. Phlx XL participants may bid and/or
offer on either or both side(s) of the market
during the COLA Timer by submitting one or
more bids or offers that improve the cPBBO,
known as a ‘‘COLA Sweep.’’
(A)–(D) No change.
(v) No change.
(vi) Allocation and Priority. As stated
above, COLA-eligible orders, COLA Sweeps,
and responsive Complex Orders will trade
first based on the best price or prices
available at the end of the COLA Timer.
(A) (1)–(3) No change.
(B) If multiple customer Complex Orders,
COLA Sweeps, Phlx XL participant Complex
Orders and/or non-customer off-floor brokerdealer Complex Orders are eligible for
execution against the COLA-eligible order at
the same price, the trade will be allocated
among participants submitting electronic
Complex Orders and COLA Sweeps as set
forth below. Executions in the COLA will
comply with the requirements of Exchange
Rule 1080.08(c)(iii) above. For allocation
purposes, the size of a COLA Sweep or
responsive Complex Order received during
the COLA Timer shall be limited to the size
of the COLA-eligible order.
(1) First, to customer marketable Complex
Orders on the CBOOK (as defined below) in
the order in which they were received;
(2) Second, to COLA Sweeps [on a size prorata basis;
(3) Third, to] and SQTs, RSQTs, and nonSQT ROTs who have submitted Complex
Orders that are marketable against the COLAeligible order, on a size pro-rata basis; and
[(4) Fourth](3) Third, to non-market maker
off-floor broker-dealers on a size pro-rata
basis.
(C)–(D) No change.
(vii)–(ix) No change.
(f)–(i) No change.
*
*
*
*
*
II. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
In its filing with the Commission, the
Exchange included statements
concerning the purpose of and basis for
the proposed rule change and discussed
any comments it received on the
proposed rule change. The text of these
statements may be examined at the
places specified in Item IV below. The
Exchange has prepared summaries, set
forth in sections A, B, and C below, of
the most significant aspects of such
statements.
A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
1. Purpose
The purpose of the proposal is to
correct the rule text to provide clarity to
PO 00000
Frm 00087
Fmt 4703
Sfmt 4703
Phlx Participants regarding the trading
of Complex Orders on the Exchange.
The Exchange’s Complex Order System,
which is governed by Rule 1080.08,
includes the Complex Order Live
Auction (‘‘COLA’’), an automated
auction for seeking additional liquidity
and price improvement for Complex
Orders. When the Exchange receives a
COLA-eligible order that triggers a
COLA, the system broadcasts
information about the COLA-eligible
order—the ‘‘COLA Message.’’ The
duration of the COLA is fixed and
measured by a COLA Timer. During the
COLA Timer, the rule provides that
Phlx XL participants 3 may submit
‘‘COLA Sweeps,’’ which are bids and/or
offers on either or both side(s) of the
market by submitting one or more bids
or offers that improve the cPBBO.4 Also
during the COLA Timer, Phlx members
may enter other Complex Orders at any
price. While COLA Sweeps are
submitted in direct response to a COLAeligible order, Complex Orders may or
may not be submitted in direct response
to a COLA-eligible order.
COLA Message
Currently, upon the identification of
the COLA-eligible order by the Phlx XL
system, the Exchange will broadcast a
COLA Message to Phlx XL participants
indicating that a COLA has been
initiated. The COLA Message identifies
the Complex Order Strategy, the size,
side and price of the COLA-eligible
order.5 The COLA Message is sent over
TOPO Plus Orders,6 the Exchange’s
market data feed for subscribers
interested in the detailed information it
offers, including messages relating to
Complex Orders. The Specialized Quote
Feed (‘‘SQF’’) also contains COLA
Messages.7 Like auction messages on
multiple exchanges, the COLA Message
3 COLA Sweeps can only be entered by Phlx XL
Participants who quote electronically as market
makers for their own account (Streaming Quote
Traders (‘‘SQTs’’), Remote Streaming Quote Traders
(‘‘RSQTs’’) and specialists). Because non-SQT ROTs
do not quote electronically, they cannot enter COLA
Sweeps, which are electronic. See Rule
1014(b)(ii)(C) and Rule 1080.08(e)(ix).
4 The cPBBO is the best net debit or credit price
for a Complex Order based on the PBBO for the
individual options components of such Complex
Order, and, where the underlying security is a
component of the Complex Order, the National Best
Bid and/or Offer for the underlying security. See
Rule 1080.08(a)(iv).
5 The Exchange recently added the price and side
of the market to the COLA Message. See Securities
Exchange Act Release No. 70271 (August 27, 2013),
78 FR 54340 (September 3, 2013) (SR–Phlx–2013–
88).
6 Securities Exchange Act Release No. 60877
(October 26, 2009), 74 FR 56255 (October 30, 2009)
(SR–Phlx–2009–92).
7 Securities Exchange Act Release No. 63034
(October 2, 2010), 75 FR 62441 (October 8, 2010)
(SR–Phlx–2010–124).
E:\FR\FM\13JNN1.SGM
13JNN1
Federal Register / Vol. 79, No. 114 / Friday, June 13, 2014 / Notices
mstockstill on DSK4VPTVN1PROD with NOTICES
is designed to attract responsive
interest.
The Exchange now proposes to delete
reference in the rule text to the
contingencies that an order might have.
Testing has recently revealed that the
rule text is inaccurate; contingencies are
not included in the COLA Message.8
Two contingencies apply to Complex
Orders: all-or-none and cancel-replace.
An all-or-none order is a contingency
order that is a market or limit order
which is to be executed in its entirety
or not at all.9 An all-or-none order can
execute against multiple orders, as long
as it is executed in full. All-or-none
Complex Orders can only be submitted
for non-broker-dealer customers, the
same as for non-Complex Orders.10 A
cancel-replacement order is a
contingency order that require the
immediate cancellation of a previously
received order prior to the replacement
of a new order with new terms and
conditions. If the previously placed
order is already filled partially or in its
entirety the replacement order is
automatically canceled or reduced by
such number.
The Exchange believes that it is
appropriate to broadcast a COLA
Message without revealing a Complex
Order’s contingencies, because such
contingencies are not a material term of
the order. The Exchange does not
believe that including or excluding that
an order is an all-or-none order or a
cancel-replacement order significantly
8 However, contingencies are included in the
order message sent over TOPO Plus Orders.
