[Federal Register Volume 74, Number 143 (Tuesday, July 28, 2009)]
[Notices]
[Pages 37270-37274]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E9-17882]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-60363; File No. SR-Phlx-2009-61]
Self-Regulatory Organizations; NASDAQ OMX PHLX, Inc.; Notice of
Filing of Proposed Rule Change Relating to Exchange Rules for the
Options Order Protection and Locked/Crossed Market Plan
July 22, 2009.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act''),\1\ and Rule 19b-4 \2\ thereunder, notice is hereby given
that on July 20, 2009, NASDAQ OMX PHLX, Inc. (``Phlx'' or ``Exchange'')
filed with the Securities and Exchange Commission (``Commission'') the
proposed rule change as described in Items I and II, below, which Items
have been prepared by the Exchange. The Commission is publishing this
notice to solicit comments on the proposed rule change from interested
persons.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange, pursuant to Section 19(b)(1) of the Act \3\ and Rule
19b-4 thereunder,\4\ proposes to modify the Exchange's rules to reflect
its participation in the Options Order Protection and Locked/Crossed
Market Plan (``Plan''). The proposed rules implement the Exchange's
participation in the Plan, and will be substantially similar to the
rules of other exchanges that are also implementing the Plan with minor
variations to account for differences between the exchanges' market
structures.
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\3\ 15 U.S.C. 78s(b)(1).
\4\ 17 CFR 240.19b-4.
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The text of the proposed rule change is available on the Exchange's
Web site at http://www.nasdaqtrader.com/micro.aspx?id=PHLXRulefilings,
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
On June 17, 2008, the Exchange filed an executed copy of the
Options Order Protection and Locked/Crossed Market Plan (``Plan''),
joining all other approved options markets in adopting [sic] the Plan.
The Plan requires each options exchange to adopt rules implementing
various requirements specified in the Plan. This proposal is designed
to fulfill that obligation.
Background
The Plan will replace the current Plan for the Purpose of Creating
and Operating an Intermarket Option Linkage (``Linkage Plan''). That
plan requires its participant exchanges to operate a stand-alone system
or ``Linkage'' for sending order-flow between exchanges to limit trade-
throughs. The Options Clearing Corporation (``OCC'') operates the
Linkage system (the ``System''). The Linkage rules provide for unique
types of Linkage orders, with a complicated set of requirements as to
who may send such orders and under what conditions. Before a market
maker can trade through another exchange's quote, it first must send a
Linkage order and then wait three seconds for a response.
While the Linkage largely has operated satisfactorily, it is under
significant strain. When the Commission approved the Linkage Plan in
2000, average daily volume (``ADV'') in the options market was
approximately 2.6 million contracts across all exchanges. By 2007, the
ADV had increased four-fold to more than 10.8 million contracts,
putting added strain on the ability of market makers to comply with the
complex Linkage rules. At the same time, the options markets have been
moving towards quoting in pennies. This greatly increases the number of
price changes in an option, giving rise to greater chances of trade-
throughs and missing markets as market makers send Linkage orders and
have to wait three seconds for a response.
Based upon experience in the equities markets following the
adoption of Regulation NMS in 2005, the options exchanges have
determined to replace the System with the Plan providing for a set of
rules and procedures designed to avoid trade-throughs and locked
markets. The key to Regulation NMS's price-protection provisions is the
Intermarket Sweep Order (``ISO''). Each equity exchange must adopt
rules ``reasonably designed to prevent trade-throughs.'' Exempted from
trade-through liability is an ISO, which is an order a member sends to
an exchange displaying a price inferior to the national best bid and
offer (``NBBO''), while simultaneously sending orders to trade against
the full size of any other exchange that is displaying the NBBO. A
simple prohibition against most trade-throughs, coupled with the ISO
mechanism, has given the equities markets a straight-forward system to
provide customers with price protection in a fast-moving, high-volume
market that is quoted in pennies.
Proposed Temporary Linkage Rule. The Exchange proposes to adopt
Rule 1088 which provides that the Exchange will continue to accept
Principal Acting as Agent (``P/A'') and Principal Orders from options
exchanges that continue to use such orders to address trade-throughs
via the existing linkage for a temporary period.
