
[Federal Register: December 16, 2008 (Volume 73, Number 242)]
[Notices]               
[Page 76432-76433]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr16de08-100]                         

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

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-59081; File No. SR-Phlx-2008-79)]

 
Self-Regulatory Organizations; NASDAQ OMX PHLX, Inc.; Order 
Granting Accelerated Approval of a Proposed Rule Change Relating to 
Reduction of Option Limit Order Exposure Periods From Three Seconds to 
One Second

December 11, 2008.

I. Introduction

    On November 10, 2008, NASDAQ OMX PHLX, Inc. (``Phlx'' or 
``Exchange''), filed with the Securities and Exchange Commission 
(``Commission'') pursuant to Section 19(b)(1) of the Securities 
Exchange Act of 1934 (``Act'') \1\ and Rule 19b-4 thereunder,\2\ a 
proposed rule change to reduce certain order exposure periods from 
three seconds to one second. The proposed rule change was published for 
comment in the Federal Register on November 25, 2008.\3\ The Commission 
received no comments on the proposal. This order approves the proposed 
rule change on an accelerated basis.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(l).
    \2\ 17 CFR 240.19b-4.
    \3\ See Securities Exchange Act Release No. 58949 (November 14, 
2008), 73 FR 71709 (``Notice'').
---------------------------------------------------------------------------

II. Description of the Proposal

    The purpose of the proposed rule change is to reduce the exposure 
time during which Order Entry Firms \4\ may not execute as principal 
against orders they represent as agent from three seconds to one 
second. Specifically, the Exchange proposes to amend Exchange Rule 
1080(c)(1), which currently provides that Order Entry Firms may not 
execute as principal against orders on the limit order book they 
represent as agent unless such agency orders are first exposed on the 
limit order book for at least three seconds, the Order Entry Firm has 
been bidding or offering on the Exchange for at least three seconds 
prior to receiving an agency order that is executable against such 
order, or the Order Entry Firm proceeds in accordance with the crossing 
rules contained in Exchange Rule 1064.\5\ In addition, the Exchange 
proposes to amend Exchange Rule 1080(c)(2), which provides that Order 
Entry Firms must expose orders they represent as agent for at least 
three seconds before such orders may be automatically executed, in 
whole or in part, against orders solicited from members and non-member 
broker-dealers to transact with such orders. Under the proposal, these 
three-second exposure periods would be reduced to one second.
---------------------------------------------------------------------------

    \4\ The term ``Order Entry Firm'' means a member organization of 
the Exchange that is able to route orders to the Exchange's AUTOM 
system. See Exchange Rule 1080(c)(ii)(A)(1).
    \5\ Exchange Rule 1064 sets forth the procedures that must be 
followed before an Options Floor Broker who holds orders to buy and 
sell the same option series may cross such orders.
---------------------------------------------------------------------------

III. Discussion and Commission Findings

    After carefully reviewing the proposed rule change, the Commission 
finds that the proposal is consistent with the requirements of the Act 
and the rules and regulations thereunder applicable to a national 
securities exchange.\6\ In particular, the Commission finds that the 
proposed rule change is consistent with Section 6(b)(5) of the Act,\7\ 
which, among other things, requires that the rules of a national 
securities exchange be designed to promote just and equitable 
principles of trade, to foster cooperation and coordination with 
persons engaged in regulating 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. The Commission also finds that the proposed rule 
change is consistent with Section 6(b)(8) of the Act,\8\ which requires 
that the rules of an exchange not impose any burden on competition that 
is not necessary or appropriate in furtherance of the purposes of the 
Act.
---------------------------------------------------------------------------

    \6\ In approving this proposed rule change, the Commission has 
considered the proposed rule's impact on efficiency, competition, 
and capital formation. See 15 U.S.C. 78c(f).
    \7\ 15 U.S.C. 78f(b)(5).
    \8\ 15 U.S.C. 78f(b)(8).
---------------------------------------------------------------------------

    The Commission believes that, given the electronic environment of 
Phlx XL, reducing each of these exposure periods from three seconds to 
one second could facilitate the prompt execution of orders, while 
continuing to provide market participants with an opportunity to 
compete for exposed bids and offers. To substantiate that Phlx members 
could receive, process, and communicate a response back to the Exchange 
within one second, the Exchange stated that it distributed a survey to 
its members that regularly participate in orders executed on Phlx XL 
that would be affected by the proposal. Phlx stated that the survey 
results indicated that it typically takes not more than 250 
milliseconds for members to receive, process, and respond to orders 
exposed on the limit order book. According to Phlx, members who 
responded to the survey also indicated that reducing the exposure 
period to one second would not impair their ability to participate in 
orders affected by the proposal.\9\ Based on Phlx's statements 
regarding the survey results, the Commission believes that market 
participants should continue to have opportunities to compete for 
exposed bids and offers within a one second exposure period. 
Accordingly, the Commission believes that it is consistent with the Act 
for Phlx to reduce the order handling and exposure times discussed 
herein from three seconds to one second.
---------------------------------------------------------------------------

    \9\ The Phlx stated that all of the eight members that responded 
to the timing questions indicated that reducing the crossing 
exposure timer to one second would not impair their ability to 
participate in orders affected by this proposal. See Notice.
---------------------------------------------------------------------------

    The Commission finds good cause to approve the proposed rule change 
prior to the thirtieth day after publication for comment in the Federal 
Register. The Commission notes that the proposed rule change was 
noticed for a fifteen-day comment period, and no comments were 
received. The Commission believes that the Exchange has provided 
reasonable support for its belief that the Exchange's market 
participants would continue to have an opportunity to compete for 
exposed bids and offers if the exposure periods were reduced to one 
second as proposed. Finally, the Commission also notes that the 
proposed rule change is similar to recently approved proposals 
submitted by the Chicago Board Options Exchange, Incorporated and the 
International Securities Exchange, LLC.\10\ Therefore, the Commission 
finds good cause, consistent with Section 19(b)(2) of the Act,\11\ to 
approve the proposed rule change on an accelerated basis.
---------------------------------------------------------------------------

    \10\ See Securities Exchange Act Release Nos. 58088 (July 2, 
2008), 73 FR 39747 (July 10, 2008) (SR-CBOE-2008-16) and 58224 (July 
25, 2008), 73 FR 44303 (July 30, 2008) (SR-ISE-2007-94).
    \11\ 15 U.S.C. 78s(b)(2).

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

[[Page 76433]]

IV. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\12\ that the proposed rule change (SR-Phlx-2008-79), be, and 
hereby is, approved on an accelerated basis.
---------------------------------------------------------------------------

    \12\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\13\
---------------------------------------------------------------------------

    \13\ 17 CFR 200.30-3(a)(12).

Florence E. Harmon,
Acting Secretary.
[FR Doc. E8-29731 Filed 12-15-08; 8:45 am]

BILLING CODE 8011-01-P