Complex Order messages merely show that a
Complex Order was received, including the details
of those orders, and are sent when such order is
received; COLA Messages indicate that a COLA is
beginning and are therefore sent when a COLA
begins. Both Complex Order messages and COLA
messages are available to all who subscribe to the
PHLX Orders feed (which is a subset of the TOPO
Plus Orders feed); the feed is available to all
participants seeking to subscribe. See https://
nasdaqtrader.com/
Trader.aspx?id=DPSpecs#options_x for a
description of Exchange feeds.
9 See Rule 1066(c)(4).
10 See Phlx Rule 1080(b)(i), which covers nonComplex Orders and provides that the following
types of agency orders are eligible: day, GTC,
Immediate or Cancel (‘‘IOC’’), Intermarket Sweep
Order (‘‘ISO’’), market, limit, stop, stop-limit, all or
none, or better, simple cancel, simple cancel to
reduce size (cancel leaves), cancel to change price,
cancel with replacement order, opening-onlymarket order, limit on opening order, and possible
duplicate orders. The following types of off-floor
broker-dealer limit orders may be entered: day,
GTC, IOC, ISO, stop, stop-limit, simple cancel,
simple cancel to reduce size (cancel leaves), cancel
to change price, cancel with replacement order,
limit on opening order. SQTs and RSQTs can enter
limit on opening, IOC, ISO, and DAY limit order for
their proprietary account(s). Non-SQT ROTs and
specialists can enter orders for their proprietary
account(s) as GTC, DAY limit, IOC, ISO, limit on
opening and simple cancel as well as orders for less
than 10 contracts marked as IOC.
VerDate Mar<15>2010
18:01 Jun 12, 2014
Jkt 232001
affects whether a participant will
respond to a particular COLA, which is
the purpose of the COLA Message. Of
course, the fact than an order is an allor-none order will affect what order it
can execute against, depending upon
the size of each order. Nevertheless, the
Exchange believes that participants
would not decide whether to respond to
a COLA based on the all-or-none
contingency on the order initiating the
COLA. If a participant could see that a
particular order is an all-or-none order
for a large size and such participant
intended to submit a smaller order, the
participant might assume that an
execution would be unlikely; however,
another participant could enter an order
that caused there to be enough size to
execute the all-or-none order. Thus, the
information that an order is an all-ornone order is not enough information
for a participant submitting an order for
a size smaller than the all-or-none order
to definitively predict whether it will
execute, because of other orders 11 and
market factors. Although a participant
might choose to response with an order
for a size equal to or greater than the allor-none order, the Exchange believes
that participants enter orders for a size
that reflects their true interest, strategy
and risk profile and are not influenced
by the existence of an all-or-none
contingency on an order.
The Exchange notes that all-or-none
orders are rare. Specifically, in August
2013, only 0.04% of COLAs were
initiated by all-or-none orders.
Furthermore, from February 2013
through July 2013, less than .05% of
COLAs were initiated by all-or-none
orders. In addition, only 0.12% of all
Complex Orders from February 2013
through July 2013 were entered as allor-none orders. Accordingly, excluding
from the COLA message that an order is
an all-or-none should not have a
significant impact on participants or on
COLAs.
With respect to cancel-replacement
orders, the cancellation aspect of the
order has no impact on the contra-side.
The way the contingency operates is
that the first order is entered as a normal
Complex Order without a contingency,
and it is later followed by a second
order with has a cancel-replace
contingency. The first order is then
cancelled, fulfilling the contingency on
the second order.12 Therefore, if the first
11 Participants cannot see others’ responses so
they are effectively ‘‘blind’’ to other responsive
interest when making their own responsive
decisions.
12 The replacement order does not retain the
priority of the order it replaces. While the
replacement order is eligible to trade at the end of
the COLA, it is no longer treated as the COLA-
PO 00000
Frm 00088
Fmt 4703
Sfmt 4703
33979
order starts a COLA, even if the
Exchange displayed contingencies in a
COLA Message, such order would not
have one. If the second order starts a
COLA, it no longer has a contingency
and therefore display of the contingency
would not be relevant. Accordingly, the
Exchange does not believe there would
be any impact on responses whether or
not the cancellation contingency is
shown in the COLA message.
Although the Exchange stated in its
rule that contingency information
would be included in the COLA
message, the Exchange did not build a
field to include that information and did
not therefore include reference to this
information in its specification
document to participants seeking to
receive its data feeds. The Exchange is
not aware that any participant asked for
such contingency information, even
though it appears in the rule text.
Other types of contingencies are listed
in Rule 1066,13 but these do not apply
to Complex Orders, because they are
inconsistent with having multiple
components. For example, stop and
stop-limit orders,14 Opening-OnlyMarket Orders and Limit on Opening
orders are all particular to one option
series. The Exchange has not received
requests for these order types to be
made available. The Exchange proposes
to make clear what order designations
are available respecting Complex Orders
by adopting Rule 1080.08(b)(v), which
will provide that Complex Orders may
be submitted as: All-or-none orders; 15
eligible order and thus does not have the priority
associated with a COLA-eligible order.
13 Rule 1066(c) has been amended to delete the
order types in (2), (3) and (6). See Securities
Exchange Act Release No. 70629 (October 8, 2013),
78 FR 62852 (October 22, 2013) (SR–Phlx–2013–
100). Although Rule 1066(c)(8) lists immediate-orcancel (‘‘IOC’’) orders as a type of contingency
order, the Exchange believes that IOC is better
described as a time-in-force and it is therefore
included with other time-in-force conditions like
DAY and GTC in the Complex Order Rule. See Rule
1080.08(b). The Exchange does not indicate in the
COLA Message the time-in-force of an order.
14 With respect to stop and stop-limit orders,
although such Complex Orders could conceivably
be tied to a net debit/credit price, developing a
transparent way to effect the stop price would be
difficult, because Complex Order net prices are not
disseminated to OPRA, nor are the Complex Order
prices disseminated as a quote to OPRA. Thus, the
Exchange does not believe it would be practicable
to accept stop or stop limit orders as Complex
Orders.
