78320 Federal Register / Vol. 75, No. 240 / Wednesday, December 15, 2010 / Notices 

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

6 15 U.S.C. 78s(b)(3)(A). 

7 17 CFR 240.19b–4(f)(6)(iii). In addition, Rule 

19b–4(f)(6)(iii) requires that a self- regulatory 

organization 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 filing of the proposed rule change, or 

such shorter time as designated by the Commission. 

The Commission notes that the Exchange has 

satisfied this requirement. 

8For 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). 

9 17 CFR 200.30–3(a)(12). 

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

2 17 CFR 240.19b–4. 

Exchange believes the benefits to market 

participants from the more objective 

clearly erroneous executions rule 

should be approved to continue on a 

pilot basis. 

2. Statutory Basis 

The statutory basis for the proposed 

rule change is Section 6(b)(5) of the 

Act,5 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 

transparency and uniformity across 

markets concerning review of 

transactions as clearly erroneous. 

B. Self-Regulatory Organization’s 

Statement on Burden on Competition 

The proposed rule change does not 

impose any burden on competition that 

is not necessary or appropriate in 

furtherance of the purposes of the Act. 

C. Self-Regulatory Organization’s 

Statement on Comments on the 

Proposed Rule Change Received From 

Members, Participants or Others 

The Exchange has not solicited, and 

does not intend to solicit, comments on 

this proposed rule change. The 

Exchange has not received any 

unsolicited written comments from 

members or other interested parties. 

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 6 and Rule 19b– 

4(f)(6)(iii) thereunder.7 The Exchange 

has asked the Commission to waive the 

30-day operative delay so that the 

proposal may become operative 

immediately upon filing. The 

Commission believes that waiving the 

30-day operative delay is consistent 

with the protection of investors and the 

public interest because such waiver will 

allow the pilot program to continue 

uninterrupted and help ensure 

uniformity among the national 

securities exchanges and FINRA with 

respect to the treatment of clearly 

erroneous transactions.8 Accordingly, 

the Commission waives the 30-day 

operative delay requirement and 

designates the proposed rule change as 

operative upon filing with the 

Commission. 

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. 

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–EDGX–2010–23 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–EDGX–2010–23. 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 

publicly available. All submissions 

should refer to File Number SR–EDGX– 

2010–23 and should be submitted on or 

before January 5, 2011. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.9

Florence E. Harmon, 

Deputy Secretary. 

[FR Doc. 2010–31490 Filed 12–14–10; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–63509; File No. SR–Phlx– 

2010–157] 

Self-Regulatory Organizations; 

NASDAQ OMX PHLX LLC; Notice of 

Filing of Proposed Rule Change, as 

Modified by Amendment No. 1, 

Relating to Complex Orders 

December 9, 2010. 

Pursuant to Section 19(b)(1) of the 

Securities Exchange Act of 1934 

(‘‘Act’’),1 and Rule 19b–42 thereunder, 

notice is hereby given that on November 

29, 2010, 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. On December 

6, 2010, the Exchange filed Amendment 

No. 1 to the proposed rule change. The 

Commission is publishing this notice to 

solicit comments on the proposed rule 

change, as modified by Amendment No. 

1, from interested persons. 


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3 15 U.S.C. 78s(b)(1). 

4 17 CFR 240.19b–4. 

5See Rule 1080.08(e). 

6Securities Exchange Act Release No. 58361 

(August 14, 2008), 73 FR 49529 (August 21, 2008) 

(SR–Phlx–2008–50). Since that time, the Exchange 

has enhanced its options trading platform, now 

known as Phlx XL II. See Securities Exchange Act 

Release No. 59995 (May 28, 2009), 74 FR 26750 

(June 3, 2009) (SR–Phlx–2009–32). 

7Currently, complex orders also trade on the floor 

of the Exchange pursuant to various rules, 

including Rule 1033; this proposal does not impact 

such manual trading. 

8This includes additional language that provides 

that a Complex Order is priced at a net debit or 

credit based on the relative prices of the individual 

components, which is currently in the definition of 

Complex Order Strategy in Rule 1080.08(a)(ii), but 

fits better in the definition of Complex Order. 

9This definition is similar to ISE Rule 722(a). 

10The term ‘‘stock’’ is used interchangeably with 

‘‘underlying security’’ herein. In addition, in the 

case of foreign currency options and index options, 

the underlying cannot be a component of a 

Complex Order, because such underlying 

instrument is not a security and instead consists of 

actual foreign currency and an index, respectively, 

which are not currently included in the program the 

Exchange has developed. 

11Because it must represent exactly 100 shares, 

there can be no cash component. For example, XRX 

bought ACS, resulting in an adjusted option trading 

under the symbol AGY; AGY options settle into 

4.935 XRX shares plus $18.60 cash. See e.g., http:// 

www.theocc.com/components/docs/market-data/ 

infomemos/2010/feb/26947.pdf. Accordingly, 

because AGY options settle through delivery of 

XRX shares and cash rather than AGY shares, it 

would not possible to enter a AGY stock-option 

order. Instead, AGY Complex Orders can only 

consist of options components to be traded on the 

Exchange. 

12The ISE has adopted a similar generic 

provision. See Securities Exchange Act Release No. 

59021 (November 26, 2008), 73 FR 74545 

(December 8, 2008) (SR–ISE–2008–91). 

13See current Phlx Rule 1080.08(a)(i)(A)–(F). 

14For example, a Complex Order Strategy might 

be ‘‘buy one XYZ January 20 call, sell one XYZ 

January 20 put.’’ The System would assign this 

Complex Order Strategy a specific identification 

number or code that would be used in the System 

to identify this Complex Order Strategy. 

Hypothetically, the identification number for this 

particular Complex Order Strategy could be 

‘‘Complex Order Strategy #12345.’’ Complex Order 

Strategy #12345 would have a bid price and an offer 

price. If an investor wishes to purchase or sell, for 

example, 10 Complex Order Strategy 12345, such 

an investor would be bidding for or offering to buy 

10 XYZ January 20 calls and sell 10 XYZ January 

20 puts. This is not a new feature and was included 

in the original proposal. See Securities Exchange 

Act Release No. 58361 (August 14, 2008), 73 FR 

49529 (August 21, 2008) (SR–Phlx–2008–50). 

