
[Federal Register Volume 79, Number 104 (Friday, May 30, 2014)]
[Notices]
[Pages 31147-31151]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2014-12527]



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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-72250; File No. SR-Phlx-2014-24]


Self-Regulatory Organizations; NASDAQ OMX PHLX LLC; Notice of 
Filing of Proposed Rule Change and Amendment No. 1 Thereto To Modify 
the Order Execution Algorithm of NASDAQ OMX PSX

May 23, 2014.
    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 May 13, 2014, 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 filed Amendment 
No. 1 to the proposed rule change on May 16, 2014.\3\ The Commission is 
publishing this notice, as amended, 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\ In Amendment No. 1, the Exchange corrected figures in both 
the filing and the proposed rule text for price and share amounts 
used in examples of the proposed execution algorithm.
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I. Self-Regulatory Organization's Statement of the Terms of the 
Substance of the Proposed Rule Change

    The Exchange proposes to modify the order execution algorithm of 
Phlx's NASDAQ OMX PSX facility (``PSX''). The text of the proposed rule 
change is available at nasdaqomxphlx. cchwallstreet.com, 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 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
    Phlx launched PSX in 2010 with an order execution algorithm that 
allocated executions of incoming orders to orders on the PSX book based 
on the price and size of posted orders, rather than price and time, 
with allocations made on a pro rata basis among orders with similar 
price and display characteristics.\4\ In 2013, after concluding that 
this pro rata model had not met the Exchange's expectations with 
respect to PSX's market share, Phlx adopted a price/time model that was 
functionally similar to the model in place at other national securities 
exchanges.\5\ Phlx is now proposing to allow its member organizations 
to benefit from the advantages of each model, by adopting a system 
under which some securities may trade using the current price/time 
model, while others may trade under a pro rata model similar to, but in 
several respects different from, the model in effect from 2010 to 2013. 
As described in more detail below, Phlx will select the algorithm 
applicable to each security that is eligible for trading on PSX, and 
may change the applicable algorithm from time to time, subject to 
providing advance notice to market participants.\6\
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    \4\ Securities Exchange Act Release No. 62877 (September 9, 
2010), 75 FR 56633 (September 16, 2010) (SR-Phlx-2010-79).
    \5\ Securities Exchange Act Release No. 69452 (April 25, 2013), 
78 FR 25512 (May 1, 2013) (SR-Phlx-2013-24).
    \6\ The approach of allowing the applicable execution algorithm 
to vary on a security-by-security basis is currently used in the 
market structure of several options exchanges, including the NASDAQ 
Options Market (``NOM'') (Chapter VI, Section 10 of the NOM Rules); 
the BX Options Market (``BX Options'') (Chapter VI, Section 10 of 
the BX Options Rules); the Chicago Board Options Exchange (``CBOE'') 
(CBOE Rule 43.1); and the C2 Options Exchange (``C2'') (C2 Rule 
6.12). It was also used in the cash equities markets at the former 
CBOE Stock Exchange (``CBXS'') (CBSX Rule 52.1).
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Price/Time Algorithm
    Phlx is not proposing to alter the operation of the price/time 
algorithm for those securities to which it is applied, although it is 
modifying the applicable rule text in certain respects to improve its 
clarity. Under this algorithm, the System executes trading interest in 
the following manner:
     Price--Better priced trading interest is executed ahead of 
inferior-priced trading interest.
     Display--Displayed Quotes/Orders at a particular price are 
executed in time priority among such interest.
     Non-Displayed Interest--Non-Displayed Orders and the 
reserve portion of Quotes and Reserve Orders (collectively, ``Non-
Displayed Interest'') at a particular price are executed in time 
priority among such interest.