15 All-or-none orders are to be executed in its
entirety or not at all. This is the same definition as
currently found in Rule 1066(c)(4). These orders are
only available to non-broker-dealer customers.
E:\FR\FM\13JNN1.SGM
13JNN1
33980
Federal Register / Vol. 79, No. 114 / Friday, June 13, 2014 / Notices
cancel-replacement orders; 16 limit
orders; 17 and market orders.18
Priority Change
In addition, the Exchange proposes to
amend Rule 1080.08(e)(vi)(B) to provide
that market maker 19 COLA Sweeps and
market maker Complex Orders are
treated the same in the COLA, meaning
one does not have execution priority
over the other. The Rule incorrectly
states that COLA Sweeps have priority
over market maker Complex Orders. The
Exchange believes that it is appropriate
for market maker COLA Sweeps and
market maker Complex Orders to be
treated the same way for priority
purposes, because they are both coming
from market makers.20
mstockstill on DSK4VPTVN1PROD with NOTICES
2. Statutory Basis
The Exchange believes the proposed
rule change is consistent with the
provisions of Section 6 of the Act,21 in
general, and with Section 6(b)(5) of the
Act,22 in particular, which requires,
among other things, that the rules of an
exchange be designed to promote just
and equitable principles of trade.
Specifically, the Exchange is proposing
that the COLA Message will not include
a COLA-eligible order’s contingencies.
Nevertheless, the Exchange believes
that, even without contingencies, the
COLA message should promote just and
equitable principles of trade, because
market participants will continue to
receive information that is material to
responding to a COLA-eligible order.
The Exchange believes that contingency
information is rather extraneous and
notes that market participants have not
asked why it is not currently made
available, despite the current reference
to it in the rule text. Even if the
Exchange included contingency
information in the COLA message, the
Exchange does not believe that
participants would use it or rely on it to
make trading decisions. Accordingly,
16 Cancel-replacement orders require the
immediate cancellation of a previously received
order prior to the replacement of a new order with
new terms and conditions. If the previously placed
order is already filled partially or in its entirety the
replacement order is automatically canceled or
reduced by such number. This is the same
definition as Rule 1066(c)(7).
17 Limit orders are to be executed at a specified
price or better. This is the same definition as Rule
1066(b).
18 Market orders are to be executed at the best
price available at the time of execution. This is the
same definition as Rule 1066(a).
19 Market maker COLA Sweeps include those
entered by SQTs and RSQTs. Non-SQT ROTs
cannot enter COLA Sweeps. See supra note 3.
Specialists’ COLA Sweeps are addressed in Rule
1080.08(e)(vi)(C).
20 See supra note 3.
21 15 U.S.C. 78f.
22 15 U.S.C. 78f(b)(5).
VerDate Mar<15>2010
18:01 Jun 12, 2014
Jkt 232001
the Exchange believes it is consistent
with just and equitable principles of
trade to not include contingency
information. In addition, the Exchange
notes that contingency information
respecting each Complex Order is
available on its order feed, TOPO Plus
Orders, which contains Complex Order
information.23 Because the same
information is available on that feed, the
Exchange does not believe that
participants are adversely impacted and
all participants have access to the same
message, such that it is consistent with
just and equitable principles of trade to
not include this information in the
COLA Message.
The Exchange also notes that all-ornone Complex Orders are not common.
It is consistent with just and equitable
principles of trade, because it would not
have any impact on participants
whether or not this information is
provided. Similarly, the Exchange
believes that it is consistent with just
and equitable principles of trade to not
include the cancel-replace contingency
in a COLA Message. Because the first
order, as explained above, does not have
a contingency nor does the second order
(the cancel-replacement order) once it is
live, the Exchange does not believe it is
relevant to display the cancel-replace
contingency, because there would be no
impact on responses.
The Exchange is also proposing to
provide that COLA Sweeps do not have
priority over market maker Complex
Orders. This is a correction to the rule
text. The Exchange believes that it is
appropriate for market maker COLA
Sweeps and Complex Orders to be
treated the same way for priority
purposes, because they are coming from
the same type of market participant, a
market maker.24 The Exchange believes
that this should promote just and
equitable principles of trade, because
market participants could reasonably
expect that their interest should be
treated the same way whether entered as
an order or as a COLA Sweep.25
Furthermore, this priority treatment is
similar to the Exchange’s priority rule
respecting orders other than Complex
23 Securities Exchange Act Release Nos. 60877
(October 26, 2009), 74 FR 56255 (October 30, 2009)
(SR–Phlx–2009–92); and 66693 (May 15, 2012), 77
FR 30043 (May 21, 2012) (SR–Phlx–2012–63).
24 Although non-SQT ROTs cannot submit COLA
Sweeps, their Complex Orders are treated the same
way as the Complex Orders of other market makers,
including that their orders can interact with a
COLA-eligible order.
25 Complex Orders could be responsive to a
particular COLA or could be an unrelated order.
Because Complex Orders are not specifically
marked as ‘‘COLA responses,’’ the Phlx XL System
cannot identify which Complex Orders are truly
intended to respond to the auction and which are
merely coincidental.
PO 00000
Frm 00089
Fmt 4703
Sfmt 4703
Orders, as well as the comparable rules
of other options exchanges, because a
market maker’s interest at a particular
price is combined regardless of the
method of entry (quote, COLA Sweep or
order).26 Specifically, Rule 1014(g)(vii),
in calculating a market maker’s
participation, takes into account both
quotes and orders, as indicated by the
following language in the formula of the
rule: based on the number of Phlx XL
Participants quoting or with limit orders
at BBO. Accordingly, the Exchange
believes that the correction to the
priority provision does not significantly
affect the protection of investors or the
public interest, and does not impose a
significant burden on competition.
In addition, this priority change is not
unfairly discriminatory with respect to
non-SQT ROTs (who cannot submit
COLA Sweeps); in fact, it is fairer to
them, because it will no longer give
COLA Sweeps priority over other
market maker Complex Orders.
