Self-Regulatory Organizations; NASDAQ OMX PHLX LLC; Notice of Filing of Proposed Rule Change To Add a New Complex Order Process Called Legging Orders, 57632-57639 [2014-22789]
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Federal Register / Vol. 79, No. 186 / Thursday, September 25, 2014 / Notices
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 ICE Clear Europe and on ICE
Clear Europe’s Web site at https://
www.theice.com/clear-europe/
regulation.
As discussed above, ICE Clear Europe
submitted Amendment No. 1 to the
proposed rule change to address the
necessary change in the timing of the
clearing of transactions incorporating
the 2014 ISDA Definitions in light of the
change in the implementation timing of
the industry-wide ISDA protocol. The
Commission believes that Amendment
No. 1 does not modify the proposed rule
change as described in the Initial Rule
Filing 12 in any substantive manner, but
will facilitate the trading and clearing of
CDS throughout the entire credit
derivatives market. Accordingly, the
Commission finds good cause, pursuant
to Section 19(b)(2)(C)(iii) of the Act,13 to
approve the proposed rule change, as
modified by Amendment No. 1, prior to
the thirtieth day after the date of
publication of notice of Amendment No.
1 in the Federal Register.
VI. Conclusion
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On the basis of the foregoing, the
Commission finds that the proposal is
consistent with the requirements of the
Act and in particular with the
requirements of Section 17A of the
Act 14 and the rules and regulations
thereunder.
It is therefore ordered, pursuant to
Section 19(b)(2) of the Act,15 that the
proposed rule change (File No. SR–
ICEEU–2014–13), as modified by
Amendment No. 1, be, and hereby is,
approved on an accelerated basis.16
12 The Initial Rule Filing was published in the
Federal Register on August 20, 2014, for 21-day
comment and the comment period ended on
September 10, 2014. The Commission did not
receive comments on the Initial Rule Filing.
13 15 U.S.C. 78s(b)(2)(C)(iii).
14 15 U.S.C. 78q–1.
15 15 U.S.C. 78s(b)(2).
16 In approving the proposed rule change, the
Commission considered the proposal’s impact on
efficiency, competition and capital formation. 15
U.S.C. 78c(f).
17:25 Sep 24, 2014
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[FR Doc. 2014–22791 Filed 9–24–14; 8:45 am]
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
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–73152; File No. SR–Phlx–
2014–54]
V. Accelerated Approval of Proposed
Rule Change as Modified by
Amendment No. 1
VerDate Sep<11>2014
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.17
Kevin M. O’Neill,
Deputy Secretary.
Self-Regulatory Organizations;
NASDAQ OMX PHLX LLC; Notice of
Filing of Proposed Rule Change To
Add a New Complex Order Process
Called Legging Orders
September 19, 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
September 10, 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
The Exchange proposes to amend
Rule 1080.08(f)(iii) to add a new
Complex Order process called Legging
Orders.
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.
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
17 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
1 15
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Sfmt 4703
1. Purpose
The Exchange proposes to implement
functionality to provide additional
liquidity for Complex Orders resting on
top of the Complex Order Book
(‘‘CBOOK’’) at a price which improves
the cPBBO.3 Today, a Complex Order
resting on the CBOOK may be executed
either by: (i) trading against an incoming
Complex Order that is marketable
against the resting Complex Order,4 or
(ii) legging into the market when the net
price of the Complex Order can be
satisfied by executing all of the legs
against the best bids or offers on the
Exchange for the individual options
series.5 Legging Orders are designed to
increase the opportunity for Complex
Orders to ‘‘leg’’ into the market.
As proposed herein, a Legging Order
is a limit order on the regular order book
in an individual series that represents
one leg of a two-legged Complex Order
(which improves the cPBBO) to buy or
sell an equal quantity of two option
series resting on the CBOOK.6 As
explained further below, Legging Orders
may be automatically generated on
behalf of Complex Orders resting on the
top of the CBOOK so that they are
represented at the best bid and/or offer
on the Exchange for the individual legs.
Accordingly, Legging Orders serve to
attract interest to trade, while the
existing functionality that legs into the
market is merely reacting to liquidity
that arrives and is placed on the book.
The system will evaluate the CBOOK
when a Complex Order enters the
CBOOK and at a regular time interval to
be determined by the Exchange (which
interval shall not exceed 1 second)
following a change in the National Best
Bid/Offer (‘‘NBBO’’) or PHLX Best Bid/
Offer (‘‘PBBO’’) in any component of a
Complex Order eligible to generate
Legging Orders to determine whether
Legging Orders may be generated. The
3 The term ‘‘cPBBO’’ means the best net debit or
credit price for a Complex Order Strategy based on
the PBBO for the individual options components of
such Complex Order Strategy, 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).
4 See Rule 1080.08(f)(iii)(A)(2).
5 See Rule 1080.08(f)(iii)(A)(1).
6 See proposed Rule 1080.08(f)(iii)(C). Legging
Orders may only be generated for two-legged
Complex Orders involving a one-to-one ratio. This
is the same as ISE Rule 715(k). Also, both
components must be options, and therefore stockoption orders are not permitted.
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Exchange may determine to limit the
number of Legging Orders generated on
an objective basis and may determine to
remove existing Legging Orders in order
to maintain a fair and orderly market in
times of extreme volatility or
uncertainty.7
Legging Orders are firm orders that
are included in the Exchange’s
displayed best bid or offer. The
Exchange will determine the options for
which, if any, Legging Order
functionality will be available and will
communicate this to its participants.
Generating Legging Orders
A Legging Order may be automatically
generated for one leg of a Complex
Order at a price: (i) That matches or
improves upon the best Phlx displayed
bid or offer; and (ii) at which the net
price can be achieved when the other
leg is executed against the best
displayed bid or offer (other than
against a Legging Order).8 For example:
A Complex Order to buy 10 series A and
to buy 10 series B at a net price of $2.25 is
entered into the CBOOK and there is no
offsetting Complex Order to sell. The
Complex Order cannot leg into the regular
market because the net price available for the
Complex Order on the PHLX’s regular order
book is $2.40 as follows:
PHLX bid
A
B
10 at $1.00 ........................
10 at $1.00 ........................
PHLX offer
20 at $1.20.
20 at $1.20.
Buying A and B at $1.20 would result in
a net price of $2.40, but the Complex Order
is only willing to pay $2.25.
Legging Orders to buy 10 A at $1.05 and
10 B at $1.05 may be automatically
generated, improving the PHLX’s best bid for
both A and B to $1.05:
PHLX bid
10 at $1.05 (Legging
Order).
B 10 at $1.05 (Legging
Order).
mstockstill on DSK4VPTVN1PROD with NOTICES
A
PHLX offer
20 at $1.20.
20 at $1.20.
If a marketable order to sell 10 A is
received, it will execute against the Legging
Order to buy A at $1.05, there will be an
automatic execution of the other leg of the
Complex Order against the displayed offer for
B at $1.20, and the Legging Order to buy B
at $1.05 will be automatically removed. As a
result, the net price of $2.25 is achieved for
the Complex Order (buy A at $1.05 + buy B
at $1.20 = $2.25 net).9 Following the
7 See
proposed Rule 1080.08(f)(iii)(C).
proposed Rule 1080.08(f)(iii)(C)(1).
9 If a marketable order to sell 10 B is received, it
will execute against the Legging Order to buy B at
$1.05, there will be an automatic execution of the
other leg of the Complex Order against the
displayed offer for A at $1.20, and the Legging
Order to buy A at $1.05 will be automatically
8 See
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execution of the Complex Order, the PHLX
BBO is:
PHLX bid
A
B
PHLX offer
10 at $1.00 ........................
10 at $1.00 ........................
20 at $1.20.
10 at $1.20.
In addition to enabling the execution
of the Complex Order at a net price of
$2.25, the Legging Order enhanced
execution for orders in the regular order
book as (i) the incoming marketable
order to sell A received a better price
($1.05 instead of $1.00), and (ii)
liquidity to execute resting interest to
sell 10 B at $1.20 was provided by the
Complex Order.
As explained above, the proposed rule
specifies when a Legging Order can be
generated. Specifically, Legging Orders
may be generated only for two-legged
options orders with the same quantity
on both legs.10 A Legging Order may be
automatically generated for one leg of a
Complex Order at a price: (i) That
matches or improves upon the best
displayed bid or offer; and (ii) at which
the net price can be achieved when the
other leg is executed against the best
Phlx displayed bid or offer (other than
against a Legging Order).11 Two Legging
Orders relating to the same Complex
Order can be generated, but only one of
those can execute as part of the
execution of a particular Complex
Order.12
However, Legging Orders will not be
generated at a price that would lock or
cross the price of an away market. Nor
will a Legging Order be generated if
there is an auction, including but not
limited to a Complex Order Live
Auction (‘‘COLA’’) or a PIXL auction in
either side or Posting Period under Rule
1080(p) regarding Acceptable Trade
Range (‘‘ATR’’) on the same side in
progress in the series.13 Furthermore, a
Legging Order will not be generated if
the price of the Complex Order is
outside of the Acceptable Complex
Execution (‘‘ACE’’) Parameter of Rule
1080.08(i), which is explained further
below. Legging Orders will not be
generated respecting a Complex Order
that is an all-or-none order, because of
the difficulty of fulfilling an order size
removed. As a result, the net price of $2.25 is
achieved for the Complex Order (buy A at $1.20 +
buy B at $1.05 = $2.25 net).
10 This is the same as ISE Rule 715(k).
11 See proposed Rule 1080.08(f)(iii)(C)(1). CBOE
similarly does not generate its version of this order
when there is a ‘‘legging order’’ that comprises the
best bid/offer for the other leg.
12 See proposed Rule 1080.08(f)(iii)(C)(2).
13 See Phlx Rules 1080.08, 1080(n) and 1080(p)
regarding COLA, PIXL auction and ATR,
respectively.
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57633
contingency.14 Finally, Legging Orders
will not be generated for a Complex
Order if it will immediately cause
Legging Orders to be removed pursuant
to proposed Rule
1080.08(f)(iii)(C)(4)(ix).15
There can be only one Legging Order
on the same side of the market in a
series, unless a Legging Order, if
generated, would have priority at the
same price over an existing Legging
Order based on the participant (in
which case the lower priority order
would be removed). For example, an
order for a broker-dealer has a lower
priority under Exchange rules than an
order for a customer.16 A Legging Order
with a higher priority may be generated
and cause a lower priority Legging
Order at the same price to be removed.
If a Legging Order would have the same
priority as another Legging Order at the
same price, the second Legging Order
would not be generated, because
Legging Orders would only be generated
in the same series on the same side of
the market respecting the first Complex
Order received. This discussion applies
to the priority of generating orders, as
opposed to execution priority, which is
discussed below.
In addition to these limitations, the
Exchange will carefully manage and
curtail the number of Legging Orders
being generated so that they do not
negatively impact system capacity and
performance.17 Accordingly, Legging
Orders may not be generated for all
eligible Complex Orders resting on the
CBOOK.
A Legging Order may be generated
and executed in an increment other than
the minimum increment for that series
and will be ranked on the order book at
its generated price and displayed at a
price that is rounded, down for Legging
Orders to buy and up for Legging Orders
to sell, to the nearest minimum
increment allowable for that series. In
14 Rule 1080.08 (b)(v) provides that Complex
Orders may be submitted as All-or-None orders—
to be executed in their entirety or not at all. These
orders can only be submitted for non-broker-dealer
customers. -Notwithstanding this rule language,
All-or-None Complex Orders are not affirmatively
permitted to be submitted at this time. The
Exchange anticipates that it will file a proposed rule
change in the near future to permit the trading
system to accept All-or-None Complex Orders. See
SR–Phlx–2014–42P at footnote 21. The instant
proposed rule change describes how All-or-None
Complex Orders, once they are permitted under
Exchange rules, will not generate Legging Orders.
