
[Federal Register Volume 76, Number 230 (Wednesday, November 30, 2011)]
[Notices]
[Pages 74113-74115]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2011-30808]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-65813; File No. SR-Phlx-2011-158]


Self-Regulatory Organizations; NASDAQ OMX PHLX LLC; Notice of 
Filing and Immediate Effectiveness of Proposed Rule Change To Exclude 
All Rights and Warrants From the Pilot Rule for Trading Pauses Due to 
Extraordinary Market Volatility

November 23, 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 November 18, 2011, NASDAQ OMX PHLX LLC (``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 PHLX. 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

    PHLX proposes to exclude all rights and warrants from the pilot 
trading pause process under Rule 3100(a)(4).
    The text of the proposed rule change is below. Proposed new 
language is italicized.
* * * * *

Rule 3100. Trading Halts on PSX

(a) Authority to Initiate Trading Halts or Pauses

    In circumstances in which the Exchange deems it necessary to 
protect investors and the public interest, and pursuant to the 
procedures set forth in paragraph (c):
    (1)-(3) No change.
    (4) If a primary listing market issues an individual stock 
trading pause in any of the Circuit Breaker Securities, as defined 
herein, the Exchange will pause trading in that security until 
trading has resumed on the primary listing market. If, however, 
trading has not resumed on the primary listing market and ten 
minutes have passed since the individual stock trading pause message 
has been received from the responsible single plan processor, the 
Exchange may resume trading in such stock. The provisions of this 
paragraph (a)(4) shall be in effect during a pilot set to end on 
January 31, 2012. During the pilot, the term ``Circuit Breaker 
Securities'' shall mean any NMS stock except rights and warrants.
    (b)-(c) No change.
* * * * *

II. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    In its filing with the Commission, PHLX 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. PHLX 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 the 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    PHLX proposes to exclude all rights and warrants from the single 
stock circuit breaker under Rule 3100(a)(4). On June 10, 2010, the 
Commission approved the proposed rules of the other equity exchanges 
and FINRA to provide for trading pauses in individual securities due to 
extraordinary market volatility in all securities included within the 
S&P 500 Index (``S&P 500'') (the ``Pause Pilot'').\3\ The other equity 
exchanges and FINRA subsequently received approval to add to the Pause 
Pilot the securities included in the Russell 1000 Index (``Russell 
1000'') and a specified list of Exchange Traded Products (``ETPs'').\4\ 
In connection with its resumption of trading of NMS Stocks through the 
NASDAQ OMX PSX system, PHLX adopted Rule 3100(a)(4) so that it could 
participate in the pilot program.\5\ On September 29, 2010, PHLX 
amended Rule 3100(a)(4) to include stocks comprising the Russell 1000 
and specified ETPs.\6\
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    \3\ The Commission approved the Pause Pilot for all equities 
exchanges and FINRA. See Securities Exchange Act Release No. 62252 
(June 10, 2010), 75 FR 34186 (June 16, 2010) (File Nos. SR-BATS-
2010-014; SR-EDGA-2010-01; SR-EDGX-2010-01; SR-BX-2010-037; SR-ISE-
2010-48; SR-NYSE-2010-39; SR-NYSEAmex-2010-46; SR-NYSEArca-2010-41; 
SR-NASDAQ-2010-061; SR-CHX-2010-10; SR-NSX-2010-05; and SR-CBOE-
2010-047), and Securities Exchange Act Release No. 62251 (June 10, 
2010), 75 FR 34183 (June 16, 2010) (SR-FINRA-2010-025).
    \4\ The Commission approved the addition to the Pause Pilot of 
the securities included in the Russell 1000 and ETPs, where 
applicable, for all equities exchanges and FINRA. See Securities 
Exchange Act Release No. 62884 (September 10, 2010), 75 FR 56618 
(September 16, 2010) (File Nos. SR-BATS-2010-018; SR-BX-2010-044; 
SR-CBOE-2010-065; SR-CHX-2010-14; SR-EDGA-2010-05; SR-EDGX-2010-05; 
SR-ISE-2010-66; SR-NASDAQ-2010-079; SR-NYSE-2010-49; SR-NYSEAmex-
2010-63; SR-NYSEArca-2010-61; and SR-NSX-2010-08, and Securities 
Exchange Act Release No. 62883 (September 10, 2010), 75 FR 56608 
(September 16, 2010) (SR-FINRA-2010-033).
    \5\ See Securities Exchange Act Release No. 62877 (September 9, 
2010), 75 FR 56633 (September 16, 2010) (SR-Phlx-2010-79).
    \6\ Securities Exchange Act Release No. 63004 (September 29, 
2010), 75 FR 61547 (October 5, 2010) (SR-Phlx-2010-126). PHLX 
submitted a proposed rule change shortly after the addition of the 
Russell 1000 securities and ETPs to extend the operation of the 
Pause Pilot, which was set to expire on December 10, 2010, until 
April 11, 2011. See Securities Exchange Act Release No. 63504 
(December 9, 2010), 75 FR 78304 (December 15, 2010) (SR-Phlx-2010-
174). On March 31, 2011, PHLX submitted a proposed rule change to 
further extend the Pause Pilot until the earlier of August 11, 2011 
or the date on which a limit up/limit down mechanism to address 
extraordinary market volatility, if adopted, applies. See Securities 
Exchange Act Release No. 64175 (April 4, 2011), 76 FR 19823 (April 
8, 2011) (SR-Phlx-2011-44). On August 8, 2011, PHLX submitted a 
proposed rule change to further extend the Pause Pilot until January 
31, 2012. See Securities Exchange Act Release No. 65083 (August 10, 
2011), 76 FR 50801 (August 16, 2011) (SR-Phlx-2011-113).
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    On June 23, 2011, the Commission approved proposed rule changes of 
PHLX and the other equity exchanges (collectively, the ``Exchanges''), 
and FINRA to amend their respective rules to expand the Pause Pilot to 
include all remaining NMS stocks (``Phase III Securities''), which 
includes rights and warrants.\7\ Unlike the original Pause Pilot 
securities, the amended Pause Pilot applies wider percentage price 
moves to the Phase III Securities before

