
[Federal Register: September 24, 2008 (Volume 73, Number 186)]
[Notices]               
[Page 55190-55192]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr24se08-154]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-58582; File No. SR-Phlx-2008-66]

 
Self-Regulatory Organizations; NASDAQ OMX PHLX, Inc.; Notice of 
Filing and Immediate Effectiveness of Proposed Rule Change Relating to 
Quotation Size Decrementation

September 18, 2008.
    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 September 16, 2008, the NASDAQ OMX PHLX, Inc. (``Phlx'' or 
``Exchange'') filed with the Securities and Exchange Commission 
(``Commission'') the proposed rule change as described in Items I and 
II below, which Items have been prepared by Phlx. Phlx filed the 
proposed rule change pursuant to Section 19(b)(3)(A) of the Act \3\ and 
Rule 19b-4(f)(6) thereunder,\4\ which renders it effective upon filing 
with the Commission. 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.
    \3\ 15 U.S.C. 78s(b)(3)(A).
    \4\ 17 CFR 240.19b-4(f)(6).
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange, pursuant to Section 19(b)(1) of the Act \5\ and Rule 
19b-4 thereunder,\6\ proposes to amend Exchange Rule 1082, Firm 
Quotations, to reflect a change to its fully electronic

[[Page 55191]]

trading platform for options, Phlx XL,\7\ in which automatic executions 
will decrement the Exchange's disseminated size by the amount of the 
automatic execution.
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    \5\ 15 U.S.C. 78s(b)(1).
    \6\ 17 CFR 240.19b-4.
    \7\ See Securities Exchange Act Release No. 50100 (July 27, 
2004), 69 FR 44612 (August 3, 2004) (SR-Phlx-2003-59). [sic]
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    The text of the proposed rule change is available on the Exchange's 
Web site at http://www.phlx.com/regulatory/reg_rulefilings.aspx.

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 enhance the ability 
of Exchange Streaming Quote Traders (``SQTs''),\8\ Remote Streaming 
Quote Traders (``RSQTs''),\9\ non-SQT ROTs,\10\ and specialists 
(collectively, ``Phlx XL participants'') to better manage risk by 
modifying the Phlx XL system such that when a trade occurs, the Phlx XL 
system will decrement the quote size by the number of contracts traded 
in the affected option series on the side of the market that has traded 
(i.e., bid size for sell transactions and offer size for buy 
transactions).
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    \8\ An SQT is a Registered Options Trader (``ROT'') who has 
received permission from the Exchange to generate and submit option 
quotations electronically through an electronic interface with AUTOM 
via an Exchange approved proprietary electronic quoting device in 
eligible options to which such SQT is assigned. See Exchange Rule 
1014(b)(ii)(A).
    \9\ An RSQT is an ROT that is a member or member organization 
with no physical trading floor presence who has received permission 
from the Exchange to generate and submit option quotations 
electronically through AUTOM in eligible options to which such RSQT 
has been assigned. An RSQT may only submit such quotations 
electronically from off the floor of the Exchange. See Exchange Rule 
1014(b)(ii)(B).
    \10\ A non-SQT ROT is an ROT who is neither an SQT nor an RSQT. 
See Exchange Rule 1014(b)(ii)(C).
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    Phlx XL currently does not decrement quotation size in real time. 
Instead, a Phlx XL participant has control over his or her quotation 
size and can refresh the size (and price) for which he or she is firm 
at the disseminated price. Phlx XL participants have experienced 
situations where they execute more contracts at a particular price than 
they intended due to the fact that Phlx XL currently does not decrement 
quote size in real time.
    The following example illustrates the issue that the proposed 
system change would solve:
    A Phlx XL participant submits an electronic quotation (a bid) to 
buy 100 contracts. Under the current system functionality, if a single 
trade of 100 contracts to sell interacts with that bid for 100 
contracts, all 100 contracts will be executed and the Phlx XL 
participant's quotation will be exhausted and removed from the market 
place until that Phlx XL participant refreshes his or her 
quotation.\11\
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    \11\ See Exchange Rule 1082(a)(ii)(B)(1).
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    If, however, a single trade of 100 contracts to sell interacts with 
that bid for anything less than its full size, the Phlx XL system 
currently does not decrement the size of the bid, and the bid is still 
firm for the full original size of 100 contracts. For example, a single 
trade of 90 contracts occurs on the bid price, all 90 contracts would 
be executed automatically, but the disseminated size of the quotation 
will continue to be 100 contracts. Phlx XL participants have 
experienced situations where a quotation could be for a size of 100 
contracts and an execution occurs for 99 contracts, followed by an 
additional execution of 100 contracts at the same price before the Phlx 
XL participant can revise his or her quotation in the affected series, 
for a total execution of 199 contracts when the quotation was only 
intended to be for a size of 100 contracts at the disseminated price. 
The Exchange believes that this aspect of the current system exposes 
Phlx XL participants to undue risk respecting the size for which they 
are firm at a particular price in a particular option series.
    Accordingly, under the proposal, every trade executed automatically 
in the Phlx XL system would cause the Exchange's disseminated size to 
be reduced by the number of contracts traded in the affected series at 
the disseminated price. Receipt of a revised quote from the affected 
Phlx XL participant would reset the price and size for that series.
2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act \12\ in general, and furthers the objectives of Section 
6(b)(5) of the Act \13\ 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 Phlx XL participants with additional protection 
from exposure to undue market risk through the real-time decrementation 
of the Exchange's disseminated size.
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    \12\ 15 U.S.C. 78f(b).
    \13\ 15 U.S.C. 78f(b)(5).
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    The Exchange further believes that the proposed rule change is 
consistent with the Act because the risk protection afforded Phlx XL 
participants should encourage them to quote options series with greater 
size, adding liquidity to the Exchange's markets against which 
customers can trade.

