[Federal Register Volume 79, Number 133 (Friday, July 11, 2014)]
[Notices]
[Pages 40175-40177]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2014-16189]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-72546; File No. SR-Phlx-2014-40]


Self-Regulatory Organizations; NASDAQ OMX PHLX LLC; Notice of 
Filing and Immediate Effectiveness of Proposed Rule Change To Eliminate 
the Midpoint Peg Post-Only Order and Modify the Minimum Quantity Order 
on NASDAQ OMX PSX

July 7, 2014.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that 
on June 23, 2014, NASDAQ OMX PHLX LLC (``Phlx'' or ``Exchange'') filed 
with the Securities and Exchange Commission (``Commission'') the 
proposed rule change as described in Items I, II, and III below, which 
Items have been prepared by the Exchange. The Commission is publishing 
this notice to solicit comments on the proposed rule change from 
interested persons.
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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 to eliminate the Midpoint Peg Post-Only Order 
and to modify the functioning of the Minimum Quantity Order on NASDAQ 
OMX PSX (``PSX''). The text of the proposed rule change is available at 
http://nasdaqomxphlx.cchwallstreet.com/nasdaqomxphlx/phlx/, at the 
Exchange's principal office, 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

[[Page 40176]]

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
    Phlx is proposing two modifications to order types on PSX. First, 
Phlx is proposing to eliminate the Midpoint Peg Post-Only Order. Like a 
regular Midpoint Pegged Order, a Midpoint Peg Post-Only Order is a non-
displayed order that is priced at the midpoint between the national 
best bid and best offer (``NBBO''). However, like a Post-Only Order, 
the Midpoint Peg Post-Only Order does not remove liquidity from PSX 
upon entry if it would lock a non-displayed order on PSX. Rather, the 
Midpoint Peg Post-Only Order posts and locks the pre-existing order, 
but remains undisplayed. If a Midpoint Peg Post-Only Order would cross 
a pre-existing order, however, the crossing orders will execute. A 
Midpoint Peg Post-Only Order that posts to the book and locks a pre-
existing non-displayed order executes against an incoming order only if 
the price of the incoming buy (sell) order is higher (lower) than the 
price of the pre-existing order. If a Midpoint Pegged Order and a 
Midpoint Peg Post-Only Order are locked, and a Midpoint Pegged Order is 
entered on the same side of the market as the Midpoint Peg Post-Only 
Order, the new order executes against the original Midpoint Pegged 
Order, because the market participant entering the Midpoint Peg Post-
Only Order has expressed its intention not to execute against posted 
liquidity, and therefore cedes execution priority to the new order.
    In a pricing environment characterized by fees on one side of a 
trade being used to fund rebates on the other side, the Midpoint Peg 
Post-Only Order and similar orders were introduced on PSX and various 
other markets to allow market participants to structure their trading 
activity in a manner that is more likely to avoid a fee and earn a 
rebate. In exchange, the party entering the order also generally 
provides price improvement to its counterparty. In order to simplify 
order processing and evaluate the effect of the order type on overall 
market quality, however, PSX is proposing to eliminate the Midpoint Peg 
Post-Only Order, while retaining the Midpoint Pegged Order as a means 
by which market participants may offer hidden liquidity with price 
improvement at the midpoint between the NBBO.\3\
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    \3\ In addition to eliminating the order description from Rule 
3301, Phlx is also making conforming changes to Rule 3305 and the 
NASDAQ OMX PHLX LLC Pricing Schedule.
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    Phlx is also proposing to modify the functioning of PSX's Minimum 
Quantity Order. A Minimum Quantity Order is an order that will not 
execute unless a specified minimum quantity of shares can be obtained. 
Minimum Quantity Orders are not displayed, and upon entry must have a 
size and a minimum quantity condition of at least one round lot. In the 
event that the shares remaining in the size of the order following a 
partial execution thereof are less than the minimum quantity specified 
by the market participant entering the order, the minimum quantity 
value of the order is reduced to the number of shares remaining. Phlx 
is proposing to modify this final condition, so that if the shares 
remaining in the size of the order are less than one round lot, the 
minimum quantity condition will be removed from the order. The change 
will simplify processing of Minimum Quantity Orders by ensuring that 
once a partially executed order is reduced in size to less than one 
round lot (generally 100 shares), no restrictions prevent execution of 
the remainder of the order. The change is also consistent with the 
existing requirement that a Minimum Quantity Order must be entered with 
a size and a minimum quantity restriction of at least one round lot. 
Phlx believes that the change will improve the efficiency of order 
processing on PSX by limiting the extent to which small Minimum 
Quantity Orders remain on the PSX book.
    Phlx proposes to implement the rule change on or shortly after a 
date that is thirty days after the date of this proposed rule change, 
and will notify members of the date of implementation through a widely 
disseminated notice.
2. Statutory Basis
    Phlx believes that the proposed rule change is consistent with the 
provisions of Section 6 of the Act,\4\ in general, and with Section 
6(b)(5) of the Act,\5\ 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.
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    \4\ 15 U.S.C. 78f.
    \5\ 15 U.S.C. 78f(b)(5).
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    Although the availability of the Midpoint Peg Post-Only Order is 
consistent with the Act because the order type was designed to provide 
market participants with better control over their execution costs and 
to provide a means to offer price improvement opportunities, Phlx 
believes that the elimination of the order type, together with the 
continued availability of the Midpoint Pegged Order are likewise 
consistent with the Act. Specifically, the proposal would allow market 
participants that seek to provide liquidity at the midpoint between the 
NBBO to use the Midpoint Pegged Order to do so. Accordingly, the change 
is designed to facilitate 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, by reducing the complexity of order-type interaction 
on PSX while still allowing for liquidity provision with price 
improvement at the midpoint.
    The proposed change to Minimum Quantity Orders is consistent with 
the Act because it will promote the complete execution of partially 
executed Minimum Quantity Orders once the order is reduced in size to 
less than one round lot. The change will thereby remove impediments to 
a free and open market by promoting order interaction and reducing the 
complexity of PSX's order processing.