[[Page 74114]]

a trading pause is triggered.\8\ The changes to the Pause Pilot became 
effective on August 8, 2011.
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    \7\ See Securities Exchange Act Release No. 64735 (June 23, 
2011), 76 FR 38243 (June 29, 2011) (SR-Phlx-2011-64, et al.).
    \8\ Under the amended Pause Pilot, a pause is triggered by a 30% 
or more price move in a Phase III Security priced at $1 or higher, 
and by a 50% or more price move to such a security priced less than 
$1. The price of a security is based on the closing price on the 
previous trading day, or, if no closing price exists, the last sale 
reported to the Consolidated Tape on the previous trading day.
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    The Exchanges and FINRA have analyzed the nature of trading pauses 
triggered since adoption of the Pause Pilot and found that over 25% of 
such pauses have occurred in rights and warrants. Further, the 
Exchanges and FINRA have experienced a significant increase in trading 
pauses involving rights and warrants since the implementation of the 
Phase III Securities, with such pauses representing approximately 52% 
[sic] all trading pauses occurring through the end of August 2011. 
Rights and warrants trade on equity exchanges, but are closely related 
to call options. Rights and warrants entitle owners to purchase shares 
of stock at predetermined prices subject to various timing and other 
conditions. Like options, the price of rights and warrants are affected 
by the price of the underlying stock as well as other factors, 
particularly the volatility of the stock. As a consequence, the prices 
of rights and warrants may move more dramatically than the prices of 
the underlying stocks even when the rights and warrants (and the 
underlying stock) are trading in an orderly manner. This difference in 
trading behavior may result in rights and warrants triggering the 
circuit breaker under the Pause Pilot and being subject to a trading 
pause, even while the underlying stock continues to trade. This can be 
particularly true of rights and warrants that have low prices. As such, 
the Exchanges and FINRA have determined to exclude rights and warrants 
from the Pause Pilot, and accordingly, PHLX is proposing to amend Rule 
3100(a)(4) to exclude rights and warrants from the Pause Pilot.
2. Statutory Basis
    The proposed rule change is consistent with Section 6(b) of the 
Act,\9\ in general, and furthers the objectives of Section 6(b)(5),\10\ 
in particular, in that it 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 facilitating transactions in securities, and to 
remove impediments to and perfect the mechanism of a free and open 
market and a national market system. The proposed rule change also is 
designed to support the principles of Section 11A(a)(1) \11\ of the Act 
in that it seeks to ensure fair competition among brokers and dealers 
and among exchange markets. PHLX believes that the proposed rule meets 
these requirements because it excludes certain securities from the 
rule's coverage that are prone to triggering pauses because of their 
unique characteristics. These securities are unique in that they may 
move more dramatically than the prices of the underlying stocks to 
which they are related even when both securities are trading in an 
orderly manner. As such, the securities that are subject to this 
proposal may trigger a Pause Pilot circuit breaker and be subject to a 
trading pause, even while the underlying security continues to trade. 
Although there is little benefit in pausing trading in these 
securities, such pauses sequester regulatory resources that are better 
applied to the review of trading pauses in other securities that have a 
greater impact on the national market system.
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    \9\ 15 U.S.C. 78f(b).
    \10\ 15 U.S.C. 78f(b)(5).
    \11\ 15 U.S.C. 78k-1(a)(1).
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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.

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

    The Exchange has filed the proposed rule change pursuant to Section 
19(b)(3)(A)(iii) of the Act \12\ and Rule 19b-4(f)(6) thereunder.\13\ 
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 prior to 
30 days from the date on which it was filed, 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)(iii) thereunder.\15\
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    \12\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \13\ 17 CFR 240.19b-4(f)(6).
    \14\ 15 U.S.C. 78s(b)(3)(A).
    \15\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)(iii) 
requires the Exchange to give the Commission written notice of the 
Exchange's 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.
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    A proposed rule change filed under Rule 19b-4(f)(6)\16\ normally 
does not become operative for 30 days after the date of filing. 
However, pursuant to Rule 19b-4(f)(6)(iii)\17\ the Commission may 
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.
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    \16\ 17 CFR 240.19b-4(f)(6).
    \17\ 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. 
Including rights and warrants in the pilot program which may trigger a 
circuit breaker and be subject to a trading pause, even while the 
underlying security continues to trade, provides little benefit and has 
the potential to create confusion among investors. Excluding rights and 
warrants from the pilot program should minimize investor confusion that 
could result from temporary trading pauses in these securities. For 
this reason, the Commission designates the proposed rule change as 
operative upon the date of this Notice.\18\
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    \18\ 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.

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:

[[Page 74115]]

Electronic Comments

     Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to rule-comments@sec.gov. Please include 
File No. SR-Phlx-2011-158 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 No. SR-Phlx-2011-158. 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 
a.m. and 3 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 No. SR-Phlx-2011-158 and should be 
submitted on or before December 21, 2011.

    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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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2011-30808 Filed 11-29-11; 8:45 am]
BILLING CODE 8011-01-P


