[Federal Register Volume 78, Number 223 (Tuesday, November 19, 2013)]
[Notices]
[Pages 69483-69485]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2013-27629]


-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-70863; File No. SR-Phlx-2013-112]


Self-Regulatory Organizations; NASDAQ OMX PHLX LLC; Notice of 
Filing and Immediate Effectiveness of Proposed Rule Change To Amend the 
PIXL Auction Notification Requirements Under Rule 1080

November 13, 2013.
    Pursuant to Section 19(b)(1) \1\ of the Securities Exchange Act of 
1934 (the ``Act'') \2\ and Rule 19b-4 thereunder,\3\ notice is hereby 
given that on October 31, 2013, NASDAQ OMX PHLX LLC (the ``Exchange'' 
or ``PHLX'') filed with the Securities and Exchange Commission (the 
``Commission'') the proposed rule change as described in Items I, II, 
and III below, which Items have been prepared by the self-regulatory 
organization. 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\ 15 U.S.C. 78a.
    \3\ 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 the PIXL \4\ Auction Notification 
(``PAN'') requirements under Rule 1080(n) by no longer including the 
stop price in the PAN.
---------------------------------------------------------------------------

    \4\ The Exchange adopted PIXL in October 2010 as a price 
improvement mechanism that is a component of the Exchange's fully 
automated options trading system. See Securities Exchange Act 
Release No. 63027 (October 1, 2010), 75 FR 62160 (October 7, 2010) 
(SR-Phlx-2010-108)(order granting approval of price improvement 
system, PIXL).
---------------------------------------------------------------------------

    The text of the proposed rule change is below; proposed new 
language is italicized; proposed deletions are in brackets.
* * * * *

Rule 1080 Phlx XL and Phlx XL II

* * * * *

(n) Price Improvement XL (``PIXL'')

    (i)-(ii)(A)(1)-(2) No change.
    (3) When the Exchange receives a PIXL Order for Auction processing, 
a PAN detailing the side[,] and size [and the stop price] of the PIXL 
Order will be sent over the Exchange's TOPO Plus Orders data feed and 
Specialized Quote Feed. [An updated PAN will also be sent over the 
Exchange's TOPO Plus Orders data feed if the Initiating Member improves 
the stop price of the PIXL Order. The updated PAN will include the 
side, size and improved stop price of the PIXL Order.]
    (ii)(A)(4)-(vii) 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 proposed rule change is to encourage better PAN 
responses and thereby attain more price improvement for PIXL orders. 
The PAN is a broadcast message sent over TOPO Plus Orders,\5\ the 
Exchange's market data feed for subscribers interested in the detailed 
information it offers, as well as over the Specialized Quote Feed 
(``SQF'') 6.0.\6\
---------------------------------------------------------------------------

    \5\ Securities Exchange Act Release No. 60877 (October 26, 
2009), 74 FR 56255 (October 30, 2009) (SR-Phlx-2009-92).
    \6\ Securities Exchange Act Release No. 63034 (October 4, 2010), 
75 FR 62441 (October 8, 2010) (SR-Phlx-2010-124).
---------------------------------------------------------------------------

Background--Current PIXL and PAN
    The PIXL mechanism is a process whereby members electronically 
submit orders they represent as agent against principal interest or 
other interest that they represent as agent. The submitted orders are 
stopped at a price and are subsequently entered into an auction seeking 
price improvement. An Exchange member may initiate a PIXL Auction 
(``Initiating Member'') by submitting a PIXL Order (``Initiating 
Order'') specifying one of the following:
    (1) A single price at which it seeks to execute the PIXL Order (a 
``stop price'');
    (2) that it is willing to automatically match as principal or as 
agent on behalf of an Initiating Order, the price and size of all 
trading interest, and responses to the PAN (known as ``auto-match''), 
in which case the PIXL Order will be stopped at the National Best Bid/
Offer (``NBBO'') on the Initiating Order side of the market; or
    (3) that it is willing to either: (i) Stop the entire order at a 
single stop price and auto-match PAN responses, together with trading 
interest, at a price or prices that improve the stop price to a 
specified price above or below which the Initiating Member will not 
trade (a ``Not Worse Than'' or ``NWT'' price); (ii) stop the entire 
order at a single stop price and auto-match all PAN responses and 
trading interest at or better than the stop price; or (iii) stop the 
entire order at the NBBO on the Initiating Order side, and auto-match 
PAN responses and trading interest at a price or prices