For example, assume that sell orders with the following sizes, time 
stamps, and display characteristics are on the PSX book:
 Order 1: 100 shares, Non-Displayed at $9.99, 11:00.00
 Order 2: 100 shares, Non-Displayed at $10.00, 10:59.50
 Order 3: 100 shares, Displayed at $10.00, 11:00.05
 Order 4: 100 shares, Displayed at $10.00, 11:00.10
 Order 5: 100 shares, Non-Displayed at $10.00, 11:00.10
If an order to buy 400 shares at $10.00 is entered, it will execute 
against the resting orders in the following sequence: Order 1, since 
its price is superior to that of the other orders; Order 3, since as 
among orders priced at $10.00, it is the Displayed Order that arrived 
on the book first and Displayed Orders are executed ahead of Non-
Displayed Interest; Order 4, since Displayed Orders are executed ahead 
of Non-Displayed Interest, and Order 2, since all Displayed Orders at 
$10.00 have been executed and as among Non-Displayed Interest at 
$10.00, it was the first to arrive on the book.
Pro Rata Algorithm
    As noted above, the pro rata model is being altered in several 
respects from the version previously in effect. Most notably, for those 
securities for which the pro rata model is applicable, Phlx may also 
opt to apply a version of the algorithm under which a specified 
percentage of an execution is guaranteed to an order that establishes 
the best price in PSX. This modification to the algorithm is referred 
to herein and in the proposed rule as the variation for ``Price-Setting 
Orders.'' As with the decision as to the applicable algorithm, Phlx 
will determine whether to apply the variation to each security that 
trades under the pro rata algorithm, and as described in more detail 
below, may change the application from time to time, subject to 
providing advance notice to market participants.
Price and Displayed Orders
    Under the pro rata algorithm, the System will execute trading 
interest within the System in the following order:
     Price--Better priced trading interest is executed ahead of 
inferior-priced trading interest.

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     Display--Displayed Orders at a particular price with a 
size of at least one round lot will be executed ahead of Displayed 
Orders with a size of less than one round lot, Non-Displayed Interest 
with a size of at least one round lot, Minimum Quantity Orders, and 
Non-Displayed Interest with a size of less than one round lot.

     Allocation to Displayed Orders with a Size of One Round 
Lot or More--As among equally priced Displayed Orders with a size of at 
least one round lot, the System will allocate portions of incoming 
executable orders to displayed trading interest within the System pro 
rata based on the size of the Displayed Orders, rounding down to the 
nearest round lot. Next, portions of an order that would be executed in 
a size other than a round lot if they were allocated on a pro rata 
basis will be allocated for execution against available displayed 
trading interest, one round lot at a time, in the order of the 
displayed size (measured at the time when the pro rata allocation 
began) of the trading interest at that price (largest to smallest), or, 
as among orders with an equal size, based on time priority. Incoming 
orders with a size of less than one round lot will be allocated against 
available displayed trading interest in the order of the size of 
trading interest at that price (largest to smallest), or, as among 
orders with an equal size, based on time priority.
For example, assume that sell orders with the following sizes, time 
stamps, and display characteristics are on the PSX book:
     Order 1: 600 shares, Displayed at $10.00, 10:59.50
     Order 2: 400 shares, Displayed at $10.00, 11:00.05
     Order 3: 300 shares, Displayed at $10.00, 11:00.10
If an order to buy 1,200 shares at $10.00 is entered, it will execute 
against the resting orders in the following sequence and with the 
following share amounts:
     Orders 1, 2, and 3: The System will make a pro rata 
allocation of the incoming order to the resting orders based on their 
size in round lot increments, such that Order 1 will be allocated 500 
shares ((600 / 1,300) x 1,200, rounded down to the nearest round lot); 
Order 2 will be allocated 300 shares; and Order 3 will be allocated 200 
shares.
     Order 1: After decrementation, the remaining orders on the 
book each have 100 shares, and the incoming order has 200 shares left 
to execute. The remaining 200 shares of the order will be allocated one 
round lot at a time, first to Order 1, since of the remaining resting 
orders, it was the order with the largest displayed size at the 
beginning of the pro rata allocation, and then to Order 2, the order 
with the next largest displayed size at the beginning of the pro rata 
allocation.

