[Federal Register Volume 78, Number 170 (Tuesday, September 3, 2013)]
[Notices]
[Pages 54340-54346]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2013-21299]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-70271; File No. SR-Phlx-2013-88]


Self-Regulatory Organizations; NASDAQ OMX PHLX LLC; Notice of 
Filing and Immediate Effectiveness of Proposed Rule Change To Provide 
Additional Trading Information and Rule Clarity to Phlx Participants

August 27, 2013.
    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 August 22, 2013, NASDAQ OMX PHLX LLC (``Phlx'' or ``Exchange'') 
filed with the Securities and Exchange Commission (``Commission'') the 
proposed rule change as described in Items I, II, and III below, which 
Items have been prepared by the Exchange. The Commission is publishing 
this notice to solicit comments on the proposed rule change from 
interested persons.
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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 proposes [sic] provide additional trading information 
and rule clarity to Phlx Participants to attract their Complex Orders 
to the Exchange.
    The text of the proposed rule change is below. Proposed new 
language is

[[Page 54341]]

italicized; proposed deletions are in brackets.
* * * * *

Rule 1080. Phlx XL and Phlx XL II

    (a)-(p) No change.

 Commentary:-------------

    .01-.07 No change.
    .08 Complex Orders on Phlx XL.
    (a)-(d) No change.
    (e) Process for Complex Order Live Auction (``COLA''). Complex 
Orders on the Complex Order Book (``CBOOK,'' as defined below) may be 
subject to an automated auction process.
    (i) No change.
    (ii) Initiation of a COLA. Upon the identification of the COLA-
eligible order by the Phlx XL system, the Exchange will send a 
broadcast message to Phlx XL participants indicating that a COLA has 
been initiated. The broadcast message will identify the Complex Order 
Strategy, and the size, side and price of the COLA-eligible order and 
any contingencies, if applicable (such as, without limitation, All-Or-
None)[, but will not identify the side of the market or the price].
    (iii)-(vi) No change.
    (vii) Firm Quote Requirement for COLA-Eligible Orders. COLA Sweeps 
in response to a COLA broadcast represent non-firm interest that can be 
modified at any time prior to the end of the COLA Timer. At the end of 
the COLA Timer, COLA Sweeps shall be firm only with respect to the 
COLA-eligible order for which it is submitted, provided that COLA 
Sweeps that exceed the size of a COLA-eligible order are also eligible 
to trade with other incoming COLA-eligible orders, COLA Sweeps and any 
other interest [that are] received during the COLA Timer after the 
initial COLA-eligible order has been executed in its entirety. 
Remaining interest trades at its entered price. If such interest 
crosses, the execution price is based on the price of the smaller sized 
interest. If the interest is equal in size, the execution price is the 
midpoint of the two prices, rounded, if necessary, up to the closest 
minimum trading increment. Any COLA Sweeps not accepted in whole or in 
a permissible ratio will expire at the end of the COLA Timer once all 
executions are complete.
    (viii) Complex Orders resting on the CBOOK, and incoming electronic 
Complex Orders and COLA Sweeps that are received prior to the 
expiration of the COLA Timer, (collectively, for purposes of this rule, 
``incoming Complex Orders'') representing the same Complex Order 
Strategy as a COLA-eligible order will impact the original COLA as 
follows:
    (A) At the end of the COLA Timer, the Phlx XL system will determine 
the price and size of COLA Sweeps and any orders that were received 
during the COLA Timer that are unrelated to the COLA but nonetheless 
are eligible to participate in the COLA as set forth below.
    (B) Incoming Complex Orders on the same side of the market as the 
COLA-eligible order. Incoming Complex Orders that were received during 
the COLA Timer for the same Complex Order Strategy as the COLA-eligible 
order that are on the same side of the market will join the COLA. The 
original COLA-eligible order has priority at all price points (i.e., 
multiple COLA Sweep Prices) over the incoming Complex Order(s), 
regardless of the price of the incoming Complex Order. The incoming 
Complex Order shall not be eligible for execution against interest on 
the opposite side of the market from the COLA-eligible order until the 
COLA-eligible order is executed in its entirety. If the incoming 
Complex Order is not executed in its entirety, the system will not 
initiate a new COLA. Any remaining contracts, other than COLA Sweeps, 
will be placed on the CBOOK, subject to other instructions.
    (C) Incoming Complex Orders on the opposite side of the market from 
the COLA-eligible order.
    (1) Incoming customer Complex Orders that are received during the 
COLA Timer on the opposite side of the market from the COLA-eligible 
order with a price equal to or better than the best priced Complex 