Deletion of References to Linkage Orders. The Exchange proposes to
delete references to Linkage P and P/A orders from its rules.
Specifically, the Exchange proposes to delete current Rules 1081 and
1083 through 1087, which currently make up the Exchange's rules that
track the Linkage Plan. Additionally, for consistency, the Exchange
proposes to delete references to Linkage P and P/A Orders from Rule
1080.
The Proposed New Definitions. The proposed Plan incorporates a
number of defined terms, some identical to definitions from the
existing Linkage Plan and others that have been developed along with
the proposed Plan itself. Accordingly, Phlx is proposing to adopt new
Rule 1083, which sets forth the defined terms for use under the
proposed Plan.
The Proposed Trade Through Rule. The Plan essentially would apply
the Regulation NMS price-protection provisions to the options markets.
Similar to Regulation NMS, the Plan would require participants to adopt
[[Page 37271]]
rules ``reasonably designed to prevent Trade-Throughs,'' while
exempting ISOs from that prohibition.
Accordingly, the Exchange is proposing to adopt new Rule 1084,
which codifies the requirement that the Exchange and other Plan
participants avoid trading through superior prices on other markets.
The Exchange is also proposing to add an ISO order in Rule 1066 based
upon the definition of ISO currently used by Nasdaq for compliance with
Regulation NMS when trading equities. Rule 1080(b) would be amended to
reflect that an ISO is a permitted order that may be entered on the
Exchange's systems. The ISO order will be exempt from the prohibition
against trading-through, as well as several additional exceptions to
the trade-through prohibition that track the exceptions under
Regulation NMS or correspond to unique aspects of the options market,
or both. Specifically:
System Issues: Proposed Rule 1084(b)(i) tracks Section
5(b)(i) of the Plan which corresponds to the system-failure exception
in Regulation NMS \5\ for equity securities and permits trading through
an Eligible Exchange that is experiencing system problems.
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\5\ See Rule 611(b)(1) under the Act.
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Trading Rotations: Proposed Rule 1084(b)(ii) tracks
Section 5(b)(ii) of the Plan which carries forward the current Trade-
Through exception in the Old Plan \6\ and is the options equivalent to
the single price opening exception in Regulation NMS for equity
securities.\7\ Some Options exchanges use a trading rotation to open an
option for trading, or to reopen an option after a trading halt. The
rotation is effectively a single price auction to price the option and
currently there are no practical means to include prices on other
exchanges in that auction.
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\6\ See Linkage Plan Section 8(c)(iii)(E).
\7\ See Rule 611(b)(3) under the Exchange Act.
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Crossed Markets: Proposed Rule 1084(b)(iii) tracks Section
5(b)(iii) which corresponds to the crossed quote exception in
Regulation NMS for equity securities.\8\ If a Protected Bid is higher
than a Protected Offer, it indicates that there is some form of market
dislocation or inaccurate quoting. Permitting transactions to be
executed without regard to Trade-Throughs in a Crossed Market will
allow the market to quickly return to equilibrium.
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\8\ See Rule 611(b)(4) under the Exchange Act.
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Intermarket Sweep Orders (``ISOs''): These two exceptions
correspond to the ISO exceptions in Regulation NMS for equity
securities.\9\ Proposed Rule 1084(b)(iv) tracks Section 5(b)(iv) of the
Plan which permits a Participant to execute orders it receives from
other Participants or members that are marked as ISO even when it is
not at the NBBO. Proposed Rule 1084(b)(v) tracks Section 5(b)(v) of the
Plan which allows a Participant to execute inbound orders when it is
not at the NBBO, provided it simultaneously ``sweeps'' all better-
priced interest displayed by Eligible Exchanges.
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\9\ See Rule 611(b)(5) and (6) under the Exchange Act.
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Quote Flickering: Proposed Rule 1084(b)(vi) tracks Section
5(b)(vi) of the Plan which corresponds to the flickering quote
exception in Regulation NMS for equity securities.\10\ Options
quotations change as rapidly, if not more rapidly, than equity
quotations. Indeed, they track the price of the underlying security and
thus change when the price of the underlying security changes. This
exception provides a form of ``safe harbor'' to market participants to
allow them to trade through prices that have changed within a second of
the transaction causing a nominal Trade-Through.
