
[Federal Register Volume 80, Number 123 (Friday, June 26, 2015)]
[Notices]
[Pages 36873-36875]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2015-15689]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-75256; File No. SR-Phlx-2015-51]


Self-Regulatory Organizations; NASDAQ OMX PHLX LLC; Notice of 
Filing and Immediate Effectiveness of Proposed Rule Change Relating to 
Order Price Protection

June 22, 2015.
    Pursuant to section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ and Rule 19b-4 \2\ thereunder, notice is hereby given 
that, on June 12, 2015, NASDAQ OMX PHLX LLC (``Phlx'' or ``Exchange'') 
filed with the Securities and Exchange Commission (``SEC'' or 
``Commission'') the 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

    The Exchange proposes to amend section (p)(3), Order Price 
Protection, of Exchange Rule 1080, Obligations and Restrictions 
Applicable to Specialists and Registered Options Traders.
    The text of the proposed rule change is below; proposed new 
language is italicized; proposed deletions are in brackets.
* * * * *
    Rule 1080 Obligations and Restrictions Applicable to Specialists 
and Registered Options Traders
    (a)-(o) No change.
    (p)
    (1)-(2) No change.
    (3) Order Price Protection (``OPP''). OPP is a feature of Phlx XL 
that prevents certain day limit, good til cancelled, immediate or 
cancel, and all-or-none orders at prices outside of pre-set standard 
limits from being accepted by the system. OPP applies to all options 
but does not apply to market orders, stop limit orders, Intermarket 
Sweep Orders or complex orders.
    (A) OPP is operational each trading day after the opening until the 
close of trading, except during trading halts. [The Exchange may also 
temporarily deactivate OPP from time to time on an intraday basis at 
its discretion if it determines that volatility warrants deactivation. 
Members will be notified of intraday OPP deactivation due to volatility 
and any subsequent intraday reactivation by the Exchange through the 
issuance of system status messages.]
    (B) OPP will reject incoming orders that exceed certain parameters 
according to the following algorithm.
    (i) If the better of the NBBO or the internal market BBO (the 
``Reference BBO'') on the contra-side of an incoming order is greater 
than $1.00, orders with a limit more than 50% through such contraside 
[NBBO] Reference BBO will be rejected by Phlx XL upon receipt. For 
example, if the [NBBO] Reference BBO on the offer side is $1.10, an 
order to buy options for more than $1.65 would be rejected. Similarly, 
if the [NBBO] Reference BBO on the bid side is $1.10, an order to sell 
options for less than $0.55 will be rejected.
    (ii) If the [NBBO] Reference BBO on the contra-side of an incoming 
order is less than or equal to $1.00, orders with a limit more than 
100% through such contra-side [NBBO] Reference BBO will be rejected by 
Phlx XL upon receipt. For example, if the [NBBO] Reference BBO on the 
offer side is $1.00, an order to buy options for more than $2.00 would

[[Page 36874]]