Order or COLA Sweep [Price] will be executed against the COLA eligible 
order (which will be executed in its entirety first as described in 
sub-paragraph (B) above) or other Complex Orders or COLA Sweeps as 
follows:
    (a) If such incoming customer Complex Order is a limit order at the 
same price as the best priced Complex Order or COLA Sweep [Price], the 
incoming Complex Order will be executed at such [the Sweep P]price.
    (b) If such incoming Complex Order is a limit order that improved 
the best priced Complex Order or COLA Sweep [Price], the incoming 
customer Complex Order will be executed at the mid-point of the best 
priced Complex Order or COLA Sweep [Price] and the limit order price, 
rounded, if necessary, to the closest minimum trading increment to the 
benefit of the COLA-eligible order.
    (c) If such incoming customer Complex Order is a market order or a 
limit order that crosses the cPBBO, the incoming Complex Order will be 
executed at the mid-point of the cPBBO on the same side of the market 
as the COLA-eligible order and the best priced Complex Order or COLA 
Sweep [Price], rounded, if necessary, to the closest minimum trading 
increment to the benefit of the COLA-eligible order.
    (d) If multiple customer Complex Orders are received on the 
opposite side of the market from the COLA-eligible order, such orders 
will be executed in the order in which they were received at each price 
level.
    (e) If the COLA-eligible order is executed in its entirety and 
there are remaining bids or offers from the incoming Complex Order(s), 
the Phlx XL system will execute such interest against other Complex 
Orders or COLA Sweeps in the COLA and subsequently place [such] 
residual bids or offers, other than COLA Sweeps, onto the CBOOK, 
subject to other instructions.
    (2) Incoming non-customer Complex Orders that are received during 
the COLA Timer on the opposite side of the market from the COLA-
eligible order with a price equal to or better than the best priced 
Complex Order or COLA Sweep [Price] will be executed against the COLA 
eligible order (which will be executed in its entirety first as 
described in sub-paragraph (B) above) or other Complex Orders or COLA 
Sweeps as follows:
    (a) If such incoming non-customer Complex Order is a limit order at 
the same price as the best priced Complex Order or COLA Sweep [Price], 
the incoming non-customer Complex Order will be executed at such [the 
Sweep P]price, subject to the provisions set forth sub-paragraph (e) 
above.
    (b) If such incoming non-customer Complex Order is a limit order 
that improved the best priced Complex Order or COLA Sweep [Price], the 
incoming non-customer Complex Order will be executed at the limit order 
price.
    (c) If such incoming non-customer Complex Order is a market order 
or a limit order that crosses the cPBBO, the incoming non-customer 
Complex Order will be executed at a price of $0.01 better than the 
cPBBO on the same side of the market as the COLA-eligible order.
    (d) If multiple non-customer Complex Orders are received on the 
opposite side of the market from the COLA-eligible order, such orders 
will be executed in the order in which they were received at each price 
level.
    (e) If the COLA-eligible order is executed in its entirety and 
there are remaining bids or offers from the incoming non-customer 
Complex Order(s), the Phlx XL system will execute such interest against 
other Complex Orders or COLA Sweeps in the COLA and subsequently place 
[such]

[[Page 54342]]

residual bids or offers, other than COLA Sweeps, onto the CBOOK, 
subject to other instructions.
    (3) Incoming Complex Orders that were received during the COLA 
Timer on the opposite side of the market from the COLA-eligible order 
with a price inferior to any other COLA Sweep [Price(s)] or Complex 
Order will be executed against the COLA-eligible order after all 
interest at the better [COLA Sweep P]price(s) has/have been executed. 
After the initial COLA-eligible order has been executed in its 
entirety, incoming Complex Orders remaining unexecuted shall be 
eligible to trade with other Complex Orders and COLA Sweeps at their 
entered price. If, after the COLA-eligible order has been executed, 
there exist Complex Orders and/or COLA Sweeps on the opposite side of 
the market from the COLA-eligible order which cross the price of other 
Complex Orders or COLA Sweeps on the same side of the market from the 
COLA-eligible order, the execution price of such crossing interest is 
based on the price of the smaller sized interest. If the crossing 
interest is equal in size, the execution price is the midpoint of the 
two prices, rounded, if necessary, up to the closest minimum trading 
increment. The system will treat any unexecuted remaining contracts in 
the incoming Complex Order as a new Complex Order, and will not 
initiate a new COLA. Such unexecuted remaining contracts, other than 
COLA Sweeps, will be placed on the CBOOK, subject to other 
instructions.
    (ix) No change.
    (f)-(i) No change.
* * * * *

II. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    In its filing with the Commission, the Exchange included statements 
concerning the purpose of and basis for the proposed rule change and 
discussed any comments it received on the proposed rule change. The 
text of these statements may be examined at the places specified in 
Item IV below. The Exchange has prepared summaries, set forth in 
sections A, B, and C below, of the most significant aspects of such 
statements.

A. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The purpose of the proposal is to provide additional trading 
information and rule clarity to Phlx Participants to attract their 
Complex Orders to the Exchange. The Exchange's Complex Order System, 
which is governed by Rule 1080.08, includes the COLA, an automated 
auction for seeking additional liquidity and price improvement for 
Complex Orders. When the Exchange receives a COLA-eligible order that 
triggers a COLA, the system broadcasts information about the COLA-
eligible order--the ``COLA Message.'' The duration of the COLA is fixed 
and measured by the COLA Timer. During the COLA Timer, Phlx XL 
participants \3\ may submit ``COLA Sweeps,'' which are bids and/or 
offers on either or both side(s) of the market by submitting one or 
more bids or offers that improve the cPBBO. Also during the COLA Timer, 
Phlx members may enter other Complex Orders or COLA Sweeps at any 
price, as explained further below. These COLA Sweeps and Complex Orders 
may or may not be submitted in direct response to the COLA-eligible-
order. How the XL System processes such COLA Messages and COLA Sweeps 
is explained further below.
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    \3\ COLA Sweeps can only be entered by Phlx XL Participants who 
quote electronically as market makers for their own account 
(Streaming Quote Traders (``SQTs''), Remote Streaming Quote Traders 
(``RSQTs'') and specialists). Because non-SQT ROTs do not quote 
electronically, they cannot enter COLA Sweeps, which are electronic. 
See Rule 1014(b)(ii)(C) and Rule 1080.08(e)(ix).
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    COLA Message
    Currently, upon the identification of the COLA-eligible order by 
the Phlx XL system, the Exchange will broadcast a COLA Message to Phlx 
XL participants indicating that a COLA has been initiated. The COLA 
Message identifies the Complex Order Strategy, the size of the COLA-
eligible order, and any contingencies, if applicable (such as, without 
limitation, All-Or-None), but it does not identify the side of the 
market or the price. The COLA Message is sent over TOPO Plus Orders,\4\ 
the Exchange's market data feed for subscribers interested in the 
detailed information it offers, including messages relating to Complex 
Orders. The Specialized Quote Feed (``SQF'') also contains COLA 
Messages.\5\ Like auction messages on multiple exchanges, the COLA 
Message is designed to attract responsive interest.
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    \4\ Securities Exchange Act Release No. 60877 (October 26, 
2009), 74 FR 56255 (October 30, 2009) (SR-Phlx-2009-92).
    \5\ Securities Exchange Act Release No. 63034 (October 2 [sic], 
2010), 75 FR 62441 (October 8, 2010) (SR-Phlx-2010-124).
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    The Exchange now proposes to add the side and price of the Complex 
Order to the COLA Message. The Exchange believes that including the 
side and price of the order is helpful to users, may attract additional 
auction responses, and therefore increase Complex Order fill rates. The 
Exchange notes that other exchanges include such additional information 
(side and price) respecting their various auctions and, therefore, that 
broadcasting such information is consistent with the Exchange Act.\6\
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    \6\ See CBOE Rule 6.53C(d)(ii) and ISE Rule 723(c). However, the 
CBOE does not broadcast the price of the complex order and rejects 
same side responses to its COA under its Rule 6.53C(d)(iii)(1). ISE 
sends a broadcast message when there is a crossing transaction in 
ISE's Price Improvement Mechanism that includes the series, size, 
side and price of the order (including complex orders).
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    COLA Responses and Processing
    Currently, during the COLA, participant responses can be entered at 
multiple prices and can take the form of Complex Orders or COLA Sweeps. 
Specifically, Complex Orders can be entered into the COLA \7\ by non-
broker-dealer customers, non-market-maker off-floor broker-dealers,\8\ 
Floor Brokers,\9\ professional customers \10\ and non-Phlx market 
makers,\11\ as well as Exchange SQTs, RSQTs, non-SQT ROTs and 
specialists (together, market makers) \12\ Exchange SQTs, RSQTs, and 
specialists also can participate in a COLA by submitting COLA Sweeps.
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    \7\ In each case, Complex Orders can be entered, generally, not 
just into the COLA, by all of these types of market participants.
    \8\ Rule 1080.08(b)(i).
    \9\ Rule 1080.08(b)(iii).
    \10\ Rule 1000(b)(14). The term ``professional'' means any 
person or entity that (i) is not a broker or dealer in securities, 
and (ii) places more than 390 orders in listed options per day on 
average during a calendar month for its own beneficial account(s). A 
professional will be treated in the same manner as an off-floor 
broker-dealer for purposes of Rule 1080.08.
    \11\ Rule 1080.08(b)(ii).
    \12\ Rules 1014(b) and 1080.08(b)(ii).
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    Today, in the absence of information about the price and side of a 
COLA-eligible order, orders submitted in response to a COLA Message can 
be on either the same side or the opposite side of the COLA-eligible 
order. When a market maker submits a COLA Sweep or a Complex Order on 
the opposite side of the market from the COLA-eligible order during a 
COLA, those orders are treated identically in the COLA, except that 
unexecuted COLA Sweeps expire and unexecuted Complex Orders are 
eligible for the Complex Order Book (``CBOOK'').\13\ In other words, 
there is