15 See proposed Rule 1080.08(f)(iii)(C)(2).
16 See Phlx Rule 1014(g)(vii).
17 The Exchange will curtail the number of
Legging Orders on an objective basis, such as
limiting the number of orders generated in a
particular option. The Exchange will not limit the
generation of Legging Orders on the basis of the
entering participant or the participant category of
the order (e.g., professional or public customer).
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Federal Register / Vol. 79, No. 186 / Thursday, September 25, 2014 / Notices
other words, although the Legging Order
may be displayed at a rounded price, it
will be ranked on the order book and
executed at its actual price.18 This is the
same as BOX Rule 7240(c)(1).
Legging Orders, like all regular orders,
will be disseminated by the Exchange to
the Options Price Reporting Authority
(‘‘OPRA’’) as part of its best bid and
offer, as well as over the Exchange’s
own data feeds, TOPO Plus Orders and
PHLX Orders. TOPO Plus Orders and
PHLX Orders will indicate that an order
is a Legging Order. Currently, orders on
TOPO Plus Orders and PHLX Orders are
indicated to be simple orders or
Complex Orders. Indicating an order is
a Legging Order is consistent with that
behavior.
Of course, Legging Orders will not be
generated if the Exchange or a particular
option has not opened, is halted or is
otherwise not available for trading.
Similarly, the particular Complex Order
Strategy must be available for trading.
Legging Orders are not routable and are
limit orders with a time-in-force of
DAY, as they represent an individual
component of a Complex Order.
Execution of Legging Orders
In terms of execution priority, a
Legging Order is executed only after all
other executable orders (including any
non-displayed size) and quotes at the
same price are executed in full pursuant
to the Phlx priority rule applicable to
Phlx XL non-Complex Orders, rather
than based on the time of receipt of the
Complex Order.19 Accordingly, the
generation of a Legging Order will not
affect the existing priority, or execution
opportunities, currently provided to
participants in the regular market in any
way. When a Legging Order is executed,
the other leg of the Complex Order will
be automatically executed against the
displayed best bid or offer on the
Exchange and any other Legging Order
based on that Complex Order will be
removed.20
For example:
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A Complex Order to buy 50 A and to buy
50 B at a net price of $2.25 (buy A/B 50 at
$2.25) is entered into the CBOOK and there
is no off-setting Complex Order to sell.
The Complex Order cannot leg into the
regular market because the PBBO net price
available for the Complex Order on the
PHLX’s regular order book is $2.40 as
follows:
PHLX bid
A
B
40 at $1.05 ........................
20 at $1.05 ........................
PHLX offer
60 at $1.20.
80 at $1.20.
18 See
proposed Rule 1080.08(f)(iii)(C)(2).
proposed Rule 1080.08(f)(iii)(C)(3).
20 This is the same as ISE Rule 715(k).
19 See
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Legging Orders to buy 50 A at $1.05 and
50 B at $1.05 may be automatically
generated, increasing the size of the PHLX’s
best bid for both A and B as follows:
PHLX bid
PHLX offer
A
90 at $1.05 (50 Legging
Order).
B 70 at $1.05 (50 Legging
Order).
60 at $1.20.
80 at $1.20.
If a marketable order to sell 30 A is
received, it will execute against the orders
and/or quotes at $1.05 other than the Legging
Order pursuant to the Exchange’s regular
allocation algorithm,21 and the size of the bid
for A will be reduced to 60 contracts as
follows:
PHLX bid
PHLX offer
A
60 at $1.05 (50 Legging
order).
B 70 at $1.05 (50 Legging
order).
60 at $1.20.
80 at $1.20.
If a marketable order to sell 50 A were then
received, it would first execute the remaining
10 A from the orders and/or quotes at $1.05
that are not the Legging Order, and then
execute 40 A against the Legging Order.
At this time, the Complex Order will also
execute 40 B at $1.20. The residual 10
contracts of the Legging Orders in A and the
Legging Order for 50 contracts of B will be
removed. As a result, the net price of $2.25
is achieved for a partial execution of the
Complex Order (buy 40 A at $1.05 + buy 40
B at $1.20 = 40 at $2.25 net).
Following the partial execution of the
Complex Order, the PHLX BBO is:
PHLX bid
A
B
PHLX offer
$0.00 .................................
20 at $1.05 ........................
21 See Rule 1014(g)(vii), which is the Phlx XL
priority provision that allocates orders based on
participant type.
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Fmt 4703
A Complex Order to buy 20 A and to buy
20 B at a net price of $2.25 (buy A/B 20 at
$2.25) is entered into the CBOOK and there
is no offsetting Complex Order to sell.
The Complex Order cannot leg into the
regular market because the PBBO net price
available for the Complex Order is $2.40 as
follows:
60 at $1.20.
40 at $1.20.
Removal
Pursuant to proposed Rule
1080.08(f)(iii)(C)(4), a Legging Order
will be removed from the regular limit
order book automatically: (i) If the price
of the Legging Order is no longer at the
Exchange’s displayed best bid or offer
on the regular limit order book; (ii) if
execution of the Legging Order would
no longer achieve the net price of the
Complex Order when the other leg is
executed against the Exchange’s best
displayed bid or offer on the regular
limit order book (other than another
Legging Order); (iii) if the Complex
Order is executed in full or in part; (iv)
if the Complex Order is cancelled or
modified; (v) if the price of the Complex
Order is outside of the ACE Parameter
of Rule 1080.08(i); (vi) upon receipt of
a Qualified Contingent Cross Order or
PO 00000
an order that will trigger an auction
under Exchange rules in a component in
which there is a Legging Order (whether
a buy order or a sell order); (vii) if a
Legging Order is generated by a different
Complex Order in the same leg at a
better price or the same price for a
participant with a higher priority; (viii)
if a Complex Order is marketable against
the cPBBO where a Legging Order is
present and has more than one leg in
common with the existing Complex
Order that generated the Legging Order;
(ix) if a Complex Order becomes
marketable against multiple Legging
Orders; (x) if a Complex Order
consisting of an unequal quantity of
components is marketable against the
cPBBO where a Legging Order is present
but cannot be executed due to
insufficient size in at least one of the
components of the cPBBO; or (xi) if an
incoming all-or-none order is entered
onto the order book at a price which is
equal to or crosses the price of a Legging
Order. Once a Legging Order is
removed, it no longer exists as an order,
even though the ‘‘parent’’ Complex
Order may still exist. Upon occurrence
of any of these conditions, the system
will recognize the condition and remove
the Legging Order accordingly.
For example:
Sfmt 4703
PHLX bid
A
B
10 at $1.05 ........................
10 at $1.05 ........................
PHLX offer
20 at $1.20.
50 at $1.20.
Legging Orders to buy 20 A at $1.05 and
20 B at $1.05 may be automatically
generated, increasing the size of the PHLX’s
best Bid for both A and B as follows:
PHLX bid
A
30 at $1.05 (20 Legging
Order).
B 30 at $1.05 (20 Legging
Order).
PHLX offer
20 at $1.20.
50 at $1.20.
If a limit order to buy 10 A at $1.10 is
received, the Legging Order to buy 20 A at
$1.05 will be removed because it is no longer
at the PHLX best Bid.
PHLX bid
A
B
10 at $1.10 ........................
30 at $1.05 (20 Legging
Order).
PHLX offer
20 at $1.20.
50 at $1.20.
If a marketable order to buy 20 A is
received, the PHLX best Offer will move
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above $1.20, resulting in the removal of the
Legging Order to buy B at $1.05 because the
net price of $2.25 can no longer be achieved.
PHLX bid
A
B
10 at $1.10 ........................
10 at $1.05 ........................
PHLX offer
20 at $1.25.
50 at $1.20.
(buy A at
$1.25 +
buy B at
$1.05 =
$2.30 net)
As noted above,22 a Legging Order is
also removed from the regular order
book if the price of the Complex Order
is outside the ACE Parameter of Rule
1080.08(i). The ACE Parameter feature is
designed to help maintain a fair and
orderly market by helping to mitigate
the potential risk of executions at prices
which are extreme and potentially
erroneous. Specifically, the ACE
Parameter prevents Complex Orders
from automatically executing at
potentially erroneous prices by
establishing a price range outside of
which a Complex Order will not be
executed. The ACE Parameter is based
on the Complex National Best Bid or
Offer (‘‘cNBBO’’) 23 at the time an order
would be executed. A Complex Order to
sell will not be executed at a price that
is lower than the cNBBO Bid by more
than the ACE Parameter. A Complex
Order to buy will not be executed at a
price that is higher than the cNBBO
Offer by more than the ACE Parameter.
A Complex Order or a portion of a
Complex Order that cannot be executed
within the ACE Parameter will be
placed on the CBOOK. This proposal
does not change the ACE Parameter.
For example:
A Complex Order to buy 20 A and to buy
20 B at a net price of $3.25 (buy A/B 20 at
$3.25) is entered into the CBOOK and there
is no offsetting Complex Order to sell.
Assume legging orders to buy 20 A at $1.05
and 20 B at $1.05 were automatically
generated.
PHLX bid
A
B
20 at $1.05 (legging order)
20 at $1.05 (legging order)
mstockstill on DSK4VPTVN1PROD with NOTICES
A
B
50 at $1.05 ........................
50 at $1.05 ........................
PHLX bid
PHLX offer
20 at $1.05 (legging order
1).
B 20 at $0.50 (legging order
2).
C 20 at $0.25 ........................
20 at $1.20.
A
20 at $0.80.
20 at $0.50.
PHLX offer
20 at $2.20.
20 at $2.20.
Now, assume the away markets move and
the NBBO is as follows,
NBBO Bid
Assuming an ACE Parameter setting
of 5%, the Exchange will not allow the
Complex Order to buy 20 A and to buy
20 B to execute more than 5% above the
cNBBO Offer of $2.40, or no higher than
$2.52 [$2.40+($2.40*.05)]. Since the
Complex Order is no longer executable
at its limit price of $3.25 due to the ACE
Parameter protection, the legging orders
associated with the Complex Order are
removed from the limit order book.
As noted above,24 a Legging Order is
also removed from the regular order
book upon receipt by the Exchange of an
order that will trigger an auction under
Exchange rules in a component where a
Legging Order (whether a buy order or
a sell order) has been generated, such as
a COLA-eligible Order or PIXL Order, or
upon receipt of a Qualified Contingent
Cross (‘‘QCC’’) Order.25 These types of
orders may involve multiple option
components which may have multiple
Legging Orders for various Complex
Orders included in the option BBOs. In
order to ensure that Legging Orders do
not adversely affect the execution of
these orders and in order to avoid the
system complexities that would result
from combining the execution of
Legging Orders and thus Complex
Orders with the already complex
auction processes, the Exchange will
remove Legging Orders upon acceptance
of an auctionable order or QCC order
and will not consider generation of any
new Legging Orders until the auction
has been completed or the QCC order
has been executed. For example, assume
two separate Complex Orders have
generated Legging Orders which are
represented in the PBBO. Complex
Order 1 has generated a Legging Order
in A and Complex Order 2 has
generated a Legging Order in B.
NBBO Offer
20 at $1.20.
50 at $1.20.
Assume an auctionable Complex
Order is received. Upon receipt of an
auctionable order, a Complex Auction is
initiated. The Legging Orders in A and
B are therefore removed from the system
and no new Legging Orders will be
generated until the end of the Auction.
This removal eliminates system
24 See
proposed Rule 1080.08(f)(iii)(C)(4)(vi).
Rule 1080(o), which defines a QCC Order
as an originating order to buy or sell at least 1000
contracts (or 10,000 contracts in the case of mini
options) that is identified as being part of a
qualified contingent trade coupled with a contraside order or orders totaling an equal number of
contracts.
25 See
The cNBBO for the Complex Order strategy
is $2.10 Bid, Offered at $2.40.
22 See
23 See
proposed Rule 1080.08(f)(iii)(C)(4)(v).
Rule 1080.08(a)(vi).
