
[Federal Register Volume 78, Number 6 (Wednesday, January 9, 2013)]
[Notices]
[Pages 1906-1907]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2013-00201]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-68574; File No. SR-Phlx-2012-130]


Self-Regulatory Organizations; NASDAQ OX PHLX LLC; Order 
Approving Proposed Rule Change To Amend Performance Evaluations With 
Respect to Quote Submissions of Streaming Quote Traders and Remote 
Streaming Quote Traders

January 3, 2013.

I. Introduction

    On October 31, 2012, NASDAQ OMX PHLX LLC (``Exchange'' or ``Phlx'') 
filed with the Securities and Exchange Commission (``Commission''), 
pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act'') \1\ and Rule 19b-4 thereunder,\2\ a proposed rule change to 
amend performance evaluations with respect to Streaming Quote Traders 
(``SQTs'') and Remote Streaming Quote Traders (``RSQTs''). The proposed 
rule change was published for comment in the Federal Register on 
November 19, 2012.\3\ The Commission received no comments on the 
proposal. This order approves the proposed rule change.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Securities Exchange Act Release No. 68217 (November 13, 
2012), 77 FR 69525.
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II. Description of the Proposal

    The Exchange proposes to amend the performance evaluations with 
respect to SQTs and RSQTs. Exchange Rule 510 sets forth standards by 
which the Exchange periodically conducts an evaluation of SQTs and 
RSQTs to determine whether they have fulfilled performance standards 
relating to, among other things, quality of markets, efficient quote 
submission to the Exchange (including quotes submitted through a third 
party vendor), competition among market makers, observance of ethical 
standards, and administrative factors.
    Specifically, the Exchange proposes to amend the evaluation 
standards with respect to quote submission. According to the Exchange, 
Phlx reviews the percentage of total quotes that represent the Phlx 
best bid or offer, quoting requirements pursuant to Exchange Rule 1014, 
the number of requests for a quote spread parameter and efficient quote 
submission. To evaluate efficient quote submission, the Exchange 
currently considers how an SQT or RSQT optimizes the submission of 
quotes through the Specialized Quote Feed \4\ by evaluating the number 
of individual quotes per quote block received by the Exchange.
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    \4\ Exchange Rule 1080.01(a) provides that ``[a] specialist, 
[remote streaming quote trader] or [streaming quote trader] may 
establish an option pricing model via a specialized connection, 
which is known as a specialized quote feed (`SQF'). Specialists, 
[streaming quote traders] and [remote streaming quote traders] 
individually determine which model to select per option and may 
change models during the trading day. Each pricing model requires 
the specialist, [streaming quote traders] and [remote streaming 
quote traders] to input various parameters, such as interest rates, 
volatilities (delta, vega, theta, gamma, etc.) and dividends.''
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    Instead of evaluating the number of individual quotes per quote 
block, the Exchange proposes to utilize quote-to-trade and quote-to-
contracts traded ratios to evaluate SQTs and RSQTs. According to the 
Exchange, the quote-to-trade and quote-to-contract traded data would 
provide statistical information on spreads and efficiency, which would 
allow the Exchange to obtain more precise information to evaluate 
performance.

III. Discussion and Commission Findings

    After careful review, the Commission finds that the proposed rule 
change is consistent with the requirements of the Act and the rules and 
regulations thereunder applicable to national

[[Page 1907]]

securities exchanges.\5\ In particular, the Commission finds that the 
proposed rule change is consistent with Section 6(b)(5) of the Act,\6\ 
which requires that the rules of an exchange be designed, among other 
things, to promote just and equitable principles of trade, to prevent 
fraudulent and manipulative acts, to remove impediments to and to 
perfect the mechanism for a free and open market and a national market 
system, and, in general, to protect investors and the public interest.
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    \5\ In approving the proposed rule change, the Commission has 
considered the proposed rule's impact on efficiency, competition and 
capital formation. See 15 U.S.C. 78c(f).
    \6\ 15 U.S.C. 78f(b)(5).
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    The Commission believes that the proposal should provide the 
Exchange with a better metric to evaluate the quote submission quality 
of SQTs and RSQTs. In particular, the Exchange represented that it 
could capture the following data in a report for each SQT and RSQT: 
executed contracts, trade count, total quotes, executed contract to 
quote ratio and trade count to quote ratio. The Commission believes 
that such additional information, which is not available today, should 
enable the Exchange to better judge the quality of quotes provided. The 
proposal would analyze the number of contracts executed, in addition to 
the number of quotes received by the Exchange. The Commission believes 
that the number of executed contracts to quote ratio should provide the 
Exchange with more useful information to judge actual liquidity 
supplied on the Exchange. The proposal would also analyze the number of 
trades to quotes. The Commission believes that this aspect of the 
proposal is reasonably designed to enable the Exchange to better 
evaluate smaller participants, who may execute lesser size, but who may 
still have a high trade-to-quote ratio if they are present at the 
national best bid or offer. Finally, the Exchange has represented that 
these standards which would be applied to all members and member 
organizations of the Exchange in a uniform matter that is equitable and 
not unfairly discriminatory.\7\
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    \7\ See email from Angela Dunn, Associate General Counsel, Phlx, 
to Steve Kuan, Special Counsel, Commission, dated January 3, 2013.
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    For the reasons stated above, the Commission believes that the 
proposal is consistent with the requirements of the Act and is designed 
to promote just and equitable principles of trade, to remove 
impediments to and to perfect the mechanism for a free and open market 
and a national market system, and, in general, to protect investors and 
the public interest.

IV. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\8\ that the proposed rule change (SR-Phlx-2012-130), be, and it 
hereby is, approved.
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    \8\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\9\
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    \9\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2013-00201 Filed 1-8-13; 8:45 am]
BILLING CODE 8011-01-P


