
[Federal Register Volume 77, Number 66 (Thursday, April 5, 2012)]
[Notices]
[Pages 20657-20658]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2012-8168]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-66697; File No. SR-Phlx-2012-39]


Self-Regulatory Organizations; NASDAQ OMX PHLX LLC; Notice of 
Filing and Immediate Effectiveness of Proposed Rule Change Related to 
Non-Display of Primary Pegged Orders With an Offset Amount

March 30, 2012.
    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 March 23, 2012, NASDAQ OMX PHLX LLC (``Phlx'' or ``Exchange'') filed 
with the Securities and Exchange Commission (``Commission'') the 
proposed rule change as described in Items I, II, and III below, which 
Items have been prepared by the Exchange. The Exchange has designated 
the proposed rule change as constituting a rule change under Rule 19b-
4(f)(6) under the Act,\3\ which renders the proposal 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\ 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 proposes to provide amend Exchange Rule 3301(f)(4) to 
provide for non-display of Primary Pegged Orders with an offset amount. 
The text of the proposed rule change is available at: http://www.nasdaqtrader.com/micro.aspx?id=PHLXRulefilings, at the Exchange'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 those 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 parts 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 amend Rule 3301(f)(4) to provide that Primary 
Pegged Orders with an offset amount will be non-displayed, a change 
that will improve system and inter-market price stability. Pegged 
Orders are orders that, once entered, adjust in price automatically, in 
response to changes in the inside bids or offers of NASDAQ OMX PSX 
(``PSX'') \4\ or the national market system, depending upon the type of 
Pegged Order. A Primary Pegged Order specifies that its price will 
equal the inside quote on the same side of the market; a Market Pegged 
Order will equal the inside quote on the opposite side of the market. A 
Midpoint Peg Order will equal the midpoint of the national best bid and 
offer (``NBBO''), excluding the effect that the Midpoint Peg Order 
itself has on the inside bid or inside offer. As the bids and offers 
change, so move the Pegged Orders. A Pegged Order may have a limit 
price beyond which the order shall not be executed. Primary Peg and 
Market Peg Orders may establish their pricing relative to the 
appropriate bids or offers by selecting one or more offset amounts that 
will adjust the price of the order by the offset amount selected.
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    \4\ PSX is the Exchange's cash equities market electronic 
trading platform.
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    Under the Exchange's current rule, Midpoint Pegged Orders are not 
displayed, while Primary and Market Pegged Orders may be displayed or 
not displayed, at the option of the person placing the order. The 
display of Primary Pegs with an offset amount can potentially result in 
excessive messaging when multiple venues display Pegged non-marketable 
Orders. In these scenarios, it is possible for the Primary Pegged 
Orders on each venue to react to and change in relation to each other, 
resulting in excessive messaging and ``quote flickering.'' A rule 
change to eliminate display of Primary Pegged Orders with an offset 
amount will prevent this feedback loop, adding to system stability and 
improving market quality.
    Market participants retain the ability to display orders through 
other order options available under the Exchange rules, including by 
using Primary Pegged Orders without an offset amount or Market Pegged 
Orders. Because Primary Pegged Orders without an offset amount are 
priced at the inside quote, they do not present the same messaging

[[Page 20658]]

problem. Rapid updates to displayed Primary Pegged Orders may still 
occur, but are more likely to be the result of rapid trading. Market 
Pegged Orders, in contrast to Primary Pegs with an offset amount, are 
typically priced to execute and rarely post, and thus also do not 
present the excessive messaging problem.
    The Commission approved the non-display of Pegged Orders when it 
approved the application of BATS Exchange, Inc. (``BATS''), for 
registration as a national securities exchange and found BATS' proposed 
rules consistent with Section 6 of the Act.\5\ BATS Rule 11.9(c)(8) 
provides that Pegged Orders ``are not displayed on the Exchange.'' \6\
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    \5\ See Securities Exchange Act Release No. 58375 (August 18, 
2008) 73 FR 49498 (August 21, 2008); see also Securities Exchange 
Act Release No. 57322 (February 13, 2008), 73 FR 9370 (February 20, 
2008).
    \6\ BATS Rule 11.9(c)(8).
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2. Statutory Basis
    The proposed rule change is consistent with Section 6(b) of the 
Act,\7\ in general, and furthers the objectives of Section 6(b)(5),\8\ 
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. Non-display of Primary Pegged 
Orders with an offset amount will minimize excess messaging that 
distracts from, rather than improves transparency and stability. Market 
participants can elect to display orders by using other available order 
types. The Exchange believes that the proposed change to Rule 
3301(f)(4) meets the requirements of Section 6(b)(5) of the Act \9\ in 
that it will improve the stability, quality and transparency of the 
national market system.
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    \7\ 15 U.S.C. 78f(b).
    \8\ 15 U.S.C. 78f(b)(5).
    \9\ Id.
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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 that is not necessary or appropriate 
in furtherance of the purposes of the Act. Specifically, the Exchange 
believes that providing for non-display of Primary Pegged Orders will 
not burden competition since at least one other exchange currently 
offers the same attribute for pegged orders.

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 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 after the date of the filing, or such 
shorter time as the Commission may designate, it has become effective 
pursuant to Section 19(b)(3)(A) of the Act \10\ and Rule 19b-4(f)(6) 
thereunder.\11\
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    \10\ 15 U.S.C. 78s(b)(3)(A).
    \11\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6) 
requires a self-regulatory organization to give the Commission 
written notice of its intent to file 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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    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 email to rule-comments@sec.gov. Please include 
File Number SR-Phlx-2012-39 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-2012-39. 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 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-2012-39 and 
should be submitted on or before April 26, 2012.
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    \12\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\12\
Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2012-8168 Filed 4-4-12; 8:45 am]
BILLING CODE 8011-01-P