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complexities that would result from
combining regular Complex Auction
executions and Legging Orders
executions. In addition, scenarios could
arise in which incoming Complex
Orders or QCC Orders consist of the
same components as the Complex
Orders which generated Legging Orders
and are reliant on the execution of the
same interest as the Legging Orders.
Since the purpose of Legging Orders is
to provide additional liquidity for
Complex Orders resting on the CBOOK
without negatively affecting the trading
opportunities of unrelated interest, the
Exchange believes that removing
Legging Orders upon receipt of an
auctionable order or QCC order
eliminates the need for system
complexities and ensures trading
opportunities remain unaffected for
auctions and QCC Orders.
In order to ensure Complex Orders are
executed in accordance with the priority
rules associated with such order, the
Exchange proposes to remove a Legging
Order from the limit order book when
another Legging Order is generated by a
different Complex Order in the same leg
at a better price or at the same price for
a participant with a higher priority.26
For example the system will remove a
Legging Order representing a leg of a
Complex Order for a Market Maker
when a Legging Order is also generated
in that leg at the same price for a
Customer Complex Order.
As noted above, a Legging Order will
be removed when a Complex Order is
marketable against the cPBBO where a
Legging Order is present and has more
than one leg in common with the
existing Complex Order that generated
the Legging Order.27 This behavior
ensures there is no risk of resting
Complex Orders which have generated
Legging Orders and incoming Complex
Orders both relying on executions
against the same displayed interest in
order to satisfy all of their component
legs. Consider the following example,
with the following Legging Orders
already generated by Complex Order 1:
PHLX bid
A
30 at $1.05 (20 Legging
Order).
B 30 at $1.05 (20 Legging
Order).
PHLX offer
20 at $1.20.
50 at $1.20.
Consider a scenario where the
Exchange then received Complex Order
2 to buy 20 contracts of A and sell 20
contracts of B for a net debit of $0.15.
Complex Order 2 has more than one leg
in common with Complex Order 1.
26 See
27 See
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Complex Order 2 would need to execute
against all 20 contracts of A Offered at
$1.20 and 20 contracts of B at $1.05 (10
contracts against the $1.05 regular quote
in B and 10 contracts against the
Legging Order in B). However, when the
10 contracts of the Legging Order of B
are executed at $1.05, an execution of 10
contracts of A at $1.20 must occur in
order to satisfy Complex Order 1. There
is now an issue because Complex Order
2 will have already executed all
available contracts of A at $1.20 making
it impossible for Complex Order 1 to be
executed in accordance with the
component strategy. To avoid this
situation, the Legging Order in B to buy
20 for $1.05 which was generated by
Complex Order 1 will be removed upon
receipt of Complex Order 2. To illustrate
the rule further, if the example above
were revised such that Complex Order
2 is to sell 20 contracts of A and to sell
20 contracts of B for a net credit of
$2.25, the system will cancel the
Legging Orders in A and B and trade
Complex Order 2 against Complex
Order 1. In this particular scenario the
system has Complex Order 1 on the
book in the same strategy as Complex
Order 2 which Complex Order 2 is
marketable against. Upon receipt of
Complex Order 2, the system will trade
the order against the buy Complex
Order. There is no need to trade with
the Legging Orders.
Similarly, a Legging Order will also be
removed when a Complex Order
becomes marketable against multiple
Legging Orders.28 Legging Orders will
be removed in this instance in order to
minimize system complexities as well
as to mitigate any risk of Complex
Orders executing only certain
components. For example, assume a
Legging Order in A and a Legging Order
in B represent two unique Complex
Orders (Complex Order 1 and Complex
Order 2 respectively) both reliant on the
quoted market of another option, C, and
a third Complex Order (Complex Order
3) arrived consisting of options A, B,
and C. The execution of Complex Order
3 could result in the inability of
Complex Orders 1 and 2 to execute if
Complex Order 3 executes against the
interest in C, which Complex Orders 1
and 2 were also reliant upon. In order
to mitigate any risk of Complex Orders
executing only certain components, in
both cases, the Exchange will remove
the existing Legging Orders created by
Complex Orders 1 and 2. Thereafter, if
conditions change, new Legging Orders
could be generated. To illustrate the
application of the rule to a different
scenario, assume the existence of
Complex Order 1 to Buy A and Buy B,
with a Legging Order generated in A,
and Complex Order 2 to Buy C and Buy
D, with a Legging Order generated in C.
Assume the system then receives a
marketable Complex Order 3 to Sell A
and Sell C. Since Complex Order 3 is
marketable against multiple Legging
Orders (in A and C), the Legging Orders
in both A and C are removed.
As noted above, the Exchange also
proposes to remove Legging Orders from
the limit order book if a Complex Order
consisting of an unequal quantity of
components is marketable against the
cPBBO where a Legging Order is present
but cannot be executed due to
insufficient size in at least one of the
components of the cPBBO.29 Since
Complex Orders are accepted by the
Exchange consisting of ratios of up to
3:1,30 a Complex Order may appear to
be executable against the cPBBO but in
fact cannot trade due to the ratio of the
components of the strategy and the size
available in each component in the
cPBBO. In order to mitigate the risk of
incoming Complex Orders appearing to
be tradable against Legging Orders and
to limit the complexity of the system in
relation to Legging Orders, the Exchange
proposes to remove Legging Orders from
the limit order book if a Complex Order
consisting of an unequal quantity of
components is marketable against the
cPBBO where a Legging Order is present
but cannot be executed due to
insufficient size in at least one of the
components of the cPBBO. For example,
assume the following example of a
Complex Order (Complex Order 1) to
buy 1 A and buy 1 B for $2.25 on the
CBOOK which has generated Legging
Orders,
PHLX bid
PHLX offer
A 1 at $1.05 (Legging Order)
B 1 at $1.05 (Legging Order)
C 5 at $0.50 ..........................
20 at $1.20.
20 at $1.20.
5 at $0.60.
Assume a second Complex Order
(Complex Order 2) arrives to sell 3 A
and sell 1 C at a net price of $3.65. The
limit price of $3.65 is marketable against
the cPBBO bid of $3.65
((3*$1.05)+$0.50). However, Complex
Order 2 cannot be executed because the
volume available at the cPBBO does not
line up correctly with the ratio of the
legs. Complex Order 2 requires the sale
of 3 contracts of A for every sale of a
contract in C. However, there is only
one contract in A (the Legging Order
bidding $1.05 for one contract)
available. Since Complex Order 2
29 See
28 See
proposed Rule 1080.08(f)(iii)(C)(4)(ix).
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30 See
PO 00000
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Rule 1080.08(a)(ix).
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cannot be executed, it will go onto the
CBOOK. The Legging Order in A will be
removed. In order to minimize the
appearance that a Complex Order (in
this example, Complex Order 2) is
tradable against a Legging Order when
in fact it is not tradable due to the ratio
of the components of the Complex
Order, the Exchange proposes to remove
a Legging Order (in the example, the
Legging Order to buy A associated with
Complex Order 1) when another
Complex Order consisting of an unequal
quantity of components is marketable
against the cPBBO where a Legging
Order is present but cannot be executed
due to insufficient size in at least one of
the components of the cPBBO. The
purpose of removing the Legging Order
in this case is to minimize any possible
misperception on the part of market
participants that Complex Order 2 is
tradable against a Legging Order, when
in fact it is not. Elimination of the
Legging Order will thus mitigate
possible investor confusion due to
market participants’ focus on price
alone rather than price and size. In
situations in which Complex Orders
consisting of an unequal quantity of
components are in fact tradable against
Legging Orders, an execution will occur.
Lastly, the Exchange proposes to
remove Legging Orders from the limit
order book when an incoming all-ornone order is entered onto the order
book at a price which is equal to or
crosses the price of a Legging Order.31
An all-or-none order received at a price
which can be executed against PBBO
interest, inclusive of Legging Orders,
will execute against such interest.
However, if an all-or-none order is
received which cannot be executed due
to the size of the all-or-none
contingency, such all-or-none order will
rest on the order book and cause any
Legging Order which it crosses or is
equal to in price to be removed. This
removal eliminates the risk of the
system having to handle and maintain
Legging Orders which cross the order
book.
To summarize, proposed Rule
1080.08(f)(iii)(C)(4) addresses when a
Legging Order will be removed from the
regular limit order book automatically,
which results in the Legging Order no
longer existing as such. In each case of
removal, the system removes the
Legging Order when one of the
conditions in subparagraph (C)(4)
occurs, which the system assesses
continuously.
31 See
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2. Statutory Basis
The Exchange believes that its
proposal is consistent with Section 6(b)
of the Act 32 in general, and furthers the
objectives of Section 6(b)(5) of the Act 33
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
increasing the opportunity for Complex
Orders to receive an execution, while
also enhancing execution quality for
orders in the regular market.
In particular, the Exchange believes
that automatically generating Legging
Orders, which will only be executed
after all other executable interest at the
same price (including non-displayed
interest and quotes) is executed in full,
will provide additional execution
opportunities for Complex Orders,
without negatively impacting any
investors in the regular market. In fact,
the generation of Legging Orders may
enhance execution quality for investors
in the regular market by improving the
price and/or size of the PBBO and by
providing additional execution
opportunity for resting orders on the
regular order book. The Exchange
believes Legging Orders will provide
market participants with another tool
for adding trading interest on Phlx.
Legging Orders may serve to increase
liquidity to the extent market
participants find Legging Orders result
in better executions. This may result in
more aggressive trading interest in the
overall Phlx market, thereby perfecting
the mechanism of a free and open
market.
The Exchange believes Legging Orders
will increase opportunities for
execution of Complex Orders,
potentially increase executions of
interest on the regular order book, and
lead to tighter spreads and finer pricing
on Phlx, which will benefit investors.
Legging Orders may provide investors
with opportunities to trade at better
prices than would otherwise be
available—possibly inside the otherwise
existing PBBO in a leg series. The
Exchange believes that the potential for
investors to receive executions inside
the otherwise existing PBBO could
result in better executions for investors,
thus making Legging Orders consistent
with the Act.
The Exchange also believes that the
generation of Legging Orders is fully
compliant with all regulatory
32 15
33 15
U.S.C. 78f(b).
U.S.C. 78f(b)(5).
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requirements. In particular, Legging
Orders are firm orders that will be
displayed within the PBBO. A Legging
Order will be automatically removed if
it is no longer displayable at the PBBO,
if the net price of the Complex Order
can no longer be achieved, or in other
limited situations which could cause
normal trading to be adversely affected
or unnecessary system complexities to
arise.34 Moreover, to assure compliance
with inter-market rules,35 a Legging
Order will not be generated at a price
that would lock or cross another market.
Finally, the generation of Legging
Orders is limited in scope, as they may
be generated only for Complex Orders
with two legs. Additionally, the
Exchange will closely manage and
curtail the generation of Legging Orders
if needed to assure that they do not
negatively impact system capacity and
performance.
Furthermore, the Exchange notes that
its proposed rule change is similar to
International Securities Exchange LLC’s
(‘‘ISE’s’’) previously approved Legging
Orders, as well as certain aspects of the
Chicago Board Options Exchange
(‘‘CBOE’’) and BOX Options Exchange
LLC (‘‘BOX’’) rules, which the
Commission has previously found to be
consistent with the Act. In most
respects, the proposal is similar to ISE
Rules 715(k) and 722(b)(3)(ii). However,
the Exchange proposes to handle its
proposed Legging Orders the same way
that BOX does respecting: (i) Orders that
are generated in an increment other than
the minimum increment allowable for
34 In particular, Legging Orders will be removed
when a Complex Order is marketable against the
cPBBO where a Legging Order is present and has
more than one leg in common with the existing
Complex Order that generated the Legging Order, as
well as when a Complex Order becomes marketable
against multiple Legging Orders. Elimination of
Legging Orders in those instances should eliminate
the operational difficulties that may otherwise
result from those executions and the potential for
those executions to interfere with the system and
other trading. The Exchange notes that its existing
rules contain provisions that prevent the execution
of Complex Orders that might otherwise be
executable. See, e.g., Rule 1080.08(i), Acceptable
Complex Execution (‘‘ACE’’) parameter. Legging
Orders are not firm on Phlx with respect to other
Complex Orders and will not trade against legs of
other Complex Orders, which is consistent with the
existing Complex Order execution provisions in
Rule 1080.08 that do not allow execution of
overlapping legs of Complex Orders. See also
Securities and Exchange Act Release No. 69364
(April 11, 2013), 78 FR 22926 (April 17, 2013)
(Notice of CBOE Filing of a Proposed Rule Change,
as Modified by Amendment No. 1, Relating to
Complex Orders), at footnote 25: ‘‘Leg orders are
thus not firm with respect to other complex orders
and will not trade against legs of other complex
orders, which is consistent with the existing
complex order execution provisions in Rule 6.53C
that do not allow execution of overlapping legs of
complex orders.’’