[[Page 54343]]

no meaningful advantage to submitting a COLA Sweep versus a Complex 
Order.
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    \13\ See Rules 1080.08(e)(vii), (viii)(B), (viii)(C)(1)(e), and 
(viii)(C)(2)(e). The Exchange represents that this sentence is an 
accurate description of how the system operates, which differs from 
the Exchange rule text. The Exchange commits to filing a proposed 
rule change to conform its rule text with respect to the priority of 
COLA sweeps and orders. See email to Kathleen Gross and Yue Ding, 
Division of Trading and Markets, Commission, from Edith Hallahan, 
Exchange, dated August 27, 2013 (``Phlx Email'').
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    The same is true regarding Complex Orders submitted during a COLA. 
Because Complex Orders are not specifically marked as ``COLA 
responses,'' the Phlx XL System cannot identify which Complex Orders 
are truly intended to respond to the auction and which are merely 
coincidental.\14\ In any case, there is no difference in treatment 
between any participant submitting a Complex Order (or in the case of 
certain market makers, a COLA Sweep), whether intended to respond to a 
COLA message or submitted coincidentally.
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    \14\ See e.g., Rule 1080.08(e)(viii)(B), which addresses 
incoming Complex Orders on the same side of the market as the COLA-
eligible order. The Exchange is modifying the term ``incoming 
Complex Order'' to provide that it includes both responsive Complex 
Orders and COLA Sweeps, as well as Complex Orders [sic].
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    This is true of orders on both the same side of the market as the 
COLA-eligible order as well as those on the opposite side.\15\ The 
Exchange currently takes into account COLA responses and Complex Orders 
on the same side of the market as the COLA-eligible order and it will 
continue to do so. Again, market makers can submit Complex Orders or 
COLA Sweeps on the same side of the market as the COLA-eligible order. 
Such orders are treated the same, except COLA Sweeps expire.\16\ As 
with opposite side interest, there is no advantage to submitting a COLA 
Sweep versus a Complex Order on the same side of the market.\17\
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    \15\ See e.g., Rule 1080.08(e)(viii)(C), which the Exchange is 
amending to address incoming Complex Orders on the opposite side of 
the market as the COLA-eligible order, which includes both Complex 
Orders and COLA Sweeps.
    \16\ See Phlx Email, supra note 13.
    \17\ See id.
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    Both currently and under this proposal, orders submitted on the 
same side of the market as the COLA-eligible order are and will be 
considered for execution only after the Complex Order that initiated 
the COLA is executed.\18\ Today, orders may be submitted on the same 
side of the COLA-eligible order because market participants are unaware 
of whether the COLA-eligible order is a buy or a sell order. Same-side 
interest does not and will not interact with the COLA-eligible order; 
however, it may still interact with orders on the opposite side of the 
market that are submitted during the COLA Timer. This would occur when 
the COLA is over-subscribed. This ensures that the COLA-eligible order 
that initiated the COLA maintains priority over any interest that was 
entered during the COLA on the same side as the COLA-eligible order. It 
also ensures that there is no advantage to submitting interest on the 
same side as the COLA-eligible order. This structure maximizes the 
interest executed in the COLA, whether on the same side of the market 
or the opposite side of the market from the COLA-eligible order, and 
whether it is a responsive Complex Order, a COLA Sweep, or a 
coincidental Complex Order.
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    \18\ See Rule 1080.08(e)(viii)(C)(3), which the Exchange is 
modifying to explain in greater detail how the Phlx XL system 
currently processes orders on either side of the COLA-eligible order 
after the COLA-eligible order is fully executed.
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    Under the proposal, participants will still be permitted to submit 
orders on the same side of the market as the COLA-eligible order even 
though they will be aware of whether the COLA-eligible order is a buy 
or a sell order. Such behavior is neither irrational nor nefarious 
because, as stated above, same side interest may be executed in the 