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\10\ See Rule 611(b)(8) under the Exchange Act.
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Non-Firm Quotes: Proposed Rule 1084(b)(vii) tracks Section
5(b)(vii) of the Plan which carries forward the current non-firm quote
Trade-Through exception in the Old Plan.\11\ By definition, an Eligible
Exchange's quotations may not be firm for automatic execution during
this trading state and thus should not be protected from Trade-
Throughs. In effect, these quotations are akin to ``manual quotations''
under Regulation NMS.
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\11\ See Linkage Plan Section 8(c)(iii)(C).
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Complex Trades: Proposed Rule 1084(b)(viii) tracks Section
5(b)(viii) of the Plan which carries forward the current complex trade
exception in the Old Plan \12\ and will be implemented through rules
adopted by the Participants and approved by the Commission. Complex
trades consist of multiple transactions (``legs'') effected at a net
price, and it is not practical to price each leg at a price that does
not constitute a Trade-Through. Narrowly-crafted implementing rules
will ensure that this exception does not undercut Trade-Through
protections.
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\12\ See Linkage Plan Section 8(c)(iii)(G).
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Customer Stopped Orders: Proposed Rule 1084(b)(ix) tracks
Section 5(b)(ix) of the Plan which corresponds to the customer stopped
order exception in Regulation NMS for equity securities.\13\ It permits
broker dealers to execute large orders over time at a price agreed upon
by a customer, even though the price of the option may change before
the order is executed in its entirety.\14\
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\13\ See Rule 611(b)(9) under the Exchange Act.
\14\ For a further discussion on how this exemption operates,
see Regulation NMS Adopting Release, Exchange Act Release No. 51808
(June 9, 2005) at notes 322-325.
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Stopped Orders and Price Improvement: Proposed Rule
1084(b)(x) tracks Section 5(b)(x) of the Plan which would apply if an
order is stopped at price that did not constitute a Trade-Through at
the time of the stop. In this case, an exchange could seek price
improvement for that order, even if the market moves in the interim,
and the transaction ultimately is effected at a price that would trade
through the then currently-displayed market.
Benchmark Trades: Proposed Rule 1084(b)(xi) tracks Section
5(b)(xi) of the Plan which would cover trades executed at a price not
tied to the price of an option at the time of execution, and for which
the material terms were not reasonably determinable at the time of the
commitment to make the trade. This corresponds to a Trade-Through
exemption in Regulation NMS for equity trades.\15\ Phlx does not
currently permit these types of options trades, and any transaction-
type relying on this exemption would require Phlx to adopt implementing
rules, subject to Commission review and approval.
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\15\ See Rule 611(b)(7) under the Exchange Act.
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The Proposed Locked and Crossed Markets Rule. Similar to Regulation
NMS, the Plan requires its participants to adopt, maintain and enforce
rules requiring members: to avoid displaying locked and crossed
markets; to reconcile such markets; and to prohibit members from
engaging in a pattern or practice of displaying locked and crossed
markets. These provisions are subject to exceptions that are contained
in the rules of each participant and that are to be approved by the
Commission.
Accordingly, the Exchange proposes to adopt new Rule 1086, which
would set forth the general prohibition against locking/crossing other
eligible exchanges as well as several exceptions that the Plan
participants approved that permit locked markets in limited
circumstances. Specifically, the exceptions to the general prohibition
on locking and crossing occur when (1) the locking or crossing
quotation was displayed at a time when the Exchange was experiencing a
failure, material delay, or malfunction of its systems or equipment;
(2) the locking or crossing quotation was displayed at a time when
there is a Crossed Market; or (3) the Member simultaneously routed an
ISO to execute against the full displayed size of any locked or crossed
Protected Bid or Protected Offer.
[[Page 37272]]
Phlx Routing Arrangements. The Exchange proposes to rely upon the
order routing arrangements already in place on its market, except that
the Exchange proposes amendments to Rules 1080(m)(iv)(B) and (C)
concerning FIND \16\ and SRCH \17\ Orders.
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\16\ A FIND order is an order that is routable upon receipt, or
any time the option goes through an opening process. See Exchange
Rule 1080(m)(iv)(B).
\17\ A SRCH order is an order that is routable at any time. See
Exchange Rule 1080(m)(iv)(C).