If the incoming order was 80 shares (less than one round lot), it would 
be allocated to Order 1 based on its size as the resting order with the 
largest displayed size.
Variation for Price-Setting Orders
    For any security that trades under the pro rata algorithm, Phlx may 
adopt a variation of the algorithm that guarantees a specified 
percentage allocation for an order that sets the best price on PSX 
under certain conditions. The goal of the variation would be to 
increase the extent to which market participants commit capital to 
display significant size at a price that narrows the spread, thereby 
enhancing price discovery and transparency. The ``Guaranteed 
Percentage'' for all securities subject to this variation will be 
40%.\7\ The Exchange believes the Guaranteed Percentage of 40% strikes 
an appropriate balance between awarding the participant who sets a new 
price on PSX while also rewarding other participants who risk capital 
by displaying large size, thereby encouraging competition among market 
participants to fill incoming orders. This balance provides an 
incentive for aggressive quoting from both a price and size 
perspective.
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    \7\ If Phlx determines to change the Guaranteed Percentage, it 
will file a proposed rule change to do so.
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    When this variation of the pro rata algorithm is employed, a 
Displayed Order with a size of at least one round lot that establishes 
the best price in PSX when it is entered will be a ``Price-Setting 
Order'' if such order is executed; provided, however, that a better 
priced order will become the Price-Setting Order if it is executed. The 
allocation to the Price-Setting Order will be the greater of the 
Guaranteed Percentage or the allocation that the order would otherwise 
receive under the pro rata algorithm.
    If the Price-Setting Order receives an allocation greater than the 
Guaranteed Percentage, the remainder of the order will be allocated to 
other displayed trading interest in the manner provided for Displayed 
Orders when the variation for Price-Setting Orders is not in effect (as 
provided in Rule 3307(b)(2)(A)). If the Price-Setting Order receives 
the Guaranteed Percentage, the System will then allocate round lot 
portions of the incoming order that are not allocated to the Price-
Setting Order to other displayed trading interest within the System pro 
rata based on the size of such Displayed Orders (excluding the Price-
Setting Order), rounding down to the nearest round lot. Next, portions 
of an order that would be executed in a size other than a round lot if 
they were allocated on a pro rata basis will be allocated for execution 
against available displayed trading interest (excluding the Price-
Setting Order), one round lot at a time, in the order of the displayed 
size (measured at the time when the pro rata allocation began) of the 
trading interest at that price (largest to smallest), or, as among 
orders with an equal size, based on time priority. In the case of 
incoming orders with a size of less than one round lot, the Price-
Setting Order will receive the Guaranteed Percentage of the order, and 
the remainder of the order will be allocated to available displayed 
trading interest in the order of the size of displayed trading interest 
at that price (largest to smallest), or, as among orders with an equal 
size, based on time priority.
    By way of example, assume that Order 1 is on the PSX book to sell 
1,000 shares at $10.01. If Order 2 is then entered onto the book to 
sell 1,000 shares at $10.00, Order 2 is presumptively the Price-Setting 
Order. Assume also that Order 3 to sell 3,000 shares at $10.00, and 
Order 4 to sell 1,000 shares at $10.00 are then entered onto the book. 
If an incoming order to buy 1,000 at $10.00 is then entered, 400 shares 
will be allocated to Order 2 based on the 40% Guaranteed Percentage for 
it as the Price-Setting Order.\8\ The remaining shares will then be 
allocated among the other orders based on their displayed size as 
follows:
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    \8\ If, before the incoming order was entered, another sell 
order was posted to the book at $9.99, it would have the potential 
to become the Price-Setting Order if it executed while still 
reflecting the best price in PSX. Once an order is executed as a 
Price-Setting Order, all previously entered orders that could have 
potentially been Price-Setting Orders are no longer eligible to be 
Price-Setting Orders.
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     Pro rata allocation of 400 shares to Order 3 ((3,000 / 
4,000) x 600, rounded down to the nearest round lot);
     Pro rata allocation of 100 shares to Order 4 ((1,000 / 
4,000) x 600, rounded down to the nearest round lot); and
     Remaining 100 shares to Order 3 (order with the largest 
original displayed size).

If the incoming order was an odd lot of 80 shares, the System would 
allocate 32 shares to Order 2 (40% allocated to the Price-Setting 
Order) and 48 shares to