I. Self-Regulatory Organization’s 

Statement of the Terms of Substance of 

the Proposed Rule Change 

The Exchange, pursuant to Section 

19(b)(1) of the Act 3 and Rule 19b–4 

thereunder,4 proposes to amend Rule 

1080.08 to change the following aspects 

of its Complex Orders System: (i) Permit 

Complex Orders where one of the 

components of the Complex Order is the 

underlying security (stock or Exchange 

Traded Fund Share (‘‘ETF’’)); (ii) permit 

Complex Orders with more than two 

components; (iii) add a ‘‘Do Not 

Auction’’ condition for Complex Orders 

that prevents orders so marked from 

triggering (or joining) a Complex Order 

Live Auction; 5 (iv) permit day orders to 

be sent by certain participants; (v) add 

an execution priority provision that 

clarifies execution priority respecting 

current Complex Orders and establishes 

the execution priority of the proposed 

new Complex Orders; and (vi) revise the 

definition section. 

The text of the proposed rule change 

is available on the Exchange’s Website 

at http://www.nasdaqtrader.com/ 

micro.aspx?id=PHLXRulefilings, 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 

In 2008, the Exchange automated the 

handling of Complex Orders on its 

electronic trading platform for options, 

Phlx XL.6 Currently, the Exchange’s 

Complex Orders functionality is limited 

to Complex Orders consisting solely of 

two option components. The Exchange 

proposes to add Complex Orders where 

one component is the underlying stock 

or ETF. The Exchange also proposes to 

permit Complex Orders consisting of up 

to six components. The purpose of the 

proposed rule change is to more 

efficiently handle these new Complex 

Orders on the Exchange by establishing 

rules and systems that would enable the 

Exchange to handle such orders 

electronically.7

Definitions 

The Exchange is proposing to revise 

the definition of Complex Order in Rule 

1080.08(a)(i) to provide that a Complex 

Order is any order involving the 

simultaneous purchase and/or sale of 

two or more different options series in 

the same underlying security, priced at 

a net debit or credit based on the 

relative prices of the individual 

components, for the same account, for 

the purpose of executing a particular 

investment strategy.8 Furthermore, a 

Complex Order can also be a stockoption order, which is an order to buy 

or sell a stated number of units of an 

underlying stock or ETF coupled with 

the purchase or sale of options 

contract(s).9 Accordingly, the Exchange 

is now permitting one component of a 

Complex Order to consist of the 

underlying stock or ETF.10 A Complex 

Order with one component that is the 

underlying stock or ETF is also referred 

to as a stock-option order. The 

underlying stock or ETF must be the 

deliverable for the options component 

of that Complex Order and represent 

exactly 100 shares per option for regular 

way delivery.11 In the case of Complex 

Orders with a stock or ETF component, 

these cannot be executed against orders 

for the individual legs; stock-option 

orders in the System can only be 

executed against other stock-option 

orders. The Exchange is proposing to 

state that the maximum number of 

components will be six, including both 

options and stock components. For 

example, under the proposal, a Complex 

Order could consist of up to five options 

series plus the underlying security. Or, 

a Complex Order could consist of up to 

six options series. 

This revision of the definition of a 

Complex Order is intended to simplify 

the rule and recognizes that there are 

many types and permutations possible, 

as strategies develop and become more 

sophisticated.12 As a result of this 

revision of the definition of a Complex 

Order, several subparagraphs are being 

deleted because they are too specific 

and no longer needed, as they are 

covered under the new, broader 

definition; these include the definition 

of a spread order, a straddle order, a 

combination order, a ratio order, a collar 

order, and a tied hedge order.13

In Rule 1080.08(a)(ii), the Exchange is 

also revising the definition of Complex 

Order Strategy, in addition to moving 

the pricing language, as explained 

above, to expressly state in the rule that 

each such strategy is assigned a strategy 

identifier by the System.14 This is 

intended to make the program clearer in 

the rules. The Exchange is also 

proposing to better state that a Complex 

Order Strategy means a particular 

combination of components and their 

ratios to one another. 

In conjunction with permitting one of 

the components of a Complex Order to 

be the underlying security, the 


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15See Rule 1080.08(e). 

16 DNA orders can be marked IOC, which means 

that the order cannot start an auction (whereas an 

IOC order can), and get rejected if there is an 

auction in progress. 

17One example of a conforming five-legged ratio 

is: B 100 GE Dec 12.50 calls for 4.00, S 200 GE Dec 

15.00 calls for 2.00, B 100 GE Dec 17.50 calls for 

.60 and also S 100 Dec 17.50/Dec 16.50 put spreads 

at .60; because the highest volume to the lowest 

volume is in a ratio of 2:1 (200 versus 100 options), 

this order is conforming. 

18One example of a non-conforming five-legged 

ratio is: B 100 GE Dec 12.50 calls for 4.00, S 200 

GE Dec 15.00 calls for 2.00, B 100 GE Dec 17.50 

calls for .60 and also S 400 Dec 17.50/Dec 16.50 put 

spreads at .60; because the highest volume to the 

lowest volume is in a ratio of 4:1 (400 versus 100 

options), this order is not conforming. 

19These are the same ratios found in ISE Rule 

722(a)(4). If the largest option leg versus stock meets 

the conforming ratio, then, necessarily, all smaller 

legs would also meet the definition of conforming 

ratio. 

20Complex orders consisting of a nonconforming 

ratio will not be accepted. 

21See Securities Exchange Act Release No. 60405 

(July 30, 2009), 74 FR 39362 (August 6, 2009) 

Options Linkage Plan at Section 5(b)(viii), which 

prohibits trading through a better price of another 

exchange unless an exception applies. Phlx Rule 

1084(b)(viii) provides an exception for complex 

orders. This exception applies to Complex Orders 

executed as such, and not those executed by 

legging, such as pursuant to Rule 1080.08(e)(vi)(A). 

22Exchange Rule 1033(d) affords priority to 

spread type orders over either the bid or the offer 

established in the marketplace that is not better 

than the bids or offers comprising such total credit 

or debit, provided that, the member executes at 

least one option leg at a better price than 

established bid or offer for that option contract AND 

no option leg is executed at a price outside of the 

established bid or offer for that option contract. 

23This applies to both trading in the complex 

orders automated functionality as well as manual 

trading on the floor. See Rule 1033(d). 