The Exchange is also proposing to
make the Complex Order rule, Rule
1080.08, more complete by listing in
subparagraph (b)(v) the types of orders
and contingencies that can be accepted
as Complex Orders. The four types to be
listed (all-or-none, cancel-replacement,
limit and market) are all existing orders
types and contingencies on Phlx. The
Exchange believes that this should
promote just and equitable principles of
trade as well as protect investors and
the public interest by making more clear
how specifically Complex Orders can be
designated. The Exchange notes that
although all-or-none Complex Orders
are only available to non-broker-dealer
customers, this is not unfairly
discriminatory, because it is common
for certain types of orders to be available
to certain participant types. For
example, all-or-none orders that are not
Complex Orders can only be entered for
non-broker-dealer customers in the
Exchange’s Phlx XL system.27 Similarly,
with respect to complex order programs
on other options exchanges, at the
discretion of the exchange, some
participants may not be able to
initiate 28 or respond 29 to a complex
order auction.
26 See Phlx Rule 1014(g)(vii)(B)(1)(b). Like COLA
Sweeps, Sweeps are treated the same way as other
market maker quotes in the Phlx XL System. See
also BX Options Rules, Chapter VI, Section 10(1)(A)
and (B).
27 See Phlx Rule 1080(b)(i)(A).
28 See CBOE Rule 6.53C(d)(i)(2), NYSE Arca Rule
6.91(c)(1) and NYSE MKT Rule 980NY(e)(1).
29 See CBOE Rule 6.53C(d)(iii), NYSE Arca Rule
6.91(c)(4) and NYSE MKT Rule 980NY(e)(4).
E:\FR\FM\13JNN1.SGM
13JNN1
Federal Register / Vol. 79, No. 114 / Friday, June 13, 2014 / Notices
mstockstill on DSK4VPTVN1PROD with NOTICES
B. Self-Regulatory Organization’s
Statement on Burden on Competition
The Exchange does not believe that
the proposed rule change will result in
any burden on competition that is not
necessary or appropriate in furtherance
of the purposes of the Act, as amended.
Specifically, the proposal does not
impose an intra-market burden on
competition, because the same COLA
Message with the same information will
be available to all Phlx participants who
receive Complex Order Messages and
such messages are available to those
who choose to subscribe, for a fee. Nor
will the proposal impose a burden on
competition among the options
exchanges, because of the vigorous
competition for order flow among the
options exchanges. Market participants
who find contingency information
respecting complex orders important
will continue to be able to receive that
information when participating on
competing exchanges.
With respect to the aspect of the
proposal that addresses the priority of
market maker Complex Orders and
COLA Sweeps executing after a COLA,
the Exchange believes that this change
does not impose a burden on
competition, because it treats all interest
received from a market maker the same
way and does not change the way other
intra-market interest is handled. To the
extent that market participants disagree
with the particular approach taken by
the Exchange herein, market
participants can easily and readily
direct complex order flow to competing
venues.
With respect to the aspect of the
proposal that adopts specific order types
and contingencies applicable to
Complex Orders, the Exchange does not
believe that the proposal imposes a
burden on inter-market competition.
Most of these order types and
contingencies are available to all
participants. Although all-or-none
Complex Orders can only be entered by
non-broker-dealer customers, the
Exchange does not believe that this
imposes a burden on competition,
because: (i) As stated above, all-or-none
Complex Orders are rare, both in terms
of how many start a COLA and how
many are received; and (ii) it is common
both on the Exchange (respecting nonComplex Orders) and on other options
exchanges to offer only certain
functionality to certain participants.30
The Exchange notes that this particular
functionality is only available for nonComplex Orders on Phlx to non-broker30 See
supra notes 27–29.
VerDate Mar<15>2010
18:01 Jun 12, 2014
Jkt 232001
dealer customers.31 Nor does the
proposal impose a burden on intramarket competition, because most of
these order types are available to all
participants.
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) of the Act 32 and
subparagraph (f)(6) of Rule 19b–4
thereunder.33
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
• Send an email to rule-comments@
sec.gov. Please include File Number SR–
Phlx–2014–39 on the subject line.
supra note 27.
U.S.C. 78s(b)(3)(a)(ii).
33 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.
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–2014–39. This file
number should be included on the
subject line if email is used. To help the
Commission process and review your
comments more efficiently, please use
only one method. The Commission will
post all comments on the Commission’s
Internet Web site (https://www.sec.gov/
rules/sro.shtml). Copies of the
submission, all subsequent
amendments, all written statements
with respect to the proposed rule
change that are filed with the
Commission, and all written
communications relating to the
proposed rule change between the
Commission and any person, other than
those that may be withheld from the
public in accordance with the
provisions of 5 U.S.C. 552, will be
available for Web site viewing and
printing in the Commission’s Public
Reference Room, 100 F Street NE.,
Washington, DC 20549, on official
business days between the hours of
10:00 a.m. and 3:00 p.m. Copies of the
filing also will be available for
inspection and copying at the principal
office of the Exchange. All comments
received will be posted without change;
the Commission does not edit personal
identifying information from
submissions. You should submit only
information that you wish to make
available publicly. All submissions
should refer to File Number SR–Phlx–
2014–39 and should be submitted on or
before July 7, 2014.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.34
Kevin M. O’Neill,
Deputy Secretary.
[FR Doc. 2014–13823 Filed 6–12–14; 8:45 am]
BILLING CODE 8011–01–P
31 See
32 15
PO 00000
Frm 00090
Fmt 4703
Sfmt 9990
33981
34 17
E:\FR\FM\13JNN1.SGM
CFR 200.30–3(a)(12).
13JNN1
]]>Agencies
[Federal Register Volume 79, Number 114 (Friday, June 13, 2014)]
[Notices]
[Pages 33977-33981]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2014-13823]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-72351; File No. SR-Phlx-2014-39]
Self-Regulatory Organizations; NASDAQ OMX PHLX LLC; Notice of
Filing and Immediate Effectiveness of Proposed Rule Change to Rule
1080.08
June 9, 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 June 3, 2014, NASDAQ OMX PHLX LLC (``Phlx'' or ``Exchange'')
filed with the Securities and Exchange Commission (``Commission'') the
proposed rule change as described in Items I, II, and III below, which
Items have been prepared by the Exchange. The Commission is publishing
this notice to solicit comments on the proposed rule change from
interested persons.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------
[[Page 33978]]
I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange proposes to amend Rule 1080.08 as follows: (1) To
exclude the existence of any contingencies from the broadcast message;
(2) to address the priority of orders/COLA Sweeps executing after a
COLA; and (3) to add reference to specific order types and
contingencies applicable to Complex Orders.