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.

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 proposed rule change: (i) Does not significantly affect 
the protection of investors or the public interest; (ii) does not 
impose any significant burden on competition; and (iii) does not become 
operative for 30 days after the date of the filing, or such shorter 
time as the Commission may designate if consistent with the protection 
of investors and the public interest, the proposed rule change has 
become effective pursuant to Section 19(b)(3)(A) of the Act \14\ and 
Rule 19b-4(f)(6) thereunder.\15\
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    \14\ 15 U.S.C. 78s(b)(3)(A).
    \15\ 17 CFR 240.19b-4(f)(6). Pursuant to Rule 19b-4(f)(6)(iii) 
under the Act, the Exchange is required to give the Commission 
written notice of its intent to file the proposed rule change, along 
with a brief description and 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. 
The Exchange has requested that the Commission waive the 5-day pre-
filing notice requirement. The Commission has determined to waive 
this requirement.
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    A proposed rule change filed pursuant to Rule 19b-4(f)(6) under the

[[Page 55192]]

Act \16\ normally does not become operative for 30 days after the date 
of its filing. However, Rule 19b-4(f)(6)(iii) \17\ 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 requested that the Commission waive the 30-day operative delay. The 
Commission believes that waiving the 30-day operative delay is 
consistent with the protection of investors and the public interest. 
The Commission notes that under the proposal, the Exchange's 
disseminated size should accurately reflect revised quotation sizes 
based on automatic executions through Phlx XL in real time. 
Accordingly, the Commission designates that the proposed rule change 
become operative immediately.\18\
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    \16\ 17 CFR 240.19b-4(f)(6).
    \17\ 17 CFR 240.19b-4(f)(6)(iii).
    \18\ For purposes only of waiving the 30-day operative delay, 
the Commission has considered the proposed rule's impact on 
efficiency, competition, and capital formation. 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 may summarily abrogate the 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.

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 e-mail to rule-comments@sec.gov. Please include 
File Number SR-Phlx-2008-66 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-2008-66. This file 
number should be included on the subject line if e-mail 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 inspection and 
copying in the Commission's Public Reference Room, 100 F Street, NE., 
Washington, DC 20549, on official business days between the hours of 10 
am and 3 pm. Copies of such filing also will be available for 
inspection and copying at the principal office of Phlx. 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-2008-66 and should be 
submitted on or before October 15, 2008.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\19\
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    \19\ 17 CFR 200.30-3(a)(12).
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J. Lynn Taylor,
Assistant Secretary.
 [FR Doc. E8-22378 Filed 9-23-08; 8:45 am]

BILLING CODE 8010-01-P