35 See, e.g., Phlx Rule 1084, Order Protection.
PO 00000
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that series,36 and (ii) executing Complex
Orders outside a certain price.37 The
Exchange believes that its application of
its ACE Parameter to both generating
and removing Legging Orders is akin to
BOX’s NBBO protection, but does not
believe that this is a material difference
because the Exchange believes that
users would expect an exchange’s
normal price protections to apply to its
execution of Complex Orders, regardless
of the particular circumstance that
caused the execution. Moreover, the
ACE parameter is a protection intended
to benefit users submitting Complex
Orders.
In addition, the Exchange proposes to
handle the following aspects of Legging
Orders in the same manner as CBOE: 38
(i) The Exchange will not generate
Legging Orders with an all-or-none
contingency; 39 (ii) the Exchange will
not generate a Legging Order unless the
other leg can be executed against the
PBBO without regard to another Legging
Order; 40 (iii) the Exchange will
periodically evaluate whether a Legging
Order should be generated or
removed; 41 and (iv) when a Legging
Order is executed, the other leg is
executed against the PBBO and the
second Legging Order, if generated, of
the Complex Order represented by the
executed Legging Order is removed.42
Certain aspects of the Exchange’s
proposal potentially differ from the
rules of other options exchanges in a
few minor ways, but these differences
are not material. First, if a Legging Order
36 See BOX Rule 7240(c)(1). Specifically, BOX
will price and rank a Legging Order at its generated
price to buy (sell) but it will be displayed at the
minimum trading increment permitted for the series
below (above) its price. If an incoming order is
executable against such Legging Order, it will be
executed at the Legging Order’s generated price.
37 BOX does not permit Complex Order
executions outside the NBBO for the Complex
Order, which is akin to the Exchange applying its
ACE parameter. See BOX Rule 7130(b) and (c).
38 The Exchange cannot discern from ISE’s rules
how these particular aspects are specifically
handled.
39 See CBOE Rule 6.53(x).
40 See CBOE Rule 6.53C(c)(iv)(1)(A) referring to
‘‘other than leg orders.’’
41 See CBOE Rule 6.53C(c)(iv)(1). The evaluation
methodologies differ somewhat. CBOE’s evaluation
occurs ‘‘when a Complex Order enters the COB,
when the Exchange BBO changes and at a regular
time interval to be determined by the Exchange
(which interval shall not exceed one (1) second . . .
(emphasis added)’’. Phlx, however, will evaluate
‘‘when a Complex Order enters the CBOOK and at
a regular time interval, to be determined by the
Exchange (which interval shall not exceed 1
second) following a change in the NBBO or PBBO
in any component of a Complex Order eligible to
generate Legging Orders . . .’’. Phlx’s evaluation
methodology avoids complexities associated with
evaluation of flickering quotes while still updating
Legging Orders regularly to provide liquidity to the
market.
42 See CBOE Rule 6.53C(c)(iv)(2)(B).
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would otherwise be generated, the
Exchange will not do so if there is an
auction on the either side in progress in
the series. The Exchange will also
remove existing Legging Orders when
an order arrives that will trigger an
auction in a component in which there
is a Legging Order (whether a buy order
or a sell order), or upon receipt of a QCC
Order which includes a component in
which there is a Legging Order.43 The
Exchange does not believe the way in
which removal or generation of Legging
Orders is affected by auctions is a
material difference, because the
Exchange does not believe that there is
one particular expectation on the part of
market participants about how orders
like Legging Orders should co-exist with
auctions. Further, there are certain
system complexities associated with
having to coordinate Legging Orders
with an ongoing auction or complex
execution.44 The Exchange believes it
will be simpler from both a system
processing and user acceptance
standpoint to wait for an auction in that
series to be complete or a QCC Order to
be executed, which is a minimal amount
of time.
In addition, the Exchange will not
generate a Legging Order if there is
already a Legging Order in that series on
the same side of the market at the same
price unless it has priority based on the
participant type under existing
Exchange rules. Likewise, a Legging
Order will be automatically removed if
a Legging Order is generated by a
different Complex Order in the same leg
at a better price or the same price for a
participant with a higher priority. The
Exchange does not believe that this is a
material difference, because this
behavior serves to ensure that the
priority rules relating to resting
Complex Orders are maintained.45 The
Exchange will also remove the Legging
Order when (1) a Complex Order is
marketable against the cPBBO where a
Legging Order is present and has more
than one leg in common with the
existing Complex Order that generated a
Legging Order or (2) if a Complex Order
becomes marketable against multiple
Legging Orders. Moreover, pursuant to
proposed Rule 1080.08(f)(iii)(C)(2)(vi),
no Legging Orders will be created for a
Complex Order if the Complex Order
will immediately cause existing Legging
Orders to be removed under Rule
43 Auctions include a COLA as well as a PIXL
auction.
44 CBOE, on the other hand, considers which side
of the market is affected when an auction could
impact one of its legging orders. See CBOE Rule
6.53C.07.
45 CBOE addresses priority in its Rule
6.53C(c)(iv)(2)(A).
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1080.08(f)(iii)(C)(4)(ix)—i.e., because the
Complex Order has become marketable
against multiple Legging Orders. The
Exchange does not believe that this is a
material difference, because the
situation of overlapping Legging Orders
and Legging Order dependencies on
other components has to be addressed
and the Exchange believes its approach
is reasonable.46
The Exchange will remove a Legging
Order when a Complex Order consisting
of components of unequal quantities is
marketable against the cPBBO where a
Legging Order is present but cannot be
executed due to insufficient size in at
least one of the components of the
cPBBO. The Exchange does not believe
that this is a material difference,
because this behavior serves to
minimize occurrences where there may
be the appearance of potential execution
when in fact, there is no potential
execution due to the ratio of the
components. Lastly, the Exchange
proposes to remove Legging Orders from
the limit order book when an incoming
all-or-none order is entered onto the
order book at a price which is equal to
or crosses the price of a Legging Order.
This removal eliminates the risk of the
system having to handle and maintain
Legging Orders which cross the order
book, thereby eliminating unnecessary
system complexity to the benefit of
investors.
In conclusion, the Exchange believes
that its proposed rules are similar to
rules of other exchanges that the
Commission has already determined to
be consistent with the Act and in the
public interest, with any differences
raising no new regulatory issues.
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 is procompetitive. The proposal will permit
the Exchange to compete against other
options exchanges with similar
functionality, such as BOX, CBOE and
ISE.47 The Exchange believes the
proposed rule change could result in
improved liquidity, finer pricing, better
executions and increased competition
within its Complex Order market to the
benefit of the Exchange and market
participants and thus allow the
Exchange to better compete with other
46 CBOE takes into account the size of an order.
See CBOE Rule 6.53C(c)(iv)(3)(A).
47 See ISE Rules 715(k) and 722(b)(3)(ii), BOX
Rule 7240(c) and CBOE Rule 6.53C(c)(iv).
PO 00000
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options exchanges for Complex Order
flow. The Exchange also believes
Legging Orders may facilitate additional
executions and enhance execution
quality for investors in the regular
market by improving the price and/or
size of the PBBO and by providing
additional execution opportunities for
resting orders on the regular order book.
Within the Exchange’s market for
Complex Orders, the Legging Order
functionality will be available to all
participants who participate in the
Complex Orders system. All market
participants have the option to send
their Complex Orders to Phlx in order
to take advantage of this order type.
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
Within 45 days of the date of
publication of this notice in the Federal
Register or within such longer period (i)
as the Commission may designate up to
90 days of such date if it finds such
longer period to be appropriate and
publishes its reasons for so finding or
(ii) as to which the Exchange consents,
the Commission shall: (a) By order
approve or disapprove such proposed
rule change, or (b) institute proceedings
to determine whether the proposed rule
change should be 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–2014–54 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–2014–54. This file
number should be included on the
subject line if email is used. To help the
Commission process and review your
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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–
2014–54, and should be submitted on or
before October 16, 2014.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.48
Kevin M. O’Neill,
Deputy Secretary.
[FR Doc. 2014–22789 Filed 9–24–14; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–73147; File No. SR–ISE–
2014–09]
Self-Regulatory Organizations;
International Securities Exchange,
LLC; Order Approving Proposed Rule
Change Related to Market Maker Risk
Parameters
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September 19, 2014.
I. Introduction
On March 10, 2014, the International
Securities Exchange, LLC (the
‘‘Exchange’’ or the ‘‘ISE’’) filed with the
Securities and Exchange Commission
(‘‘Commission’’), pursuant to Section
19(b)(1) of the Securities Exchange Act
of 1934 (‘‘Act’’),1 and Rule 19b–4
thereunder,2 a proposed rule change to
48 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
1 15
VerDate Sep<11>2014
17:25 Sep 24, 2014
Jkt 232001
amend ISE Rules 722 and 804 to
mitigate market maker risk by adopting
an Exchange-provided risk management
functionality. The proposed rule change
was published for comment in the
Federal Register on March 26, 2014.3
The Commission received no comments
on the proposal. On May 7, 2014,
pursuant to Section 19(b)(2) of the Act,4
the Commission designated a longer
period within which to either approve
the proposed rule change, disapprove
the proposed rule changes, or institute
proceedings to determine whether to
disapprove the proposed rule change.5
On June 24, 2014, the Commission
instituted proceedings to determine
whether to approve or disapprove the
proposed rule change.6 In response to
the Order Instituting Proceedings, the
Commission received five comment
letters on the proposal.7 This order
approves the proposed rule change.
II. Description of the Proposal
The Exchange proposes to amend ISE
Rule 722 and ISE Rule 804 to enhance
3 See Securities Exchange Act Release No. 71759
(March 20, 2014), 79 FR 16850 (March 26, 2014)
(SR–ISE–2014–09) (‘‘Notice’’).
4 15 U.S.C. 78s(b)(2).
5 See Securities Exchange Act Release No. 72117,
79 FR 27360 (May 13, 2014). The Commission
determined that it was appropriate to designate a
longer period within which to take action on the
proposed rule change so that it would have
sufficient time to consider the proposed rule
change. Accordingly, the Commission designated
June 24, 2014, as the date by which it should
approve, disapprove, or institute proceedings to
determine whether to disapprove the proposed rule
change.
6 See Securities Exchange Act Release No. 72455,
79 FR 36849 (Jun. 30, 2014) (‘‘Order Instituting
Proceedings’’). In the Order Instituting Proceedings,
the Commission noted, among other things, that
questions remains as to whether the Exchange’s
proposal is consistent with the requirements of
Section 6(b)(5) of the Act, which requires, among
other things, that the rules of a national securities
exchange be designed to prevent fraudulent and
manipulative acts and practices, to promote just
and equitable principles of trade, to perfect the
mechanism of a free and open market and a
national market system, and not be designed to
permit unfair discrimination between customers,
issuers, brokers, or dealers. Additionally, the
Commission questioned whether the proposal is
consistent with Section 6(b)(8) of the Act, which
requires that the rules of a national securities
exchange do not impose any burden on competition
not necessary or appropriate in furtherance of the
purposes of the Act.