The text of the proposed rule change is below; proposed new
language is italicized; proposed deletions are in brackets.
* * * * *
Rule 1080. Phlx XL and Phlx XL II
(a)-(p) No change.
Commentary: ------------
.01-.07 No change.
.08 Complex Orders on Phlx XL.
(a) No change.
(b) Complex orders may be entered in increments of $0.01 with
certain ``time in force'' designations and as certain order types
with certain contingencies as follows:
(i)-(iv) No change.
(v) Complex Orders may be submitted as:
All-or-none orders--to be executed in its entirety or not at
all. These orders can only be submitted for non-broker-dealer
customers.
Cancel-replacement orders--require the immediate cancellation of
a previously received order prior to the replacement of a new order
with new terms and conditions. If the previously placed order is
already filled partially or in its entirety the replacement order is
automatically canceled or reduced by such number.
Limit orders--to be executed at a specified price or better.
Market orders--to be executed at the best price available at the
time of execution.
(c)-(d) No change.
(e) Process for Complex Order Live Auction (``COLA''). Complex
Orders on the Complex Order Book (``CBOOK,'' as defined below) may
be subject to an automated auction process.
(i) No change.
(ii) Initiation of a COLA. Upon the identification of the COLA-
eligible order by the Phlx XL system, the Exchange will send a
broadcast message to Phlx XL participants indicating that a COLA has
been initiated. The broadcast message will identify the Complex
Order Strategy, and the size, side and price of the COLA-eligible
order [and any contingencies, if applicable (such as, without
limitation, All-Or-None)].
(iii) COLA Timer. The COLA will begin with a timing mechanism (a
``COLA Timer''), which is a counting period not to exceed five (5)
seconds during which Phlx XL participants may submit bids or offers
that improve the cPBBO. The COLA Timer will be set for the same
number of seconds for all options trading on the Exchange as
determined by the Exchange and communicated to membership on the
Exchange's Web site. Complex Orders may be cancelled at any time
prior to the commencement of a COLA.
(iv) Bidding and Offering in Response to a COLA. Phlx XL
participants may bid and/or offer on either or both side(s) of the
market during the COLA Timer by submitting one or more bids or
offers that improve the cPBBO, known as a ``COLA Sweep.''
(A)-(D) No change.
(v) No change.
(vi) Allocation and Priority. As stated above, COLA-eligible
orders, COLA Sweeps, and responsive Complex Orders will trade first
based on the best price or prices available at the end of the COLA
Timer.
(A) (1)-(3) No change.
(B) If multiple customer Complex Orders, COLA Sweeps, Phlx XL
participant Complex Orders and/or non-customer off-floor broker-
dealer Complex Orders are eligible for execution against the COLA-
eligible order at the same price, the trade will be allocated among
participants submitting electronic Complex Orders and COLA Sweeps as
set forth below. Executions in the COLA will comply with the
requirements of Exchange Rule 1080.08(c)(iii) above. For allocation
purposes, the size of a COLA Sweep or responsive Complex Order
received during the COLA Timer shall be limited to the size of the
COLA-eligible order.
(1) First, to customer marketable Complex Orders on the CBOOK
(as defined below) in the order in which they were received;
(2) Second, to COLA Sweeps [on a size pro-rata basis;
(3) Third, to] and SQTs, RSQTs, and non-SQT ROTs who have
submitted Complex Orders that are marketable against the COLA-
eligible order, on a size pro-rata basis; and
[(4) Fourth](3) Third, to non-market maker off-floor broker-
dealers on a size pro-rata basis.
(C)-(D) No change.
(vii)-(ix) No change.
(f)-(i) No change.
* * * * *
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, the Exchange included statements
concerning the purpose of and basis for the proposed rule change and
discussed any comments it received on the proposed rule change. The
text of these statements may be examined at the places specified in
Item IV below. The Exchange has prepared summaries, set forth in
sections A, B, and C below, of the most significant aspects of such
statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
The purpose of the proposal is to correct the rule text to provide
clarity to Phlx Participants regarding the trading of Complex Orders on
the Exchange. The Exchange's Complex Order System, which is governed by
Rule 1080.08, includes the Complex Order Live Auction (``COLA''), an
automated auction for seeking additional liquidity and price
improvement for Complex Orders. When the Exchange receives a COLA-
eligible order that triggers a COLA, the system broadcasts information
about the COLA-eligible order--the ``COLA Message.'' The duration of
the COLA is fixed and measured by a COLA Timer. During the COLA Timer,
the rule provides that Phlx XL participants \3\ may submit ``COLA
Sweeps,'' which are bids and/or offers on either or both side(s) of the
market by submitting one or more bids or offers that improve the
cPBBO.\4\ Also during the COLA Timer, Phlx members may enter other
Complex Orders at any price. While COLA Sweeps are submitted in direct
response to a COLA-eligible order, Complex Orders may or may not be
submitted in direct response to a COLA-eligible order.
---------------------------------------------------------------------------
\3\ COLA Sweeps can only be entered by Phlx XL Participants who
quote electronically as market makers for their own account
(Streaming Quote Traders (``SQTs''), Remote Streaming Quote Traders
(``RSQTs'') and specialists). Because non-SQT ROTs do not quote
electronically, they cannot enter COLA Sweeps, which are electronic.
See Rule 1014(b)(ii)(C) and Rule 1080.08(e)(ix).
\4\ The cPBBO is the best net debit or credit price for a
Complex Order based on the PBBO for the individual options
components of such Complex Order, and, where the underlying security
is a component of the Complex Order, the National Best Bid and/or
Offer for the underlying security. See Rule 1080.08(a)(iv).
---------------------------------------------------------------------------
COLA Message
Currently, upon the identification of the COLA-eligible order by
the Phlx XL system, the Exchange will broadcast a COLA Message to Phlx
XL participants indicating that a COLA has been initiated. The COLA
Message identifies the Complex Order Strategy, the size, side and price
of the COLA-eligible order.\5\ The COLA Message is sent over TOPO Plus
Orders,\6\ the Exchange's market data feed for subscribers interested
in the detailed information it offers, including messages relating to
Complex Orders. The Specialized Quote Feed (``SQF'') also contains COLA
Messages.\7\ Like auction messages on multiple exchanges, the COLA
Message
[[Page 33979]]
is designed to attract responsive interest.
