Federal Register / Vol. 76, No. 71 / Wednesday, April 13, 2011 / Notices 20773 

14 17 CFR 200.30–3(a)(12). 

1 15 U.S.C. 78s(b)(1). 

2 17 CFR 240.19b–4. 

3See Securities Exchange Act Release No. 54389 

(August 31, 2006), 71 FR 52829 (September 7, 

2006); Securities Exchange Act Release No. 57620 

(April 4, 2008) 73 FR 19271 (April 9, 2008). 

20549–1090. All submissions should 

refer to File No. SR–CBOE–2011–038. 

This file number should be included on 

the subject line if e-mail 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 such filing 

also will be available for inspection and 

copying at the principal office of the 

CBOE. 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 No. 

SR–CBOE–2011–038 and should be 

submitted on or before May 4, 2011. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.14

Cathy H. Ahn, 

Deputy Secretary. 

[FR Doc. 2011–8804 Filed 4–12–11; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–64249; File No. SR–Phlx– 

2011–47] 

Self-Regulatory Organizations; Notice 

of Filing and Immediate Effectiveness 

of Proposed Rule Change by NASDAQ 

OMX PHLX LLC To Establish a 

Qualified Contingent Cross Order 

April 7, 2011. 

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 April 1, 

2011, NASDAQ OMX PHLX LLC 

(‘‘Exchange’’) filed with the Securities 

and Exchange Commission 

(‘‘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. 

I. Self-Regulatory Organization’s 

Statement of the Terms of Substance of 

the Proposed Rule Change 

The Exchange proposes to amend 

PHLX Rule 1080 to establish a Qualified 

Contingent Cross Order (‘‘QCC Order’’) 

for execution in the PHLX XL II System 

(‘‘System’’ or ‘‘Exchange System’’). The 

QCC Order will facilitate the execution 

of stock/option Qualified Contingent 

Trades that satisfy the requirements of 

the trade through exemption in 

connection with Rule 611(d) of 

Regulation NMS (‘‘QCT Trade 

Exemption’’).3 The text of the proposed 

rule change is below. Proposed new 

language is italicized; proposed 

deletions are in brackets. 

* * * * * 

NASDAQ OMX PHLX Rules 

* * * * * 

Rule 1080. PHLX XL and XL II 

(a)–(n) No Change. 

(o) Qualified Contingent Cross Order. 

A Qualified Contingent Cross Order is 

comprised of an order to buy or sell at 

least 1,000 contracts that is identified as 

being part of a qualified contingent 

trade, as that term is defined in 

subsection (3) below, coupled with a 

contra-side order to buy or sell an equal 

number of contracts. 

(1) Qualified Contingent Cross Orders 

are immediately executed upon entry 

into the System by an Order Entry Firm 

provided that (i) no Customer Orders 

are at the same price on the Exchange’s 

limit order book and (ii) the price is at 

or between the NBBO. 

(a) Qualified Contingent Cross Orders 

will be automatically rejected if they 

cannot be executed. 

(b) Qualified Contingent Cross Orders 

may only be entered in the regular 

trading increments applicable to the 

options class under Rule 1034. 

(2) Qualified Contingent Cross Orders 

shall only be submitted electronically 

from off the Floor to the PHLX System. 

Order Entry Firms must maintain books 

and records demonstrating that each 

Qualified Contingent Cross Order was 

routed to the Exchange System from off 

of the Floor. Any Qualified Contingent 

Cross Order that does not have a 

corresponding record required by this 

subsection shall be deemed to have been 

entered from on the Floor in violation of 

this Rule. 

(3) A ‘‘qualified contingent trade’’ is a 

transaction consisting of two or more 

component orders, executed as agent or 

principal, where: 

(a) At least one component is an NMS 

Stock, as defined in Rule 600 of 

Regulation NMS under the Exchange 

Act; 

(b) All components are effected with 

a product or price contingency that 

either has been agreed to by all the 

respective counterparties or arranged 

for by a broker-dealer as principal or 

agent; 

(c) The execution of one component is 

contingent upon the execution of all 

other components at or near the same 

time; 

(d) The specific relationship between 

the component orders (e.g., the spread 

between the prices of the component 

orders) is determined by the time the 

contingent order is placed; 

(e) The component orders bear a 

derivative relationship to one another, 

represent different classes of shares of 

the same issuer, or involve the securities 

of participants in mergers or with 

intentions to merge that have been 

announced or cancelled; and 

(f) The transaction is fully hedged 

(without regard to any prior existing 

position) as a result of other 

components of the contingent trade. 