[[Page 69484]]

that improve the stop price up to the NWT price. In all cases, if the 
PBBO on the same side of the market as the PIXL Order represents a 
limit order on the book, the stop price must be at least one minimum 
price improvement increment better than the booked limit order's limit 
price.
    After the PIXL Order is entered, a PAN is broadcast \7\ and a one-
second blind Auction ensues. Any participant interested in the PIXL 
Order may respond to the PAN. At the conclusion of the Auction, the 
PIXL Order will be executed and allocated at the best price(s) among 
quotes, orders, and PAN responses.
---------------------------------------------------------------------------

    \7\ The PAN is broadcast over the TOPO Plus Orders data feed as 
well as the Specialized Quote Feed. The Exchange is proposing to add 
reference to the Specialized Quote Feed in the rule, consistent with 
the effectiveness of sending the PAN over the Specialized Quote 
Feed. See supra note 5 at text accompanying note 11.
---------------------------------------------------------------------------

    Once the Initiating Member has submitted a PIXL Order for 
processing, such PIXL Order may not be modified or cancelled, and a 
member submitting the order has no ability to control the timing of the 
execution. The execution is carried out by the Exchange's Phlx XL 
automated options trading system and execution pricing is determined 
solely by the other orders and quotes that are present in the Phlx XL 
system at the time the Auction ends.
Proposal--Changes to Rule 1080(n)--PAN
    The Exchange proposes to modify the PAN under Rule 
1080(n)(ii)(A)(3) to no longer include the stop price. Currently, the 
PAN includes the stop price as well as side and size of the PIXL Order. 
If the Initiating Member improves the stop price, today, an updated PAN 
will be sent, identifying the side, size and improved stop price. The 
exchange proposes to change the PAN such that neither a stop price is 
shown nor is an updated PAN sent with an improved price.
    The Exchange believes that this should encourage PAN responses at 
the best possible price that the participant is willing to participate. 
This, in turn, should result in better execution prices, which is the 
``price improvement'' that the PIXL functionality offers.
    In other contexts, the Exchange has determined that showing the 
price of an order in an auction notification message is appropriate and 
useful. For instance, the Exchange recently determined to begin showing 
the price of a Complex Order in its auction message,\8\ citing the need 
with respect to Complex Orders to attract additional responsive 
interest. Complex Orders are, by definition, more complex to trade, are 
a relatively new product, and are generally traded by a small cross-
section of options customers, thereby necessitating the need to attract 
responsive interest.
---------------------------------------------------------------------------

    \8\ Securities Exchange Act Release No. 70271 (August 27, 2013), 
78 FR 54340 (September 3, 2013) (SR-Phlx-2013-88).
---------------------------------------------------------------------------

