Federal Register / Vol. 80, No. 22 / Tuesday, February 3, 2015 / Notices 5865 

18 15 U.S.C. 78f(b). 

19 15 U.S.C. 78f(b)(4). 

20See CBOE Fees Schedule, Footnote 13. 

21 15 U.S.C. 78s(b)(3)(A). 

22 17 CFR 240.19b–4(f). 23 17 CFR 200.30–3(a)(12). 

2. Statutory Basis 

The Exchange believes the proposed 

rule change is consistent with the Act 

and the rules and regulations 

thereunder applicable to the Exchange 

and, in particular, the requirements of 

Section 6(b) of the Act.18 Specifically, 

the Exchange believes the proposed rule 

change is consistent with Section 6(b)(4) 

of the Act,19 which requires that 

Exchange rules provide for the equitable 

allocation of reasonable dues, fees, and 

other charges among its Trading Permit 

Holders and other persons using its 

facilities. The Exchange believes the 

Rebate is reasonable because it will 

allow COPS users who purchase four 

valuations that make up a box spread to 

only be ultimately charged for one of 

those valuations (thereby saving three 

valuations’ worth of fees). 

The Exchange believes the Rebate is 

equitable and not unfairly 

discriminatory because it will apply to 

all COPS users who purchase four 

valuations that make up a box spread. 

While receiving end-of-day valuations 

via COPS is extremely different than, 

and not really comparable to, trading on 

CBOE, it should be noted that the 

components of a box spread trade, 

reversals and conversions, are also 

subject to rebates.20 From a practical 

standpoint for the users, the purpose of 

COPS is to get end-of-day valuations. 

COPS users want to know the inputs 

into an option’s price. There are five 

major inputs into an option’s price: (1) 

Underlying price, (2) time to expiration, 

(3) strike price, (4) implied volatility, 

and (5) interest rates. The proposed 

Rebate simply allows the Exchange to 

provide COPS users with a cost effective 

method to extract implied interest rates. 

While the Exchange cannot conceive of 

any purpose for COPS users to request 

pricing on a box spread (other than 

those described herein), the Rebate will 

be available to all COPS users. 

B. Self-Regulatory Organization’s 

Statement on Burden on Competition 

CBOE does not believe that the 

proposed rule change will impose any 

burden on competition that is not 

necessary or appropriate in furtherance 

of the purposes of the Act. CBOE does 

not believe that the proposed rule 

change will impose any burden on 

intramarket competition that is not 

necessary or appropriate in furtherance 

of the purposes of the Act because the 

Rebate will be available to all COPS 

users. CBOE does not believe that the 

proposed rule change will impose any 

burden on intermarket competition that 

is not necessary or appropriate in 

furtherance of the purposes of the Act 

because the Rebate only applies to 

CBOE COPS users, and does not affect 

pricing or fees on other exchanges. To 

the extent the Rebate makes CBOE a 

more attractive marketplace for market 

participants on other exchanges, such 

market participants may become CBOE 

market participants (and COPS users). 

C. Self-Regulatory Organization’s 

Statement on Comments on the 

Proposed Rule Change Received From 

Members, Participants, or Others 

The Exchange neither solicited nor 

received comments on the proposed 

rule change. 

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) 

of the Act 21 and paragraph (f) of Rule 

19b–4 22 thereunder. At any time within 

60 days of the filing of the proposed rule 

change, the Commission summarily may 

temporarily suspend such rule change if 

it appears to the Commission that such 

action is necessary or appropriate in the 

public interest, for the protection of 

investors, or otherwise in furtherance of 

the purposes of the Act. If the 

Commission takes such action, the 

Commission will institute proceedings 

to determine whether the proposed rule 

change should be approved or 

disapproved. 

IV. Solicitation of Comments 

Interested persons are invited to 

submit written data, views, and 

arguments concerning the foregoing, 

including whether the proposed rule 

change is consistent with the Act. 