COLA after the COLA-eligible order has been fully executed. While some 
options exchanges do not accept same side interest or responses from 
certain types of market participants in their respective auctions for 
complex orders, the Exchange opted not to change its current practice 
of accepting same side interest for several reasons. First, accepting 
same side interest is rational and consistent with the Exchange Act, 
given the possibility of execution. Second, the Exchange believes that 
continuing to allow the entry of same-side interest does not increase 
the potential for manipulation or gaming because same-side interest, 
along with all other interest, is processed according to strict and 
transparent priority rules.\19\ Third, continuing to accept same side 
interest will not affect the outcome of the COLA; conversely, a change 
to current behavior could cause issues for participants currently 
utilizing the Phlx Complex Orders system.
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    \19\ The Exchange will, of course, monitor COLAs, including the 
entry and execution of such same side orders, to detect and punish 
gaming and manipulation.
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    The Exchange also notes that the proposal to show the price of the 
COLA-eligible order does not provide any advantage to same side or 
opposite side COLA Sweeps or Complex Orders in relation to their 
execution. COLA executions will continue to occur at best price(s) 
available at the end of the COLA Timer. However, it would not be 
irrational to submit responsive COLA Sweeps or Complex Orders that are 
priced inferior to the COLA-eligible order because such interest may be 
executed in the COLA after the COLA-eligible order is fully executed. 
Interest that is priced away from the COLA-eligible order will only be 
executed if it is executable against other remaining interest after the 
COLA-eligible order has been executed in its entirety. Again, the 
Exchange believes that there is no increased potential for gaming and 
manipulation in this case, and the Exchange will surveil to ensure that 
this is true in practice.
    COLA Sweeps Trading with COLA Sweeps
    The Exchange proposes to amend Rule 1080.08(e)(vii) and (viii) to 
provide that COLA Sweeps can trade not only with the COLA-eligible 
order, but also with COLA Sweeps and other Complex Orders, both on the 
same side and on the opposite side of the market as the COLA-eligible 
order.\20\ The proposed new language in Rule 1080.08(e)(vii) and (viii) 
is consistent with the current processing and purposes of the COLA, 
which is to attract and execute as much interest as possible at the 
best price(s) without causing some responses to remain unexecuted. The 
Exchange also proposes to amend Rule 1080.08(e)(viii) to provide that 
the COLA-eligible order is executed at the best prices available, 
inclusive of both COLA Sweeps and Complex Orders, at the end of the 
COLA Timer. The Exchange currently takes into account both COLA Sweeps 
and Complex Orders at the best prices when executing the COLA-eligible 
order. The proposed new language in Rule 1080.08(e)(viii) provides that 
both COLA Sweeps and Complex Orders at the best prices are considered 
for execution at the end of the COLA.
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    \20\ Rule 1080.08(e)(viii)(A) currently states that at the end 
of the COLA Timer, the Phlx XL system will determine the price and 
size of COLA Sweeps and any orders that were received during the 
COLA Timer that are unrelated to the COLA but nonetheless are 
eligible to participate in the COLA. This was intended to cover COLA 
Sweeps both on the opposite side and on the same side of the market 
as the COLA-eligible order. The Exchange never intended to disregard 
COLA Sweeps on the same side of the market as the COLA-eligible 
order, and, instead, believes that this language contemplated 
including all interest received in response to a COLA regardless of 
the side of the market. Nonetheless, the Exchange is modifying Rule 
1080.08(e)(viii) in multiple places to establish its proper 
application to orders on either side of the market as the COLA-
eligible order.
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    Execution Prices
    The Exchange is proposing to add to Rule 1080.08(e)(vii) and (viii) 
language stating that, at the end of the COLA, remaining interest 
trades at its entered price. If such interest crosses, the execution 
price is based on the price of the smaller sized interest. If the 
interest is equal in size, the execution price is