Exchange proposes to amend 

subparagraphs (a)(iv) and (vi) to update 

the definitions of cPBBO and cNBBO, 

respectively, to include the underlying 

security. Specifically, both would be 

amended to state that the best net debit 

or credit price for a Complex Order 

Strategy that includes a stock/ETF 

component includes the national best 

bid or offer for the underlying security. 

The Exchange also proposes to adopt, 

in new subparagraph (a)(viii), a new 

order condition called ‘‘Do Not 

Auction,’’ or DNA, which causes an 

order to not be eligible to begin a 

Complex Order Live Auction 

(‘‘COLA’’).15 DNA Orders cannot join a 

COLA in progress. These orders can 

avoid an auction and, instead, be either 

executed immediately or cancelled.16

DNA Orders received prior to the 

opening or when the Complex Order 

Strategy is not available for trading will 

be cancelled. DNA Orders will initially 

only be available for Complex Orders 

consisting of more than two option 

components or where the underlying 

security is a component; once the 

Exchange has fully rolled out its 

enhanced Complex Order System, 

which will be announced in an Options 

Trader Alert, DNA Orders will also 

become available for Complex Orders 

consisting of two option components. 

Priority 

The Exchange proposes to clarify and 

expand upon the trade-through and 

execution priority provisions applicable 

to Complex Orders, including the 

expanded definition of Complex Orders. 

Accordingly, the Exchange, first, 

proposes to add to the definitions 

section of the rule, Rule 1080.08(a), the 

definition of a conforming ratio. A 

conforming ratio, in proposed Rule 

1080.08(a)(ix), is essentially a 

permissible ratio, renamed. Specifically, 

it is where the ratio between the sizes 

of the options components of a Complex 

Order is equal to or greater than one-tothree (.333) and less than or equal to 

three-to-one (3.00). For example, a oneto-two (.5) ratio, a two-to-three (.667) 

ratio, or a two-to-one (2.00) ratio is a 

conforming ratio,17 whereas a one-tofour (.25) ratio or a four-to-one (4.0) 

ratio is not.18

Where one component of the Complex 

Order is the underlying security, the 

ratio between any options component 

and the underlying security component 

must be eight contracts to 100 shares of 

the underlying security or less.19 One 

example of a two-legged ratio order with 

a stock component that is conforming is: 

B 400 GE Dec 16.50 calls, S 400 Dec 

17.50 calls and S 12,000 shares of GE at 

16.50; after comparing the largest option 

leg (400) to each 100 lot of shares (100 

× 120 = 12,000 shares, or 120 lots of 

100), the ratio is 3.33 (400 divided by 

120) options per 100 shares, which is 

less than the maximum allowable 8 

options per 100 shares, which is a 

conforming ratio. In contrast, B 200 GE 

Dec 16.50 calls, S 400 GE Dec 17.50 

calls and S 3,000 shares of GE at 16.50 

is a nonconforming ratio, because 

comparing the largest leg of the options 

trade (400) to 30 lots of 100 (3,000 

shares) equals 13.33 (400 divided by 30) 

options per 100 shares, which is greater 

than the maximum allowable 8 options 

per 100 shares and thus nonconforming. 

Currently, the same ratio appears in 

Rule 1080.08(a)(i)(D), within the 

definition of a Ratio Order; that 

provision is proposed to be deleted and 

replaced by the new definition of 

conforming ratio to make the rule 

clearer.20

Today, Complex Orders consisting of 

permissible (now called conforming) 

ratios are excepted from the tradethrough prohibitions of the Options 

Order Protection and Locked/Crossed 

Market Plan (‘‘Options Linkage Plan’’), 

because the Plan contains an exception 

for Complex Orders with a certain ratio. 

Accordingly, these orders can be 

executed without regard to prices for the 

individual legs on other exchanges, 

meaning trading through possibly better 

prices.21 The Exchange now proposes to 

codify this in new subparagraph 

(c)(iii)(C). 

In addition to trade-through 

provisions, whether a Complex Order 

has a conforming ratio is also relevant 

in determining how the Exchange’s 

spread priority rules apply. Today, Rule 

1033(d) applies to executions of 

Complex Orders.22 Throughout Rule 

1080.08, there are cross references to 

Rule 1033(d), which will now be 

deleted and replaced with new 

paragraph (c)(iii), which is the spread 

priority provision applicable to 

Complex Orders executed on Phlx XL II. 

The spread priority provisions in new 

subparagraph (c)(iii) provide the same 

priority under the same conditions to a 

broader class of Complex Orders under 

this proposal. 

Spread priority refers to the priority of 

orders and quotes on the Exchange’s 

own market and permits part of an 

eligible Complex Order to have priority 

over other bids and offers in the 

marketplace. Today, for a Complex 

Order consisting of two options 

components, if the ratio between those 

options components is a permissible 

(now called conforming) ratio, then if 

one option ‘‘leg’’ or component improves 

the Exchange’s market for that option 

series, then the other option leg can be 

executed with priority over existing 

bids/offers (including customers), 

provided that neither option leg is 

executed at a price outside of the 

established bid or offer for that option 

contract.23 For example, if a Complex 

Order is received to buy one option A 

contract and sell one option B contract 

for a net debit of .65, where option A 

has a PBBO of 1.00–1.20 with a 1.00 

customer limit order to buy on the book 

and option B has a PBBO of .45–.50 

with a .50 customer limit order to sell 

on the book, permissible trade prices 

could be 1.15 for option A and .50 for 

option B. Option B is allowed to execute 

at .50 because option A executed at a 

price that improved the Exchange’s 

market in that option. The application 

of spread priority to Complex Orders 

consisting only of options is not 

changing and will now be covered by 

new Rule 1080.08(c)(iii)(A). 

Furthermore, under this proposal, 

because Complex Orders with a stock 


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24An SQT is a Registered Options Trader (‘‘ROT’’) 

who has received permission from the Exchange to 

generate and submit options quotations 

electronically through an electronic interface via an 

Exchange approved proprietary electronic quoting 

device in eligible options to which such SQT is 

assigned. See Rule 1014(b)(ii)(A). 

25An RSQT is an ROT that is a member or 

member organization with no physical trading floor 

presence who has received permission from the 

Exchange to generate and submit options quotations 

electronically in eligible options to which such 

RSQT has been assigned. An RSQT may only 

submit such quotations electronically from off the 

floor of the Exchange. See Rule 1014(b)(ii)(B). 