7 See Letters to the Commission from Andrew
Killion, Chief Executive Officer, Akuna Securities
LLC, dated July 24, 2014 (‘‘Akuna Letter’’); Brent
Hippert, President/CCO, Hardcastle Trading USA
LLC, dated July 28, 2014 (‘‘Hardcastle Letter’’); John
Kinahan, Chief Executive Officer, Group One
Trading, L.P., dated July 29, 2014 (‘‘Group One
Letter’’); Sebastiaan Koeling, Chief Executive
Officer, Optiver US LLC, dated July 29, 2014
(‘‘Optiver Letter’’); and Andrew Stevens, General
Counsel, IMC Chicago, LLC d/b/a IMC Financial
Markets, dated August 18, 2014 (‘‘IMC Letter’’).
PO 00000
Frm 00137
Fmt 4703
Sfmt 4703
57639
its risk management offering for market
maker quotes.8
Currently, there are four parameters
that can be set by market makers on a
class-by-class basis. These parameters
are available for market maker quotes in
single options series and in complex
instruments on the complex order book.
Market makers establish a time frame
during which the system calculates: (1)
The number of contracts executed by
the market maker in an options class; (2)
the percentage of the total size of the
market maker’s quotes in the class that
has been executed; (3) the absolute
value of the net between contracts
bought and sold in an options class, and
(4) the absolute value of the net between
(a) calls purchased plus puts sold, and
(b) calls sold plus puts purchased. Once
the limits for each of the four
parameters are exceeded within the
prescribed time frame, the market
maker’s quotes in all series of that class
are automatically removed or curtailed.
Additionally, ISE’s rules provide that if
a specified number of curtailment
events are exceeded within the
prescribed time period, the market
maker quotes in all classes will be
automatically removed from ISE’s
trading system.9 The Exchange now
proposes to implement functionality to
allow market maker quotes to be
removed from the trading system if a
specified number of curtailment events
occur across both ISE and ISE Gemini,
LLC (‘‘ISE Gemini’’).
To the extent that a market maker
utilizes the offered functionality, ISE
and ISE Gemini’s trading systems will
count the number of times a market
maker’s pre-set curtailment events occur
on each exchange and aggregate them.
Once a market maker’s specified
number of curtailment events across
both markets is reached, the trading
systems will remove the market maker’s
quotes in all classes on both ISE and ISE
Gemini. The Exchange will then reject
any quotes sent by the market maker
after the parameters across both
exchanges have been triggered until the
market maker notifies the market
operations staff of the Exchange that it
is ready to come out of its curtailment.
Once notified by the market maker, the
Exchange will reactivate the market
maker’s quotes on the Exchange.
The Exchange believes that the
proposal will enhance the Exchange’s
current risk management offering by
allowing market makers to manage their
8 For a more complete description of the proposal,
see Notice, supra note 3.
9 See Securities Exchange Act Release Nos. 70132
(August 7, 2013), 78 FR 49311 (August 13, 2013)
(SR–ISE–2013–38) and 71446 (January 30, 2014), 79
FR 6951 (February 5, 2014) (SR–ISE–2014–04).
E:\FR\FM\25SEN1.SGM
25SEN1
]]>Agencies
[Federal Register Volume 79, Number 186 (Thursday, September 25, 2014)]
[Notices]
[Pages 57632-57639]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2014-22789]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-73152; File No. SR-Phlx-2014-54]
Self-Regulatory Organizations; NASDAQ OMX PHLX LLC; Notice of
Filing of Proposed Rule Change To Add a New Complex Order Process
Called Legging Orders
September 19, 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 September 10, 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.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------
I. Self-Regulatory Organization's Statement of the Terms of the
Substance of the Proposed Rule Change
The Exchange proposes to amend Rule 1080.08(f)(iii) to add a new
Complex Order process called Legging Orders.
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 Exchange proposes to implement functionality to provide
additional liquidity for Complex Orders resting on top of the Complex
Order Book (``CBOOK'') at a price which improves the cPBBO.\3\ Today, a
Complex Order resting on the CBOOK may be executed either by: (i)
trading against an incoming Complex Order that is marketable against
the resting Complex Order,\4\ or (ii) legging into the market when the
net price of the Complex Order can be satisfied by executing all of the
legs against the best bids or offers on the Exchange for the individual
options series.\5\ Legging Orders are designed to increase the
opportunity for Complex Orders to ``leg'' into the market.
---------------------------------------------------------------------------
\3\ The term ``cPBBO'' means the best net debit or credit price
for a Complex Order Strategy based on the PBBO for the individual
options components of such Complex Order Strategy, 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).
\4\ See Rule 1080.08(f)(iii)(A)(2).
\5\ See Rule 1080.08(f)(iii)(A)(1).
---------------------------------------------------------------------------
As proposed herein, a Legging Order is a limit order on the regular
order book in an individual series that represents one leg of a two-
legged Complex Order (which improves the cPBBO) to buy or sell an equal
quantity of two option series resting on the CBOOK.\6\ As explained
further below, Legging Orders may be automatically generated on behalf
of Complex Orders resting on the top of the CBOOK so that they are
represented at the best bid and/or offer on the Exchange for the
individual legs. Accordingly, Legging Orders serve to attract interest
to trade, while the existing functionality that legs into the market is
merely reacting to liquidity that arrives and is placed on the book.
---------------------------------------------------------------------------
\6\ See proposed Rule 1080.08(f)(iii)(C). Legging Orders may
only be generated for two-legged Complex Orders involving a one-to-
one ratio. This is the same as ISE Rule 715(k). Also, both
components must be options, and therefore stock-option orders are
not permitted.
---------------------------------------------------------------------------
The system will evaluate the CBOOK when a Complex Order enters the
CBOOK and at a regular time interval to be determined by the Exchange
(which interval shall not exceed 1 second) following a change in the
National Best Bid/Offer (``NBBO'') or PHLX Best Bid/Offer (``PBBO'') in
any component of a Complex Order eligible to generate Legging Orders to
determine whether Legging Orders may be generated. The
[[Page 57633]]
Exchange may determine to limit the number of Legging Orders generated
on an objective basis and may determine to remove existing Legging
Orders in order to maintain a fair and orderly market in times of
extreme volatility or uncertainty.\7\
---------------------------------------------------------------------------
\7\ See proposed Rule 1080.08(f)(iii)(C).
---------------------------------------------------------------------------
Legging Orders are firm orders that are included in the Exchange's
displayed best bid or offer. The Exchange will determine the options
for which, if any, Legging Order functionality will be available and
will communicate this to its participants.
Generating Legging Orders
A Legging Order may be automatically generated for one leg of a
Complex Order at a price: (i) That matches or improves upon the best
Phlx displayed bid or offer; and (ii) at which the net price can be
achieved when the other leg is executed against the best displayed bid
or offer (other than against a Legging Order).\8\ For example:
---------------------------------------------------------------------------
\8\ See proposed Rule 1080.08(f)(iii)(C)(1).
A Complex Order to buy 10 series A and to buy 10 series B at a
net price of $2.25 is entered into the CBOOK and there is no
offsetting Complex Order to sell. The Complex Order cannot leg into
the regular market because the net price available for the Complex
Order on the PHLX's regular order book is $2.40 as follows:
------------------------------------------------------------------------
PHLX bid PHLX offer
------------------------------------------------------------------------
A 10 at $1.00............................ 20 at $1.20.
B 10 at $1.00............................ 20 at $1.20.
------------------------------------------------------------------------
Buying A and B at $1.20 would result in a net price of $2.40,
but the Complex Order is only willing to pay $2.25.
Legging Orders to buy 10 A at $1.05 and 10 B at $1.05 may be
automatically generated, improving the PHLX's best bid for both A
and B to $1.05:
------------------------------------------------------------------------
PHLX bid PHLX offer
------------------------------------------------------------------------
A 10 at $1.05 (Legging Order)............ 20 at $1.20.
B 10 at $1.05 (Legging Order)............ 20 at $1.20.
------------------------------------------------------------------------
If a marketable order to sell 10 A is received, it will execute
against the Legging Order to buy A at $1.05, there will be an
automatic execution of the other leg of the Complex Order against
the displayed offer for B at $1.20, and the Legging Order to buy B
at $1.05 will be automatically removed. As a result, the net price
of $2.25 is achieved for the Complex Order (buy A at $1.05 + buy B
at $1.20 = $2.25 net).\9\ Following the execution of the Complex
Order, the PHLX BBO is:
---------------------------------------------------------------------------
\9\ If a marketable order to sell 10 B is received, it will
execute against the Legging Order to buy B at $1.05, there will be
an automatic execution of the other leg of the Complex Order against
the displayed offer for A at $1.20, and the Legging Order to buy A
at $1.05 will be automatically removed. As a result, the net price
of $2.25 is achieved for the Complex Order (buy A at $1.20 + buy B
at $1.05 = $2.25 net).
------------------------------------------------------------------------
PHLX bid PHLX offer
------------------------------------------------------------------------
A 10 at $1.00............................ 20 at $1.20.
B 10 at $1.00............................ 10 at $1.20.
------------------------------------------------------------------------
In addition to enabling the execution of the Complex Order at a net
price of $2.25, the Legging Order enhanced execution for orders in the
regular order book as (i) the incoming marketable order to sell A
received a better price ($1.05 instead of $1.00), and (ii) liquidity to
execute resting interest to sell 10 B at $1.20 was provided by the
Complex Order.
As explained above, the proposed rule specifies when a Legging
Order can be generated. Specifically, Legging Orders may be generated
only for two-legged options orders with the same quantity on both
legs.\10\ A Legging Order may be automatically generated for one leg of
a Complex Order at a price: (i) That matches or improves upon the best
displayed bid or offer; and (ii) at which the net price can be achieved
when the other leg is executed against the best Phlx displayed bid or
offer (other than against a Legging Order).\11\ Two Legging Orders
relating to the same Complex Order can be generated, but only one of
those can execute as part of the execution of a particular Complex
Order.\12\
---------------------------------------------------------------------------
\10\ This is the same as ISE Rule 715(k).
\11\ See proposed Rule 1080.08(f)(iii)(C)(1). CBOE similarly
does not generate its version of this order when there is a
``legging order'' that comprises the best bid/offer for the other
leg.
\12\ See proposed Rule 1080.08(f)(iii)(C)(2).
---------------------------------------------------------------------------
However, Legging Orders will not be generated at a price that would
lock or cross the price of an away market. Nor will a Legging Order be
generated if there is an auction, including but not limited to a
Complex Order Live Auction (``COLA'') or a PIXL auction in either side
or Posting Period under Rule 1080(p) regarding Acceptable Trade Range
(``ATR'') on the same side in progress in the series.\13\ Furthermore,
a Legging Order will not be generated if the price of the Complex Order
is outside of the Acceptable Complex Execution (``ACE'') Parameter of
Rule 1080.08(i), which is explained further below. Legging Orders will
not be generated respecting a Complex Order that is an all-or-none
order, because of the difficulty of fulfilling an order size
contingency.\14\ Finally, Legging Orders will not be generated for a
Complex Order if it will immediately cause Legging Orders to be removed
pursuant to proposed Rule 1080.08(f)(iii)(C)(4)(ix).\15\
---------------------------------------------------------------------------
\13\ See Phlx Rules 1080.08, 1080(n) and 1080(p) regarding COLA,
PIXL auction and ATR, respectively.
\14\ Rule 1080.08 (b)(v) provides that Complex Orders may be
submitted as All-or-None orders--to be executed in their entirety or
not at all. These orders can only be submitted for non-broker-dealer
customers. -Notwithstanding this rule language, All-or-None Complex
Orders are not affirmatively permitted to be submitted at this time.
The Exchange anticipates that it will file a proposed rule change in
the near future to permit the trading system to accept All-or-None
Complex Orders. See SR-Phlx-2014-42P at footnote 21. The instant
proposed rule change describes how All-or-None Complex Orders, once
they are permitted under Exchange rules, will not generate Legging
Orders.