---------------------------------------------------------------------------
\5\ The Exchange recently added the price and side of the market
to the COLA Message. See Securities Exchange Act Release No. 70271
(August 27, 2013), 78 FR 54340 (September 3, 2013) (SR-Phlx-2013-
88).
\6\ Securities Exchange Act Release No. 60877 (October 26,
2009), 74 FR 56255 (October 30, 2009) (SR-Phlx-2009-92).
\7\ Securities Exchange Act Release No. 63034 (October 2, 2010),
75 FR 62441 (October 8, 2010) (SR-Phlx-2010-124).
---------------------------------------------------------------------------
The Exchange now proposes to delete reference in the rule text to
the contingencies that an order might have. Testing has recently
revealed that the rule text is inaccurate; contingencies are not
included in the COLA Message.\8\ Two contingencies apply to Complex
Orders: all-or-none and cancel-replace. An all-or-none order is a
contingency order that is a market or limit order which is to be
executed in its entirety or not at all.\9\ An all-or-none order can
execute against multiple orders, as long as it is executed in full.
All-or-none Complex Orders can only be submitted for non-broker-dealer
customers, the same as for non-Complex Orders.\10\ A cancel-replacement
order is a contingency order that require the immediate cancellation of
a previously received order prior to the replacement of a new order
with new terms and conditions. If the previously placed order is
already filled partially or in its entirety the replacement order is
automatically canceled or reduced by such number.
---------------------------------------------------------------------------
\8\ However, contingencies are included in the order message
sent over TOPO Plus Orders. Complex Order messages merely show that
a Complex Order was received, including the details of those orders,
and are sent when such order is received; COLA Messages indicate
that a COLA is beginning and are therefore sent when a COLA begins.
Both Complex Order messages and COLA messages are available to all
who subscribe to the PHLX Orders feed (which is a subset of the TOPO
Plus Orders feed); the feed is available to all participants seeking
to subscribe. See https://nasdaqtrader.com/Trader.aspx?id=DPSpecs#options_x for a description of Exchange
feeds.
\9\ See Rule 1066(c)(4).
\10\ See Phlx Rule 1080(b)(i), which covers non-Complex Orders
and provides that the following types of agency orders are eligible:
day, GTC, Immediate or Cancel (``IOC''), Intermarket Sweep Order
(``ISO''), market, limit, stop, stop-limit, all or none, or better,
simple cancel, simple cancel to reduce size (cancel leaves), cancel
to change price, cancel with replacement order, opening-only-market
order, limit on opening order, and possible duplicate orders. The
following types of off-floor broker-dealer limit orders may be
entered: day, GTC, IOC, ISO, stop, stop-limit, simple cancel, simple
cancel to reduce size (cancel leaves), cancel to change price,
cancel with replacement order, limit on opening order. SQTs and
RSQTs can enter limit on opening, IOC, ISO, and DAY limit order for
their proprietary account(s). Non-SQT ROTs and specialists can enter
orders for their proprietary account(s) as GTC, DAY limit, IOC, ISO,
limit on opening and simple cancel as well as orders for less than
10 contracts marked as IOC.
---------------------------------------------------------------------------
The Exchange believes that it is appropriate to broadcast a COLA
Message without revealing a Complex Order's contingencies, because such
contingencies are not a material term of the order. The Exchange does
not believe that including or excluding that an order is an all-or-none
order or a cancel-replacement order significantly affects whether a
participant will respond to a particular COLA, which is the purpose of
the COLA Message. Of course, the fact than an order is an all-or-none
order will affect what order it can execute against, depending upon the
size of each order. Nevertheless, the Exchange believes that
participants would not decide whether to respond to a COLA based on the
all-or-none contingency on the order initiating the COLA. If a
participant could see that a particular order is an all-or-none order
for a large size and such participant intended to submit a smaller
order, the participant might assume that an execution would be
unlikely; however, another participant could enter an order that caused
there to be enough size to execute the all-or-none order. Thus, the
information that an order is an all-or-none order is not enough
information for a participant submitting an order for a size smaller
than the all-or-none order to definitively predict whether it will
execute, because of other orders \11\ and market factors. Although a
participant might choose to response with an order for a size equal to
or greater than the all-or-none order, the Exchange believes that
participants enter orders for a size that reflects their true interest,
strategy and risk profile and are not influenced by the existence of an
all-or-none contingency on an order.
---------------------------------------------------------------------------
\11\ Participants cannot see others' responses so they are
effectively ``blind'' to other responsive interest when making their
own responsive decisions.
---------------------------------------------------------------------------
The Exchange notes that all-or-none orders are rare. Specifically,
in August 2013, only 0.04% of COLAs were initiated by all-or-none
orders. Furthermore, from February 2013 through July 2013, less than
.05% of COLAs were initiated by all-or-none orders. In addition, only
0.12% of all Complex Orders from February 2013 through July 2013 were
entered as all-or-none orders. Accordingly, excluding from the COLA
message that an order is an all-or-none should not have a significant
impact on participants or on COLAs.
With respect to cancel-replacement orders, the cancellation aspect
of the order has no impact on the contra-side. The way the contingency
operates is that the first order is entered as a normal Complex Order
without a contingency, and it is later followed by a second order with
has a cancel-replace contingency. The first order is then cancelled,
fulfilling the contingency on the second order.\12\ Therefore, if the
first order starts a COLA, even if the Exchange displayed contingencies
in a COLA Message, such order would not have one. If the second order
starts a COLA, it no longer has a contingency and therefore display of
the contingency would not be relevant. Accordingly, the Exchange does
not believe there would be any impact on responses whether or not the
cancellation contingency is shown in the COLA message.
---------------------------------------------------------------------------
\12\ The replacement order does not retain the priority of the
order it replaces. While the replacement order is eligible to trade
at the end of the COLA, it is no longer treated as the COLA-eligible
order and thus does not have the priority associated with a COLA-
eligible order.
---------------------------------------------------------------------------
Although the Exchange stated in its rule that contingency
information would be included in the COLA message, the Exchange did not
build a field to include that information and did not therefore include
reference to this information in its specification document to
participants seeking to receive its data feeds. The Exchange is not
aware that any participant asked for such contingency information, even
though it appears in the rule text.
