22040 Federal Register / Vol. 77, No. 71 / Thursday, April 12, 2012 / Notices 

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

2 17 CFR 240.19b–4. 

3This proposal refers to ‘‘PHLX XL’’ as the 

Exchange’s automated options trading system. In 

May 2009 the Exchange enhanced the system and 

adopted corresponding rules referring to the system 

as ‘‘Phlx XL II.’’ See Securities Exchange Act 

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

(June 3, 2009) (SR–Phlx–2009–32). The Exchange 

intends to submit a separate technical proposed 

rule change that would change all references to the 

system from ‘‘Phlx XL II’’ to ‘‘PHLX XL’’ for 

branding purposes. 

4For purposes of this proposal, the term 

‘‘customer’’ means a person or entity that is neither 

a broker-dealer nor a direct or indirect affiliate of 

a broker-dealer. 

5A FIND order is currently defined as an order 

that is routable upon receipt. A FIND order received 

during open trading that is not marketable against 

the PHLX best Bid/Offer ‘‘PBBO’’ or the Away Best 

Bid/Offer (‘‘ABBO’’) will be entered into the limit 

order book at its limit price. The FIND order will 

not be eligible for routing until the next time the 

option series is subject to a new Opening Process. 

See Exchange Rule 1080(m)(iv)(B). 

6A SRCH order is an order that is routable at any 

time. A SRCH order received during open trading 

that is not marketable against the PBBO or the 

ABBO will be entered into the Phlx XLII book. Once 

on the book, the SRCH order is eligible for routing 

if it is locked or crossed by an away market. See 

Exchange Rule 1080(m)(iv)(C). 

7The term ‘‘professional’’ means any person or 

entity that (i) is not a broker or dealer in securities, 

and (ii) places more than 390 orders in listed 

options per day on average during a calendar month 

for its own beneficial account(s). A professional 

will be treated in the same manner as an off-floor 

broker-dealer for purposes of Rules 1014(g)(except 

with respect to all-or-none orders, which will be 

treated like customer orders, except that orders 

submitted pursuant to Rule 1080(n) for the 

beneficial account(s) of professionals with an all-ornone designation will be treated in the same 

manner as off-floor broker-dealer orders), 1033(e), 

1064.02 (except professional orders will be 

considered customer orders subject to facilitation), 

1080(n) and 1080.08 as well as Options Floor 

Procedure Advices B–6, B–11 and F–5. Member 

organizations must indicate whether orders are for 

professionals. See Exchange Rule 1000(b)(14). 

8An ISO is a limit order for an options series that 

is identified as an ISO when routed to an away 

market center and, simultaneously with the routing 

of the order, one or more additional ISOs, as 

necessary, are routed to execute against the full 

displayed size of any Protected Bid, in the case of 

a limit order to sell, or any Protected Offer, in the 

case of a limit order to buy, for the options series 

with a price that is superior to the limit price of 

the ISO, with such additional orders also marked 

as ISOs. 

9See supra notes 5 and 6. 

10See Exchange Rule 1017(l)(iii). 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–66754; File No. SR–Phlx– 

2012–41] 

Self-Regulatory Organizations; 

NASDAQ OMX PHLX LLC; Notice of 

Filing and Immediate Effectiveness of 

Proposed Rule Change Relating to 

Routing of Non-Customer Orders 

April 6, 2012. 

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 March 27, 

2012, 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. 

I. Self-Regulatory Organization’s 

Statement of the Terms of Substance of 

the Proposed Rule Change 

The Exchange proposes to amend 

Exchange Rule 1080(m), Order Routing, 

to expand the routing capabilities of 

certain options orders that are eligible 

for electronic routing to other market 

centers by the Exchange’s fully 

automated options trading system, 

PHLX XL.®3 Under the proposal, noncustomer FIND orders (as defined 

below) that are received during open 

trading will now be eligible for routing 

to other market centers for execution. 

The text of the proposed rule change 

is available on the Exchange’s Web site 

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 the 

Statutory Basis for, the Proposed Rule 

Change 

1. Purpose 

The purpose of the proposed rule 

change is to expand the routing 

capabilities of option orders that are 

eligible for routing to other market 

centers when the Exchange cannot 

execute such orders at the National Best 

Bid or Offer (‘‘NBBO’’), by making noncustomer FIND orders eligible for 

routing during open trading. In 

addition, the Exchange is revising the 

definition of the term ‘‘SRCH order’’ to 

be clear that only customer SRCH orders 

will continue to be eligible for routing. 