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Currently, when the Phlx Best Bid/Offer (``PBBO'') is inferior to
the Away Best Bid/Offer (``ABBO'') FIND and SRCH Orders are routed to
the ABBO markets (following a ``Route Timer'' during which Phlx
participants may price improve) and, if size remains in the FIND or
SRCH Order following such routing, the Exchange will trade the order at
the next PBBO price up to one minimum price variation (``MPV'') through
the ABBO price subject to the order's limit price, or be entered into
the Phlx XL II book and posted at its limit price one MPV inferior to
the ABBO price if its limit price is equal to or through the ABBO
price.
Under the instant proposal, Rules 1080(m)(iv)(B) and (C) would be
amended to provide that if, at the end of the Route Timer, the ABBO is
still the best price, the FIND Order will route to the away market(s)
whose disseminated price is better than the PBBO (not just to the ABBO
markets), up to a size equal to the lesser of either: (a) the away
markets' size, or (b) the remaining size of the FIND Order. If the FIND
Order still has remaining size after such routing, it will (i) trade at
the next PBBO price (with no limitation of one MPV through the ABBO
price), subject to the order's limit price, and, if contracts still
remain unexecuted, the remaining size will be routed to away markets
disseminating the same price as the PBBO, or (ii) be entered into the
Phlx XL II book and posted at its limit price. A FIND Order that is
routed to an away market will be marked as an ISO. Such ISO will
conform to the requirements contained in proposed Rules 1066(i) and
1083(h).
Under the proposal, respecting SRCH Orders, if, at the end of the
Route Timer, the ABBO is still the best price, the SRCH order will
route to the away market(s) whose disseminated price is better than the
PBBO, up to a size equal to the lesser of either: (a) The away markets'
size, or (b) the remaining size of the SRCH order. If the SRCH order
still has remaining size after such routing, it may (1) trade at the
next PBBO price (or prices) if the order price is locking or crossing
that price (or prices) up to the ABBO price, and/or (2) be entered into
the Phlx XL II book at its limit price if not locking or crossing the
Phlx price or the ABBO. The Phlx XL II system will route and execute
contracts contemporaneously at the end of the Route Timer. Once on the
book, the SRCH order is eligible for routing if it is locked or crossed
by an away market. A SRCH Order that is routed to an away market will
be marked as an ISO. Such ISO will conform to the requirements
contained in proposed Rules 1066(i) and 1083(h).
Thus, the limitation on execution and/or booked limit order prices
of one MPV away from the ABBO following routing of a FIND or SRCH Order
to the ABBO markets (and all better-priced away markets) would be
eliminated. This is consistent with the Plan and with the ISO Order
type.
The Exchange proposes to amend its rules concerning orders that
have been subject to its Quote Exhaust and Market Exhaust processes.
Respecting the Quote Exhaust feature, Exchange Rule
1082(a)(ii)(B)(3)(g)(iv)(A) and (B) currently state that remaining
order volume from orders that have been subject to Quote Exhaust and
routed to away markets will be posted on the Exchange at the ABBO
price. Under the current proposal, if there still remain unexecuted
contracts after trading at the Phlx and/or routing, the Quote Exhaust
process of evaluating the Best Price will be repeated for any remaining
order volume that is marketable.
Specifically, if the Exchange's Best Price is the Exchange's next
available price standing alone, the Phlx XL II system will execute the
initiating quote or order at the Exchange's next available price up to
the Exchange's disseminated size. If the Best Price is equal to the
ABBO price, the Phlx XL II system will execute the initiating quote or
order at the Exchange's next available price up to the Exchange's
disseminated size, and any remaining order volume from the execution on
the Exchange will be routed away to the away market(s). If the Best
Price is equal to the Exchange's pre-determined ``Acceptable Range''
price (based on a table published on the Exchange's web site), the Phlx
XL II system will execute the initiating quote or order at the
Exchange's next available price up to the Exchange's disseminated size,
and any remaining volume from the execution on the Exchange will be
posted at the Acceptable Range price for the remaining size, for a
period of time not to exceed ten seconds and then cancelled after such
period of time has elapsed.