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Order 3 (resting order with the largest displayed size).
    As noted above, if the allocation that a Price-Setting Order would 
receive via the pro rata algorithm provided for in Rule 3307(b)(2)(A) 
is greater than the Guaranteed Percentage, the Price-Setting Order 
would receive the higher allocation and remaining shares of the 
incoming order would be allocated as provided for in Rule 
3307(b)(2)(A). For example, assume a Displayed Order to sell 1,000 
shares at $10.01 resides on the PSX book (Order 1), a Displayed Order 
to sell 3,000 shares at $10.00 is entered and becomes the Price-Setting 
Order (Order 2), and additional Displayed Orders to sell at $10.00 with 
sizes of 1,000 shares (Order 3) and 1,000 shares (Order 4) are then 
entered. If an incoming order to buy 1,000 shares at $10.00 is entered, 
the System will allocate the incoming order as follow:
     600 shares to Order 2 ((3,000 / 5,000) x 1,000, resulting 
in an allocation in excess of the Guaranteed Percentage);
     200 shares to Order 3 ((1,000 / 5,000) x 1,000); and
     200 shares to Order 4 ((1,000 / 5,000) x 1,000).
    Displayed Odd-Lot Orders
Following the processing of Displayed Orders with a size of one round 
lot or more, the System will allocate remaining shares of an incoming 
order among equally priced Displayed Orders with a size of less than 
one round lot, in the order of the size of the trading interest at that 
price (largest to smallest), or, as among orders with an equal size, 
based on time priority.
Non-Displayed Interest With a Size of One Round Lot or More
    As among equally priced Non-Displayed Interest with a size of at 
least one round lot (excluding Minimum Quantity Orders), the System 
will allocate portions of incoming executable orders to Non-Displayed 
Interest within the System pro rata based on the size of Non-Displayed 
Interest, rounded down to the nearest round lot. Next, portions of an 
order that would be executed in a size other than a round lot if they 
were allocated on a pro rata basis will be allocated for execution 
against available Non-Displayed Interest, one round lot at a time, in 
the order of the size (measured at the time when the pro rata 
allocation began) of the trading interest at that price (largest to 
smallest), or, as among orders with an equal size, based on time 
priority. Incoming orders with a size of less than one round lot will 
be allocated against available Non-Displayed Interest in the order of 
the size of trading interest at that price (largest to smallest), or, 
as among orders with an equal size, based on time priority. Thus, the 
algorithm with respect to Non-Displayed Interest with a size of one 
round lot or more is identical to the algorithm for Displayed Orders 
with a size of one round lot or more.
Minimum Quantity Orders
    Minimum Quantity Orders are orders that will not execute unless a 
specified minimum quantity of shares can be obtained. Minimum Quantity 
Orders that post to the PSX book are not displayed, and upon entry must 
have a size and a minimum quantity condition of at least one round lot. 
In the event that the shares remaining in the size of the order 
following a partial execution thereof are less than the minimum 
quantity specified by the market participant entering the order, the 
minimum quantity value of the order is reduced to the number of shares 
remaining. Because they are non-displayed, Minimum Quantity Orders are 
given a lower priority of execution than Displayed Orders. Moreover, 
because a minimum quantity condition cannot necessarily be satisfied in 
a pro rata allocation system, the orders are given a lower priority 
than other Non-Displayed Interest with a size of one round lot or more. 
As among equally priced Minimum Quantity Orders, the System will 
allocate incoming executable orders to Minimum Quantity Orders within 
the System in the ascending order of the size of the minimum quantity 
conditions assigned to the orders. Thus, an order with a minimum 
quantity condition of 300 shares will be filled before an order with a 
minimum quantity condition of 400 shares. If there are two or more 
Minimum Quantity Orders with an equal minimum quantity condition, the 
System will determine the order of execution based on time priority.
Non-Displayed Odd-Lot Orders
    As among equally priced Non-Displayed Interest with a size of less 
than one round lot, the System will allocate incoming orders based on 
the size of the Non-Displayed Interest, in the order of the size of the 
trading interest at that price (largest to smallest), or, as among 
orders with an equal size, based on time priority.
Selection of Applicable Algorithm and Notice to Member Organizations
    The algorithm applicable to a particular security will be selected 
by the Exchange and listed on a publicly available Web site. The 
selection will be made by the President of the Exchange or another 
officer of the Exchange designated by the President for this purpose. 
The selection will be based on an ongoing assessment of the depth of 
liquidity made available by member organizations in particular stocks, 
with the goal of maximizing the displayed size, minimizing the quoted 
spread, and increasing the extent of PSX's time at the NBBO. Factors to 
be considered for each security would include the size of member 
organizations' quotes, the amount of time that PSX is at the NBBO, PSX 
market share, and observed changes in volume, average execution size, 
and average order size. As a general matter, the Exchange would examine 
these factors and consider adjusting the algorithm applicable to a 
security if it concluded that improvements in the security's 
performance on PSX might result. The Exchange expects that immediately 
following the implementation of this proposed rule change, most if not 
all securities will trade using the pro rata algorithm with the Price-
Setting Order variation, with the goal of increasing the size of 
displayed liquidity in PSX, but that adjustments would then be made 
based on the observed performance of the securities. For example, if a 
security trading under the Price-Setting Order variation has large 
quoted size but PSX is generally not at the NBBO in the security, the 
Exchange would consider moving the security to the price/time algorithm 
as a means of encouraging market participants to quote more 
aggressively. Similarly, if PSX is employing the price/time algorithm 
and is at the NBBO consistently but with smaller size than the exchange 
considers ideal, the Exchange would consider adopting the pro rata 
algorithm with the variation for Price-Setting Orders as a means of 
maintaining the aggressive pricing from market participants while also 
encouraging larger quoted size, resulting in more time at the NBBO for 
larger size. The Exchange would also observe changes in PSX's market 
share and volume over time to determine if the applicable algorithm had 
a positive or negative effect on these metrics. In particular 
securities, the Exchange may also observe average execution size and/or 
average order size, with the goal of increasing both metrics. The 
Exchange may also conclude that if a group of similar securities (for 
example, certain exchange-traded funds) trade well using a particular 
algorithm, other securities with the same characteristics should also 
trade under that algorithm. Changes to the applicable algorithm, 
including the applicability of the variation for Price-Setting Orders, 
would be made