[[Page 54344]]

the midpoint of the two prices, rounded, if necessary, up to the 
closest minimum trading increment. The COLA-eligible order is executed 
first and then all other interest is addressed, taking into account its 
price.\21\ The Rule does not currently specify how the execution prices 
of the remaining interest are determined.
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    \21\ Pursuant to Rule 1080.08(e)(viii)(A), at the end of the 
COLA Timer, the Phlx XL system will determine the price and size of 
COLA Sweeps and any orders that were received during the COLA Timer 
that are unrelated to the COLA but nonetheless are eligible to 
participate.
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2. Statutory Basis
    The Exchange believes the proposed rule change is consistent with 
the provisions of Section 6 of the Act,\22\ in general, and with 
Section 6(b)(5) of the Act,\23\ in particular, which requires, among 
other things, that the rules of an exchange be designed to promote just 
and equitable principles of trade and foster cooperation and 
coordination with persons engaged in regulating, clearing, settling, 
processing information with respect to, and facilitating transactions 
in securities. Specifically, providing additional information to market 
participants interested in Complex Orders should promote just and 
equitable principles of trade by reducing the risk that a COLA-eligible 
Complex Order does not trade and increasing the potential for responses 
to the COLA. It should also foster cooperation and coordination with 
persons engaged in facilitating transactions in securities, 
particularly the COLA-eligible order, by attracting additional 
responsive interest and thereby increasing the likelihood of a trade. 
More responsive interest should result in more trading and more 
efficient trading. By providing more information, the proposal should 
also result in better prices, as responding market participants will be 
better able to manage their capital and focus on responding to orders 
they are truly interested in trading against. Because the proposal is 
likely to lead to an increase in Exchange volume, it is pro-competitive 
and should enable the Exchange to better compete against other markets 
that provide complex order functionality. Accordingly, consistent with 
Section 6(b)(8),\24\ the Exchange believes that the proposal does not 
impose a burden on competition not necessary or appropriate in 
furtherance of the purposes of the Act, as described further below.
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    \22\ 15 U.S.C. 78f.
    \23\ 15 U.S.C. 78f(b)(5).
    \24\ 15 U.S.C. 78f(b)(8).
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    The Exchange is also proposing to correct the rule text to reflect 
that COLA Sweeps on the same side of the market as a COLA-eligible 
Complex Order can be executed in the COLA, and that COLA Sweeps can 
trade with other COLA Sweeps. The Exchange believes that it is 
consistent with promoting just and equitable principles of trade to 
include same side COLA Sweeps in the COLA, because it results in more 
interest being executed in the COLA. The Exchange also believes that 
the proposal is not unfairly discriminatory, because it includes same 
side COLA Sweeps in executions after the COLA. At the same time, the 
COLA-eligible order which initiated the COLA maintains priority over 
any interest that was received during the COLA on the same side as the 
COLA-eligible order, which ensures that there is no advantage to 
submitting interest on the same side as the COLA-eligible order. Thus, 
the Exchange believes that this is consistent with just and equitable 
principles of trade.
    The Exchange believes that its proposal to add to the rule text the 
price at which remaining interest is executed is consistent with the 
Act. Specifically, Rule 1080.08(e)(vii) and (viii) will provide that, 
at the end of the COLA, remaining interest trades at its entered price, 