Current Rule 

Currently, Rule 1080(m) states that 

the PHLX XL system will route only 

customer 4 FIND 5 and SRCH 6 orders to 

away markets. For purposes of this rule, 

the term ‘‘customer’’ includes a 

‘‘professional’’ customer as defined in 

Exchange Rule 1000(b)(14).7 FIND and 

SRCH Orders designated as available for 

routing are first checked by the PHLX 

XL system for available contracts for 

potential execution on the Exchange. 

After checking the PHLX XL system for 

available contracts, orders are sent to 

other available market centers for 

potential execution. When checking the 

book, the PHLX XL system seeks to 

execute at the price at which it would 

send the order to a destination market 

center. In situations where the 

Exchange’s disseminated bid or offer is 

inferior to the NBBO price, the PHLX 

XL system will contemporaneously 

route an order marked as an Intermarket 

Sweep Order (‘‘ISO’’) 8 to each away 

market disseminating prices better than 

the Exchange’s price, for the lesser of: 

(a) The disseminated size of such away 

markets, or (b) the order size and, if 

order size remains after such routing, 

trade at the Exchange’s disseminated 

bid or offer up to its disseminated size. 

If contracts still remain unexecuted after 

routing, they are posted on the 

Exchange’s limit order book. Whether 

and under what circumstances such 

unexecuted contracts are re-routed 

depends upon the order’s status as a 

FIND or SRCH order, as defined above.9

The Proposal 

The Exchange is proposing to add 

non-customer FIND orders as a new 

category of orders that are eligible for 

routing. Non-customer FIND orders 

would be eligible for routing only 

during open trading, and not during the 

Opening Process.10 Customer FIND and 

SRCH orders received prior to the 

opening would continue to be treated as 

they are currently under the rule, i.e., 

both are eligible for routing during the 

Opening Process. 

Under the current rule and practice, a 

customer FIND order received during 

open trading that is not marketable 

against the PHLX Best Bid or Offer 

(‘‘PBBO’’) or the Away Best Bid or Offer 

(‘‘ABBO’’) is entered into the limit order 

book at its limit price. If the FIND order 

is marketable against the ABBO, it is 

routed to markets disseminating the 

ABBO. If the order still has remaining 

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Federal Register / Vol. 77, No. 71 / Thursday, April 12, 2012 / Notices 22041 

11 15 U.S.C. 78f. 

12 15 U.S.C. 78f(b)(5). 

13 15 U.S.C. 78f(b)(8). 14 15 U.S.C. 78s(b)(3)(A)(ii). 

size after routing, it will be entered into 

the limit order book. Such FIND order, 

or its remainder, is not eligible for 

routing again until the next time the 

affected option series is subject to a new 

Opening Process. Under the proposal, 

non-customer FIND orders would be 

treated in the same manner as customer 

FIND orders, except that non-customer 

FIND orders would not be eligible for 

routing during the Opening Process. The 

Exchange is proposing to route only 

customer FIND orders during the 

opening process to ensure that 

customers retain priority respecting all 

liquidity available as part of the 

Opening Process whether that liquidity 

is on PHLX or on another exchange. 

During open trading this is not an issue 

because two FIND orders will not be 

received at precisely the same time; 

generally, a customer FIND order would 

always have priority over a noncustomer FIND order. 

Unlike the treatment of FIND orders, 

the treatment of SRCH orders is not 

subject to change under the proposal. 

Currently, Exchange Rule 1080(m) states 

that the PHLX XL system will route only 

customer FIND and SRCH orders. While 

the proposed rule change would expand 

routable FIND orders to include noncustomer FIND orders, the proposal 

would re-define a SRCH order as a 

customer order that is routable at any 

time. The purpose of this change is to 

ensure that only customer SRCH orders 

continue to be eligible for routing. Just 

as today, non-customer SRCH orders 

will not be eligible for routing. Noncustomer orders received that are 

designated as SRCH orders will be 

placed on the limit order book if not 

executed on the Exchange upon receipt. 

The Exchange notes that very few 

customers use the SRCH order type. 