Under the proposal, Rule 1082(a)(ii)(B)(4)(d)(vi) would be amended
to state that, under the various Best Price scenarios, if after trading
at the Phlx and/or routing, there is a remainder of the initiating
order, and such remainder is still marketable, the entire process of
evaluating the Best Phlx price and the ABBO will be repeated until: (A)
The order size is exhausted, or (B) the order reaches its limit price.
If there still remain unexecuted contracts after routing but the order
has reached its limit price, the remainder will be posted at the
order's limit price, except that, when the limit price crosses the
Acceptable Range Price, the remainder will be posted at the Acceptable
Range Price for a period of time not to exceed ten seconds and then
cancelled after such period of time has elapsed. For a pilot period
scheduled to expire November 30, 2009, during this up to ten second
period, the Phlx XL II system will disseminate on the opposite side of
the market from remaining unexecuted contracts: (i) A bid price of
$0.00, with a size of one contract if the remaining size is a seller,
or (ii) an offer price of $200,000, with a size of one contract if the
remaining size is a buyer.
Respecting the Market Exhaust Auction, Exchange Rule
1082(a)(ii)(B)(4)(d)(iv) describes what happens to remaining order
volume respecting orders subject to Market Exhaust. Currently, if the
total number of contracts priced at the ABBO would not satisfy the
number of marketable contracts the Exchange has, the Phlx XL II system
will determine how many contracts it has available on the Exchange at a
price equal to the ABBO. If the total number of ABBO contracts plus the
number of contracts available on the Exchange at the ABBO price would
satisfy the number of marketable contracts the Exchange has, the ABBO
price becomes the ``Exchange Auction Price'' and the Phlx XL II system
will trade available contracts on the Exchange at the Exchange Auction
Price and contemporaneously route any remaining contracts to away
markets at the Exchange Auction Price. Additionally, if the total
number of ABBO contracts plus the number of contracts available on the
Exchange at the ABBO price would not satisfy the number of marketable
contracts the Exchange has, the Phlx XL II system currently will
determine how many contracts are available on the Exchange at a price
that is one Minimum Price Variation (``MPV'') through the ABBO price.
If the total number of ABBO contracts plus the number of contracts
[[Page 37273]]
available on the Exchange at the ABBO price plus the number of
contracts available on the Exchange at a price that is one MPV through
the ABBO price would satisfy the number of marketable contracts the
Exchange has, the price that is one MPV through the ABBO becomes the
Exchange Auction Price.
Under the proposal, the ``one MPV away'' calculation will be
deleted, and the Exchange's system will determine how many marketable
contracts can be routed to all better priced away markets, not limited
to the ABBO markets as stated in the current rule. This is because
under the Plan, orders may be traded on the Exchange at the best
Exchange price without the ``one MPV'' limitation if ISOs are routed to
better priced away markets. Under both Quote Exhaust and Market
Exhaust, all orders routed to away markets will be marked as ISOs. Such
ISOs will conform to the requirements contained in proposed Rules
1066(i) and 1083(h).
Proposed Rule 1082(a)(ii)(B)(4)(d)(iv)(B) would state that, if the
total number of contracts priced at the ABBO would not satisfy the
number of marketable contracts the Exchange has, the Phlx XL II system
will determine how many contracts are available on all better priced
away markets. If the total number of contracts available on better
priced away markets would satisfy the number of marketable contracts
available on the Exchange, the Phlx XL II system will route all
marketable contracts on the Exchange to other markets at the better
prices.
If the total number of contracts priced at better priced away
markets would not satisfy the number of marketable contracts the
Exchange has, the Phlx XL II system will determine how many contracts
it has available on the Exchange at the best Exchange price. If the
total number of better priced away contracts plus the number of
contracts available on the Exchange at the best Exchange price would
satisfy the number of marketable contracts the Exchange has, the best
Exchange price becomes the Exchange Auction Price and the Phlx XL II
system will contemporaneously route the full size of displayed interest
at better priced away markets to such better priced away markets, and
trade remaining contracts on the Exchange at the Exchange Auction
Price. In this situation, the Phlx XL II system will price any
contracts routed to other markets at the away market price.
