[Federal Register Volume 80, Number 7 (Monday, January 12, 2015)]
[Notices]
[Pages 1544-1546]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2015-00220]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-74003; File No. SR-Phlx-2014-79]


Self-Regulatory Organizations; NASDAQ OMX PHLX LLC; Notice of 
Filing and Immediate Effectiveness of Proposed Rule Change To Modify 
the Rule Governing Modification of Orders on Its NASDAQ OMX PSX 
Facility (``PSX'') in the Event of an Issuer Corporate Action Related 
to a Dividend, Payment or Distribution

January 6, 2015.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(the ``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given 
that on December 23, 2014, NASDAQ OMX PHLX LLC (``Phlx'' or 
``Exchange'') filed with the Securities and Exchange Commission 
(``SEC'' or ``Commission'') the proposed rule change as described in 
Items I, II, and III below, which Items have been prepared by the 
Exchange. The Commission is publishing this notice to solicit comments 
on the proposed rule change from interested persons.
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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 the 
Substance of the Proposed Rule Change

    The text of the proposed rule change is available on the Exchange's 
Web site at http://nasdaqomxphlx.cchwallstreet.com/, at the principal 
office of the Exchange, and at the Commission's Public Reference Room.

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

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

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

1. Purpose
    PSX Rule 4761 [sic] \3\ addresses the treatment of quotes/orders in 
securities that are the subject of issuer corporate actions related to 
a dividend, payment or distribution. The rule applies to any trading 
interest that is carried on the PSX book overnight. As a general 
matter, PSX cancels open quotes/orders in the event of any corporate 
action related to a dividend, payment or distribution, on the ex-date 
of the action. The cancellation occurs immediately prior to the opening 
of trading at 8 a.m. on the ex-date of the corporate action, and the 
member receives a cancellation notice, so that it can, if it desires, 
reenter the order at the commencement of trading on the ex-date.
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    \3\ The Commission notes that the correct rule number for this 
reference is PSX Rule 3311.
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    Prior to 2013, PSX had not had a clear rule providing for the 
adjustments of quotes and orders carried on the PSX book overnight. In 
April 2013, Phlx adopted Rule 3311 to provide that PSX would cancel all 
open quotes/orders in the event of any corporate action.\4\ 
Subsequently, in response to member demand for assistance with order 
management with respect to certain common types of corporate action, 
Phlx amended the rule to offer limited, optional functionality to allow 
open orders to be adjusted, rather than cancelled.\5\ As written, the 
rule provides for the possibility of order adjustment in the case of 
cash dividends, forward stock splits, and combined cash dividends/
forward stock splits.
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    \4\ Securities Exchange Act Release No. 69632 (May 23, 2013), 78 
FR 32501 (May 30, 2013) (SR-Phlx-2013-56).
    \5\ Securities Exchange Act Release No. 70110 (August 5, 2013), 
78 FR 48736 (August 9, 2013) (SR-Phlx-2013-77).
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    The proposal will expand the rule also to provide for adjustment in 
the case of stock dividends and combined cash dividends/stock 
dividends. The proposal reflects the conclusion, based on member 
feedback, that actions resulting in the distribution of additional 
stock should be treated similarly, regardless of whether they are 
denominated as forward stock splits or stock dividends. Phlx will make 
members aware of the effective date of the proposed change by the 
issuance of a widely disseminated Equity Trader Alert.
    Under the current rule, a member may designate that all orders with 
a time-in-

[[Page 1545]]