\15\ See proposed Rule 1080.08(f)(iii)(C)(2).
---------------------------------------------------------------------------
There can be only one Legging Order on the same side of the market
in a series, unless a Legging Order, if generated, would have priority
at the same price over an existing Legging Order based on the
participant (in which case the lower priority order would be removed).
For example, an order for a broker-dealer has a lower priority under
Exchange rules than an order for a customer.\16\ A Legging Order with a
higher priority may be generated and cause a lower priority Legging
Order at the same price to be removed. If a Legging Order would have
the same priority as another Legging Order at the same price, the
second Legging Order would not be generated, because Legging Orders
would only be generated in the same series on the same side of the
market respecting the first Complex Order received. This discussion
applies to the priority of generating orders, as opposed to execution
priority, which is discussed below.
---------------------------------------------------------------------------
\16\ See Phlx Rule 1014(g)(vii).
---------------------------------------------------------------------------
In addition to these limitations, the Exchange will carefully
manage and curtail the number of Legging Orders being generated so that
they do not negatively impact system capacity and performance.\17\
Accordingly, Legging Orders may not be generated for all eligible
Complex Orders resting on the CBOOK.
---------------------------------------------------------------------------
\17\ The Exchange will curtail the number of Legging Orders on
an objective basis, such as limiting the number of orders generated
in a particular option. The Exchange will not limit the generation
of Legging Orders on the basis of the entering participant or the
participant category of the order (e.g., professional or public
customer).
---------------------------------------------------------------------------
A Legging Order may be generated and executed in an increment other
than the minimum increment for that series and will be ranked on the
order book at its generated price and displayed at a price that is
rounded, down for Legging Orders to buy and up for Legging Orders to
sell, to the nearest minimum increment allowable for that series. In
[[Page 57634]]
other words, although the Legging Order may be displayed at a rounded
price, it will be ranked on the order book and executed at its actual
price.\18\ This is the same as BOX Rule 7240(c)(1).
---------------------------------------------------------------------------
\18\ See proposed Rule 1080.08(f)(iii)(C)(2).
---------------------------------------------------------------------------
Legging Orders, like all regular orders, will be disseminated by
the Exchange to the Options Price Reporting Authority (``OPRA'') as
part of its best bid and offer, as well as over the Exchange's own data
feeds, TOPO Plus Orders and PHLX Orders. TOPO Plus Orders and PHLX
Orders will indicate that an order is a Legging Order. Currently,
orders on TOPO Plus Orders and PHLX Orders are indicated to be simple
orders or Complex Orders. Indicating an order is a Legging Order is
consistent with that behavior.
Of course, Legging Orders will not be generated if the Exchange or
a particular option has not opened, is halted or is otherwise not
available for trading. Similarly, the particular Complex Order Strategy
must be available for trading. Legging Orders are not routable and are
limit orders with a time-in-force of DAY, as they represent an
individual component of a Complex Order.
Execution of Legging Orders
In terms of execution priority, a Legging Order is executed only
after all other executable orders (including any non-displayed size)
and quotes at the same price are executed in full pursuant to the Phlx
priority rule applicable to Phlx XL non-Complex Orders, rather than
based on the time of receipt of the Complex Order.\19\ Accordingly, the
generation of a Legging Order will not affect the existing priority, or
execution opportunities, currently provided to participants in the
regular market in any way. When a Legging Order is executed, the other
leg of the Complex Order will be automatically executed against the
displayed best bid or offer on the Exchange and any other Legging Order
based on that Complex Order will be removed.\20\
---------------------------------------------------------------------------
\19\ See proposed Rule 1080.08(f)(iii)(C)(3).
\20\ This is the same as ISE Rule 715(k).
---------------------------------------------------------------------------
For example:
A Complex Order to buy 50 A and to buy 50 B at a net price of
$2.25 (buy A/B 50 at $2.25) is entered into the CBOOK and there is
no off-setting Complex Order to sell.
The Complex Order cannot leg into the regular market because the
PBBO net price available for the Complex Order on the PHLX's regular
order book is $2.40 as follows:
------------------------------------------------------------------------
PHLX bid PHLX offer
------------------------------------------------------------------------
A 40 at $1.05............................ 60 at $1.20.
B 20 at $1.05............................ 80 at $1.20.
------------------------------------------------------------------------
Legging Orders to buy 50 A at $1.05 and 50 B at $1.05 may be
automatically generated, increasing the size of the PHLX's best bid
for both A and B as follows:
------------------------------------------------------------------------
PHLX bid PHLX offer
------------------------------------------------------------------------
A 90 at $1.05 (50 Legging Order)......... 60 at $1.20.
B 70 at $1.05 (50 Legging Order)......... 80 at $1.20.
------------------------------------------------------------------------
If a marketable order to sell 30 A is received, it will execute
against the orders and/or quotes at $1.05 other than the Legging
Order pursuant to the Exchange's regular allocation algorithm,\21\
and the size of the bid for A will be reduced to 60 contracts as
follows:
---------------------------------------------------------------------------
\21\ See Rule 1014(g)(vii), which is the Phlx XL priority
provision that allocates orders based on participant type.
------------------------------------------------------------------------
PHLX bid PHLX offer
------------------------------------------------------------------------
A 60 at $1.05 (50 Legging order)......... 60 at $1.20.
B 70 at $1.05 (50 Legging order)......... 80 at $1.20.
------------------------------------------------------------------------
If a marketable order to sell 50 A were then received, it would
first execute the remaining 10 A from the orders and/or quotes at
$1.05 that are not the Legging Order, and then execute 40 A against
the Legging Order.
At this time, the Complex Order will also execute 40 B at $1.20.
The residual 10 contracts of the Legging Orders in A and the Legging
Order for 50 contracts of B will be removed. As a result, the net
price of $2.25 is achieved for a partial execution of the Complex
Order (buy 40 A at $1.05 + buy 40 B at $1.20 = 40 at $2.25 net).
Following the partial execution of the Complex Order, the PHLX
BBO is:
------------------------------------------------------------------------
PHLX bid PHLX offer
------------------------------------------------------------------------
A $0.00.................................. 60 at $1.20.
B 20 at $1.05............................ 40 at $1.20.
------------------------------------------------------------------------
Removal
Pursuant to proposed Rule 1080.08(f)(iii)(C)(4), a Legging Order
will be removed from the regular limit order book automatically: (i) If
the price of the Legging Order is no longer at the Exchange's displayed
best bid or offer on the regular limit order book; (ii) if execution of
the Legging Order would no longer achieve the net price of the Complex
Order when the other leg is executed against the Exchange's best
displayed bid or offer on the regular limit order book (other than
another Legging Order); (iii) if the Complex Order is executed in full
or in part; (iv) if the Complex Order is cancelled or modified; (v) if
the price of the Complex Order is outside of the ACE Parameter of Rule
1080.08(i); (vi) upon receipt of a Qualified Contingent Cross Order or
an order that will trigger an auction under Exchange rules in a
component in which there is a Legging Order (whether a buy order or a
sell order); (vii) if a Legging Order is generated by a different
Complex Order in the same leg at a better price or the same price for a
participant with a higher priority; (viii) if a Complex Order is
marketable against the cPBBO where a Legging Order is present and has
more than one leg in common with the existing Complex Order that
generated the Legging Order; (ix) if a Complex Order becomes marketable
against multiple Legging Orders; (x) if a Complex Order consisting of
an unequal quantity of components is marketable against the cPBBO where
a Legging Order is present but cannot be executed due to insufficient
size in at least one of the components of the cPBBO; or (xi) if an
incoming all-or-none order is entered onto the order book at a price
which is equal to or crosses the price of a Legging Order. Once a
Legging Order is removed, it no longer exists as an order, even though
the ``parent'' Complex Order may still exist. Upon occurrence of any of
these conditions, the system will recognize the condition and remove
the Legging Order accordingly.
For example:
A Complex Order to buy 20 A and to buy 20 B at a net price of
$2.25 (buy A/B 20 at $2.25) is entered into the CBOOK and there is
no offsetting Complex Order to sell.
The Complex Order cannot leg into the regular market because the
PBBO net price available for the Complex Order is $2.40 as follows:
------------------------------------------------------------------------
PHLX bid PHLX offer
------------------------------------------------------------------------
A 10 at $1.05............................ 20 at $1.20.
B 10 at $1.05............................ 50 at $1.20.
------------------------------------------------------------------------
Legging Orders to buy 20 A at $1.05 and 20 B at $1.05 may be
automatically generated, increasing the size of the PHLX's best Bid
for both A and B as follows:
------------------------------------------------------------------------
PHLX bid PHLX offer
------------------------------------------------------------------------
A 30 at $1.05 (20 Legging Order)......... 20 at $1.20.
B 30 at $1.05 (20 Legging Order)......... 50 at $1.20.
------------------------------------------------------------------------
If a limit order to buy 10 A at $1.10 is received, the Legging
Order to buy 20 A at $1.05 will be removed because it is no longer
at the PHLX best Bid.
------------------------------------------------------------------------
PHLX bid PHLX offer
------------------------------------------------------------------------
A 10 at $1.10............................ 20 at $1.20.
B 30 at $1.05 (20 Legging Order)......... 50 at $1.20.
------------------------------------------------------------------------
If a marketable order to buy 20 A is received, the PHLX best
Offer will move
[[Page 57635]]
above $1.20, resulting in the removal of the Legging Order to buy B
at $1.05 because the net price of $2.25 can no longer be achieved.
------------------------------------------------------------------------
PHLX bid PHLX offer
------------------------------------------------------------------------
A 10 at $1.10............................ 20 at $1.25.
B 10 at $1.05............................ 50 at $1.20. (buy A at $1.25
+ buy B at $1.05 = $2.30
net)
------------------------------------------------------------------------
As noted above,\22\ a Legging Order is also removed from the
regular order book if the price of the Complex Order is outside the ACE
Parameter of Rule 1080.08(i). The ACE Parameter feature is designed to
help maintain a fair and orderly market by helping to mitigate the
potential risk of executions at prices which are extreme and
potentially erroneous. Specifically, the ACE Parameter prevents Complex
Orders from automatically executing at potentially erroneous prices by
establishing a price range outside of which a Complex Order will not be
executed. The ACE Parameter is based on the Complex National Best Bid
or Offer (``cNBBO'') \23\ at the time an order would be executed. A
Complex Order to sell will not be executed at a price that is lower
than the cNBBO Bid by more than the ACE Parameter. A Complex Order to
buy will not be executed at a price that is higher than the cNBBO Offer
by more than the ACE Parameter. A Complex Order or a portion of a
Complex Order that cannot be executed within the ACE Parameter will be
placed on the CBOOK. This proposal does not change the ACE Parameter.
\22\ See proposed Rule 1080.08(f)(iii)(C)(4)(v).
\23\ See Rule 1080.08(a)(vi).
---------------------------------------------------------------------------
For example:
A Complex Order to buy 20 A and to buy 20 B at a net price of
$3.25 (buy A/B 20 at $3.25) is entered into the CBOOK and there is
no offsetting Complex Order to sell. Assume legging orders to buy 20
A at $1.05 and 20 B at $1.05 were automatically generated.
------------------------------------------------------------------------
PHLX bid PHLX offer
------------------------------------------------------------------------
A 20 at $1.05 (legging order)............ 20 at $2.20.
B 20 at $1.05 (legging order)............ 20 at $2.20.
------------------------------------------------------------------------
Now, assume the away markets move and the NBBO is as follows,
------------------------------------------------------------------------
NBBO bid NBBO offer
------------------------------------------------------------------------
A 50 at $1.05............................ 20 at $1.20.
B 50 at $1.05............................ 50 at $1.20.
------------------------------------------------------------------------
The cNBBO for the Complex Order strategy is $2.10 Bid, Offered
at $2.40.