Comments may be submitted by any of 

the following methods: 

Electronic Comments 

• Use the Commission’s Internet 

comment form (http://www.sec.gov/

rules/sro.shtml); or 

• Send an email to rule-comments@

sec.gov. Please include File Number SR– 

CBOE–2015–007 on the subject line. 

Paper Comments 

• Send paper comments in triplicate 

to Brent J. Fields, Secretary, Securities 

and Exchange Commission, 100 F Street 

NE., Washington, DC 20549–1090. 

All submissions should refer to File 

Number SR–CBOE–2015–007. This file 

number should be included on the 

subject line if email is used. To help the 

Commission process and review your 

comments more efficiently, please use 

only one method. The Commission will 

post all comments on the Commission’s 

Internet Web site (http://www.sec.gov/

rules/sro.shtml). 

Copies of the submission, all 

subsequent amendments, all written 

statements with respect to the proposed 

rule change that are filed with the 

Commission, and all written 

communications relating to the 

proposed rule change between the 

Commission and any person, other than 

those that may be withheld from the 

public in accordance with the 

provisions of 5 U.S.C. 552, will be 

available for Web site viewing and 

printing in the Commission’s Public 

Reference Room, 100 F Street NE., 

Washington, DC 20549 on official 

business days between the hours of 

10:00 a.m. and 3:00 p.m. Copies of the 

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–CBOE–2015–007 and 

should be submitted on or before 

February 24, 2015. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.23

Jill M. Peterson, 

Assistant Secretary. 

[FR Doc. 2015–02012 Filed 2–2–15; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–74167; File No. SR–Phlx– 

2014–66] 

Self-Regulatory Organizations; 

NASDAQ OMX PHLX LLC; Order 

Instituting Proceedings To Determine 

Whether To Approve or Disapprove a 

Proposed Rule Change To Adopt New 

Exchange Rule 1081, Solicitation 

Mechanism, To Introduce a New 

Electronic Solicitation Mechanism 

January 28, 2015. 

I. Introduction 

On October 14, 2014, NASDAQ OMX 

PHLX LLC (‘‘Exchange’’ or ‘‘Phlx’’) filed 

with the Securities and Exchange 

Commission (‘‘Commission’’), pursuant 


rljohnson on DSK3VPTVN1PROD with NOTICES
5866 Federal Register / Vol. 80, No. 22 / Tuesday, February 3, 2015 / Notices 

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

2 17 CFR 240.19b–4. 

3See Securities Exchange Act Release No. 73441 

(October 27, 2014), 79 FR 64862 (‘‘Notice’’). 4See Securities Exchange Act Release No. 73791 

(December 8, 2014), 79 FR 73924 (December 12, 

2014). 5 15 U.S.C. 78s(b)(2)(B). 

6Rule 1080(c)(ii)(A)(1) defines ‘‘Order Entry 

Firm’’ as a member organization of the Exchange 

that is able to route orders to AUTOM. (AUTOM is 

the Exchange’s electronic quoting and trading 

system, which has been denoted in Exchange rules 

as XL II, XL and AUTOM.) 

7Section (c), Solicited Orders, of Rule 1064, 

Crossing, Facilitation and Solicited Orders, governs 

execution of solicited orders by open outcry, on the 

Exchange trading floor, and is unaffected by 

proposed Rule 1081. The Exchange states that many 

aspects of the functionality of the proposed 

solicitation mechanism are similar to those 

provided for in Rule 1080(n), PIXL, and certain of 

the proposed rules track the existing PIXL rules. 

8Rule 1080(b)(i)(A) provides in part that ‘‘[f]or 

purposes of Exchange options trading, an agency 

order is any order entered on behalf of a public 

customer, and does not include any order entered 

for the account of a broker-dealer, or any account 

in which a broker-dealer or an associated person of 

a broker-dealer has any direct or indirect interest.’’ 

According to the Exchange, that provision did not 

contemplate, and is not applicable to, the 

capitalized and defined term ‘‘Agency Order’’ as 

used in proposed Rule 1081. 