and if such prices cross each other, the execution price is based on 
the price of the smaller sized interest. If the interest is equal in 
size, the execution price is the midpoint of the two prices, rounded, 
if necessary, up to the closest minimum trading increment. The COLA-
eligible order is executed first and all other interest is addressed, 
taking into account its price.\25\ The Exchange believes that this 
approach is consistent with promoting just and equitable principles of 
trade, because responsive interest is addressed in a reasonable way, 
after the COLA-eligible order is executed, at the best prices possible 
and executing as much of the interest as possible. The Exchange 
believes that this approach is reasonable, because, in a situation 
where a choice has to be made between execution prices, the Exchange 
has chosen to benefit the smaller sized order, execute at the midpoint 
and round up, all of which are choices based on what the Exchange 
deemed a fair approach given the choice of benefitting the larger 
order, not executing at all, or rounding down. Most importantly, the 
Exchange seeks to execute as much of the remaining interest as 
possible. This should facilitate more executions of Complex Orders.
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    \25\ Pursuant to Rule 1080.08(e)(viii)(A), at the end of the 
COLA Timer, the Phlx XL system will determine the price and size of 
COLA Sweeps and any orders that were received during the COLA Timer 
that are unrelated to the COLA but nonetheless are eligible to 
participate.
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    The Exchange further believes that the proposed modifications to 
Rule 1080.08(e)(viii) are consistent with the Act. That subsection has 
always governed the processing of orders resting on the CBOOK and 
entered during a COLA; has always permitted the entry of such orders on 
the same side of the market as the COLA-eligible order; and has always 
permitted the entry of Complex Orders and COLA Sweeps at prices both 
superior and inferior to the COLA-eligible order. The proposed changes 
to subsection (e)(viii) do not alter the current processing of COLA 
Sweeps or other Complex Orders.
    As stated above,\26\ the Exchange believes that it is consistent 
with the Act to continue to permit the entry of orders on both sides of 
the COLA-eligible order when the COLA Message reveals the side of the 
COLA-eligible order. As stated above, it is rational for participants 
to enter orders on the same side of the market as the COLA-eligible 
order or at inferior prices to the COLA-eligible order because such 
orders can participate in the COLA after the COLA-eligible order is 
fully executed. COLA executions continue to occur at best price(s) 
available at the end of the COLA with the COLA-eligible order being 
executed first with interest on the same side of the market as the 
COLA-eligible order or interest at prices inferior to the COLA-eligible 
order considered for execution only after the COLA-eligible order has 
been satisfied. Thus, maintaining the current functionality will 
facilitate transactions in securities by maximizing opportunities for 
order execution in the COLA. Allowing such behavior is consistent with 
just and equitable principles of trade because the behavior is not 
advantaged in the Phlx XL system; for this reason, the Exchange does 
not believe that the system processing of such orders is subject to 
manipulation or gaming. The Exchange will, of course, surveil COLAs 
diligently to guard against manipulation and gaming.
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    \26\ See supra at text accompanying note 19.
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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 
result in any burden on competition that is not necessary or 
appropriate in furtherance of the purposes of the Act, as amended. 
Specifically, the proposal does not