force of good-till-cancelled \6\ that are entered through one or more 
order entry ports specified by the member will be processed in the 
manner specified below.\7\
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    \6\ Phlx notes that the use of good-till-cancelled orders is not 
prevalent, accounting for significantly less than 1% of all orders 
entered into PSX. The vast majority of orders expire by their terms 
at the end of regular market hours.
    \7\ The member may opt for this processing on a port-by-port 
basis. Thus, the provisions providing for order adjustment are 
applied to all good-till-cancelled orders entered through a port 
that has been specified by the member for such processing. Because 
members may obtain multiple ports, however, members may opt to apply 
different processing to different orders based on the ports through 
which they are entered.
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    (1) Cash Dividend. If an issuer is paying a cash dividend, the 
price of an order to buy is reduced by the amount of the sum of all 
dividends payable, rounded up to the nearest whole cent; provided, 
however, that there will be no adjustment if the sum of all dividends 
is less than $0.01. For example, if the sum of all dividends is $0.381, 
the price of the order will be reduced by $0.39. An order to sell will 
be retained but will receive no price adjustment.
    (2) Forward Stock Split. If an issuer is implementing a forward 
stock split, the order is cancelled if its size is less than one round 
lot. If the order's size is greater than one round lot, (i) the size of 
the order is multiplied by the ratio of post-split shares to pre-split 
shares, with the result rounded downward to the nearest whole share, 
and (ii) the price of the order will be multiplied by the ratio of pre-
split shares to post-split shares, with the result rounded down to the 
nearest whole penny in the case of orders to buy and rounded up to the 
nearest whole penny in the case of orders to sell.
    Under the change proposed in this filing, stock dividends will be 
treated in the same manner as forward stock splits. Thus, any corporate 
action in which additional shares are issued to holders of outstanding 
shares will be treated in the manner described above.
    For example, if a member has entered a good-till-cancelled order to 
buy 375 shares at $10.95 per share and the issuer implemented a split 
or dividend under which an additional 1.25 shares would be issued for 
each share outstanding, the size of the order would be adjusted to 843 
shares (375 x 2.25/1 = 843.75, rounded down to 843) and the price of 
the order would be adjusted to $4.86 per share ($10.95 per share x 1/
2.25 = $4.8667 per share, rounded down to $4.86 per share). An order to 
sell at the same price and size would be adjusted to 843 shares with a 
price of $4.87 per share ($4.8667 per share, rounded up).\8\
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    \8\ Phlx is also amending the example in the rule text to make 
it clear that the prices provided therein are per share prices.
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    (3) Combination of Cash Dividend and Forward Stock Split or Stock 
Dividend. Under the current rule, if an issuer is implementing a cash 
dividend and a forward stock split on the same date, the adjustments 
described above will both be applied, in the order described in the 
notice of the corporate actions received by Phlx.\9\ Under the proposed 
rule change, this provision is being expanded to cover stock dividends 
as well as forward stock splits.
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    \9\ Phlx receives notice of corporate actions from the listing 
exchange.
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    As is currently the case, changes to open orders will continue to 
be effected immediately prior to the opening of the System at 8:00 a.m. 
on the ex-date of the applicable corporate action. Open orders that are 
retained are re-entered by the System (as adjusted above) immediately 
prior to the opening of the System, such that they will retain time 
priority over new orders entered at or after 8:00 a.m.\10\ Under the 
proposed rule change, for corporate actions other than cash dividends, 
forward stock splits, and stock dividends (or any combination thereof), 
open orders are always cancelled, regardless of the port through which 
they were entered.
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    \10\ To the extent that multiple good-till-cancelled orders in a 
particular security are adjusted and re-entered, such orders may not 
retain the same time priority vis-[agrave]-vis one another that they 
had on the preceding day. Rather, because such orders are entered 
simultaneously through multiple order entry ports, their relative 
priority is a function of the duration of system processing 
associated with each individual order.
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2. Statutory Basis
    Phlx believes that the proposed rule change is consistent with the 
provisions of Section 6 of the Act,\11\ in general, and with Section 
6(b)(5) of the Act \12\ 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. Specifically, Phlx believes 
that the change, which is responsive to member input, will facilitate 
transactions in securities and perfect the mechanism of a free and open 
market by providing members with additional optional functionality that 
may assist them with order management with respect to stock dividends 
in a manner similar to the current functionality with respect to cash 
dividends and forward splits. Because forward splits and stock 
dividends both involve the distribution of additional stock to current 
stockholders, providing them with similar treatment under the rule is 
logical and may help to prevent confusion on the part of members that 
expect both types of corporate events to receive consistent treatment.
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    \11\ 15 U.S.C. 78f.
    \12\ 15 U.S.C. 78f(b)(5).
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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. Specifically, by 
offering market participants additional options with regard to 
management of open orders, the change has the potential to enhance 
PSX's competitiveness with respect to other trading venues, thereby 
promoting greater competition. Moreover, the change does not burden 
competition in that it does not restrict the ability of members to 
enter and update trading interest in PSX.

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 as the Commission may designate, it has become 
effective pursuant to Section 19(b)(3)(A)(ii) of the Act \13\ and 
subparagraph (f)(6) of Rule 19b-4 thereunder.\14\
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    \13\ 15 U.S.C. 78s(b)(3)(a)(ii).
    \14\ 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

[[Page 1546]]

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-2014-79 on the subject line.

Paper Comments

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

All submissions should refer to File Number SR-Phlx-2014-79. 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-2014-79, and should be 
submitted on or before February 2, 2015.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\15\
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    \15\ 17 CFR 200.30-3(a)(12).
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Brent J. Fields,
Secretary.
[FR Doc. 2015-00220 Filed 1-9-15; 8:45 am]
BILLING CODE 8011-01-P