26A non-SQT ROT is an ROT who is neither an 

SQT nor an RSQT. See Rule 1014(b)(ii)(C). 

27As a result of adding Day orders for this 

category of users, the Exchange also proposes to 

amend Rule 1080.08(f)(i) to eliminate reference to 

the types of orders on the Complex Limit Order 

Book, because it is too specific. 

28The Exchange intends to consider the primary 

market for the underlying security to be the listing 

market; if the Exchange determines to use a market 

other than the listing market, the Exchange will 

issue an Options Trader Alert announcing any such 

change. 

component will now be permitted on 

Phlx XL II, priority provisions similar to 

Rule 1033 will now also apply to 

Complex Orders on Phlx XL II where 

one component is the underlying stock 

or ETF. Today, this is true for Complex 

Orders with a stock component 

executed manually on the trading floor, 

which are subject to Rule 1033(e). Thus, 

new subparagraph (c)(iii)(B) will govern 

the execution priority of the new stockoption Complex Orders on Phlx XL II. 

Specifically, it provides that where a 

conforming Complex Order consists of 

the underlying stock or ETF and one 

options leg, such options leg does not 

have priority over bids and offers 

established in the marketplace, 

including customer orders. Where a 

conforming Complex Order consists of 

the underlying stock or ETF and more 

than one options leg, the options legs 

have priority over bids and offers 

established in the marketplace, 

including customer orders, if at least 

one options leg improves the existing 

market for that option. 

For example, where there is a 

conforming Complex Order to buy 1 

option A, sell 1 option B, and sell 50 

shares of the underlying stock for a net 

debit of 9.55 where the PBBO of option 

A is 1.00–1.20 with a customer 1.00 bid, 

the PBBO of option B is .40–.50, and the 

stock NBBO is 20.10–20.20, the 

following trade prices would be 

permissible: Option A could execute at 

1.00, option B at .45, and the stock at 

20.20. Option A is able to trade on the 

PBBO at the same price as the customer 

because option B improved the PBBO. 

The price of the stock portion is not 

relevant in applying the Exchange’s 

option execution priority rules. As a 

second example, if a conforming 

Complex Order consists of only one 

option component and stock, then the 

option component may not be allowed 

to be executed at the same price as any 

existing bid/offer including customer 

bids/offers. For example, a conforming 

Complex Order to sell 1 option A and 

buy 100 shares, with option A having a 

PBBO of 2.00–2.20 and the stock having 

a NBBO of 10.00–10.20, for a net debit 

of 7.90 could receive the following 

permissible trade prices: Option A 

could execute at 2.10 with the stock 

execution occurring at 10.00. Option A 

could not execute at 2.20, because the 

option component does not have 

priority over existing bids/offers. 

Order Entry 

Currently, under subparagraph (b)(ii), 

Streaming Quote Traders (‘‘SQTs’’),24

Remote Streaming Quote Traders 

(‘‘RSQTs’’),25 non-SQT ROTs,26

specialists and non-Phlx market makers 

on another exchange are permitted to 

enter Complex Orders as IOC only. 

However, for Complex Orders consisting 

of more than two option components or 

where the underlying security is a 

component, SQTs, RSQTs, non-SQT 

ROTs, specialists and non-Phlx market 

makers on another exchange may also 

enter Day orders; 27 once the Exchange 

has fully rolled out its enhanced 

Complex Order System, which will be 

announced in an Options Trader Alert, 

Day orders will become available for 

Complex Orders consisting of two 

option components. The Exchange 

expects that adding Day orders here 

should encourage more orders from this 

group of participants. 

Currently, pursuant to subparagraph 

(b)(iii), Floor Brokers using the Options 

Floor Broker Management System may 

enter Complex Orders into the 

Exchange’s electronic Complex Orders 

System as Day, GTC or IOC on behalf of 

non-broker-dealer customers and nonmarket maker off-floor broker-dealers, 

and as IOC only on behalf of brokerdealers or affiliates of broker-dealers. 

The Exchange proposes to amend this 

subparagraph to reflect that DNA orders 

and orders with more than two legs or 

a stock/ETF component (which are new) 

cannot be entered by Floor Brokers at 

this time. The Exchange believes that 

Floor Brokers are able to and use other, 

non-Exchange systems to access Phlx 

XL II, such that the FBMS, which is 

primarily intended to capture brokered 

orders into the options audit trail 

system, is not the sole method for them 

to submit orders to the Exchange. In 

addition, complex orders can be 

handled manually on the Exchange 

trading floor today. The Exchange 

believes that Floor Brokers are not likely 

to need or request these changes to 

FBMS, because they execute far more 

complex orders in the trading crowd 

today than through FBMS. 

Rule 1080.08(c) currently provides 

that a Complex Order is eligible to trade 

only when each component of the 

Complex Order is open for trading on 

the Exchange. The Exchange proposes to 

add the word ‘‘option’’ in certain places 

in this provision, because one 

component of a Complex Order can now 

be the underlying security. The 

Exchange also proposes to require that 

the underlying security be open for 

trading on its primary market 28 if such 

underlying security is a component of a 

Complex Order. 

Complex Order Processing and 

Execution 

Currently, pursuant to Rule 

1080.08(e)(i)(B)(2), a Complex Order 

that would otherwise be a COLAeligible order that is received in the 

System during the final ten seconds of 

any trading session shall not be COLAeligible. The Exchange proposes to make 

this time configurable, not to exceed the 

current ten seconds. The Exchange will 

issue an Options Trader Alert when the 

number of seconds changes. 

COLA-eligible orders, COLA Sweeps, 

and responsive Complex Orders trade 

first based on the best price or prices 

available at the end of the COLA Timer. 

If no COLA Sweeps or responsive 

Complex Orders for the same Complex 

Order Strategy as the COLA-eligible 

order that improve the initial cPBBO 

were received during the COLA Timer, 

each component of the COLA-eligible 

order may trade at the PBBO with 

existing quotes and/or limit orders on 

the limit order book for the individual 

components of the Complex Order, 

provided that each component is 

executed such that the components 

comprise the Complex Order Strategy 

with the correct ratio for the desired net 

debit or credit. This is known as 

‘‘legging,’’ and the Exchange proposes to 

label subparagraph (e)(vi)(A)(1) as such. 