If the total number of better priced away contracts plus the number
of contracts available on the Exchange at the PBBO price would not
satisfy the number of marketable contracts the Exchange has, the Phlx
XL II system will determine an Exchange Auction Price, using all
available better priced away markets plus all available Exchange
contracts, that will satisfy the number of marketable contracts the
Exchange has. If that price is equal to or within the order limit price
and the ``Auction Quote Range'' (``AQR'') determined by the Exchange,
that price becomes the Exchange Auction Price and the system will
contemporaneously route the full size of displayed interest at better
priced away markets to such better priced away markets, and trade
remaining contracts on the Exchange at the Exchange Auction Price. In
this situation, the Phlx XL II system will price any contracts routed
to other markets at the Exchange Auction Price.
Finally, the Exchange proposes similar changes to its ``Provisional
Auction.'' Again, the ``one MPV'' calculation would be deleted, and
pricing will be based on the best Exchange price instead of the ABBO.
Under the proposal, if the total number of better priced away
contracts plus the number of contracts available on the Exchange at the
Exchange Auction Price would not satisfy the number of marketable
contracts the Exchange has, the system may repeat the auction process
up to three times. If after that number of times, the Phlx XL II system
still cannot either route and/or trade the entire initiating order, the
Phlx XL II system will conduct a Provisional Auction by establishing
the Exchange Auction Price at the AQR Price, routing to all away
markets disseminating prices better than or equal to the Exchange
Auction Price for their disseminated size, and trading as many
contracts as possible on the Exchange at the AQR price. In this
situation, the Phlx XL II system will price any contracts routed to
other markets at the AQR price. Any unexecuted contracts from the
initiating order will be displayed in the Exchange quote at the
Exchange Auction Price for the remaining size for a brief period not to
exceed ten seconds and subsequently cancelled back to the entering
participant if they remain unexecuted and priced through the Auction
Price. Just as under current rules, for a pilot period scheduled to
expire November 30, 2009, during the brief period, the Phlx XL II
system will disseminate, on the opposite side of the market from
remaining unexecuted contracts: (i) A bid price of $0.00, with a size
of one contract if the remaining size is a seller, or (ii) an offer
price of $200,000, with a size of one contract if the remaining size is
a buyer.
Miscellaneous. The Exchange proposes miscellaneous changes to its
rules in connection with the new Plan. Specifically, The Exchange
proposes the following amendments:
Exchange By-Law Article XII, Section 12-11 would be
amended to delete references to the Linkage Plan.
Exchange Rule 1017(k) respecting automated openings on the
Phlx XL II system, would be amended to state that any order volume that
is routed to away markets pursuant to Rule 1017 will be marked as an
ISO. Such ISO will conform to the requirements contained in proposed
Rules 1066(i) and 1083(h).
Exchange Rule 1033(a)(ii) and Options Floor Procedure
Advice (``OFPA'') F-32, Solicitation of Quotations, currently state
that, in response to a floor broker's solicitation of a single bid or
offer, the members of a trading crowd (including the specialist and
ROTs) may discuss, negotiate and agree upon the price or prices at
which an order of a size greater than the AUTO-X guarantee can be
executed at that time. The Rule and OFPA would be amended to delete
references to the Linkage Plan and instead refer to the new Plan, and
to delete references to Exchange rules that are being deleted in this
filing. Additionally, the Rule and OFPA would be updated to reflect
that the rule applies to single crowd bids and offers for orders of a
size greater than the Exchange's disseminated size, instead of the
obsolete ``AUTO-X guarantee'' (the Exchange's disseminated size is firm
and is the guaranteed electronic order execution size).
Rule 1034(a)(i)(C) currently states that a Linkage P/A
Order that has been sent from the Exchange to, and price-improved on,
another exchange at a price expressed in other than the appropriate
minimum trading increment described in this rule, and then submitted to
the Exchange for execution against the original customer limit order
that gave rise to the Linkage P/A Order, may be traded on the Exchange
at such price. Under the proposal, Rule 1034(a)(i)(C) would be amended
to state that the Phlx XL II system will reject any order received at a
price expressed in other than the appropriate minimum trading
increment.
The Exchange proposes to amend Rule 1066, Certain Types of
Orders Defined, by adopting Rule 1066(i), which defines an ISO as a
limit order that is designated as an ISO in the manner prescribed by
the Exchange and is executed within the system by Participants at
multiple price levels without respect to Protected Quotations of other
Eligible Exchanges as defined in
[[Page 37274]]
Rule 1083. ISOs are immediately executable within the Phlx XL II system
or cancelled, and shall not be eligible for routing as set out in Rule
1080.