Additionally, the Exchange has noted 

that there is no demand for the use of 

SRCH orders on the part of noncustomers, as these participants tend to 

be sensitive to, and prefer to control, the 

charges incurred when their order is 

routed. The Exchange believes, 

however, that non-customers submitting 

their orders to the Exchange will use 

FIND orders. FIND orders allow 

participants to access potential liquidity 

on away markets while enabling them to 

manage expectations of the number of 

times their orders are routed. This helps 

participants to plan for and ascertain the 

fees they would incur each time their 

order is routed. Thus, the Exchange 

believes that the expansion of the FIND 

order to non-customer participants is 

appropriate and useful in the processing 

of non-customer orders seeking the best 

execution in the marketplace as a 

whole. 

2. Statutory Basis 

The Exchange believes that the 

proposed rule change is consistent with 

the provisions of Section 6 of the Act,11

in general and with Section 6(b)(5) of 

the Act,12 in that it is designed to 

promote just and equitable principles of 

trade, to foster cooperation and 

coordination with persons engaged in 

regulating, clearing, settling, processing 

information with respect to, and 

facilitating transactions in securities, to 

remove impediments to and perfect the 

mechanism of a free and open market 

and a national market system, and, in 

general, to protect investors and the 

public interest; and is not designed to 

permit unfair discrimination between 

customers, issuers, brokers, or dealers, 

or to regulate by virtue of any authority 

conferred by the Act matters not related 

to the purposes of the Act or the 

administration of the Exchange. 

The Exchange believes that the 

proposed rule change is also consistent 

with Section 6(b)(8) of the Act 13 in that 

it does not impose any burden on 

competition not necessary or 

appropriate in furtherance of the 

purposes of the Act. Specifically, the 

proposal would expand the routing 

capabilities of certain orders that are 

eligible for routing to other exchanges, 

despite the fact that such other 

exchanges are competitors of the 

Exchange. This benefits investors 

because the Exchange’s system will 

route to away markets at better prices. 

The proposed rule change removes 

impediments to and perfects the 

mechanism of a free and open market 

and a national market system by 

enabling non-customer orders to have 

access to liquidity on other exchanges 

each time they submit a FIND order to 

the Exchange, providing for best 

executions in the national market 

system. 

The Exchange further believes that the 

proposed rule change does not permit 

unfair discrimination between 

customers, issuers, brokers, or dealers. 

FIND orders submitted after the 

Opening Process, by either customers or 

non-customers, will be handled by the 

PHLX XL system in the same manner 

and will be provided with equal access 

to liquidity on other exchanges. This 

treatment of customer and non-customer 

FIND orders ensures that there is no 

unfair discrimination between 

customers and non-customers 

submitting such orders to the Exchange 

after the Opening Process. 

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. 

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 

The foregoing rule change has become 

effective pursuant to Section 

19(b)(3)(A)(ii) of the Act.14 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 shall 

institute proceedings to determine 

whether the proposed rule 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 rulecomments@sec.gov. Please include File 

No. SR–Phlx–2012–41 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 No. 

SR–Phlx–2012–41. 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 

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22042 Federal Register / Vol. 77, No. 71 / Thursday, April 12, 2012 / Notices 

15 17 CFR 200.30–3(a)(12). 

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

2 17 CFR 240.19b–4. 

3 In Amendment No. 1, the Exchange made a 

technical amendment to Item I of Exhibit 1 to delete 

an erroneous reference to the NASDAQ Options 

Market and replace it with a reference to the 

Exchange. 

4The term ‘‘Market Maker’’ is defined in Rule 

5005(a)(24) as a dealer that, with respect to a 

security, holds itself out (by entering quotations in 

the NASDAQ Market Center) as being willing to buy 

and sell such security for its own account on a 

regular and continuous basis and that is registered 

as such. Proposed Rule 5950(e)(5). 

5The term ‘‘MQP Company’’ is defined in 

proposed Rule 5950(e)(7) as a fund (Exchange 

Traded Fund) sponsor or other entity that lists one 

or more MQP Securities on NASDAQ pursuant to 

the Market Quality Program. The term ‘‘Company’’ 

is defined in Rule 5005(a)(6) as the issuer of a 

security listed or applying to list on NASDAQ, and 

may include an issuer that is not incorporated, such 

as, for example, a limited partnership. 

6The term ‘‘MQP Security’’ is defined in 

proposed Rule 5950(e)(1) as a security that meets 

all of the requirements to be listed on NASDAQ as 

an Exchange Traded Fund, Linked Security, or 

Trust Issued Receipt pursuant to Rules 5705, 5710, 

or 5720, respectively. 

