[Federal Register Volume 80, Number 136 (Thursday, July 16, 2015)]
[Notices]
[Pages 42156-42158]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2015-17397]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-75424; File No. SR-Phlx-2015-56]


Self-Regulatory Organizations; NASDAQ OMX PHLX LLC; Notice of 
Filing and Immediate Effectiveness of Proposed Rule Change To Adopt a 
Midpoint Peg Post-Only Order Under Rule 3301A(b)

July 10, 2015.
    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 26, 2015, 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 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 the 
Substance of the Proposed Rule Change

    The Exchange proposes to adopt a Midpoint Peg Post-Only Order under 
Rule 3301A(b).
    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
    The Exchange is proposing to adopt a Midpoint Peg Post-Only Order 
\3\ for use on the Exchange's NASDAQ OMX PSX System (``PSX System'' or 
``PSX''), which is based on the Midpoint Peg Post-Only Order of the 
NASDAQ Stock Market (``NASDAQ'').\4\ A Midpoint Peg Post-Only Order is 
a Non-Displayed \5\ Order that is priced at the midpoint between the 
National Best Bid and Offer (``NBBO'') and that will execute upon entry 
against locking or crossing quotes only in circumstances where 
economically beneficial to the party entering the Midpoint Peg Post-
Only Order. Because the Order is priced at the midpoint, it can provide 
price improvement to incoming Orders when it is executed after posting 
to the PSX book. The Midpoint Peg Post-Only Order will be available 
during regular market hours (9:30 a.m. until 4:00 p.m. ET) only.
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    \3\ The term ``Order'' is defined in Rule 3301(e).
    \4\ The Exchange notes that the proposed rule text is based on 
newly-amended NASDAQ rule text, which provides a clearer and more 
detailed description of its Midpoint Peg Post-Only Order 
functionality than its prior rule. See Securities Exchange Act 
Release No. 75252 (June 22, 2015) (not yet published in the Federal 
Register) (Order approving SR-NASDAQ-2015-024).
    \5\ See Rule 3301B(k).
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    A Midpoint Peg Post-Only Order must be assigned a limit price. When 
a Midpoint Peg Post-Only Order is entered, it will be priced at the 
midpoint between the NBBO, unless such midpoint is higher than (lower 
than) the limit price of an Order to buy (sell), in which case the 
Midpoint Peg Post-Only Order will be priced at its limit price. If the 
NBBO is locked, the Midpoint Peg Post-Only Order will be priced at the 
locking price, if the NBBO is crossed, it will nevertheless be priced 
at the midpoint between the NBBO (provided, however, that the Order may 
execute as described below), and if there is no NBBO,\6\ the Midpoint 
Peg Post-Only Order will be rejected. The Midpoint Peg Post-Only Order 
will post to the PSX book unless it is a buy (sell) Order that is 
priced higher than (lower than) a sell (buy) Order on the PSX book, in 
which case it will execute at the price of the Order on the PSX book; 
provided, however, that if the Order has

[[Page 42157]]