* * * * * 

(b) Not applicable. 

(c) Not applicable. 

* * * * * 

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. 

mstockstill on DSKH9S0YB1PROD with NOTICES

20774 Federal Register / Vol. 76, No. 71 / Wednesday, April 13, 2011 / Notices 

4The Commission notes that the order approving 

the ISE QCC Proposal was published in the Federal 

Register on March 2, 2011. See Securities Exchange 

Act Release No. 63955 (February 24, 2011), 76 FR 

11533 (‘‘Approval Order’’). 

5See Letter, dated August 13, 2010, from Thomas 

Wittman, President, NASDAQ OMX PHLX to 

Elizabeth Murphy, Secretary, U.S. Securities and 

Exchange Commission. 

6Approval Order at p. 28 (citing to Reg NMS QCT 

Exemption). 

7 Id. at p. 18. 8The Exchange has filed its proposed rule change 

pursuant to Rule 19b–4(f)(6). The Commission notes 

that it has previously provided guidance regarding 

the appropriate analysis for when a self-regulatory 

organization may submit a proposed rule change 

under Rule 19b–4(f)(6) for immediate effectiveness. 

See Securities Exchange Act Release No. 58092 

(July 3, 2008), 73 FR 40143 (July 11, 2008). 

9PHLX will reject QCC Orders that attempt to 

execute when any Customer orders are resting on 

the Exchange limit order book at the same price. ISE 

QCC Orders will be cancelled only when they 

encounter resting orders of Priority Customers. The 

Commission has previously approved the rejection 

of crossing transactions when there is a customer 

order on the book at the same price. See, e.g., ISE 

Rule 721(a); and CBOE Rule 6.74A, Interpretations 

and Policies .08. 

10While the QCC would not provide exposure for 

price improvement for the options leg of a stockoption order, the options leg must be executed at 

the NBBO or better. The Commission has 

previously approved crossing transactions with no 

opportunity for price improvement. See, e.g., ISE 

Rule 721(a) and Chicago Board Options Exchange 

Rule 6.74A, Interpretations and Policies .08. 

11 It is PHLX’s position that the Approval Order 

contemplates the submission of QCC Orders from 

the Floor of the Exchange. Nothing in this filing 

should be construed as being inconsistent with that 

position. 

12 15 U.S.C. 78f(b). 

13 15 U.S.C. 78f(b)(5). 

14 15 U.S.C. 78f(b)(8). 

A. Self-Regulatory Organization’s 

Statement of the Purpose of, and 

Statutory Basis for, the Proposed Rule 

Change 

1. Purpose 

On February 24, 2011, the 

Commission issued an order approving 

SR–ISE–2010–073, a proposal by the ISE 

to establish a Qualified Contingent 

Cross (‘‘ISE QCC Proposal’’).4 The ISE 

QCC Proposal was controversial, 

attracting opposition from multiple 

exchanges including PHLX. In its 

comment letter on the ISE QCC 

Proposal, PHLX asserted that the QCC 

Proposal deviated from ‘‘long-held 

principles in the options market by 

permitting the crossing of orders 

without requiring prior exposure’’ and 

that the ISE QCC Proposal failed 

adequately to protect customers with 

orders resting on the ISE limit order 

book.5

The Commission, in a thorough and 

thoughtful decision, concluded that the 

QCC Proposal—including the lack of 

prior order exposure—is consistent with 

the Act. With respect to order exposure, 

the Commission stated: 