9The Exchange states that participants must 

ensure that their records adequately demonstrate 

the solicitation of an order that is entered into the 

mechanism for execution. against an Agency Order 

as a Solicited Order prior to entry of such order into 

this mechanism. 

10Rule 1066(c)(4) defines an ‘‘all-or-none’’ order 

as a market or limit order which is to be executed 

in its entirety or not at all. 

11A given Solicitation Auction may be for options 

contracts exclusively or for mini options contracts 

exclusively, but cannot be used for a combination 

of both options contracts and mini options contracts 

together. 

12The Exchange noted that similar electronic 

functionality is offered today by other option 

exchanges. See Chicago Board Options Exchange 

(‘‘CBOE’’) Rule 6.74B, Solicitation Auction 

Mechanism (the ‘‘CBOE Mechanism’’), and 

International Securities Exchange (‘‘ISE’’) Rule 

716(e), Solicited Order Mechanism (the ‘‘ISE 

Mechanism’’). 

13A 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. A Complex Order 

may also be a stock-option order, which is an order 

to buy or sell a stated number of units of an 

underlying stock or exchange-traded fund (‘‘ETF’’) 

coupled with the purchase or sale of options 

contract(s). Complex Orders on Phlx are discussed 

in Commentary .08 to Rule 1080. 

14See proposed Rule 1081(i)(H). The rule would 

require delivery of this disclosure only prior to the 

first submission of an Agency Order on behalf of a 

customer rather than prior to the submission of 

each and every Agency Order on behalf of such 

customer. 

15 In the case of Complex Orders, the underlying 

components of both Complex Orders must also 

match. Additionally, all the option legs of each 

Complex Order must consist entirely of options or 

entirely of mini options. 

16For example, assume an Agency Order to buy 

1000 contracts for $2.00 and a Solicited Order to 

sell 1000 contracts at $1.90 are entered into the 

solicitation mechanism. Since the limits of these 

orders cross in price, the Agency Order and 

Solicited Order are considered to be submitted into 

the mechanism with a stop price equal to the 

Solicited Order price of $1.90. 

17Whether an order is marked with a time in 

force of day as opposed to, for example, good till 

cancelled or immediate or cancel is irrelevant to the 

manner in which they would be treated once they 

are entered into the solicitation mechanism. 

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

Exchange Act of 1934 (‘‘Act’’) 1 and Rule 

19b–4 thereunder,2 a proposed rule 

change to adopt new Exchange Rule 

1081, Solicitation Mechanism, to 

introduce a new electronic solicitation 

mechanism pursuant to which a 

member can electronically submit all-ornone orders of 500 contracts or more (or, 

in the case of mini options, 5000 

contracts or more) that the member 

represents as agent against contra orders 

that the member solicited. The proposed 

rule change was published for comment 

in the Federal Register on October 31, 

2014.3 On December 8, 2014, the 

Commission extended the time period 

in which to either approve the proposed 

rule change, disapprove the proposed 

rule change, or institute proceedings to 

determine whether to approve or 

disapprove the proposed rule change to 

January 29, 2015.4 The Commission has 

received no comment letters on the 

proposal. This order institutes 

proceedings under Section 19(b)(2)(B) of 

the Act 5 to determine whether to 

approve or disapprove the proposed 

rule change. 