    The Exchange believes that the rationale for showing price differs 
respecting PIXL Orders, because PIXL Orders can be very different from 
Complex Orders. Specifically, PIXL orders can vary in size and type. A 
simple (non-complex) PIXL order for just a few contracts is more 
appropriate for exposure to aggressive price competition. PIXL orders 
are entered into PIXL precisely because the Initiating Member is 
interested in participating with the order, if needed, and rather than 
permitting the execution to occur automatically, the PIXL process 
offers an opportunity for an improved price. It is the sort of system 
feature that would benefit from a more blind auction.
    When Phlx first adopted the PIXL process, Phlx determined to show 
the stop price, which many options exchanges do in their price 
improvement systems. At this time, the Exchange believes that, as 
discussed above, the process would benefit from not showing the stop 
price.
2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act \9\ in general, and furthers the objectives of Section 
6(b)(5) of the Act \10\ 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 providing more opportunity for price improvement for PIXL 
orders. Generally, in auctions, transparency of details accomplishes 
two main objectives. The first objective is to obtain a quality 
execution for the customer. The second goal is to ensure robust price 
competition. Because PIXL orders are entered with a stop price and a 
guarantee (in the form of a stop) of a reasonable execution price, the 
first objective is met when the order is entered. With respect to the 
second objective, the Exchange believes that excluding the stop price 
from the PAN should foster price competition from other participants in 
PIXL. Accordingly, Phlx participants will be motivated to be more 
aggressive and respond with their best price in order to participate in 
the PIXL execution. Not knowing the stop price creates an incentive for 
the responder to compete based on price and to make an independent 
decision, rather than merely join other participants' prices or improve 
the stop price minimally. Even though, without the stop price, less 
information is available to potential responding Phlx participants, the 
Exchange believes that, rather than harming the market or customers in 
some way, the proposal should lead to more price competition. As a 
result of more price competition and an improved price improvement 
process, the Exchange believes that participants will use PIXL to 
increase the number of customer orders that are provided with the 
opportunity to receive price improvement over the NBBO. As a result, 
customers will benefit as will the market as a whole. Further, the 
Exchange believes that the proposed changes promote and foster 
competition among the options exchanges.
---------------------------------------------------------------------------

    \9\ 15 U.S.C. 78f(b).
    \10\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

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 because it will enable the Exchange to better 
compete with another options exchange that provides price improvement 
functionality without revealing the price.\11\ With respect to intra-
market competition, the proposal will apply to all participants 
receiving PANs equally and to all PANs. Moreover, as explained above, 
the proposal should encourage Phlx participants to compete amongst each 
other by responding with their best price for a particular option.
---------------------------------------------------------------------------

    \11\ See CBOE Rule 6.74A(b)(1)(B).
---------------------------------------------------------------------------

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

    No written comments were either solicited or received.

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

    Because the foregoing proposed rule change does not: (i) 
Significantly affect the protection of investors or the public 
interest; (ii) impose any significant burden on competition; and (iii) 
become operative for 30 days from the date on which it was filed, or 
such shorter time

[[Page 69485]]

as the Commission may designate, it has become effective pursuant to 
Section 19(b)(3)(A)(ii) of the Act \12\ and subparagraph (f)(6) of Rule 
19b-4 thereunder.\13\
---------------------------------------------------------------------------

    \12\ 15 U.S.C. 78s(b)(3)(a)(ii).
    \13\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6) 
requires a self-regulatory organization to give the Commission 
written notice of its intent to file the proposed rule change at 
least five business days prior to the date of filing of the proposed 
rule change, or such shorter time as designated by the Commission. 
The Exchange has satisfied this requirement.
---------------------------------------------------------------------------

    At any time within 60 days of the filing of the proposed rule 
change, the Commission summarily may temporarily suspend such rule 
change if it appears to the Commission that such action is: (i) 
Necessary or appropriate in the public interest; (ii) for the 
protection of investors; or (iii) otherwise in furtherance of the 
purposes of the Act. If the Commission takes such action, the 
Commission shall institute proceedings to determine whether the 
proposed rule should be approved or disapproved.

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether the proposed rule 
change is consistent with the Act. Comments may be submitted by any of 
the following methods:

Electronic Comments

     Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to [email protected]. Please include 
File Number SR-Phlx-2013-112 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-2013-112. This 
file number should be included on the subject line if email is used. To 
help the Commission process and review your comments more efficiently, 
please use only one method. The Commission will post all comments on 
the Commission's Internet Web site (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 such filing also will be available 
for inspection and copying at the principal office of the Exchange. All 
comments received will be posted without change; the Commission does 
not edit personal identifying information from submissions. You should 
submit only information that you wish to make available publicly. All 
submissions should refer to File Number SR-Phlx-2013-112, and should be 
submitted on or before December 10, 2013.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\14\
---------------------------------------------------------------------------

    \14\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2013-27629 Filed 11-18-13; 8:45 am]
BILLING CODE 8011-01-P