Assuming an ACE Parameter setting of 5%, the Exchange will not
allow the Complex Order to buy 20 A and to buy 20 B to execute more
than 5% above the cNBBO Offer of $2.40, or no higher than $2.52
[$2.40+($2.40*.05)]. Since the Complex Order is no longer executable at
its limit price of $3.25 due to the ACE Parameter protection, the
legging orders associated with the Complex Order are removed from the
limit order book.
As noted above,\24\ a Legging Order is also removed from the
regular order book upon receipt by the Exchange of an order that will
trigger an auction under Exchange rules in a component where a Legging
Order (whether a buy order or a sell order) has been generated, such as
a COLA-eligible Order or PIXL Order, or upon receipt of a Qualified
Contingent Cross (``QCC'') Order.\25\ These types of orders may involve
multiple option components which may have multiple Legging Orders for
various Complex Orders included in the option BBOs. In order to ensure
that Legging Orders do not adversely affect the execution of these
orders and in order to avoid the system complexities that would result
from combining the execution of Legging Orders and thus Complex Orders
with the already complex auction processes, the Exchange will remove
Legging Orders upon acceptance of an auctionable order or QCC order and
will not consider generation of any new Legging Orders until the
auction has been completed or the QCC order has been executed. For
example, assume two separate Complex Orders have generated Legging
Orders which are represented in the PBBO. Complex Order 1 has generated
a Legging Order in A and Complex Order 2 has generated a Legging Order
in B.
---------------------------------------------------------------------------
\24\ See proposed Rule 1080.08(f)(iii)(C)(4)(vi).
\25\ See Rule 1080(o), which defines a QCC Order as an
originating order to buy or sell at least 1000 contracts (or 10,000
contracts in the case of mini options) that is identified as being
part of a qualified contingent trade coupled with a contra-side
order or orders totaling an equal number of contracts.
------------------------------------------------------------------------
PHLX bid PHLX offer
------------------------------------------------------------------------
A 20 at $1.05 (legging order 1).......... 20 at $1.20.
B 20 at $0.50 (legging order 2).......... 20 at $0.80.
C 20 at $0.25............................ 20 at $0.50.
------------------------------------------------------------------------
Assume an auctionable Complex Order is received. Upon receipt of an
auctionable order, a Complex Auction is initiated. The Legging Orders
in A and B are therefore removed from the system and no new Legging
Orders will be generated until the end of the Auction. This removal
eliminates system complexities that would result from combining regular
Complex Auction executions and Legging Orders executions. In addition,
scenarios could arise in which incoming Complex Orders or QCC Orders
consist of the same components as the Complex Orders which generated
Legging Orders and are reliant on the execution of the same interest as
the Legging Orders. Since the purpose of Legging Orders is to provide
additional liquidity for Complex Orders resting on the CBOOK without
negatively affecting the trading opportunities of unrelated interest,
the Exchange believes that removing Legging Orders upon receipt of an
auctionable order or QCC order eliminates the need for system
complexities and ensures trading opportunities remain unaffected for
auctions and QCC Orders.
In order to ensure Complex Orders are executed in accordance with
the priority rules associated with such order, the Exchange proposes to
remove a Legging Order from the limit order book when another Legging
Order is generated by a different Complex Order in the same leg at a
better price or at the same price for a participant with a higher
priority.\26\ For example the system will remove a Legging Order
representing a leg of a Complex Order for a Market Maker when a Legging
Order is also generated in that leg at the same price for a Customer
Complex Order.
---------------------------------------------------------------------------
\26\ See proposed Rule 1080.08(f)(iii)(C)(4)(vii).
---------------------------------------------------------------------------
As noted above, a Legging Order will be removed when a Complex
Order is marketable against the cPBBO where a Legging Order is present
and has more than one leg in common with the existing Complex Order
that generated the Legging Order.\27\ This behavior ensures there is no
risk of resting Complex Orders which have generated Legging Orders and
incoming Complex Orders both relying on executions against the same
displayed interest in order to satisfy all of their component legs.
Consider the following example, with the following Legging Orders
already generated by Complex Order 1:
---------------------------------------------------------------------------
\27\ See proposed Rule 1080.08(f)(iii)(C)(3)(viii).
------------------------------------------------------------------------
PHLX bid PHLX offer
------------------------------------------------------------------------
A 30 at $1.05 (20 Legging Order)......... 20 at $1.20.
B 30 at $1.05 (20 Legging Order)......... 50 at $1.20.
------------------------------------------------------------------------
Consider a scenario where the Exchange then received Complex Order
2 to buy 20 contracts of A and sell 20 contracts of B for a net debit
of $0.15. Complex Order 2 has more than one leg in common with Complex
Order 1.
[[Page 57636]]
Complex Order 2 would need to execute against all 20 contracts of A
Offered at $1.20 and 20 contracts of B at $1.05 (10 contracts against
the $1.05 regular quote in B and 10 contracts against the Legging Order
in B). However, when the 10 contracts of the Legging Order of B are
executed at $1.05, an execution of 10 contracts of A at $1.20 must
occur in order to satisfy Complex Order 1. There is now an issue
because Complex Order 2 will have already executed all available
contracts of A at $1.20 making it impossible for Complex Order 1 to be
executed in accordance with the component strategy. To avoid this
situation, the Legging Order in B to buy 20 for $1.05 which was
generated by Complex Order 1 will be removed upon receipt of Complex
Order 2. To illustrate the rule further, if the example above were
revised such that Complex Order 2 is to sell 20 contracts of A and to
sell 20 contracts of B for a net credit of $2.25, the system will
cancel the Legging Orders in A and B and trade Complex Order 2 against
Complex Order 1. In this particular scenario the system has Complex
Order 1 on the book in the same strategy as Complex Order 2 which
Complex Order 2 is marketable against. Upon receipt of Complex Order 2,
the system will trade the order against the buy Complex Order. There is
no need to trade with the Legging Orders.
Similarly, a Legging Order will also be removed when a Complex
Order becomes marketable against multiple Legging Orders.\28\ Legging
Orders will be removed in this instance in order to minimize system
complexities as well as to mitigate any risk of Complex Orders
executing only certain components. For example, assume a Legging Order
in A and a Legging Order in B represent two unique Complex Orders
(Complex Order 1 and Complex Order 2 respectively) both reliant on the
quoted market of another option, C, and a third Complex Order (Complex
Order 3) arrived consisting of options A, B, and C. The execution of
Complex Order 3 could result in the inability of Complex Orders 1 and 2
to execute if Complex Order 3 executes against the interest in C, which
Complex Orders 1 and 2 were also reliant upon. In order to mitigate any
risk of Complex Orders executing only certain components, in both
cases, the Exchange will remove the existing Legging Orders created by
Complex Orders 1 and 2. Thereafter, if conditions change, new Legging
Orders could be generated. To illustrate the application of the rule to
a different scenario, assume the existence of Complex Order 1 to Buy A
and Buy B, with a Legging Order generated in A, and Complex Order 2 to
Buy C and Buy D, with a Legging Order generated in C. Assume the system
then receives a marketable Complex Order 3 to Sell A and Sell C. Since
Complex Order 3 is marketable against multiple Legging Orders (in A and
C), the Legging Orders in both A and C are removed.
---------------------------------------------------------------------------
\28\ See proposed Rule 1080.08(f)(iii)(C)(4)(ix).
---------------------------------------------------------------------------
As noted above, the Exchange also proposes to remove Legging Orders
from the limit order book if a Complex Order consisting of an unequal
quantity of components is marketable against the cPBBO where a Legging
Order is present but cannot be executed due to insufficient size in at
least one of the components of the cPBBO.\29\ Since Complex Orders are
accepted by the Exchange consisting of ratios of up to 3:1,\30\ a
Complex Order may appear to be executable against the cPBBO but in fact
cannot trade due to the ratio of the components of the strategy and the
size available in each component in the cPBBO. In order to mitigate the
risk of incoming Complex Orders appearing to be tradable against
Legging Orders and to limit the complexity of the system in relation to
Legging Orders, the Exchange proposes to remove Legging Orders from the
limit order book if a Complex Order consisting of an unequal quantity
of components is marketable against the cPBBO where a Legging Order is
present but cannot be executed due to insufficient size in at least one
of the components of the cPBBO. For example, assume the following
example of a Complex Order (Complex Order 1) to buy 1 A and buy 1 B for
$2.25 on the CBOOK which has generated Legging Orders,
---------------------------------------------------------------------------
\29\ See proposed Rule 1080.08(f)(iii)(C)(4)(x).
\30\ See Rule 1080.08(a)(ix).
------------------------------------------------------------------------
PHLX bid PHLX offer
------------------------------------------------------------------------
A 1 at $1.05 (Legging Order)............. 20 at $1.20.
B 1 at $1.05 (Legging Order)............. 20 at $1.20.
C 5 at $0.50............................. 5 at $0.60.
------------------------------------------------------------------------
Assume a second Complex Order (Complex Order 2) arrives to sell 3 A
and sell 1 C at a net price of $3.65. The limit price of $3.65 is
marketable against the cPBBO bid of $3.65 ((3*$1.05)+$0.50). However,
Complex Order 2 cannot be executed because the volume available at the
cPBBO does not line up correctly with the ratio of the legs. Complex
Order 2 requires the sale of 3 contracts of A for every sale of a
contract in C. However, there is only one contract in A (the Legging
Order bidding $1.05 for one contract) available. Since Complex Order 2
cannot be executed, it will go onto the CBOOK. The Legging Order in A
will be removed. In order to minimize the appearance that a Complex
Order (in this example, Complex Order 2) is tradable against a Legging
Order when in fact it is not tradable due to the ratio of the
components of the Complex Order, the Exchange proposes to remove a
Legging Order (in the example, the Legging Order to buy A associated
with Complex Order 1) when another Complex Order consisting of an
unequal quantity of components is marketable against the cPBBO where a
Legging Order is present but cannot be executed due to insufficient
size in at least one of the components of the cPBBO. The purpose of
removing the Legging Order in this case is to minimize any possible
misperception on the part of market participants that Complex Order 2
is tradable against a Legging Order, when in fact it is not.
Elimination of the Legging Order will thus mitigate possible investor
confusion due to market participants' focus on price alone rather than
price and size. In situations in which Complex Orders consisting of an
unequal quantity of components are in fact tradable against Legging
Orders, an execution will occur.
Lastly, the Exchange proposes to remove Legging Orders from the
limit order book when an incoming all-or-none order is entered onto the
order book at a price which is equal to or crosses the price of a
Legging Order.\31\ An all-or-none order received at a price which can
be executed against PBBO interest, inclusive of Legging Orders, will
execute against such interest. However, if an all-or-none order is
received which cannot be executed due to the size of the all-or-none
contingency, such all-or-none order will rest on the order book and
cause any Legging Order which it crosses or is equal to in price to be
removed. This removal eliminates the risk of the system having to
handle and maintain Legging Orders which cross the order book.
---------------------------------------------------------------------------
\31\ See proposed Rule 1080.08(f)(iii)(C)(4)(xi).
---------------------------------------------------------------------------
To summarize, proposed Rule 1080.08(f)(iii)(C)(4) addresses when a
Legging Order will be removed from the regular limit order book
automatically, which results in the Legging Order no longer existing as
such. In each case of removal, the system removes the Legging Order
when one of the conditions in subparagraph (C)(4) occurs, which the
system assesses continuously.
[[Page 57637]]
2. Statutory Basis
The Exchange believes that its proposal is consistent with Section
6(b) of the Act \32\ in general, and furthers the objectives of Section
6(b)(5) of the Act \33\ 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 increasing the opportunity for Complex Orders to receive
an execution, while also enhancing execution quality for orders in the
regular market.
---------------------------------------------------------------------------
\32\ 15 U.S.C. 78f(b).
\33\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------
In particular, the Exchange believes that automatically generating
Legging Orders, which will only be executed after all other executable
interest at the same price (including non-displayed interest and
quotes) is executed in full, will provide additional execution
opportunities for Complex Orders, without negatively impacting any
investors in the regular market. In fact, the generation of Legging
Orders may enhance execution quality for investors in the regular
market by improving the price and/or size of the PBBO and by providing
additional execution opportunity for resting orders on the regular
order book. The Exchange believes Legging Orders will provide market
participants with another tool for adding trading interest on Phlx.
