
[Federal Register Volume 76, Number 119 (Tuesday, June 21, 2011)]
[Notices]
[Pages 36161-36163]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2011-15372]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-64677; File No. SR-Phlx-2011-80]


Self-Regulatory Organizations; NASDAQ OMX PHLX LLC; Notice of 
Filing and Immediate Effectiveness of Proposed Rule Change Relating to 
Routing of Opening Orders

 June 15, 2011.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''), \1\ and Rule 19b-4 \2\ thereunder, notice is hereby given 
that, on June 2, 2011, 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 Substance 
of the Proposed Rule Change

    The Exchange proposes to amend Rule 1017, Openings in Options, to 
reflect a system change that describes the price at which the Exchange 
will route opening orders to away markets in certain circumstances. 
Specifically, the Exchange will route orders on the open to away 
markets at prices other than the Exchange's opening price when such 
order's limit price is marketable against an away market but not 
marketable against the Exchange's opening price.
    The text of the proposed rule change is available on the Exchange's 
Web site at http://www.nasdaqtrader.com/micro.aspx?id=PHLXRulefilings, 
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 purpose of the proposed rule change is to reflect a change to 
the PHLX XL [supreg] automated options trading system \3\ under which 
opening orders that are submitted to the Exchange with a limit price 
that is better than the Exchange's opening price would be routed to 
away markets at the better-priced limit order's limit price. In such a 
circumstance, the better-priced limit order could not be executed on 
the

[[Page 36162]]

Exchange, but may be executable on an away market.
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    \3\ This proposal refers to ``PHLX XL'' as the Exchange's 
automated options trading system. In May 2009 the Exchange enhanced 
the system and adopted corresponding rules referring to the system 
as ``Phlx XL II.'' See Securities Exchange Act Release No. 59995 
(May 28, 2009), 74 FR 26750 (June 3, 2009) (SR-Phlx-2009-32). The 
Exchange intends to submit a separate technical proposed rule change 
that would change all references to the system from ``Phlx XL II'' 
to ``PHLX XL'' for branding purposes.
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Current Rule and System Functionality
    Currently, Exchange Rule 1017 describes a variety of situations 
under which the PHLX XL system routes opening orders to away markets 
when there is remaining interest on the Exchange that cannot be 
executed at the Exchange's opening price.\4\ Whether and under what 
various circumstances an opening limit order is to be routed are 
described in detail in Rule 1017.\5\
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    \4\ The PHLX XL system calculates the Exchange's opening price 
as follows: If there are no opening quotes or orders that lock or 
cross each other, the system will open by disseminating the 
Exchange's best bid and offer among quotes and orders that exist in 
the Phlx XL II system at that time (because if no quotes or orders 
lock/cross each other, nothing matches and there is no trade).
    If there are opening quotes or orders that lock or cross each 
other, the Phlx XL II system will take the highest bid and the 
lowest offer among quotations received that have a bid/ask 
differential that is compliant with Rule 1014(c)(i)(A)(1)(a) 
(``valid width quotes''), to determine the highest quote bid and 
lowest quote offer. To calculate the opening price, the Phlx XL II 
system will take into consideration all valid width Phlx quotes, 
sweeps (defined below) and orders together with other exchanges' 
markets for the series and identify the price at which the maximum 
number of contracts can trade. If that price is within the highest 
quote bid and lowest quote offer and leaves no imbalance, the 
Exchange will open at that price, executing marketable trading 
interest, as long as the opening price includes only Phlx interest.
     See Exchange Rules 1017(l)(i) and (ii).
    \5\ For a thorough description of the PHLX XL system's 
functionality in routing opening orders, see Securities Exchange Act 
Release No. 59995 (May 28, 2009), 74 FR 26750 June 3, 2009) (SR-
Phlx-2009-32).
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    The PHLX XL system calculates the opening price based upon the 
price at which the greatest number of contracts can be executed.\6\ If 
there are remaining contracts that are marketable at the Away Best Bid 
or Offer (``ABBO'') after the execution at the Exchange's opening 
price, such remaining contracts are routed to the ABBO market(s) at a 
price that is equal to the Exchange's opening price.\7\ If, however, 
the remaining contracts have a limit price that is better than the 
Exchange's opening price, and the PHLX XL system routes them to the 
ABBO market(s) at the Exchange's opening price, the result could be an 
execution on the ABBO market(s) at a price that is inferior to the 
limit price of the routed order.
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    \6\ See supra note 4.
    \7\ See Exchange Rule 1017(l)(ii)(C)(2).
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Example
    The following example illustrates the issue. Assume that the 
opening scenario is:
    The ABBO is 1.00 (10) x 1.05 (10);
    Opening order to buy 10 contracts at 1.05;
    Opening order to buy 10 contracts at 1.06;
    Opening order to buy 10 contracts at 1.06, with instructions ``do 
not route''; Opening order to sell 20 contracts at 1.06 with 
instructions ``do not route.'' In this example, the Exchange's opening 
price is 1.06, because that is the price at which the greatest number 
of contracts will trade. The PHLX XL system will route 10 contracts to 
the ABBO to buy at 1.06 (with an expected execution price of 1.05) and 
trade 10 contracts on the Exchange at 1.06 (matching the ``do not 
route'' buy order for 10 contracts against the ``do not route'' order 
to sell 20 contracts at 1.06, leaving 10 remaining ``do not route'' 
contracts to sell at 1.06 on the Exchange). The opening order to buy 10 
contracts at 1.05 will remain on the Exchange's order book as will the 
remaining 10 contracts of the ``do not route'' sell order at 1.06. The 
order to buy 10 contracts at 1.05 was marketable against the ABBO but 
could not be executed as part of the opening process because the PHLX 
XL system currently only routes to the ABBO market(s) at the Exchange's 
opening price, which is 1.06, and which is inferior to the 1.05 limit 
price.
The Proposal
    In order to address the issue described in the above example, the 
Exchange proposes to amend the rule and change the system to provide 
that the PHLX XL system will not only route to the ABBO market(s) at a 
price that is equal to the Exchange's opening price, but also will 
route to the ABBO market(s) at a price that is better than the 
Exchange's opening price. With this system change, the PHLX XL system 
would route the order to buy 10 contracts at 1.05 to the ABBO market(s) 
and trade the other orders in their entirety at 1.06.
    The PHLX XL system will determine to route contracts to the ABBO 
market(s) at a price that is equal to the Exchange's opening price when 
there is interest on the Exchange at that price, but not all of the 
contracts marketable at that price can be executed on the Exchange. 
Remaining contracts from the partially executed order will be routed to 
ABBO market(s) against which the order is marketable.
    The PHLX XL system will determine to route contracts to the ABBO 
market(s) at a price that is better than the Exchange's opening price 
when such contracts are not marketable on the Exchange but are 
marketable against the ABBO market.
    The Exchange believes that this solution to the opening routing 
issue described above ensures the routing of marketable opening orders 
with a limit price that is better than the Exchange's opening price to 
ABBO markets. This enables the PHLX XL system to seek, and route 
opening orders to, the best away market(s) in the circumstance 
described above, all to the benefit of the investing public.
2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act \8\ in general, and furthers the objectives of Section 
6(b)(5) of the Act \9\ 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 adopting a rule and system change that affords quality executions on 
the opening at the best prices available, regardless of whether such 
prices are present on the Exchange or on the ABBO market(s).
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    \8\ 15 U.S.C. 78f(b).
    \9\ 15 U.S.C. 78f(b)(5).
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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