II. Description of the Proposal 

The Exchange proposes to adopt new 

Rule 1081, Solicitation Mechanism, to 

introduce a new electronic solicitation 

mechanism pursuant to which a 

member can electronically submit all-ornone orders of 500 contracts or more (or, 

in the case of mini options, 5000 

contracts or more) that the member 

represents as agent against contra orders 

that the member solicited. Currently, 

under Phlx Rule 1080(c)(ii)(C)(2), Order 

Entry Firms 6 must expose orders they 

represent as agent for at least one 

second before such orders may be 

automatically executed, in whole or in 

part, against orders solicited from 

members and non-member brokerdealers to transact with such orders.7

The proposed rule change would 

provide an alternative method, enabling 

a member to electronically execute 

orders it represents on behalf of a public 

customer, broker-dealer, or any other 

entity (an ‘‘Agency Order’’) 8 against 

solicited limit orders of a public 

customer, broker-dealer, or any other 

entity (a ‘‘Solicited Order’’) through a 

solicitation mechanism designed for this 

purpose.9

The new mechanism is a process by 

which a member (the ‘‘Initiating 

Member’’) can electronically submit allor-none orders 10 of 500 contracts or 

more (or, in the case of mini options,11

5000 contracts or more) that it 

represents as agent against contra orders 

that it has solicited, and initiate an 

auction (the ‘‘Solicitation Auction’’).12

As noted below, at the end of the 

Solicitation Auction, allocation would 

occur with all contracts of the Agency 

Order trading at an improved price 

against non-solicited contra-side interest 

or at the stop price, defined below, 

against the Solicited Order. The 

solicitation mechanism would 

accommodate both simple orders and 

Complex Orders.13 Prior to the first time 

a member enters an Agency Order into 

the solicitation mechanism on behalf of 

a customer, the member would be 

required to deliver to the customer a 

written notification informing the 

customer that its Agency Orders may be 

executed using the Phlx’s solicitation 

mechanism. Such written notification 

would be required to disclose the terms 

and conditions contained in proposed 

Rule 1081 and to be in a form approved 

by the Exchange.14

Solicitation Auction Eligibility 

Requirements 

All options traded on the Exchange, 

including mini options, would be 

eligible for the Solicitation Auction. 

Proposed Rule 1081(i) describes the 

circumstances under which an Initiating 

Member may initiate a Solicitation 

Auction. 

Proposed Rule 1081(i)(A) provides 

that the Agency Order and the Solicited 

Order must each be limit orders for at 

least 500 contracts (or, in the case of 

mini options, at least 5000 contracts) 

and must be designated as all-or-none. 

The orders must match in size, and their 

limit prices must match or cross in 

price.15 If the orders cross in price, the 

price at which the Agency Order and 

the Solicited Order may be considered 

for submission pursuant to proposed 

Rules 1081(i)(B) and (C) shall be the 

limit price of the Solicited Order.16 The 

orders may not be stop or stop limit 

orders, must be marked with a time in 

force of day, good till cancelled or 

immediate or cancel, and would not be 

routed regardless of routing strategy 

indicated on the order.17

Pursuant to proposed Rule 1081(i)(B), 

the Initiating Member must stop the 

entire Agency Order at a price (the ‘‘stop 

price’’) that is equal to or better than the 

National Best Bid/Offer (‘‘NBBO’’) on 

both sides of the market, provided that 


rljohnson on DSK3VPTVN1PROD with NOTICES
Federal Register / Vol. 80, No. 22 / Tuesday, February 3, 2015 / Notices 5867 

18A contingent order is a limit or market order 

to buy or sell that is contingent upon a condition 

being satisfied. PIXL also does not consider 

contingent orders on the book when checking the 

acceptability of the stop price. 

19Proposed Rule 1081(i)(B) does not apply if the 

Agency Order is a Complex Order (a ‘‘Complex 

Agency Order’’). Rather, proposed Rule 1081(i)(C) 

applies to Complex Agency Orders and requires 

them to be of a conforming ratio, as defined in 

Commentary.08(a)(ix) to Rule 1080. A Complex 

Agency Order which is not of a conforming ratio 

would be rejected. Proposed Rule 1081(i)(C) 

requires all component option legs of the order to 

be for at least 500 contracts (or, in the case of mini 

options, at least 5000 contracts). It also provides 

that the Initiating Member must stop the entire 

Complex Agency Order at a price that is better by 

at least $0.01 than the best net price (debit or credit) 

(i) available on the Complex Order book regardless 

of the Complex Order book size; and (ii) achievable 

from the best Phlx bids and offers for the individual 

options (an ‘‘improved net price’’) regardless of 

size, provided in either case that such price is equal 

to or better than the Complex Agency Order’s limit 

price. Stop prices for Complex Agency Orders may 

be submitted in $0.01 increments, regardless of 

MPV, and contingent orders on the book would not 

be considered when checking the acceptability of 

the stop price. See proposed Rule 1081(i)(C). 