The Exchange is proposing to add that 

legging only occurs where there is no 

underlying security as a component of 

the Complex Order. If a COLA-eligible 

order cannot be filled in its entirety, any 

remaining balance would be placed on 

the CBOOK unless the COLA-eligible 

order has been submitted with other 

instructions (i.e., cancel). 

Currently, Complex Orders are 

automatically executed against orders 

on the CBOOK in price priority and in 


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29This change will initially only apply to 

Complex Orders consisting of more than two 

options components or where the underlying stock/ 

ETF is a component; once the Exchange has fully 

rolled out its enhanced Complex Order System, 

which will be announced in an Options Trader 

Alert, it will apply to Complex Orders consisting of 

two options components. 

30This is because Complex Orders consisting of 

the underlying stock or ETF can only trade with 

other Complex Orders. See proposed Rule 

1080.08(a)(i), which reads as follows: Stock-option 

orders can only be executed against other stockoption orders and cannot be executed by the System 

against orders for the individual components. 

31Securities Exchange Act Release Nos. 57478 

(March 12, 2008), 73 FR 14521 (March 18, 2008) 

(SR–NASDAQ–2007–004 and SR–NASDAQ–2007– 

080); and 59995 (May 28, 2009), 74 FR 26750 (June 

3, 2009) (SR–Phlx–2009–32). 

32FINRA was created in July 2007 through the 

consolidation of NASD and the member regulation, 

enforcement and arbitration functions of the NYSE. 

The FINRA rulebook currently consists of both 

NASD Rules and certain NYSE Rules that FINRA 

has incorporated (‘‘Incorporated NYSE Rules’’). 

33Similarly, pursuant to Phlx Rule 

1080(m)(iii)(C), the Exchange must establish and 

maintain procedures and internal controls 

reasonably designed to adequately restrict the flow 

of confidential and proprietary information between 

the Exchange and the Routing Facility. 

34See Securities Exchange Act Release No. 49023 

(January 5, 2004) (SR–ISE–2003–37) (‘‘Once the 

orders are communicated to the broker-dealer for 

execution, the broker-dealer has complete 

responsibility for determining whether the orders 

may be executed in accordance with all of the rules 

applicable to execution of equity orders, * * *’’). 

35Specifically, the trades will be reported to the 

FINRA/Nasdaq TRF, which is a facility of FINRA 

that is operated by The NASDAQ OMX Group, Inc. 

(‘‘NASDAQ OMX’’) and utilizes Automated 

Confirmation Transaction (‘‘ACT’’) Service 

technology. See e.g., Securities Exchange Act 

Release No. 61817 (March 31, 2010) (SR–FINRA– 

2010–011). 

36 17 CFR 242.611(a). 

time priority at the same price, as 

described in subparagraph (f)(iii). 

Specifically, a Complex Order resting on 

the CBOOK will execute automatically 

against: (i) Quotes or orders on the limit 

order book for the individual 

components of the order (allocated in 

accordance with Exchange Rule 

1014(g)(vii), and an SQT or RSQT 

quoting on all components of the 

Complex Order will have priority over 

SQTs and RSQTs quoting a single 

component, but not over customer 

orders); or (ii) an incoming marketable 

Complex Order that does not trigger a 

COLA Timer, whichever arrives first. At 

this time, the Exchange proposes to 

delete the provision that an SQT or 

RSQT quoting on all components of the 

Complex Order will have priority over 

SQTs and RSQTs quoting a single 

component in order to simplify the 

allocation process as the Exchange 

begins to accept more Complex Order 

types. Instead, an SQT or RSQT quoting 

on all components of the Complex 

Order will be on parity with SQTs and 

RSQTs quoting a single component.29

This is being deleted from Rule 

1080.08(e)(vi)(A)(1), (f)(iii)(A) and 

(f)(iii)(B)(1). The Exchange is deleting 

this provision to simplify system 

processing and does not believe, 

currently, that the benefits are material 

or being realized intentionally by 

participants. Furthermore, in Rule 

1080.08(f)(iii), the Exchange proposes to 

state that the execution against orders 

on the limit order book for the 

individual components means the 

options components, such that ‘‘legging’’ 

will not occur where any of the 

components is the underlying security. 

The Exchange proposes to add the 

word ‘‘options’’ in various places where 

the provision clearly applies only to the 

options component. For example, in 

subparagraph (c)(ii), most of the reasons 

why Complex Orders would not trade 

on the System relate to the options 

components. Similarly, in subparagraph 

(f)(i) governing what orders go on the 

CBOOK, ‘‘options’’ is being added to 

several of the provisions. 

Underlying Stock/ETF Component 

In addition to making the various new 

references to the underlying stock/ETF 

as a component of a Complex Order, the 

Exchange also proposes to adopt new 

subparagraph (h), which will state that 

where one component of a Complex 

Order is the underlying stock/ETF, the 

Exchange shall electronically 

communicate the underlying stock/ETF 

component of a Complex Order to 

Nasdaq Options Services LLC (‘‘NOS’’), 

its designated broker-dealer, for 

execution; this occurs once the Phlx 

trading System determines that a 

Complex Order trade is possible and at 

what prices. Specifically, NOS will act 

as agent for such stock/ETF orders; NOS 

will match those orders, which always 

consist of both a buy and sell order for 

the stock/ETF, because the System has 

determined that two Complex Orders 

can trade with each other.30 NOS will 

match these orders not on an exchange, 

but rather ‘‘over-the-counter.’’ 