While the Commission believes that order 

exposure is generally beneficial to options 

markets in that it provides an incentive to 

options market makers to provide liquidity 

and therefore plays an important role in 

ensuring competition and price discovery in 

the options markets, it also has recognized 

that contingent trades can be ‘‘useful trading 

tools for investors and other market 

participants, particularly those who trade the 

securities of issuers involved in mergers, 

different classes of shares of the same issuer, 

convertible securities, and equity derivatives 

such as options [italics added].’’ and that 

‘‘[t]hose who engage in contingent trades can 

benefit the market as a whole by studying the 

relationships between the prices of such 

securities and executing contingent trades 

when they believe such relationships are out 

of line with what they believe to be fair 

value.’’ As such, the Commission stated that 

transactions that meet the specified 

requirements of the NMS QCT Exemption 

could be of benefit to the market as a whole, 

contributing to the efficient functioning of 

the securities markets and the price 

discovery process.6

The Approval Order succinctly sets 

forth the material elements of ISE’s 

Qualified Contingent Cross: 

Thus, as modified, an ISE member effecting 

a trade pursuant to the NMS QCT Exemption 

could cross the options leg of the trade on 

ISE as a QCC Order immediately upon entry, 

without exposure, only if there are no 

Priority Customer orders on the Exchange’s 

limit order book at the same price and if the 

order: (i) Is for at least 1,000 contracts; (ii) 

meets the six requirements of the NMS QCT 

Exemption; and (iii) is executed at a price at 

or between the NBBO (‘‘Modified QCC 

Order’’). In the Notice, ISE stated that the 

modifications to the Original QCC Order (i.e., 

to prevent the execution of a QCC if there is 

a Priority Customer on its book and to 

increase the minimum size of a QCC Order) 

remove the appearance that such orders are 

trading ahead of Priority Customer orders or 

that the QCC Order could be used to 

disadvantage retail customers (citations 

omitted).7

The Commission, having considered 

and addressed all arguments in favor 

and in opposition to the QCC, has 

established binding precedent under 

which other exchanges can establish a 

QCC Order that is also consistent with 

the Act.8

In keeping with that precedent, PHLX 

hereby proposes to add PHLX Rule 

1080(o) to establish a QCC Order based 

on the precedent of ISE’s QCC Order. 

Specifically, PHLX proposes to amend 

Rule 1080 to provide that a PHLX Order 

Entry Firm effectuating a trade via the 

System pursuant to the Regulation NMS 

Qualified Contingent Trade Exemption 

to Rule 611(a) (‘‘QCT Exemption’’) can 

cross the options leg of the trade on 

PHLX as a QCC Order immediately 

upon entry and without order exposure 

if no Customer Orders 9 exist on the 

Exchange’s order book at the same price. 

As set forth in proposed Rule 1080(o), 

the QCC Order must: (i) Be for at least 

1,000 contracts, (ii) meet the six 

requirements of Rule 1080(o)(3) which 

are modeled on the QCT Exemption, 

(iii) be executed at a price at or between 

the National Best Bid and Offer 

(‘‘NBBO’’); and (iv) be rejected if a 

Customer order is resting on the 

Exchange book at the same price.10 As 

a result, the PHLX QCC Order proposed 

herein satisfies all of the requirements 

the Commission enumerated in the 

Approval Order. 

Under this proposal, the Exchange 

would only permit QCCs to be 

submitted electronically from off the 

Floor through the Exchange System. In 

this regard, a Floor Broker located on 

the Floor of the Exchange would not be 

allowed to enter QCCs into the System, 

or otherwise effect them in open outcry. 

We plan to file a separate proposed rule 

change to address effecting QCCs in 

open outcry on the Floor of the 

Exchange.11

To provide a mechanism for the 

Exchange to review for whether QCC 

Orders have been entered from off of the 

Floor, the Exchange proposes to adopt 

proposed Rule 1080(o)(2). This 

provision would require members to 

maintain books and records 

demonstrating that each Qualified 

Contingent Cross Order was routed to 

the Exchange System from off of the 

Floor. Any Qualified Contingent Cross 

Order that does not have a 

corresponding record required by this 

provision would be deemed to have 

been entered from on the Floor in 

violation of Rule 1080(o). 