20See proposed Rule 1081(i)(D). 

21See proposed Rule 1081(i)(E). 

22The term ‘‘series’’ of options means all option 

contracts of the same class having the same 

expiration date and exercise price. A ‘‘class’’ of 

options means all option contracts of the same 

‘‘type’’ of option covering the same underlying 

stock. A ‘‘type’’ of option means the classification 

of an option contract as a put or a call. See Rule 

1000, Applicability, Definitions and References. 

23See proposed Rule 1081(i)(F). 

24A similar restriction applies with respect to 

PIXL auctions. See PIXL Rule 1080(n)(ii) which 

provides that ‘‘[o]nly one Auction may be 

conducted at a time in any given series or strategy.’’ 

25However, a simple Agency Order in one series 

that is submitted while an electronic auction is 

already in process with respect to a Complex 

Agency Order that includes the same series would 

not be rejected. Instead, a Solicitation Auction 

would be initiated for that incoming Agency Order 

offering each unique strategy or individual series 

the same opportunity to initiate an auction. This 

behavior is consistent with the handling of 

overlapping PIXL and Complex PIXL auctions. See 

PIXL Rule 1080(n)(ii). Complex Orders submitted 

during normal trading hours in a strategy which has 

not yet opened under Commentary .08 of Rule 1080 

would cause the strategy to immediately open and 

a Solicitation Auction may be initiated. See 

proposed Rule 1081(i)(E). In addition, neither a 

Solicitation Auction for a simple Agency Order or 

Complex Agency Order may be initiated prior to the 

regular opening of all individual components of the 

Solicited simple or Complex Agency Order. 

26See proposed Rule 1081(i)(G). An SQT is an 

Exchange Registered Options Trader (‘‘ROT’’) who 

has received permission from the Exchange to 

generate and submit option quotations 

electronically through AUTOM in eligible options 

to which such SQT is assigned. An SQT may only 

submit such quotations while such SQT is 

physically present on the floor of the Exchange. See 

Rule 1014(b)(ii)(A). A RSQT is defined in Rule 

1014(b)(ii)(B) as an ROT that is a member affiliated 

with a Remote Streaming Quote Trader 

Organization (‘‘RSQTO’’) with no physical trading 

floor presence who has received permission from 

the Exchange to generate and submit option 

quotations electronically in options to which such 

RSQT has been assigned. A qualified RSQT may 

function as a Remote Specialist upon Exchange 

approval. An RSQT may only submit such 

quotations electronically from off the floor of the 

Exchange. An RSQT may not submit option 

quotations in eligible options to which such RSQT 

is assigned to the extent that the RSQT is also 

approved as a Remote Specialist in the same 

options. An RSQT may only trade in a market 

making capacity in classes of options in which he 

is assigned or approved as a Remote Specialist. An 

RSQTO is a member organization in good standing 

that satisfies the SQTO readiness requirements in 

Rule 507(a). 

27For clarity, Rule 1080(ii)(A)(l) does not apply 

to Complex Agency Orders. Rather, in a parallel 

provision, proposed Rule 1081(ii)(A)(2) provides 

that to initiate a Solicitation Auction in the case of 

a Complex Agency Order and Complex Solicited 

Order (a ‘‘Complex Solicitation Auction’’), the 

Initiating Member must mark the orders for 

Solicitation Auction processing, and specify the 

price (‘‘stop price’’) at which it seeks to cross the 

Complex Agency Order with the Complex Solicited 

Order. Once the Initiating Member has submitted 

the orders for processing pursuant to proposed Rule 

1081(ii)(A)(1)–(2), they may not be modified or 

cancelled. 

such price must be at least $0.01 better 

than any public customer noncontingent limit order on the Phlx order 

book and must be equal to the Agency 

Order’s limit price or provide the 

Agency Order with a better price than 

its limit price. Stop prices may be 

submitted in $0.01 increments, 

regardless of the applicable Minimum 

Price Variation (the ‘‘MPV’’). Contingent 

orders 18 (including all-or-none, stop or 

stop-limit orders) on the book would not 

be considered when checking the 

acceptability of the stop price. 