a Time-in-Force of IOC, the Order will be cancelled after determining 
whether it can be executed. For example, if the Best Bid was $11 and 
the Best Offer was $11.06, the price of the Midpoint Peg Post-Only 
Order to buy would be $11.03. If there was a Non-Displayed Order (or 
another Order with a Non-Display Order Attribute) on the PSX book to 
sell at $11.02, the incoming Midpoint Peg Post-Only Order to buy would 
execute against it at $11.02. However, if there was a Non-Displayed 
Order (or another Order with a Non-Display Order Attribute) to sell at 
$11.03, the Midpoint Peg Post-Only Order to buy would post at $11.03. 
While a Midpoint Peg Post-Only Order that posts to the PSX book is 
locking a preexisting Order, the Midpoint Peg Post-Only Order will 
execute against an incoming Order only if the price of the incoming 
sell (buy) Order is lower (higher) than the price of the preexisting 
Order. Thus, in the previous example, if the incoming Midpoint Peg 
Post-Only Order locked the preexisting Non-Displayed Order at $11.03, 
the Midpoint Peg Post-Only Order could execute only against an incoming 
Order to sell priced at less than $11.03.
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    \6\ That is, if no market center is disseminating a displayed 
bid or a displayed offer, such that it is impossible to determine a 
midpoint price.
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    A Midpoint Peg Post-Only Order that would be assigned a price of $1 
or less per share will be rejected or canceled, as applicable.
    If a Midpoint Peg Post-Only Order is entered through RASH or FIX, 
the Midpoint Peg Post-Only Order may be repriced in the following 
manner after initial entry and posting to the PSX book:
     The price of the Midpoint Peg Post-Only Order will be 
updated repeatedly to equal the midpoint between the NBBO; provided, 
however, that the Order will not be priced higher (lower) than the 
limit price of an Order to buy (sell). In the event that the midpoint 
between the NBBO becomes higher than (lower than) the limit price of an 
Order to buy (sell), the price of the Order will stop updating and the 
Order will post (with a Non-Display Order Attribute) at its limit 
price, but will resume updating if the midpoint becomes lower than 
(higher than) the limit price of an Order to buy (sell). Similarly, if 
a Midpoint Peg Post-Only Order is on the PSX book and subsequently 
there is no NBBO, the Order will be cancelled. The Midpoint Peg Post-
Only Order receives a new timestamp each time its price is changed.
    If a Midpoint Peg Post-Only Order is entered through OUCH or FLITE, 
the Midpoint Peg Post-Only Order may be repriced in the following 
manner after initial entry and posting to the PSX book:
     The price at which the Midpoint Peg Post-Only Order is 
ranked on the PSX book is the midpoint between the NBBO, unless the 
Order has a limit price that is lower than the midpoint between the 
NBBO for an Order to buy (higher than the midpoint between the NBBO for 
an Order to sell), in which case the Order will be ranked on the PSX 
book at its limit price and will be available for potential execution 
at its limit price. The price of the Order will not thereafter be 
repriced based on changes to the NBBO. If, after being posted to the 
PSX book, the NBBO changes such that the midpoint of the NBBO is no 
longer equal to the price at which the Midpoint Peg Post-Only Order is 
posted, the Order will be cancelled back to the Participant. For 
example, if the Best Bid is $11 and the Best Offer is $11.06, a 
Midpoint Peg Post-Only Order to buy would post at $11.03. If, 
thereafter, the Best Offer is reduced to $11.05, the Midpoint Peg Post-
Only Order will be cancelled back to the Participant.
    The following Order Attributes may be assigned to a Midpoint Peg 
Post-Only Order:
     Price of more than $1 per share.
     Size.\7\
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    \7\ See Rule 3301B(b).
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     Time-in-Force; \8\ provided, however, that a Midpoint Peg 
Post-Only Order with a Time-in-Force of IOC may not be entered through 
RASH or FIX, and provided further, that regardless of the Time-in-Force 
entered, a Midpoint Post-Only Order may not be active outside of the 
Regular Market Session. A Midpoint Peg Post-Only Order entered prior to 
the beginning of the Regular Market Session will be rejected. A 
Midpoint Peg Post-Only Order remaining on the System book at 4:00 p.m. 
ET will be cancelled by the System.
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    \8\ See Rule 3301B(a).
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     Pegging \9\ to the midpoint is required for Midpoint Peg 
Post-Only Orders entered through RASH or FIX. As discussed above, the 
price of a Midpoint Peg Post-Only Order entered through OUCH or FLITE 
will be pegged to the midpoint upon entry and not repriced thereafter.
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    \9\ See Rule 3301B(d).
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     Minimum Quantity.\10\
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    \10\ See Rule 3301B(e).
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     Non-Displayed. All Midpoint Peg Post-Only Orders are Non-
Displayed.
    The Exchange is proposing to implement the new Midpoint Peg Post-
Only Order on July 1, 2015. The Exchange notes that it has completed 
the development and testing needed to implement the change. Moreover, 
Exchange participants are interested in utilizing the new order type. 
As such, the Exchange believes it is appropriate to implement the 
change at the earliest time possible.
2. Statutory Basis
    PHLX believes that the proposed rule changes are 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; and also in 
that it is not designed to permit unfair discrimination between 
customers, issuers, brokers, or dealers.
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    \11\ 15 U.S.C. 78f.
    \12\ 15 U.S.C. 78f(b)(4) and (5).
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    The Exchange believes that offering market participants with an 
additional Order Type, which is currently available to NASDAQ market 
participants, will allow PSX market participants greater control over 
their executions and is indicative of the Exchange's maturation as an 
equities market. Allowing PSX market participants the ability to more 
precisely select the conditions in which their Order may be executed 
removes impediments to and perfects the mechanism of a free and open 
market and a national market system because it benefits all market 
participants and ensures that PHLX is able to compete with other market 
venues by providing similar tools and functionality. This functionality 
is nearly identical to the Midpoint Peg Post-Only Order of NASDAQ \13\ 
that has been available on NASDAQ since 2011 \14\ and is well known to 
its market participants. As noted above, the Exchange is copying newly-
amended NASDAQ rule text, which provides a clearer and more detailed 
description of its Midpoint Peg Post-Only Order functionality than its 
prior rule.\15\ Lastly, offering Midpoint Peg Post-Only Order to PSX 
market participants raises no issues concerning unfair discrimination 
as the new Order