The Exchange’s proposal addresses 

the mechanics of executing the stock 

and options components of a net-price 

transaction. The Exchange believes that 

it is necessary that it provide members 

and their customers with the same 

trading capabilities available on other 

exchanges with respect to QCCs, 

including the change proposed herein, 

which would permit members to 

execute the options legs of their 

customers’ large complex orders on the 

Exchange. 

2. Statutory Basis 

The Exchange believes that its 

proposal is consistent with Section 6(b) 

of the Act 12 in general, and furthers the 

objectives of Section 6(b)(5) 13 and 

6(b)(8) 14of the Act 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 

mstockstill on DSKH9S0YB1PROD with NOTICES

Federal Register / Vol. 76, No. 71 / Wednesday, April 13, 2011 / Notices 20775 

15 15 U.S.C. 78k–1(a)(1)(C). 

16 15 U.S.C. 78s(b)(3)(A)(iii). 

17 17 CFR 240.19b–4(f)(6). In addition, Rule 19b– 

4(f)(6)(iii) requires the self-regulatory organization 

to submit to the Commission written notice of its 

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. 

18 17 CFR 200.30–3(a)(12). 

1 15 U.S.C. 78s(b)(1). 

2 17 CFR 240.19b–4. 

and a national market system, and, in 

general to protect investors and the 

public interest and the rules of an 

exchange do not impose any burden on 

competition not necessary or 

appropriate in furtherance of the 

purposes of the Act. In addition, the 

proposed rule change is consistent with 

Section 11A(a)(1)(C) of the Act,15 in 

which Congress found that it is in the 

public interest and appropriate for the 

protection of investors and the 

maintenance of fair and orderly markets 

to assure, among other things, the 

economically efficient execution of 

securities transactions. 

The statutory basis for PHLX’s 

proposed QCC Order is identical to the 

Commission’s basis for finding that the 

ISE’s QCC Proposal is consistent with 

the Act ‘‘in that it would facilitate the 

execution of qualified contingent trades, 

for which the Commission found in the 

Original QCT Exemption to be of benefit 

to the market as a whole, contributing 

to the efficient functioning of the 

securities markets and the price 

discovery process. The QCC Order 

would provide assurance to parties to 

stock-option qualified contingent trades 

that their hedge would be maintained by 

allowing the options component to be 

executed as a clean cross.’’ In addition, 

like the ISE’s QCC Order, the 

Exchange’s Modified QCC Order ‘‘is 

narrowly drawn to provide a limited 

exception to the general principle of 

exposure, and retains the general 

principle of customer priority.’’ 

PHLX’s proposed QCC Order 

promotes the same Commission goals as 

or more effectively, and it is as or more 

narrowly drawn than ISE’s QCC Order. 

Accordingly, the Exchange believes that 

the proposed rule change must also be 

consistent with the Act. 

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 

Because the 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 prior to 30 days from the date 

on which it was filed, or such shorter 

time as the Commission may designate, 

if consistent with the protection of 

investors and the public interest, the 

proposed rule change has become 

effective pursuant to Section 19(b)(3)(A) 

of the Act 16 and Rule 19b–4(f)(6)(iii) 

thereunder.17

At any time within 60 days of the 

filing of such 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. 

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 e-mail to rulecomments@sec.gov. Please include File 

Number SR–Phlx–2011–47 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–2011–47. This file 

number should be included on the 

subject line if e-mail 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 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 No. SR–Phlx–2011– 

47 and should be submitted on or before 

May 4, 2011. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.18

Cathy H. Ahn, 

Deputy Secretary. 

[FR Doc. 2011–8803 Filed 4–12–11; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–64244; File No. SR–Phlx2011–46] 

Self-Regulatory Organizations; Notice 

of Filing of Proposed Rule Change by 

NASDAQ OMX PHLX LLC To Expand 

the Number of Components in the 

PHLX Gold/Silver SectorSM Known as 

XAUSM, on Which Options Are Listed 

and Traded 

April 7, 2011. 

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 March 31, 

2011, 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, II, and 

III, 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. 

mstockstill on DSKH9S0YB1PROD with NOTICES