Legging Orders may serve to increase liquidity to the extent market
participants find Legging Orders result in better executions. This may
result in more aggressive trading interest in the overall Phlx market,
thereby perfecting the mechanism of a free and open market.
The Exchange believes Legging Orders will increase opportunities
for execution of Complex Orders, potentially increase executions of
interest on the regular order book, and lead to tighter spreads and
finer pricing on Phlx, which will benefit investors. Legging Orders may
provide investors with opportunities to trade at better prices than
would otherwise be available--possibly inside the otherwise existing
PBBO in a leg series. The Exchange believes that the potential for
investors to receive executions inside the otherwise existing PBBO
could result in better executions for investors, thus making Legging
Orders consistent with the Act.
The Exchange also believes that the generation of Legging Orders is
fully compliant with all regulatory requirements. In particular,
Legging Orders are firm orders that will be displayed within the PBBO.
A Legging Order will be automatically removed if it is no longer
displayable at the PBBO, if the net price of the Complex Order can no
longer be achieved, or in other limited situations which could cause
normal trading to be adversely affected or unnecessary system
complexities to arise.\34\ Moreover, to assure compliance with inter-
market rules,\35\ a Legging Order will not be generated at a price that
would lock or cross another market. Finally, the generation of Legging
Orders is limited in scope, as they may be generated only for Complex
Orders with two legs. Additionally, the Exchange will closely manage
and curtail the generation of Legging Orders if needed to assure that
they do not negatively impact system capacity and performance.
---------------------------------------------------------------------------
\34\ In particular, Legging Orders will be removed when a
Complex Order is marketable against the cPBBO where a Legging Order
is present and has more than one leg in common with the existing
Complex Order that generated the Legging Order, as well as when a
Complex Order becomes marketable against multiple Legging Orders.
Elimination of Legging Orders in those instances should eliminate
the operational difficulties that may otherwise result from those
executions and the potential for those executions to interfere with
the system and other trading. The Exchange notes that its existing
rules contain provisions that prevent the execution of Complex
Orders that might otherwise be executable. See, e.g., Rule
1080.08(i), Acceptable Complex Execution (``ACE'') parameter.
Legging Orders are not firm on Phlx with respect to other Complex
Orders and will not trade against legs of other Complex Orders,
which is consistent with the existing Complex Order execution
provisions in Rule 1080.08 that do not allow execution of
overlapping legs of Complex Orders. See also Securities and Exchange
Act Release No. 69364 (April 11, 2013), 78 FR 22926 (April 17, 2013)
(Notice of CBOE Filing of a Proposed Rule Change, as Modified by
Amendment No. 1, Relating to Complex Orders), at footnote 25: ``Leg
orders are thus not firm with respect to other complex orders and
will not trade against legs of other complex orders, which is
consistent with the existing complex order execution provisions in
Rule 6.53C that do not allow execution of overlapping legs of
complex orders.''
\35\ See, e.g., Phlx Rule 1084, Order Protection.
---------------------------------------------------------------------------
Furthermore, the Exchange notes that its proposed rule change is
similar to International Securities Exchange LLC's (``ISE's'')
previously approved Legging Orders, as well as certain aspects of the
Chicago Board Options Exchange (``CBOE'') and BOX Options Exchange LLC
(``BOX'') rules, which the Commission has previously found to be
consistent with the Act. In most respects, the proposal is similar to
ISE Rules 715(k) and 722(b)(3)(ii). However, the Exchange proposes to
handle its proposed Legging Orders the same way that BOX does
respecting: (i) Orders that are generated in an increment other than
the minimum increment allowable for that series,\36\ and (ii) executing
Complex Orders outside a certain price.\37\ The Exchange believes that
its application of its ACE Parameter to both generating and removing
Legging Orders is akin to BOX's NBBO protection, but does not believe
that this is a material difference because the Exchange believes that
users would expect an exchange's normal price protections to apply to
its execution of Complex Orders, regardless of the particular
circumstance that caused the execution. Moreover, the ACE parameter is
a protection intended to benefit users submitting Complex Orders.
---------------------------------------------------------------------------
\36\ See BOX Rule 7240(c)(1). Specifically, BOX will price and
rank a Legging Order at its generated price to buy (sell) but it
will be displayed at the minimum trading increment permitted for the
series below (above) its price. If an incoming order is executable
against such Legging Order, it will be executed at the Legging
Order's generated price.
\37\ BOX does not permit Complex Order executions outside the
NBBO for the Complex Order, which is akin to the Exchange applying
its ACE parameter. See BOX Rule 7130(b) and (c).
---------------------------------------------------------------------------
In addition, the Exchange proposes to handle the following aspects
of Legging Orders in the same manner as CBOE: \38\ (i) The Exchange
will not generate Legging Orders with an all-or-none contingency; \39\
(ii) the Exchange will not generate a Legging Order unless the other
leg can be executed against the PBBO without regard to another Legging
Order; \40\ (iii) the Exchange will periodically evaluate whether a
Legging Order should be generated or removed; \41\ and (iv) when a
Legging Order is executed, the other leg is executed against the PBBO
and the second Legging Order, if generated, of the Complex Order
represented by the executed Legging Order is removed.\42\
---------------------------------------------------------------------------
\38\ The Exchange cannot discern from ISE's rules how these
particular aspects are specifically handled.
\39\ See CBOE Rule 6.53(x).
\40\ See CBOE Rule 6.53C(c)(iv)(1)(A) referring to ``other than
leg orders.''
\41\ See CBOE Rule 6.53C(c)(iv)(1). The evaluation methodologies
differ somewhat. CBOE's evaluation occurs ``when a Complex Order
enters the COB, when the Exchange BBO changes and at a regular time
interval to be determined by the Exchange (which interval shall not
exceed one (1) second . . . (emphasis added)''. Phlx, however, will
evaluate ``when a Complex Order enters the CBOOK and at a regular
time interval, to be determined by the Exchange (which interval
shall not exceed 1 second) following a change in the NBBO or PBBO in
any component of a Complex Order eligible to generate Legging Orders
. . .''. Phlx's evaluation methodology avoids complexities
associated with evaluation of flickering quotes while still updating
Legging Orders regularly to provide liquidity to the market.
\42\ See CBOE Rule 6.53C(c)(iv)(2)(B).
---------------------------------------------------------------------------
Certain aspects of the Exchange's proposal potentially differ from
the rules of other options exchanges in a few minor ways, but these
differences are not material. First, if a Legging Order
[[Page 57638]]
would otherwise be generated, the Exchange will not do so if there is
an auction on the either side in progress in the series. The Exchange
will also remove existing Legging Orders when an order arrives that
will trigger an auction in a component in which there is a Legging
Order (whether a buy order or a sell order), or upon receipt of a QCC
Order which includes a component in which there is a Legging Order.\43\
The Exchange does not believe the way in which removal or generation of
Legging Orders is affected by auctions is a material difference,
because the Exchange does not believe that there is one particular
expectation on the part of market participants about how orders like
Legging Orders should co-exist with auctions. Further, there are
certain system complexities associated with having to coordinate
Legging Orders with an ongoing auction or complex execution.\44\ The
Exchange believes it will be simpler from both a system processing and
user acceptance standpoint to wait for an auction in that series to be
complete or a QCC Order to be executed, which is a minimal amount of
time.
---------------------------------------------------------------------------
\43\ Auctions include a COLA as well as a PIXL auction.
\44\ CBOE, on the other hand, considers which side of the market
is affected when an auction could impact one of its legging orders.
See CBOE Rule 6.53C.07.
---------------------------------------------------------------------------
In addition, the Exchange will not generate a Legging Order if
there is already a Legging Order in that series on the same side of the
market at the same price unless it has priority based on the
participant type under existing Exchange rules. Likewise, a Legging
Order will be automatically removed if a Legging Order is generated by
a different Complex Order in the same leg at a better price or the same
price for a participant with a higher priority. The Exchange does not
believe that this is a material difference, because this behavior
serves to ensure that the priority rules relating to resting Complex
Orders are maintained.\45\ The Exchange will also remove the Legging
Order when (1) a Complex Order is marketable against the cPBBO where a
Legging Order is present and has more than one leg in common with the
existing Complex Order that generated a Legging Order or (2) if a
Complex Order becomes marketable against multiple Legging Orders.
Moreover, pursuant to proposed Rule 1080.08(f)(iii)(C)(2)(vi), no
Legging Orders will be created for a Complex Order if the Complex Order
will immediately cause existing Legging Orders to be removed under Rule
1080.08(f)(iii)(C)(4)(ix)--i.e., because the Complex Order has become
marketable against multiple Legging Orders. The Exchange does not
believe that this is a material difference, because the situation of
overlapping Legging Orders and Legging Order dependencies on other
components has to be addressed and the Exchange believes its approach
is reasonable.\46\
---------------------------------------------------------------------------
\45\ CBOE addresses priority in its Rule 6.53C(c)(iv)(2)(A).
\46\ CBOE takes into account the size of an order. See CBOE Rule
6.53C(c)(iv)(3)(A).
---------------------------------------------------------------------------
The Exchange will remove a Legging Order when a Complex Order
consisting of components of unequal quantities is marketable against
the cPBBO where a Legging Order is present but cannot be executed due
to insufficient size in at least one of the components of the cPBBO.
The Exchange does not believe that this is a material difference,
because this behavior serves to minimize occurrences where there may be
the appearance of potential execution when in fact, there is no
potential execution due to the ratio of the components. Lastly, the
Exchange proposes to remove Legging Orders from the limit order book
when an incoming all-or-none order is entered onto the order book at a
price which is equal to or crosses the price of a Legging Order. This
removal eliminates the risk of the system having to handle and maintain
Legging Orders which cross the order book, thereby eliminating
unnecessary system complexity to the benefit of investors.
In conclusion, the Exchange believes that its proposed rules are
similar to rules of other exchanges that the Commission has already
determined to be consistent with the Act and in the public interest,
with any differences raising no new regulatory issues.
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
is pro-competitive. The proposal will permit the Exchange to compete
against other options exchanges with similar functionality, such as
BOX, CBOE and ISE.\47\ The Exchange believes the proposed rule change
could result in improved liquidity, finer pricing, better executions
and increased competition within its Complex Order market to the
benefit of the Exchange and market participants and thus allow the
Exchange to better compete with other options exchanges for Complex
Order flow. The Exchange also believes Legging Orders may facilitate
additional executions and enhance execution quality for investors in
the regular market by improving the price and/or size of the PBBO and
by providing additional execution opportunities for resting orders on
the regular order book. Within the Exchange's market for Complex
Orders, the Legging Order functionality will be available to all
participants who participate in the Complex Orders system. All market
participants have the option to send their Complex Orders to Phlx in
order to take advantage of this order type.
---------------------------------------------------------------------------
\47\ See ISE Rules 715(k) and 722(b)(3)(ii), BOX Rule 7240(c)
and CBOE Rule 6.53C(c)(iv).
---------------------------------------------------------------------------
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
Within 45 days of the date of publication of this notice in the
Federal Register or within such longer period (i) as the Commission may
designate up to 90 days of such date if it finds such longer period to
be appropriate and publishes its reasons for so finding or (ii) as to
which the Exchange consents, the Commission shall: (a) By order approve
or disapprove such proposed rule change, or (b) institute proceedings
to determine whether the proposed rule change should be 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-2014-54 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-2014-54. This
file number should be included on the subject line if email is used. To
help the Commission process and review your
[[Page 57639]]
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-2014-54, and should be submitted on or before
October 16, 2014.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\48\
---------------------------------------------------------------------------
\48\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------
Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2014-22789 Filed 9-24-14; 8:45 am]
BILLING CODE 8011-01-P
