
[Federal Register Volume 76, Number 107 (Friday, June 3, 2011)]
[Notices]
[Pages 32255-32257]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2011-13776]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-64563; File No. SR-Phlx-2011-70]


 Self-Regulatory Organizations; NASDAQ OMX PHLX LLC; Notice of 
Filing and Immediate Effectiveness of Proposed Rule Change To Modify 
the Functionality of NASDAQ OMX PSX's Post-Only Order

May 27, 2011.
    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 May 19, 2011, NASDAQ OMX PHLX LLC (the ``Exchange'' or ``PHLX'') 
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 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 is filing this proposed rule change to modify the 
functionality of the Post-Only Order on NASDAQ OMX PSX (``PSX''). PHLX 
proposes to implement the rule change thirty days after the date of 
filing or as soon thereafter as practicable. The text of the proposed 
rule change is available at http://nasdaqomxphlx.cchwallstreet.com/NASDAQOMXPHLX/Filings/, at PHLX'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

[[Page 32256]]

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
    PHLX proposes to modify the functionality associated with its 
existing Post-Only Order on PSX. Currently, if a Post-Only Order would 
lock an order on PSX at the time of entry, the order is re-priced and 
displayed by the System to one minimum price increment (i.e., $0.01 or 
$0.0001) below the current low offer (for bids) or above the current 
best bid (for offers). Thus, if the best bid and best offer on the PSX 
book were $10.00 x $10.05, and a market participant entered a Post-Only 
Order to buy at $10.05, the order would be re-priced and displayed at 
$10.04. This aspect of the functionality of the order is not changing. 
In addition, if a Post-Only Order would cross an order on the System, 
the order will be repriced as described above unless the value of price 
improvement associated with executing against a resting order equals or 
exceeds the sum of fees charged for such execution and the value of any 
rebate that would be provided if the order posted to the book and 
subsequently provided liquidity, in which case the order will execute. 
As provided by Rule 3307, price improvement accrues to the party 
entering the order. Thus, if a sell order is on the book at $10 and a 
Post-Only Order to buy at $10.01 is entered, the order will execute at 
$10. This aspect of the order's functionality is also not changing.\3\
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    \3\ The functionality was described in the original filing to 
establish a Post-Only Order on The NASDAQ Stock Market LLC 
(``NASDAQ'') but was not fully reflected in the text of NASDAQ Rule 
4751. See Securities Exchange Act Release No. 59392 (February 11, 
2009), 74 FR 7943 (February 20, 2009) (SR-NASDAQ-2009-006). 
Subsequently, PHLX adopted identical rule text when it established 
PSX as its new facility for trading cash equity securities. 
Securities Exchange Act Release No. 62877 (September 9, 2010), 75 FR 
56633 (September 16, 2010) (SR-PHLX-2010-79). Accordingly, the rule 
is being amended to provide a complete description of the order's 
current behavior when crossing an existing order on the System. PHLX 
also notes that NASDAQ has filed an identical proposed rule change 
to modify its Post-Only Order. See SR-NASDAQ-2011-070 (May 19, 
2011).
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    At present, however, the order is repriced in a similar manner if 
the order would lock or cross a protected quotation of another market 
center. Thus, if the national best offer of $10.05 is being displayed 
on another market center but not on PSX, at present an order to buy at 
$10.05 would be repriced and displayed at $10.04. Under the changed 
functionality that PHLX is proposing, if the order locks or crosses the 
other market center, the order will be accepted at the locking price 
(i.e., the current low offer (for bids) or to the current best bid (for 
offers)) and displayed by the System to one minimum price increment 
(i.e., $0.01 or $0.0001) below the current low offer (for bids) or 
above the current best bid (for offers). Thus, if the national best bid 
and offer, as displayed on another market center, was $10 x $10.05, an 
order to buy at $10.05 or higher would be accepted at the locking price 
of $10.05, but would be displayed at $10.04. Subsequently, an incoming 
order to sell at $10.05 or lower would be matched against the Post-Only 
buy order. In this case, the incoming sell order would receive price 
improvement.
    As a result of the change, the order will resemble more closely 
PSX's Price to Comply order, which uses a similar logic of retaining a 
locking price but displaying at a non-locking price. The modified Post-
Only Order will serve to allow the market participant entering the 
order to post its order at its desired price, unless the price would 
lock or cross the PSX book, in which case the order will execute or be 
repriced, as is currently the case, to avoid the internal lock/cross. 
The revised order type is designed to provide market participants with 
better control over their execution costs and to provide them with a 
means to offer price improvement opportunities to other market 
participants.
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. PHLX also believes that the 
modified order is consistent with Rule 610(d) under Regulation NMS.\6\ 
Rule 610(d) requires exchanges to establish, maintain, and enforce 
rules that require members reasonably to avoid ``[d]isplaying 
quotations that lock or cross any protected quotation in an NMS 
stock.'' Such rules must be ``reasonably designed to assure the 
reconciliation of locked or crossed quotations in an NMS stock,'' and 
must ``prohibit * * * members from engaging in a pattern or practice of 
displaying quotations that lock or cross any quotation in an NMS 
stock.'' Rule 600 under Regulation NMS \7\ defines a ``quotation'' as a 
``bid or offer,'' and in turn defines ``bid or offer'' to mean ``the 
bid price or the offer price communicated by a member * * * to any 
broker or dealer, or to any customer, at which it is willing to buy or 
sell one or more round lots of an NMS security * * *.'' Thus, the 
hidden price of the Post-Only Order is not a quotation under Regulation 
NMS, and is therefore covered neither by the provisions of Rule 610 
pertaining to displayed quotations nor by the provision requiring rules 
to assure reconciliation of locked or crossed quotations. In this 
respect, the order is similar to PSX's existing Price to Comply order, 
which uses a hidden locking price and a displayed non-locking price to 
ensure compliance with this rule. It is also similar to the Post Only 
Order of the BATS Exchange and the BATS-Y Exchange, as described in 
BATS Exchange Rule 11.9(c)(4) and (6) and BATS-Y Exchange Rule 
11.9(c)(4) and (6), and the Post Only Order of the EDGA Exchange and 
EDGX Exchange, as described in EDGA Exchange Rule 11.5(c)(4) and (5) 
and EDGX Exchange Rule 11.5(c)(4) and (5).
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    \4\ 15 U.S.C. 78f.
    \5\ 15 U.S.C. 78f(b)(5).
    \6\ 17 CFR 242.610(d).
    \7\ 17 CFR 242.600.
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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. Rather, the change 
will promote greater competition by allowing PHLX to adopt 
functionality already in use at competing national securities 
exchanges.

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.

[[Page 32257]]

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) of the Act \8\ and Rule 19b-
4(f)(6) thereunder.\9\
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    \8\ 15 U.S.C. 78s(b)(3)(A).
    \9\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)(iii) 
requires a self-regulatory organization to provide the Commission 
with 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 fulfilled 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 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 e-mail to rule-comments@sec.gov. Please include 
File Number SR-Phlx-2011-70 on the subject line.

Paper Comments

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

All submissions should refer to File Number SR-Phlx-2011-70. 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 website viewing and 
printing in the Commission's Public Reference Room on official business 
days between the hours of 10 a.m. and 3 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-2011-70, and should be submitted on or before June 24, 2011.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\10\
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    \10\ 17 CFR 200.30-3(a)(12).
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Cathy H. Ahn,
Deputy Secretary.
[FR Doc. 2011-13776 Filed 6-2-11; 8:45 am]
BILLING CODE 8011-01-P