[[Page 31150]]

through a notice that is widely disseminated at least one month in 
advance of the change.\9\
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    \9\ Based on input from its affiliated options exchanges that 
allow for similar variation of execution algorithms, the Exchange 
believes that even less notice would be adequate to allow market 
participants to adjust their systems to reflect changes. However, 
PSX is initially proposing one month notice to avoid any possible 
issues after the adoption of the new model. PSX may submit a 
proposed rule change to reduce the time in the future.
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2. Statutory Basis
    Phlx believes that the proposed rule change is consistent with the 
provisions of Section 6 of the Act,\10\ in general, and with Section 
6(b)(5) of the Act \11\ in particular, in that the proposal 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 regulating, clearing, settling, 
processing information with respect to, and facilitating transactions 
in securities, 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. Phlx believes that the 
proposal has the potential to enhance the usefulness of PSX as a venue 
for trading cash equity securities by allowing the Exchange to adjust 
the execution algorithm applicable to a particular security to best 
suit its characteristics. Moreover, each component of the proposal--pro 
rata, the variation for Price-Setting Orders, and price/time--is itself 
consistent with the Act. Specifically, the Exchange believes that the 
use of the pro rata algorithm is consistent with the Act because it has 
the potential to encourage member organizations to display orders with 
greater size in order to receive a larger share of executions. Thus, 
the algorithm may facilitate transactions in securities and perfect the 
mechanism of a national market system by facilitating executions of 
larger orders with less impact on price. The proposal also has the 
potential to promote price discovery by providing a means to discourage 
the use of non-displayed liquidity. Moreover, the Commission has 
previously determined that PSX's prior pro rata algorithm was 
consistent with the Act because it ``may encourage participants, 
particularly those who wish to execute orders of large size, to display 
liquidity. . . This in turn could facilitate the efficient execution of 
large orders, and foster best execution and price discovery. A novel 
exchange priority system that is designed to achieve these goals also 
may foster competition and innovation.'' \12\ The Exchange further 
notes that the use of an algorithm that deemphasizes the importance of 
speed would provide an additional trading option to market participants 
that may wish to seek alternatives to the prevailing market structure 
for US cash equities.
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    \10\ 15 U.S.C. 78f.
    \11\ 15 U.S.C. 78f(b)(5).
    \12\ Securities Exchange Act Release No. 62877 (September 9, 
2010), 75 FR 56633, 56635 (September 16, 2010) (SR-Phlx-2010-79).
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    The proposed variation to the algorithm for Price-Setting Orders is 
similarly consistent with the national market system purposes of the 
Act because it maintains the potential benefits of the pro rata 
algorithm discussed above while also having the potential to encourage 
market participants to set the best price on PSX. Thus, the Exchange 
believes that the proposal has the potential to enhance price discovery 
on PSX, while still promoting competition among market participants to 
receive allocations of incoming orders by posting orders with larger 
sizes.
    In addition, the proposal is similar in several respects to rules 
in effect at US options exchanges. Notably, NOM and several other 
options exchanges \13\ have rules that allow the applicable exchange to 
determine the algorithm--pro rata or price/time--applicable to each 
security that it trades.\14\ In addition, the proposed variation to the 
pro rata algorithm for Price-Setting Orders is similar in intent to 
rules of numerous US options exchanges under which a specialist is 
guaranteed a percentage allocation of an incoming order in 
consideration of its performance of specialist obligations.\15\ 
Similarly, the Exchange's proposal is designed to provide a means of 
encouraging market participants to compete to provide substantial 
liquidity at the inside market by guaranteeing them a percentage 
allocation. However, unlike the guaranteed allocation for specialists, 
the proposed allocation would be available to any market participant 
quoting in a security to which the variation applied.\16\ Additionally, 
the proposal could foster competition, as the allocation would be 
awarded based on performance. The trading participant's order that is 
given the Guaranteed Percentage must compete with orders of every other 
trading participant to earn that Guaranteed Percentage. Furthermore, 
one order earning the Guaranteed Percentage carries no weight as to 
whether another order for the same participant earns the Guaranteed 
Percentage; that is, each order must compete to earn the Guaranteed 
Percentage.
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    \13\ The former CBSX cash equities exchange, which recently 
ceased operations, also had such a rule.
    \14\ See supra n.6. It should be noted that these rules do not 
specify the factors to be considered by the exchange in selecting 
the applicable algorithm. The Exchange understands, however, that 
staff of NOM and BX Options apply factors similar to the ones 
proposed herein in making such selections.
    \15\ See, e.g., PHLX Rule 1014(g).
    \16\ The proposed rule is also similar to CBOE Rule 43.1 and 
former CBSX Rule 52.1, which provide priority to the market 
participant that was first to establish a price (the ``Market 
Turner''), and to retain such priority in the event the market moves 
beyond, but then returns to, the Market Turner's price.
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    For securities that the Exchange believes are not best served by a 
pro rata allocation, the proposal allows the Exchange to have the 
flexibility to use a price/time algorithm that replicates the algorithm 
in use at other national securities exchanges. The Exchange is not 
proposing to modify the operation of this algorithm, which has also 
previously been determined to be consistent with the Act.\17\ This 
algorithm is consistent with the purposes of the Act because it 
reflects a fair and logical means of allocating executions based on the 
price, time of entry, and display characteristics of posted orders.
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    \17\ Securities Exchange Act Release No. 69452 (April 25, 2013), 
78 FR 25512 (May 1, 2013) (SR-Phlx-2013-24).
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    The Exchange further believes that the process for determining the 
algorithm applicable to a particular security is consistent with the 
Act's purposes of perfecting the mechanisms of a national market system 
and protecting investors and the public interest. The rule allows the 
Exchange to select among alternatives, most aspects of which have 
already been determined by the Commission to be consistent with the 
Act. Moreover, by allowing adjustments, the rule will enable the 
Exchange to continually evaluate data and adapt the trading of 
securities to changing circumstances, with the goals of increasing 
displayed size and time at the inside and narrowing spreads. Finally, 
the Exchange believes that the requirement to provide market 
participants with at least one month notice of any change will ensure 
that market participants have adequate notice of changes to enable them 
to make any needed adjustments to their order routing practices.