Accordingly, the Exchange proposes to 

permit NOS to perform this function, in 

addition to its approved routing 

functions.31

NOS is a broker-dealer and member of 

various exchanges and the Financial 

Industry Regulatory Authority 

(‘‘FINRA’’). As discussed in detail below, 

NOS, under this proposal, would be 

responsible for the proper execution, 

trade reporting and submission to 

clearing of the stock/ETF trade that is 

part of a Complex Order. Because these 

trades will occur off-exchange, the 

principal regulator is FINRA, rather 

than Phlx or NASDAQ. Furthermore, 

NOS is responsible for compliance with 

FINRA rules generally and is subject to 

examination by FINRA. Specifically, 

NOS is subject to NASD Rule 3010,32

which generally requires that the 

policies and procedures and supervisory 

systems be reasonably designed to 

achieve compliance with applicable 

securities laws and regulations and with 

applicable NASD and FINRA rules, 

including those relating to the misuse of 

material non-public information. To this 

end, NOS intends to have in place 

policies related to confidentiality and 

the potential for informational 

advantages relating to its affiliates, 

intended to protect against the misuse of 

material nonpublic information.33

In addition, because the execution 

and reporting of the stock/ETF piece 

will occur otherwise than on this 

Exchange or any other exchange, it will 

be handled by NOS pursuant to 

applicable rules regarding equity 

trading,34 including the rules governing 

trade reporting, trade throughs and short 

sales. Specifically, NOS will report the 

trades to the Trade Reporting Facility.35

Firms that are members of FINRA or the 

NASDAQ Stock Market (‘‘NASDAQ’’) are 

required to have a Uniform Service 

Bureau/Executing Broker Agreement 

(‘‘AGU’’) with NOS in order to trade 

Complex Orders containing a stock/ETF 

component. Firms that are not members 

of FINRA or NASDAQ are required to 

have a Qualified Special Representative 

(‘‘QSR’’) arrangement with NOS in order 

to trade Complex Orders containing a 

stock/ETF component. This requirement 

is codified in proposed Rule 

1080.08(a)(i). Accordingly, this process 

is available to all Phlx member 

organizations and the stock/ETF 

component of a Complex Order, once 

executed, will be properly processed for 

trade reporting purposes. 

With respect to trade throughs, the 

Exchange believes that the stock/ETF 

component of a Complex Order is 

eligible for the Qualified Contingent 

Trade Exemption from Rule 611(a) of 

Regulation NMS. A Qualified 

Contingent Trade is a transaction 

consisting of two or more component 

orders, executed as agent or principal, 

that satisfy the six elements in the 

Commission’s order exempting 

Qualified Contingent Trades (‘‘QCTs’’) 

from the requirements of Rule 611(a),36

which requires trading centers to 

establish, maintain, and enforce written 

policies and procedures that are 

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hsrobinson on DSK69SOYB1PROD with NOTICES
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37See Securities Exchange Act Release No. 57620 

(April 4, 2008), 73 FR 19271 (April 9, 2008) (‘‘QCT 

Release’’). See also Securities Exchange Act Release 

No. 54389 (August 31, 2006), 71 FR 52829 

(September 7, 2006). 

38A trading center may demonstrate that an 

Exempted NMS Stock Transaction is fully hedged 

under the circumstances based on the use of 

reasonable risk-valuation methodologies. The 

release approving the original exemption stated: To 

effectively execute a contingent trade, its 

component orders must be executed in full or in 

ratio at its predetermined spread or ratio * * * ‘‘In 

ratio’’ clarifies that component orders of a 

contingent trade do not necessarily have to be 

executed in full, but any partial executions must be 

in a predetermined ratio. 

39See Amendment No. 1. 

40 17 CFR 242.200 et seq. 

41See Securities Exchange Act Release No. 61595 

(February 26, 2010), 75 FR 11232 (March 10, 2010) 

(‘‘Rule 201 Adopting Release’’). 

42See Securities Exchange Act Release No. 63247 

(November 4, 2010), 75 FR 68702 (November 9, 

2010) (File No. S7–08–09) (Order extending the 

compliance date until February 28, 2011). 

43For a similar process, see ISE Rule 722.02. 

throughs.37 The Exchange believes that 

the stock/ETF portion of a Complex 

Order under this proposal complies 

with all six requirements. Moreover, as 

explained below, the Phlx trading 

System will validate compliance with 

each requirement such that any matched 

order received by NOS under this 

proposal has been checked for 

compliance with the exemption, as 

follows: 

(1) At least one component order is in 

an NMS stock: The stock/ETF 

component must be an NMS stock, 

which is validated by the System; 

(2) all components are effected with a 

product or price contingency that either 

has been agreed to by the respective 

counterparties or arranged for by a 

broker-dealer as principal or agent: A 

Complex Order, by definition consists of 

a single net/debit price and this price 

contingency applies to all the 

components of the order, such that the 

stock price computed and sent to NOS 

allows the stock/ETF order to be 

executed at the proper net debit/credit 

price based on the execution price of 

each of the option legs, which is 

determined by the Phlx System; 

(3) the execution of one component is 

contingent upon the execution of all 

other components at or near the same 

time: Once a Complex Order is accepted 

and validated by the System, the entire 

package is processed as a single 

transaction and each of the option leg 

and stock/ETF components are 

simultaneously processed; 

(4) the specific relationship between 

the component orders (e.g., the spread 

between the prices of the component 

orders) is determined at the time the 

contingent order is placed: Complex 

Orders, upon entry, must have a size for 

each component and a net debit/credit, 

which the System validates and 

processes to determine the ratio 

between the components; an order is 

rejected if the net debit/credit price and 

size are not provided on the order; 

(5) 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 since cancelled: under 

this proposal, the stock/ETF component 

must be the underlying security 

respecting the option legs, which is 

validated by the System; and 

(6) the transaction is fully hedged 

(without regard to any prior existing 

position) as a result of the other 

components of the contingent trade: 

Under this proposal, the ratio between 

the options and stock/ETF must be a 

conforming ratio (8 contracts per 100 

shares), which the System validates, and 

which under reasonable risk valuation 

methodologies, means that the stock/ 

ETF position is fully hedged.38

Furthermore, proposed Rule 

1080.08(a)(i) provides that member 

organizations may only submit Complex 

Orders with a stock/ETF component if 

such orders comply with the Qualified 

Contingent Trade Exemption. Member 

organizations submitting such Complex 

Orders with a stock/ETF component 

represent that such orders comply with 

the Qualified Contingent Trade 

Exemption.39 Thus, the Exchange 

believes that Complex Orders consisting 

of a stock/ETF component will comply 

with the exemption and that the Phlx 

trading System will validate such 

compliance to assist NOS in carrying 

out its responsibilities as agent for these 

orders. 