Simultaneously with the routing of an ISO to the Phlx XL II system,
one or more additional limit orders, as necessary, are routed by the
entering party to execute against the full displayed size of any
Protected Bid or Offer (as defined in Rule 1083(n)) in the case of a
limit order to sell or buy with a price that is superior to the limit
price of the limit order identified as an ISO. These additional routed
orders must be identified as ISOs.
Rules 1080(b)(i)(A), (B) and (C) would be amended to
permit ISOs on the Phlx XL II system.
Rule 1080(c)(iv)(F), currently states that the specialist
will handle an order manually when the price of a limit order is not in
the appropriate minimum trading increment pursuant to Rule 1034,
including a Linkage P/A Order that has been sent from the Exchange to,
and price-improved on, another exchange at a price expressed in other
than such appropriate minimum trading increment, and then submitted to
the Exchange for execution against the original customer limit order
that gave rise to the Linkage P/A Order. As stated above in the
proposed amendment to Rule 1034(a)(i)(C), the Phlx XL II system will
reject any order received at a price expressed in other than the
appropriate minimum trading increment. Therefore, Rule 1080(c)(iv)(F)
will be deleted.
Rule 1080(vi) would be deleted in its entirety because it
contains obsolete language the concerning routing of Linkage P/A Orders
and the handling of broker-dealer orders in the legacy Phlx XL system.
Implementation. The Exchange proposes to implement this proposed
rule change upon withdrawal from the current Linkage Plan and
effectiveness of the new Plan. Implementation is currently scheduled
for August 31, 2009.
2. Statutory Basis
The Exchange believes that the proposed rule change is consistent
with the provisions of Section 6 of the Act,\18\ in general, and with
Section 6(b)(5) of the Act,\19\ in particular, in that the proposal is
designed to prevent fraudulent and manipulative acts and practices, to
promote just and equitable principles of trade, to foster cooperation
and coordination with persons engaged in regulating, clearing,
settling, processing information with respect to, and facilitating
transactions in securities, 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. In
particular, the Exchange believes that adopting rules that implement
the Plan will facilitate the trading of options in a national market
system by establishing more efficient protection against trade-throughs
and locked and crossed markets.
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\18\ 15 U.S.C. 78f.
\19\ 15 U.S.C. 78f(b)(5).
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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.
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 35 days of the date of publication of this notice in the
Federal Register or within such longer period: (i) As the Commission
may designate up to 90 days of such date if it finds such longer period
to be appropriate and publishes its reasons for so finding or (ii) as
to which the self-regulatory organization consents, the Commission
will:
(A) By order approve such proposed rule change, or
(B) institute proceedings to determine whether the proposed rule
change should be disapproved.
The Exchange has requested accelerated approval of this proposed
rule change prior to the 30th day after the date of publication of the
notice in the Federal Register. The Commission is considering granting
accelerated approval of the proposed rule change at the end of a 21-day
comment period.
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 (http://www.sec.gov/rules/sro.shtml); or
Send an e-mail to [email protected]. Please include
File Number SR-Phlx-2009-61 on the subject line.
Paper Comments
Send paper comments in triplicate to Elizabeth M. Murphy,
Secretary, Securities and Exchange Commission, 100 F Street, NE.,
Washington, DC 20549-1090.
All submissions should refer to File Number SR-Phlx-2009-61. This file
number should be included on the subject line if e-mail is used. To
help the Commission process and review your comments more efficiently,
please use only one method. The Commission will post all comments on
the Commission's Internet Web site (http://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 inspection and
copying in the Commission's Public Reference Room, 100 F Street, NE.,
Washington, DC 20549, on official business days between the hours of 10
a.m. and 3 p.m. Copies of the filing will also be available for
inspection and copying at the principal office of the self-regulatory
organization. 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-2009-61 and should be submitted on or before August 18, 2009.
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\20\ 17 CFR 200.30-3(a)(12).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\20\
Florence E. Harmon,
Deputy Secretary.
[FR Doc. E9-17882 Filed 7-27-09; 8:45 am]
BILLING CODE 8010-01-P