Other types of contingencies are listed in Rule 1066,\13\ but these
do not apply to Complex Orders, because they are inconsistent with
having multiple components. For example, stop and stop-limit
orders,\14\ Opening-Only-Market Orders and Limit on Opening orders are
all particular to one option series. The Exchange has not received
requests for these order types to be made available. The Exchange
proposes to make clear what order designations are available respecting
Complex Orders by adopting Rule 1080.08(b)(v), which will provide that
Complex Orders may be submitted as: All-or-none orders; \15\
[[Page 33980]]
cancel-replacement orders; \16\ limit orders; \17\ and market
orders.\18\
---------------------------------------------------------------------------
\13\ Rule 1066(c) has been amended to delete the order types in
(2), (3) and (6). See Securities Exchange Act Release No. 70629
(October 8, 2013), 78 FR 62852 (October 22, 2013) (SR-Phlx-2013-
100). Although Rule 1066(c)(8) lists immediate-or-cancel (``IOC'')
orders as a type of contingency order, the Exchange believes that
IOC is better described as a time-in-force and it is therefore
included with other time-in-force conditions like DAY and GTC in the
Complex Order Rule. See Rule 1080.08(b). The Exchange does not
indicate in the COLA Message the time-in-force of an order.
\14\ With respect to stop and stop-limit orders, although such
Complex Orders could conceivably be tied to a net debit/credit
price, developing a transparent way to effect the stop price would
be difficult, because Complex Order net prices are not disseminated
to OPRA, nor are the Complex Order prices disseminated as a quote to
OPRA. Thus, the Exchange does not believe it would be practicable to
accept stop or stop limit orders as Complex Orders.
\15\ All-or-none orders are to be executed in its entirety or
not at all. This is the same definition as currently found in Rule
1066(c)(4). These orders are only available to non-broker-dealer
customers.
\16\ Cancel-replacement orders require the immediate
cancellation of a previously received order prior to the replacement
of a new order with new terms and conditions. If the previously
placed order is already filled partially or in its entirety the
replacement order is automatically canceled or reduced by such
number. This is the same definition as Rule 1066(c)(7).
\17\ Limit orders are to be executed at a specified price or
better. This is the same definition as Rule 1066(b).
\18\ Market orders are to be executed at the best price
available at the time of execution. This is the same definition as
Rule 1066(a).
---------------------------------------------------------------------------
Priority Change
In addition, the Exchange proposes to amend Rule 1080.08(e)(vi)(B)
to provide that market maker \19\ COLA Sweeps and market maker Complex
Orders are treated the same in the COLA, meaning one does not have
execution priority over the other. The Rule incorrectly states that
COLA Sweeps have priority over market maker Complex Orders. The
Exchange believes that it is appropriate for market maker COLA Sweeps
and market maker Complex Orders to be treated the same way for priority
purposes, because they are both coming from market makers.\20\
---------------------------------------------------------------------------
\19\ Market maker COLA Sweeps include those entered by SQTs and
RSQTs. Non-SQT ROTs cannot enter COLA Sweeps. See supra note 3.
Specialists' COLA Sweeps are addressed in Rule 1080.08(e)(vi)(C).
\20\ See supra note 3.
---------------------------------------------------------------------------
2. Statutory Basis
The Exchange believes the proposed rule change is consistent with
the provisions of Section 6 of the Act,\21\ in general, and with
Section 6(b)(5) of the Act,\22\ in particular, which requires, among
other things, that the rules of an exchange be designed to promote just
and equitable principles of trade. Specifically, the Exchange is
proposing that the COLA Message will not include a COLA-eligible
order's contingencies. Nevertheless, the Exchange believes that, even
without contingencies, the COLA message should promote just and
equitable principles of trade, because market participants will
continue to receive information that is material to responding to a
COLA-eligible order. The Exchange believes that contingency information
is rather extraneous and notes that market participants have not asked
why it is not currently made available, despite the current reference
to it in the rule text. Even if the Exchange included contingency
information in the COLA message, the Exchange does not believe that
participants would use it or rely on it to make trading decisions.
Accordingly, the Exchange believes it is consistent with just and
equitable principles of trade to not include contingency information.
In addition, the Exchange notes that contingency information respecting
each Complex Order is available on its order feed, TOPO Plus Orders,
which contains Complex Order information.\23\ Because the same
information is available on that feed, the Exchange does not believe
that participants are adversely impacted and all participants have
access to the same message, such that it is consistent with just and
equitable principles of trade to not include this information in the
COLA Message.
---------------------------------------------------------------------------
\21\ 15 U.S.C. 78f.
\22\ 15 U.S.C. 78f(b)(5).
\23\ Securities Exchange Act Release Nos. 60877 (October 26,
2009), 74 FR 56255 (October 30, 2009) (SR-Phlx-2009-92); and 66693
(May 15, 2012), 77 FR 30043 (May 21, 2012) (SR-Phlx-2012-63).
---------------------------------------------------------------------------
The Exchange also notes that all-or-none Complex Orders are not
common. It is consistent with just and equitable principles of trade,
because it would not have any impact on participants whether or not
this information is provided. Similarly, the Exchange believes that it
is consistent with just and equitable principles of trade to not
include the cancel-replace contingency in a COLA Message. Because the
first order, as explained above, does not have a contingency nor does
the second order (the cancel-replacement order) once it is live, the
Exchange does not believe it is relevant to display the cancel-replace
contingency, because there would be no impact on responses.
The Exchange is also proposing to provide that COLA Sweeps do not
have priority over market maker Complex Orders. This is a correction to
the rule text. The Exchange believes that it is appropriate for market
maker COLA Sweeps and Complex Orders to be treated the same way for
priority purposes, because they are coming from the same type of market
participant, a market maker.\24\ The Exchange believes that this should
promote just and equitable principles of trade, because market
participants could reasonably expect that their interest should be
treated the same way whether entered as an order or as a COLA
Sweep.\25\
---------------------------------------------------------------------------
\24\ Although non-SQT ROTs cannot submit COLA Sweeps, their
Complex Orders are treated the same way as the Complex Orders of
other market makers, including that their orders can interact with a
COLA-eligible order.
