
[Federal Register Volume 77, Number 198 (Friday, October 12, 2012)]
[Notices]
[Pages 62287-62289]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2012-25104]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-67991; File No. SR-Phlx-2012-116]


Self-Regulatory Organizations; NASDAQ OMX PHLX LLC; Notice of 
Filing and Immediate Effectiveness of Proposed Rule Change To Amend 
Exchange Rule 3315(a)(1)(A) To Reflect a Change in Its Routing 
Functionality To Allow Routable Orders to Simultaneously Execute 
Against Exchange Available Shares and Route to Other Markets for 
Execution of the Remainder of the Order

October 5, 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 September 25, 2012, NASDAQ OMX PHLX LLC (``PHLX'' or ``Exchange'') 
filed with the Securities and Exchange Commission (``Commission'') a 
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

    PHLX proposes to amend Rule 3315(a)(1)(A) to reflect a change in 
its routing functionality. The Exchange is proposing to implement the 
rule change as soon as practicable, but in no case later than thirty 
calendar days from the filing date of this proposal. The text of the 
proposed rule change is available at http://nasdaqomxphlx.cchwallstreet.com, 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 self-regulatory organization 
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 is proposing to amend Rule 3315(a)(1)(A) to reflect a change 
in PHLX's order routing functionality, which will allow routable orders 
\3\ to simultaneously execute against PHLX available shares and route 
to other markets for execution of the remainder of the order. 
Currently, when a routable order is entered into the PHLX system, the 
PHLX book is first checked for available shares. If such an order is 
not filled or filled only partially, then the order is routed to away 
markets with the best bid or best offer pursuant to PHLX's System 
routing table.\4\ For example, if a PHLX member submitted an order to 
buy 5,000 shares of a security, and PHLX had 500 shares displayed with 
another 500 shares undisplayed, under the current routing process 1,000 
shares

[[Page 62288]]

would be executed on PHLX. Thereafter, PHLX would route the remaining 
4,000 shares of the order to other markets for execution.
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    \3\ For purposes of this filing, a ``routable order'' is an 
order entered into the PHLX System, which is not of an Order Type 
precluded from routing to other markets.
    \4\ The ``System routing table'' is the proprietary process for 
determining the specific trading venues to which the System routes 
orders and the order in which it routes them. See Rule 
3315(a)(1)(A).
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    PHLX has observed that upon partial execution of a routable order 
at PHLX, as in the example above, market participants often react to 
the order by cancelling their orders on other markets and entering new 
orders at inferior prices. This occurs because the current process 
directs the order to PHLX before attempting to access available 
liquidity at other markets and thereby allows market participants to 
react to the execution (an effect known as ``market impact'' or 
``information leakage''). As a consequence, the available shares at the 
away market are no longer available, resulting in a lower likelihood of 
successfully accessing liquidity on away markets (i.e., the ``fill 
rate'') and an increased likelihood of ultimately receiving an 
execution at an inferior price. As such, PHLX is addressing this 
problem by changing how the routing process will operate.
    PHLX is proposing to execute routable orders against the PHLX book 
for available shares and to simultaneously route any remaining shares 
to additional markets. Specifically, under the proposed change a 
routable order would attempt to execute against the available shares at 
PHLX and, to the extent the order would not be filled by such available 
shares, PHLX would simultaneously route the remainder of the order to 
other venues, according to PHLX's System routing table, in a manner 
consistent with Regulation NMS (i.e., satisfying all displayed 
protected quotes). For example, using the scenario above, if a member 
enters a routable order to buy 5,000 shares of a security and PHLX is 
displaying 500 shares of that security, with 500 undisplayed, PHLX 
would execute against the 500 displayed shares and 500 undisplayed 
shares, while simultaneously routing the remaining 4,000 shares to 
other venues for execution. In the event that the amount of shares on 
other markets is insufficient to completely fill the order, or the 
order fails to completely execute, PHLX would then post the remaining 
shares on the PHLX book or cancel the remaining shares per the routed 
order's instructions. PHLX believes that this simultaneous execution 
against PHLX available shares and routing to other venues' shares will 
avoid the deleterious effect of market impact discussed above and 
result in overall faster and better executions of its members' routable 
orders.
    PHLX notes that it is not changing the execution and routing 
sequence of all routable orders. The PTFY, PMOP, and PCRT orders are 
designed to execute serially as part of their strategies, which is 
generally to reduce the blended fees associated with transacting on 
multiple markets. As such, simultaneous routing of such orders would 
not result in a better execution in terms of the goals of these 
routable order types.
    The proposed change is based on the recently-approved change to the 
analogous NASDAQ Stock Market LLC (``NASDAQ'') rule.\5\ Although PHLX 
does not have all of the order types that NASDAQ has, it is making the 
identical changes applicable to the analogous routable order types 
shared in common with NASDAQ. The Exchange will implement the proposed 
change as soon as practicable and in no event later than 30 calendar 
days from the filing date of this proposal.
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    \5\ See Securities Exchange Act Release No. 67639 (August 10, 
2012), 77 FR 49034 (August 15, 2012) (SR-NASDAQ-2012-071).
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2. Statutory Basis
    The statutory basis for the proposed rule change is Section 6(b)(5) 
of the Act,\6\ which requires the rules of an exchange 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. The 
Exchange believes that the proposed rule meets these requirements in 
that it promotes efficiency in the market, and increases the speed of 
execution and likelihood that a routable order will be filled at the 
best price possible. In this regard, the Exchange notes that 
simultaneous execution minimizes the market impact a routable order has 
on other markets under the current multi-step execution and routing 
process, thus improving fill rates. Accordingly, the proposed rule 
change will serve to improve execution quality for investors sending 
their routable orders to the Exchange.
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    \6\ 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 
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 foregoing rule change has become effective pursuant to Section 
19(b)(3)(A) of the Act \7\ and Rule 19b-4(f)(6) \8\ thereunder because 
the proposal does not: (i) Significantly affect the protection of 
investors or the public interest; (ii) impose any significant burden on 
competition; and (iii) by its terms, become operative for 30 days from 
the date on which it was filed, or such shorter time as the Commission 
may designate.\9\
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    \7\ 15 U.S.C. 78s(b)(3)(A).
    \8\ 17 CFR 240.19b-4(f)(6).
    \9\ 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) normally may 
not become operative prior to 30 days after the date of filing. 
However, Rule 19b-4(f)(6)(iii) \10\ permits the Commission to designate 
a shorter time if such action is consistent with the protection of 
investors and the public interest. The Exchange has requested that the 
Commission waive the 30-day operative delay period. The Commission 
believes that waiver of the 30-day operative delay period is consistent 
with the protection of investors and the public interest. Specifically, 
the Commission believes that the proposal should increase the 
likelihood that a routable order would receive a more complete fill and 
should improve the Exchange's ability to process such orders. For these 
reasons, the Commission believes that waiving the 30-day operative 
delay is consistent with the protection of investors and the public 
interest. Therefore, the Commission designates the proposed rule change 
to be operative upon filing with the Commission.\11\
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    \10\ 17 CFR 240.19b-4(f)(6)(iii).
    \11\ 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.\12\
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    \12\ 15 U.S.C. 78s(b)(3)(C).

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[[Page 62289]]

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-2012-116 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-2012-116. 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 
10:00 a.m. and 3:00 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 Number SR-Phlx-2012-116 and should be 
submitted on or before November 2, 2012.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\13\
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    \13\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2012-25104 Filed 10-11-12; 8:45 am]
BILLING CODE 8011-01-P