With respect to short sale regulation, 

the proposed handling of the stock/ETF 

component of a Complex Order under 

this proposal does not raise any issues 

of compliance with the currently 

operative provisions of Regulation 

SHO.40 When a Complex Order has a 

stock/ETF component, member 

organizations must indicate, pursuant to 

Regulation SHO, whether that order 

involves a long or short sale. The 

System will accept Complex Orders 

with a stock/ETF component marked to 

reflect either a long or short position; 

specifically, orders not marked as buy, 

sell or sell short will be rejected by the 

Phlx trading System. The Phlx trading 

System will electronically deliver the 

stock/ETF component to NOS for 

execution. Simultaneous to the options 

execution on the Phlx trading System, 

NOS will execute and report the stock/ 

ETF component, which will contain the 

long or short indication as it was 

delivered by the member organization to 

the Phlx trading System. Accordingly, 

NOS, as a trading center under Rule 

201, will be compliant with the 

requirements of Regulation SHO. Of 

course, broker-dealers, including both 

NOS and the member organizations 

submitting orders to the Phlx with a 

stock/ETF component, must comply 

with Regulation SHO; various 

surveillance and examination regulatory 

programs check for compliance thereto. 

Earlier this year, the Commission 

amended Rule 201 and Rule 200(g) of 

Regulation SHO under the Act to adopt 

a short sale-related circuit breaker that, 

if triggered, imposes a restriction on the 

price at which securities may be sold 

short (‘‘short sale price test restriction’’); 

the amendments to Rule 200(g) provide 

that a broker-dealer may mark certain 

qualifying short sale orders ‘‘short 

exempt.’’ 41 Recently, the Commission 

extended the compliance date for the 

amendments to Rule 201 and Rule 

200(g) until February 28, 2011.42 Once 

the new provisions of Regulation SHO 

become operative, NOS will accept 

orders marked ‘‘short exempt.’’ The 

Exchange intends to file a proposed rule 

change addressing the new provisions. 

For these reasons, the processing of 

the stock/ETF component of a Complex 

Order under this proposal will comply 

with applicable rules regarding equity 

trading, including the rules governing 

trade reporting, trade throughs and short 

sales. NOS’ responsibilities respecting 

these equity trading rules will be 

documented in NOS’ written policies 

and procedures. NOS compliance with 

these policies and procedures is 

monitored, reviewed, and updated as 

part of NOS’ regular and routine 

regulatory program. 

As part of the execution of the stock/ 

ETF component, the Exchange intends 

to ensure that the execution price is 

within the intraday high-low range in 

that stock at the time the Complex Order 

is processed and within a certain price 

range from the current market, which 

the Exchange will establish in an 

Options Trader Alert. If the stock price 

is not within these parameters, the 

Complex Order is not executable. 

The Exchange believes that electronic 

submission of the stock/ETF piece of the 

Complex Order should help ensure that 

the Complex Order, as a whole, is 

executed timely and at the desired 

price.43 In addition, electronic 

communication eliminates the need for 

each party to separately manually 

submit the stock component to a brokerdealer for execution. The Exchange 


hsrobinson on DSK69SOYB1PROD with NOTICES
78326 Federal Register / Vol. 75, No. 240 / Wednesday, December 15, 2010 / Notices 

44The stock/ETF price is, of course, included 

within the net debit/credit price of the Complex 

Order. See e.g. examples, infra, at 36. 

45See e.g., ISE Rule 722.02 (A trade of a stockoption order will be automatically cancelled if 

market conditions prevent the execution of the 

stock or option leg(s) at the prices necessary to 

achieve the agreed upon net price.). 

46See also Phlx Rule 985(c)(1), which provides 

that The NASDAQ OMX Group, Inc., which owns 

NOS and the Exchange, shall establish and 

maintain procedures and internal controls 

reasonably designed to ensure that NOS does not 

develop or implement changes to its system on the 

basis of non-public information regarding planned 

changes to the Exchange’s systems, obtained as a 

result of its affiliation with the Exchange, until such 

information is available generally to similarly 

situated Exchange members and member 

organizations in connection with the provision of 

inbound routing to the Exchange. 

47However, Trade Reporting Facility and clearing 

fees, not charged by Phlx or NOS, may result. NSCC 

and ACT will bill firms directly for their use of the 

NSCC and ACT systems, respectively. To the extent 

that NOS is billed by NSCC or ACT, it will not pass 

through such fees to firms for the stock/ETF portion 

of a Complex Order under this proposal. Phlx’s fees 

applicable to Complex Orders appear in its Fee 

Schedule and may change from time to time. 

48 15 U.S.C. 78f(b). 

49 15 U.S.C. 78f(b)(5). 

emphasizes that the execution of the 

stock/ETF portion of a Complex Order 

will be immediate; the Exchange’s 

System will calculate the stock price 

based on the net debit/credit price of the 

Complex Order,44 while also calculating 

and determining the appropriate options 

price(s), all electronically and 

immediately. The Exchange believes 

that this is a superior approach and 

would not require the Exchange to later 

nullify options trades if the stock price 

cannot be achieved. Accordingly, the 

Exchange is not proposing to adopt a 

rule permitting such option trade 

nullification, like other exchange rules, 

because the trade would not occur at a 

price that required later nullification 

due to the unavailability of the stock/ 

ETF price.45 The Exchange further 

believes that the certainty associated 

with such electronic calculations and 

processing should be an attractive 

feature for users of Complex Orders 

with a stock or ETF component. 

The Exchange also believes that it is 

appropriate to construct a program 

wherein its affiliate, NOS, is the 

exclusive conduit for the execution of 

the stock/ETF component of a Complex 

Order under this proposal, similar to the 

routing functionality of several options 

and equities exchanges.46 As a practical 

matter, complex order programs on 

other exchanges necessarily involve 

specific arrangements with a brokerdealer to facilitate prompt execution. 

NOS does not intend to charge a fee for 

the execution of the stock/ETF 

component of a Complex Order, nor 

does Phlx.47 The Exchange believes that 

is consistent with the Act for such an 

arrangement to involve one brokerdealer, even one that is an affiliate, 

particularly to offer the aforementioned 

benefits of a prompt, electronic 

execution for Complex Orders involving 

stock/ETFs. Specifically, offering a 

seamless, automatic execution for both 

the options and stock/ETF components 

of a Complex Order is an important 

feature that should promote just and 

equitable principles of trade and remove 

impediments to and perfect the 

mechanism of a free and open market 

and a national market system by deeply 

enhancing the sort of complex order 

processing available on options 

exchanges today. Nevertheless, users of 

Phlx’s proposed new Complex Orders 

system could, in lieu of this proposed 

arrangement with NOS, choose, instead, 

the following alternatives: (i) Avoid 

using Complex Orders that involve 

stock/ETFs, (ii) use the trading floor 

manual method of executing complex 

orders with stock, or (iii) go to another 

venue, several of which offer a similar 

feature, as described further below. 