7The Exchange believes that, based on 

discussions with the Financial Industry Regulatory 

Authority (‘‘FINRA’’), FINRA intends to file an 

immediately effective rule change that would 

exempt from FINRA Rule 5250 Exchange programs 

that are approved by the Commission. The 

Exchange notes that FINRA Rule 5250 does not 

preclude the Exchange from any action, but 

precludes FINRA members (not all Exchange 

members are FINRA members) from directly or 

indirectly accepting payment or consideration from 

an issuer of a security for acting as a market maker. 

See Securities Exchange Act Release Nos. 60534 

(August 19, 2009), 74 FR 44410 (August 28, 2009) 

(SR–FINRA–2009–036) (order approving proposal 

to adopt NASD Rule 2460 without substantive 

change into the Consolidated FINRA Rulebook as 

Rule 5250); and 38812 (July 3, 1997), 62 FR 37105 

(July 10, 1997) (SR–NASD–97–29) (order approving 

adoption of NASD Rule 2460; FINRA Rule 5250 and 

NASDAQ Rule 2460 are based on NASD Rule 2460) 

(‘‘1997 order’’). Being mindful of the concern in the 

1997 order about investor confidence and market 

integrity, the Exchange designed the MQP Program 

to be highly transparent with: clear public 

notification requirements; clear entry, continuation, 

and termination requirements; clear market maker 

accountability standards; and, perhaps most 

importantly, clear market quality (liquidity) 

enhancement standards that benefit investors and 

market participants. 

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–2012– 

41 and should be submitted on or before 

May 3, 2012. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.15

Kevin M. O’Neill, 

Deputy Secretary. 

[FR Doc. 2012–8778 Filed 4–11–12; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–66765; File No. SR– 

NASDAQ–2012–043] 

Self-Regulatory Organizations; The 

NASDAQ Stock Market LLC; Notice of 

Filing of Proposed Rule Change, as 

Modified by Amendment No. 1 Thereto, 

To Establish the Market Quality 

Program 

April 6, 2012. 

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 March 23, 

2012, The NASDAQ Stock Market LLC 

(‘‘NASDAQ’’) 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 

substantially prepared by NASDAQ. On 

March 29, 2012, the Exchange submitted 

Amendment No. 1 to the proposed rule 

change.3 The Commission is publishing 

this notice to solicit comments on the 

proposed rule change, as modified by 

Amendment No. 1 thereto, from 

interested persons. 

I. Self-Regulatory Organization’s 

Statement of the Terms of Substance of 

the Proposed Rule Change 

NASDAQ (also known as the 

‘‘Exchange’’) is filing with the 

Commission a proposal to add new Rule 

5950 (Market Quality Program) to enable 

market makers that voluntarily commit 

to and do in fact enhance the market 

quality (quoted spread and liquidity) of 

certain securities listed on the Exchange 

to qualify for a fee credit pursuant to the 

Exchange’s Market Quality Program, 

and to exempt the Market Quality 

Program from Rule 2460 (Payment for 

Market Making). NASDAQ believes this 

voluntary program will benefit 

investors, issuers or companies, and 

market participants by significantly 

enhancing the quality of the market and 

trading in such listed securities. 

The Market Quality Program set forth 

in Rule 5950 will be effective for a oneyear pilot period beginning from the 

date of implementation of the program. 

During the pilot, NASDAQ will 

periodically provide information to the 

Commission about market quality in 

respect of the Market Quality Program. 

The text of the proposed rule change 

is available from NASDAQ’s Web site at 

http://nasdaq.cchwallstreet.com/ 

Filings/, at NASDAQ’s principal office, 

on the Commission’s Web site at 

www.sec.gov, 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, 

NASDAQ 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. 

NASDAQ 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 filing is to propose 

new Rule 5950 to enable Market 

Makers 4 that enhance the market 

quality of certain securities listed on the 

Exchange (known as ‘‘targeted 

securities’’) and thereby qualify for a fee 

credit pursuant to the Market Quality 

Program (‘‘MQP’’ or ‘‘Program’’), and to 

exempt the Program from Rule 2460. 

Rule 5950 will be effective for a oneyear pilot period. The pilot period will 

commence when the Market Quality 

Program is implemented by the 

Exchange and an MQP Company 5 and 

one or more related Market Makers are 

accepted into the MQP in respect of a 

security listed pursuant to the Program 

(‘‘MQP Security’’).6 The pilot program 

will end one year after implementation.7

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