\25\ Complex Orders could be responsive to a particular COLA or
could be an unrelated order. Because Complex Orders are not
specifically marked as ``COLA responses,'' the Phlx XL System cannot
identify which Complex Orders are truly intended to respond to the
auction and which are merely coincidental.
---------------------------------------------------------------------------
Furthermore, this priority treatment is similar to the Exchange's
priority rule respecting orders other than Complex Orders, as well as
the comparable rules of other options exchanges, because a market
maker's interest at a particular price is combined regardless of the
method of entry (quote, COLA Sweep or order).\26\ Specifically, Rule
1014(g)(vii), in calculating a market maker's participation, takes into
account both quotes and orders, as indicated by the following language
in the formula of the rule: based on the number of Phlx XL Participants
quoting or with limit orders at BBO. Accordingly, the Exchange believes
that the correction to the priority provision does not significantly
affect the protection of investors or the public interest, and does not
impose a significant burden on competition.
---------------------------------------------------------------------------
\26\ See Phlx Rule 1014(g)(vii)(B)(1)(b). Like COLA Sweeps,
Sweeps are treated the same way as other market maker quotes in the
Phlx XL System. See also BX Options Rules, Chapter VI, Section
10(1)(A) and (B).
---------------------------------------------------------------------------
In addition, this priority change is not unfairly discriminatory
with respect to non-SQT ROTs (who cannot submit COLA Sweeps); in fact,
it is fairer to them, because it will no longer give COLA Sweeps
priority over other market maker Complex Orders.
The Exchange is also proposing to make the Complex Order rule, Rule
1080.08, more complete by listing in subparagraph (b)(v) the types of
orders and contingencies that can be accepted as Complex Orders. The
four types to be listed (all-or-none, cancel-replacement, limit and
market) are all existing orders types and contingencies on Phlx. The
Exchange believes that this should promote just and equitable
principles of trade as well as protect investors and the public
interest by making more clear how specifically Complex Orders can be
designated. The Exchange notes that although all-or-none Complex Orders
are only available to non-broker-dealer customers, this is not unfairly
discriminatory, because it is common for certain types of orders to be
available to certain participant types. For example, all-or-none orders
that are not Complex Orders can only be entered for non-broker-dealer
customers in the Exchange's Phlx XL system.\27\ Similarly, with respect
to complex order programs on other options exchanges, at the discretion
of the exchange, some participants may not be able to initiate \28\ or
respond \29\ to a complex order auction.
---------------------------------------------------------------------------
\27\ See Phlx Rule 1080(b)(i)(A).
\28\ See CBOE Rule 6.53C(d)(i)(2), NYSE Arca Rule 6.91(c)(1) and
NYSE MKT Rule 980NY(e)(1).
\29\ See CBOE Rule 6.53C(d)(iii), NYSE Arca Rule 6.91(c)(4) and
NYSE MKT Rule 980NY(e)(4).
---------------------------------------------------------------------------
[[Page 33981]]
B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the proposed rule change will
result in any burden on competition that is not necessary or
appropriate in furtherance of the purposes of the Act, as amended.
Specifically, the proposal does not impose an intra-market burden on
competition, because the same COLA Message with the same information
will be available to all Phlx participants who receive Complex Order
Messages and such messages are available to those who choose to
subscribe, for a fee. Nor will the proposal impose a burden on
competition among the options exchanges, because of the vigorous
competition for order flow among the options exchanges. Market
participants who find contingency information respecting complex orders
important will continue to be able to receive that information when
participating on competing exchanges.
With respect to the aspect of the proposal that addresses the
priority of market maker Complex Orders and COLA Sweeps executing after
a COLA, the Exchange believes that this change does not impose a burden
on competition, because it treats all interest received from a market
maker the same way and does not change the way other intra-market
interest is handled. To the extent that market participants disagree
with the particular approach taken by the Exchange herein, market
participants can easily and readily direct complex order flow to
competing venues.
With respect to the aspect of the proposal that adopts specific
order types and contingencies applicable to Complex Orders, the
Exchange does not believe that the proposal imposes a burden on inter-
market competition. Most of these order types and contingencies are
available to all participants. Although all-or-none Complex Orders can
only be entered by non-broker-dealer customers, the Exchange does not
believe that this imposes a burden on competition, because: (i) As
stated above, all-or-none Complex Orders are rare, both in terms of how
many start a COLA and how many are received; and (ii) it is common both
on the Exchange (respecting non-Complex Orders) and on other options
exchanges to offer only certain functionality to certain
participants.\30\ The Exchange notes that this particular functionality
is only available for non-Complex Orders on Phlx to non-broker-dealer
customers.\31\ Nor does the proposal impose a burden on intra-market
competition, because most of these order types are available to all
participants.
---------------------------------------------------------------------------
\30\ See supra notes 27-29.
\31\ See supra note 27.
---------------------------------------------------------------------------
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) of the Act \32\ and
subparagraph (f)(6) of Rule 19b-4 thereunder.\33\
---------------------------------------------------------------------------
\32\ 15 U.S.C. 78s(b)(3)(a)(ii).
\33\ 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
Send an email to rule-comments@sec.gov. Please include
File Number SR-Phlx-2014-39 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-2014-39. This file
number should be included on the subject line if email is used. To help
the Commission process and review your comments more efficiently,
please use only one method. The Commission will post all comments on
the Commission's Internet Web site (https://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, all
written statements with respect to the proposed rule change that are
filed with the Commission, and all written communications relating to
the proposed rule change between the Commission and any person, other
than those that may be withheld from the public in accordance with the
provisions of 5 U.S.C. 552, will be available for Web site viewing and
printing in the Commission's Public Reference Room, 100 F Street NE.,
Washington, DC 20549, on official business days between the hours of
10:00 a.m. and 3:00 p.m. Copies of the filing also will be available
for inspection and copying at the principal office of the Exchange. All
comments received will be posted without change; the Commission does
not edit personal identifying information from submissions. You should
submit only information that you wish to make available publicly. All
submissions should refer to File Number SR-Phlx-2014-39 and should be
submitted on or before July 7, 2014.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\34\
---------------------------------------------------------------------------
\34\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------
Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2014-13823 Filed 6-12-14; 8:45 am]
BILLING CODE 8011-01-P