[[Page 42158]]

Type is available to all PSX market participants.
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    \13\ The Exchange notes that NASDAQ uses a cross in its opening, 
closing and halt processes, which is accounted for in its Midpoint 
Peg Post-Only Order rule. PSX does not have such processes.
    \14\ See Securities Exchange Act Release No. 64430 (May 6, 
2011), 76 FR 27699 (May 12, 2011) (SR-NASDAQ-2011-059).
    \15\ Supra note 4.
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    The Exchange notes that, like a Post-Only Order, a Midpoint Peg 
Post-Only Order allows a market participant to control its trading 
costs by executing upon entry when receiving price improvement but 
otherwise posting to the PSX book pegged to the midpoint subject to its 
limit price. Thereafter, the Order Type serves to provide price 
improvement to other incoming Orders by executing a price between the 
NBBO. As such, the Exchange believes the Midpoint Peg Post-Only Order 
further perfects the mechanism of a free and open market and promotes 
the public interest by both providing greater control to a market 
participant and improving market quality for all participants.

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. Specifically, 
the Exchange believes that the proposal will enhance Phlx's 
competitiveness by providing its market participants with an additional 
control over the circumstances in which their Orders may be executed. 
As discussed above, the Midpoint Peg Post-Only Order is available on 
NASDAQ, and providing it on PSX will allow Phlx to compete with NASDAQ 
and any other market venue that provides a similar Order Type. This 
may, in turn, increase the extent of liquidity available on PSX and 
increase its ability to compete with other execution venues to attract 
Orders to PSX. The Exchange further believes that the introduction of 
the Midpoint Peg Post-Only Order will not impair in any manner the 
ability of market participants or other execution venues to compete.

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 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) of the Act \16\ and Rule 19b-4(f)(6) thereunder.\17\
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    \16\ 15 U.S.C. 78s(b)(3)(A).
    \17\ 17 CFR 240.19b-4(f)(6). As required under Rule 19b-
4(f)(6)(iii), the Exchange provided the Commission with written 
notice of its intent to file the proposed rule change, along with a 
brief description and the text of 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.
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    A proposed rule change filed pursuant to Rule 19b-4(f)(6) under the 
Act \18\ normally does not become operative for 30 days after the date 
of its filing. However, Rule 19b-4(f)(6)(iii) \19\ permits the 
Commission to designate a shorter time if such action is consistent 
with the protection of investors and the public interest. The Exchange 
has asked the Commission to waive the 30-day operative delay so that 
the proposal may become operative immediately upon filing. The Exchange 
believes that waiver of the operative delay would provide PSX market 
participants with an additional option to designate the circumstances 
in which their Orders may be executed, thus giving them more control 
over the nature of their Orders. The Exchange stated that the 
programming changes needed to implement the proposed rule change are 
now ready and market participants have been provided notice of the 
change. The Commission believes the waiver of the operative delay is 
consistent with the protection of investors and the public interest. 
Therefore, the Commission hereby waives the operative delay and 
designates the proposal operative upon filing.\20\
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    \18\ 17 CFR 240.19b-4(f)(6).
    \19\ 17 CFR 240.19b-4(f)(6)(iii).
    \20\ For purposes only of waiving the 30-day operative delay, 
the Commission has also considered the proposed rule's impact on 
efficiency, competition, and capital formation. See 15 U.S.C. 
78c(f).
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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 necessary or 
appropriate in the public interest, for the protection of investors, or 
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 change 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-2015-56 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-2015-56. 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-2015-56, and should be 
submitted on or before August 6, 2015.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\21\
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    \21\ 17 CFR 200.30-3(a)(12).
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Jill M. Peterson,
Assistant Secretary.
[FR Doc. 2015-17397 Filed 7-15-15; 8:45 am]
BILLING CODE 8011-01-P