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

[[Page 31151]]

of the purposes of the Act, as amended.\18\ Currently, PSX has minimal 
market share, and the Exchange believes that the proposal may enhance 
its competitiveness by offering a unique market model not currently 
offered by other national securities exchanges trading cash equities. 
Since use of PSX is entirely voluntary and numerous competitive 
alternatives exist, the change will not impose any burden on 
competition. Moreover, the Exchange's prior experience with use of a 
pro rata algorithm on PSX leads it to believe that although the market 
model may not draw significant volume of order flow away from other 
trading venues, nevertheless the model is attractive to some market 
participants and therefore is likely to enhance PSX's competitiveness.
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    \18\ 15 U.S.C. 78f(b)(8).
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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

    Within 45 days of the date of publication of this notice in the 
Federal Register or within such longer period (i) as the Commission may 
designate up to 90 days of such date if it finds such longer period to 
be appropriate and publishes its reasons for so finding or (ii) as to 
which the Exchange consents, the Commission shall: (a) By order approve 
or disapprove such proposed rule change, or (b) institute proceedings 
to determine whether the proposed rule change should be 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, as amended, 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-2014-24 on the subject line.

Paper Comments

     Send paper comments in triplicate to Secretary, Securities 
and Exchange Commission, 100 F Street NE., Washington, DC 20549-1090.

All submissions should refer to File Number SR-Phlx-2014-24. 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 offices 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-2014-24, 
and should be submitted on or before June 20, 2014.

    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. 2014-12527 Filed 5-29-14; 8:45 am]
BILLING CODE 8011-01-P