[[Page 54345]]

impose an intra-market burden on competition, because it will be 
available to all Phlx participants who receive Complex Order Messages 
and such messages are available to those who choose to subscribe, for a 
fee. Furthermore, the proposal should promote competition for complex 
orders by drawing more and better responses to the COLA, which, in 
turn, should make the COLA more robust and competitive. Nor will the 
proposal impose a burden on competition among the options exchanges, 
because, in addition to the vigorous competition for order flow among 
the options exchanges, the proposal adds information that certain other 
options exchanges broadcast, which should be helpful to market 
participants.
    With respect to the aspect of the proposal that adds reference to 
COLA Sweeps, the Exchange believes that this change does not impose a 
burden on competition, because it includes same side COLA Sweeps in 
executions after the COLA; it merely addresses how COLA Sweeps execute 
against each other. With respect to the aspect of the proposal that 
addresses the price at which remaining interest is executed, the 
Exchange believes that the proposal does not impose a burden on 
competition, because it merely specifies, in connection with executing 
as much interest as possible, the prices at which such interest trades, 
regardless of the type of market participant submitting such interest. 
To the extent that market participants disagree with the particular 
approach taken by the Exchange herein, market participants can easily 
and readily direct complex order flow to competing venues.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants or Others

    Written comments were neither solicited nor received.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    Because the foregoing proposed rule change does not: (i) 
Significantly affect the protection of investors or the public 
interest; (ii) impose any significant burden on competition; and (iii) 
become operative for 30 days from the date on which it was filed, or 
such shorter time as the Commission may designate, it has become 
effective pursuant to Section 19(b)(3)(A)(ii) [sic] of the Act \27\ and 
subparagraph (f)(6) of Rule 19b-4 thereunder.\28\
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    \27\ 15 U.S.C. 78s(b)(3)(a)(ii) [sic].
    \28\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6) 
requires a self-regulatory organization to give the Commission 
written notice of its intent to file the proposed rule change at 
least five business days prior to the date of filing of the proposed 
rule change, or such shorter time as designated by the Commission. 
The Exchange has satisfied this requirement.
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    Phlx believes that the proposal to add side and price information 
does not significantly affect the protection of investors or the public 
interest and does not impose any significant burden on competition 
because it does not raise any novel regulatory issues, as it is similar 
to messages sent by other exchanges. The proposal adds certain 
information to a broadcast message, which benefits market participants. 
To the extent that the ISE's Price Improvement Mechanism is different 
than the COLA, the Exchange does not believe that this difference 
raises any new regulatory issues, because the purpose of adding the 
price to the message is to attract relevant responses, which is likely 
also the purpose of ISE showing the price of an order in its Price 
Improvement Mechanism. Because the purposes are the same, the Exchange 
does not believe that the fact that ISE's Price Improvement Mechanism 
is different from the COLA is material to considering whether a message 
should contain price.
    The Exchange further believes that continuing to allow same-side 
responses, unlike the CBOE, which rejects same-side responses, does not 
significantly affect the protection of investors or the public 
interest, and does not impose a significant burden on competition, 
because same-side Complex Orders on the Exchange are treated, 
generally, the same as COLA Sweeps, and the same whether submitted in 
direct response to a COLA message or not.\29\ More specifically, as 
discussed above,\30\ there is no advantage to using one over the other, 
nor is there any advantage to submitting a Complex Order in response to 
a COLA as opposed to coincidentally. Thus, the Exchange believes that 
maintaining the current functionality will maximize opportunities for 
execution of trading interest without creating opportunities for 
manipulation or gaming. Moreover, the Exchange does not believe that 
the resulting structure of the Exchange's auction burdens competition 
because it provides a competitive alternative to CBOE; to the extent 
that this change benefits the Exchange, CBOE may readily respond by 
adjusting its own rules.
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    \29\ However, COLA Sweeps expire at the end of the COLA, while 
Complex Orders can go on the CBOOK.
    \30\ See supra at text accompanying notes 13-18.
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    The correction that permits COLA Sweeps to trade with other COLA 
Sweeps does not significantly affect the protection of investors and 
the public interest or impose a significant burden on competition, 
because it maximizes the interest that trades after a COLA. The change 
to specify the prices used to execute remaining interest after a COLA 
also does not significantly affect the protection of investors and the 
public interest or impose a significant burden on competition, because 
it lays out a reasonable method for pricing such interest, as explained 
above.\31\
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    \31\ See supra at text accompanying note 19 [sic].
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    Rule 19b-4(f)(6) requires a self-regulatory organization to give 
the Commission written notice of its intent to file the proposed rule 
change at least five business days prior to the date of filing of the 
proposed rule change, or such shorter time as designated by the 
Commission. The Exchange has satisfied this requirement.
    At any time within 60 days of the filing of the proposed rule 
change, the Commission summarily may temporarily suspend such rule 
change if it appears to the Commission that such action is: (i) 
Necessary or appropriate in the public interest; (ii) for the 
protection of investors; or (iii) otherwise in furtherance of the 
purposes of the Act.

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 email to [email protected]. Please include 
File Number SR-Phlx-2013-88 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-2013-88. This file 
number should be included on the subject line if email is used. To help 
the Commission process and review your comments more efficiently, 
please use only one method. The Commission will post all comments on 
the Commission's

[[Page 54346]]

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 Web site viewing and printing in the 
Commission's Public Reference Room, 100 F Street NE., Washington, DC 
20549, on official business days between the hours of 10:00 a.m. and 
3:00 p.m. Copies of the filing also will be available for inspection 
and copying at the principal office of the Exchange. All comments 
received will be posted without change; the Commission does not edit 
personal identifying information from submissions. You should submit 
only information that you wish to make available publicly. All 
submissions should refer to File Number SR-Phlx-2013-88 and should be 
submitted on or before September 24, 2013.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\32\
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    \32\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2013-21299 Filed 8-30-13; 8:45 am]
BILLING CODE 8011-01-P