    No written comments were either solicited or received.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    Pursuant to Section 19(b)(3)(A) \10\ of the Act and Rule 19b-
4(f)(6) \11\ thereunder, the Exchange has designated this proposal as 
one that effects a change that: (i) Does not significantly affect the 
protection of investors or the public interest; (ii) does not impose 
any significant burden on competition; and (iii) by its terms, 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.
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    \10\ 15 U.S.C. 78s(b)(3)(A).
    \11\ 17 CFR 240.19b-4(f)(6).
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    A proposed rule change filed under Rule 19b-4(f)(6) normally does 
not become operative for 30 days after the

[[Page 36163]]

date of filing.\12\ However, Rule 19b-4(f)(6)(iii) permits the 
Commission to designate a shorter time if such action is consistent 
with the protection of investors and the public interest. The Exchange 
requested that the Commission waive the 30-day operative delay, as 
specified in Rule 19b-4(f)(6)(iii),\13\ which would make the rule 
change effective and operative upon filing.
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    \12\ 17 CFR 240.19b-4(f)(6)(iii). In addition, Rule 19b-
4(f)(6)(iii) requires the self-regulatory organization to give the 
Commission 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 satisfied this requirement.
    \13\ 17 CFR 240.19b-4(f)(6)(iii).
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    The Commission believes that waiving the 30-day operative delay is 
consistent with the protection of investors and the public interest 
because it will allow the proposal to take effect immediately, which 
may result in better execution prices for investors at the opening. 
Accordingly, the Commission designates the proposed rule change as 
operative upon filing with the Commission.\14\
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    \14\ For purposes only of waiving the operative delay for this 
proposal, the Commission has 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 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-2011-80 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-2011-80. 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 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 
a.m. and 3 p.m. Copies of the 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-2011-80 and should be 
submitted on or before July 12, 2011.

    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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Cathy H. Ahn,
Deputy Secretary.
[FR Doc. 2011-15372 Filed 6-20-11; 8:45 am]
BILLING CODE 8011-01-P