2. Statutory Basis 

The Exchange believes that its 

proposal is consistent with Section 6(b) 

of the Act 48 in general, and furthers the 

objectives of Section 6(b)(5) of the Act 49

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 

enhancing its System and rules 

governing Complex Orders, by adding 

additional order types and components. 

These additional order types and 

components should provide market 

participants with trading opportunities 

more closely aligned with their 

investment or risk management 

strategies. Noting that complex orders, 

including those with a stock/ETF 

component are widely recognized and 

utilized by market participants, this 

proposal to offer new order types and 

components on an electronic system 

should provide a more efficient 

mechanism for carrying out these 

strategies. 

B. Self-Regulatory Organization’s 

Statement on Burden on Competition 

The proposed rule change does not 

impose any burden on competition not 

necessary or appropriate in furtherance 

of the purposes of the Act. Rather, this 

proposal enhances competition by 

providing an additional alternative to 

the existing methods of trading complex 

orders, including the stock/ETF 

component, in a single, seamless 

transaction. Member use of the 

Exchange’s proposed Complex Order 

processing is entirely voluntary. 

The Exchange competes vigorously 

for complex orders among several 

options exchanges that offer a stockoption order type. The Exchange’s 

proposed new alternative differs from 

and competes against existing Complex 

Order mechanisms by offering fully 

electronic processing. Existing Complex 

Order mechanisms at Chicago Board 

Options Exchange, Incorporated 

(‘‘CBOE’’) and International Securities 

Exchange, LLC (‘‘ISE’’) offer a similar 

end result—execution of paired option 

and stock orders—using different, less 

automated means. 

Market participants that prefer not to 

use the stock/ETF functionality offered 

herein through NOS have a variety of 

alternatives; stock-option orders can be 

executed on other options exchanges via 

various electronic methods, on various 

options trading floors or on the 

Exchange, without employing a stock/ 

ETF component. 

Accordingly, in light of these various 

alternatives and the keen competition 

among options exchanges for complex 

order flow, the processing method 

selected by the Exchange, including the 

use of NOS, presents no burden on 

competition. In fact, the Exchange’s 

proposal will likely promote 

competition for the most efficient means 

to execute complex orders with a stock/ 

ETF component. The Exchange fully 

expects that other exchanges will mimic 

the proposed processing if it succeeds in 

attracting order flow for which many 

markets compete. 

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 

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. 


hsrobinson on DSK69SOYB1PROD with NOTICES
Federal Register / Vol. 75, No. 240 / Wednesday, December 15, 2010 / Notices 78327 

50 17 CFR 200.30–3(a)(12). 

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

2 17 CFR 240.19b–4. 

3Securities Exchange Act Release No. 62886 

(September 10, 2010), 75 FR 56613 (September 16, 

2010) (SR–BATS–2010–016). 

4 Id. 

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

6 15 U.S.C. 78f(b)(5). 

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 modified by Amendment No. 

1, 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–2010–157 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–2010–157. 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 website 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 Number SR–Phlx– 

2010–157 and should be submitted on 

or before January 5, 2011. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.50

Florence E. Harmon, 

Deputy Secretary. 

[FR Doc. 2010–31487 Filed 12–14–10; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–63488; File No. SR–BATS– 

2010–036] 

Self-Regulatory Organizations; BATS 

Exchange, Inc.; Notice of Filing and 

Immediate Effectiveness of a Proposed 

Rule Change To Extend Pilot Program 

Related To Clearly Erroneous 

Execution Reviews 

December 9, 2010. 

Pursuant to Section 19(b)(1) of the 

Securities Exchange Act of 1934 (the 

‘‘Act’’),1 and Rule 19b–4 thereunder,2

notice is hereby given that on December 

2, 2010, BATS Exchange, Inc. (the 

‘‘Exchange’’ or ‘‘BATS’’) 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 is filing with the 

Commission a proposal to extend a pilot 

program previously approved by the 

Commission related to Rule 11.17, 

entitled ‘‘Clearly Erroneous Executions.’’ 

The Exchange proposes to extend both 

pilot programs through April 11, 2011. 

The text of the proposed rule change 

is available at the Exchange’s Web site 

at http://www.batstrading.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 parts 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 this filing is to extend 

the effectiveness of the Exchange’s 

current rule applicable to Clearly 

Erroneous Executions, Rule 11.17. The 

rule, explained in further detail below, 

was approved to operate under a pilot 

program set to expire on December 10, 

2010. The Exchange proposes to extend 

the pilot program to April 11, 2011. 

On September 10, 2010, the 

Commission approved, on a pilot basis, 

changes to BATS Rule 11.17 to provide 

for uniform treatment: (1) Of clearly 

erroneous execution reviews in multistock events involving twenty or more 

securities; and (2) in the event 

transactions occur that result in the 

issuance of an individual stock trading 

pause by the primary market and 

subsequent transactions that occur 

before the trading pause is in effect on 

the Exchange.3 The Exchange also 

adopted additional changes to Rule 

11.17 that reduced the ability of the 

Exchange to deviate from the objective 

standards set forth in Rule 11.17.4 The 

Exchange believes the benefits to market 

participants from the more objective 

clearly erroneous executions rule 

should be approved to continue on a 

pilot basis. 

2. Statutory Basis 

The Exchange believes that its 

proposal is consistent with the 

requirements of the Act and the rules 

and regulations thereunder that are 

applicable to a national securities 

exchange, and, in particular, with the 

requirements of Section 6(b) of the Act.5

In particular, the proposal is consistent 

with Section 6(b)(5) of the Act,6 because 

it would promote just and equitable 

principles of trade, remove 

impediments to, and perfect the 

mechanism of, a free and open market 

and a national market system. The 

Exchange believes that the pilot 

program promotes just and equitable 

principles of trade in that it promotes 

transparency and uniformity across 


hsrobinson on DSK69SOYB1PROD with NOTICES