be rejected. However, if the [NBBO] Reference BBO of the bid side of an 
incoming order to sell is less than or equal to $1.00, the OPP limits 
set forth above will result in all incoming sell orders being accepted 
regardless of their limit. To illustrate, if the [NBBO] Reference BBO 
on the bid side is equal to $1.00, the OPP limits provide protection 
such that all orders to sell with a limit less than $0.00 would be 
rejected.
    (iii) No change.
    * * * Commentary
    No change.
* * * * *
    The text of the proposed rule change is available on the Exchange's 
Web site at http://nasdaqomxphlx.cchwallstreet.com/, at the principal 
office of the Exchange, 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
    The purpose of the proposed rule change is to amend and correct 
Exchange Rule 1080(p)(3) which describes Order Price Protection 
(``OPP''), a feature of the Phlx XL trading system that prevents 
certain day limit, good till cancelled, immediate or cancel and all-or-
none orders at prices outside of pre-set standard limits from being 
accepted by the system. The amendments also remove language providing 
for the temporary deactivation of OPP from time to time on an intraday 
basis at the Exchange's discretion if the Exchange determines that 
volatility warrants deactivation.
    OPP applies to all options but does not apply to market orders, 
stop limit orders, Intermarket Sweep Orders or complex orders. OPP is 
operational each trading day after the opening until the close of 
trading, except during trading halts. Rule 1080(p)(3)(A) also currently 
provides that the Exchange may also temporarily deactivate OPP from 
time to time on an intraday basis at its discretion if it determines 
that volatility warrants deactivation. Participants are notified of 
intraday OPP deactivation due to volatility and any subsequent intraday 
reactivation by the Exchange through the issuance of system status 
messages.\3\
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    \3\ See Rule 1080(p)(3)(A).
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    OPP rejects incoming orders that exceed certain parameters. 
Currently, Rule 1080(p)(3)(B) establishes those parameters with 
reference to the NBBO. It states that if the NBBO on the contra-side of 
an incoming order is greater than $1.00, orders with a limit more than 
50% through such contraside NBBO will be rejected by Phlx XL upon 
receipt. For example, the rule provides that if the NBBO on the offer 
side is $1.10, an order to buy options for more than $1.65 would be 
rejected. Similarly, the rule states that if the NBBO on the bid side 
is $1.10, an order to sell options for less than $0.55 will be 
rejected. The rule provides that if the NBBO on the contra-side of an 
incoming order is less than or equal to $1.00, orders with a limit more 
than 100% through such contra-side NBBO will be rejected by Phlx XL 
upon receipt. For example, under the rule if the NBBO on the offer side 
is $1.00, an order to buy options for more than $2.00 would be 
rejected. However, the rule provides that if the NBBO of the bid side 
of an incoming order to sell is less than or equal to $1.00, the OPP 
limits set forth above will result in all incoming sell orders being 
accepted regardless of their limit.
    The Exchange has determined that a discrepancy exists between this 
rule description of how the OPP process works and how the system 
actually functions in cases where certain legging orders have been 
generated by the system pursuant to Rule 1080.07(f)(iii)(C).\4\ The 
trading system may generate Legging Orders in $0.01 increments on the 
Exchange regardless of the minimum price variation (``MPV'') of the 
option. These legging orders are considered part of the Exchange's 
internal market BBO at their non-MPV limit and are displayed at the 
allowable MPV price as part of the NBBO. While Rule 1080(p)(3)(B) 
states that the NBBO is used for OPP determinations as described above, 
the system is actually basing OPP determinations on the better of (a) 
the NBBO, or (b) the Exchange's internal market BBO, which may differ 
from the NBBO due to the presence of legging orders. The Exchange is 
proposing to correct this discrepancy by deleting the term ``NBBO'' in 
each instance where it appears in Rule 1080(p)(3)(B) and replacing it 
with the term ``Reference BBO'' which will be defined in Rule 
1080(p)(3)(B)(i) as the better of the NBBO or the internal market BBO.
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    \4\ Generally, a legging order is a limit order on the regular 
order book in an individual series that represents one leg of a two-
legged complex order to buy or sell an equal quantity of two option 
series resting on the Exchange's Complex Order Book. Legging orders 
are firm orders that are included in the Exchange's displayed best 
bid or offer. Legging orders are designed to increase the 
opportunity for complex orders to execute by ``legging'' into the 
market, whereby all of the legs of the complex order execute against 
the best bids or offers on the Exchange for the individual options 
series. See Exchange Rule 1080.07(f)(iii)(C).
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    Finally, the Exchange is removing from Rule 1080(p)(3)(A) the 
statements that the Exchange may temporarily deactivate OPP from time 
to time on an intraday basis at its discretion if it determines that 
volatility warrants deactivation, and that members will be notified of 
intraday OPP deactivation due to volatility and any subsequent intraday 
reactivation by the Exchange through the issuance of system status 
messages. The Exchange currently lacks the technology to implement 
intraday OPP deactivation and is deleting the language which suggests 
that it has such capability.
2. Statutory Basis
    The Exchange believes that its proposal is consistent with section 
6(b) of the Act \5\ in general, and furthers the objectives of section 
6(b)(5) of the Act \6\ in particular, in that it is designed 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, 
by amending and correcting the rule text to that it accurately reflects 
the functioning of the trading system. The amendments concerning the 
Reference BBO and the elimination of references to intraday 
deactivation of the OPP are both intended to improve the accuracy of 
the rule. The Exchange believes that the amendments should promote just 
and equitable principles of trade as well as protect investors and the 
public interest by making clear how OPP determinations are actually 
made on the Exchange, and by eliminating the potential for confusion 
inherent in the statement that the Exchange may temporarily deactivate 
OPP on an intraday basis when in fact it lacks the technical capacity 
to do so. Calculating

[[Page 36875]]

OPP on the basis of the better of the NBBO or the internal market BBO 
rather than solely on the basis of the NBBO protects investors and the 
public interest by extending the benefits of OPP to orders received in 
instances where the internal market BBO is better than the NBBO.
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    \5\ 15 U.S.C. 78f(b).
    \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 
impose any burden on competition not necessary or appropriate in 
furtherance of the purposes of the Act, as the amendments to Rule 
1080(p)(3)(B) will apply uniformly to all market participants availing 
themselves of the OPP feature. Nor will the proposal impose a burden on 
competition among the options exchanges, because of the vigorous 
competition for order flow among the options exchanges. To the extent 
that market participants disagree with the particular approach taken by 
the Exchange herein, market participants can easily and readily direct 
order flow to competing venues.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants, or Others

    No written comments were either solicited or 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 from the date on which it was filed, or 
such shorter time as the Commission may designate, it has become 
effective pursuant to section 19(b)(3)(A) of the Act \7\ and Rule 19b-
4(f)(6) thereunder.\8\
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    \7\ 15 U.S.C. 78s(b)(3)(A).
    \8\ 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 Commission has determined to waive the five-day pre-filing 
period in this case.
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    A proposed rule change filed pursuant to Rule 19b-4(f)(6) under the 
Act \9\ normally does not become operative for 30 days after the date 
of its filing. However, Rule 19b-4(f)(6)\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 believes 
that waiving the 30-day operative delay is consistent with the 
protection of investors and the public interest because it would allow 
the Exchange to immediately correct the inaccuracy with respect to the 
NBBO described above, as well as eliminate language suggesting the 
Exchange possesses the capability to temporarily deactivate OPP on an 
intraday basis when in fact this is not the case. The Exchange believes 
that the public interest would not be served by preserving these 
inaccuracies in its rules during a notice and comment period for this 
proposed rule change. The Commission believes that waiving the 30-day 
operative delay \11\ is consistent with the protection of investors and 
the public interest and designates the proposal operative on filing.
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    \9\ 17 CFR 240.19b-4(f)(6).
    \10\ 17 CFR 240.19b-4(f)(6).
    \11\ For purposes only of waiving the 30-day operative delay, 
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. If the Commission 
takes such action, the Commission will institute proceedings to 
determine whether the proposed rule change 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-2015-51 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-2015-51. 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-2015-51 and should be 
submitted on or before July 17, 2015.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\12\
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    \12\ 17 CFR 200.30-3(a)(12).
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Robert W. Errett,
Deputy Secretary.
[FR Doc. 2015-15689 Filed 6-25-15; 8:45 am]
 BILLING CODE 8011-01-P