B. Self-Regulatory Organization's Statement on Burden on Competition

    Phlx 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. The change to 
eliminate the Midpoint Peg Post-Only Order will provide a means by 
which PSX may distinguish itself from trading venues that offer orders 
similar to the Midpoint Peg Post-Only Order. Accordingly, the change 
has the potential to promote competition by allowing PSX to 
differentiate itself from other trading venues. Similarly, the proposed 
change to the Midpoint Peg Post-Only Order and Minimum Quantity Orders 
has the potential to promote competition by enhancing the efficiency of 
PSX's processing of orders. In both instances, the changes would not 
affect the ability of market participants to avail themselves of 
alternative order-type

[[Page 40177]]

processing at other trading venues, and therefore would not impose any 
burden on competition.

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) of the Act \6\ and 
subparagraph (f)(6) of Rule 19b-4 thereunder.\7\
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    \6\ 15 U.S.C. 78s(b)(3)(a)(ii) [sic].
    \7\ 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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    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, as amended, 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-2014-40 on the subject line.

Paper Comments

     Send paper comments in triplicate to Secretary, Securities 
and Exchange Commission, 100 F Street NE., Washington, DC 20549-1090.

All submissions should refer to File Number SR-Phlx-2014-40. 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 offices of the 
Exchange. All comments received will be posted without change; the 
Commission does not edit personal identifying information from 
submissions. You should submit only information that you wish to make 
available publicly. All submissions should refer to File Number SR-
Phlx-2014-40, and should be submitted on or before August 1, 2014.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\8\
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    \8\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2014-16189 Filed 7-10-14; 8:45 am]
BILLING CODE 8011-01-P