Contingent orders are not represented as 

part of the Exchange Best Bid/Offer 

since they may only be executed if 

specific conditions are met. Given that 

these orders are not represented as part 

of the Exchange Best Bid/Offer, they are 

not included in the NBBO and thus are 

not considered when checking the 

acceptability of the stop price.19

Orders that are submitted but that do 

not comply with the eligibility 

requirements set forth in proposed Rule 

1081(i)(A) through (C) would be rejected 

upon receipt and ineligible to initiate a 

Solicitation Auction.20 In addition, 

Agency Orders submitted at or before 

the opening of trading are not eligible to 

initiate a Solicitation Auction and 

would be rejected.21 Orders submitted 

during a specified period of time, as 

determined by the Exchange and 

communicated to Exchange membership 

on the Exchange’s Web site, prior to the 

end of the trading session in the affected 

series 22 (including, in the case of 

Complex Orders, in any series which is 

a component of the Complex Order) are 

not eligible to initiate a Solicitation 

Auction and would be rejected.23

Agency Orders which are not Complex 

Orders received while another 

electronic auction (including any 

Solicitation Auction, PIXL auction, or 

any other kind of auction) involving the 

same option series is in progress would 

not be eligible to initiate a Solicitation 

Auction and would be rejected.24

Similarly, a Complex Agency Order 

received while another auction in the 

same Complex Order strategy is in 

progress is not eligible to initiate a 

Solicitation Auction and would be 

rejected.25

Finally a solicited order for the 

account of any Exchange specialist, 

streaming quote trader (‘‘SQT’’), remote 

streaming quote trader (‘‘RSQT’’) or 

non-streaming registered options trader 

(‘‘ROT’’) assigned in the affected series 

may not be a Solicited Order.26

Consistent with the explanation the 

Exchange made in its filing proposing 

PIXL, the Exchange believes that in 

order to maintain fair and orderly 

markets, a market maker assigned in an 

option should not be solicited for 

participation in a Solicitation Auction 

by an Initiating Member. The Exchange 

believes that market makers interested 

in participating in transactions on the 

Exchange should do so by way of his/ 

her quotations, and should respond to 

Solicitation Auction notifications rather 

than create them by having an Initiating 

Member submitting Solicited Orders on 

the market maker’s behalf. 

Solicitation Auction Process 

Pursuant to proposed Rule 

1081(ii)(A)(1), to begin the process the 

Initiating Member must mark the 

Agency Order and the Solicited Order 

for Solicitation Auction processing, and 

specify the stop price at which it seeks 

to cross the Agency Order with the 

Solicited Order. Once the Initiating 

Member has submitted an Agency Order 

and Solicited Order for processing 

pursuant to this subparagraph, such 

Agency Order and Solicited Order may 

not be modified or cancelled.27

Crossing Two Public Customer Orders 

Without a Solicitation Auction 

As noted above, the proposed rule 

change would enable a member to 

electronically execute an Agency Order, 

which is an order it represents on behalf 

of a public customer, broker-dealer, or 

any other entity, against a Solicited 

Order, which is a solicited limit order 

of a public customer, broker-dealer, or 

any other entity through the solicitation 

mechanism. 

However, pursuant to proposed Rule 

1081(v), if a member enters an Agency 

Order for the account of a public 

customer paired with a Solicited Order 

for the account of public customer and 

if the paired orders adhere to the 

eligibility requirements of proposed 

Rule 1081(i), such paired orders would 


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28The eligibility requirements require the orders 

to each be limit orders for at least 500 contracts (or, 

in the case of mini options, at least 5000 contracts) 

and be designated as all-or-none. The orders must 

match in size, and the limit prices must match or 

cross in price. The orders may not be stop or stop 

limit orders, must be marked with a time in force 

of day, good till cancelled or immediate or cancel. 

In the case of Complex Orders, the orders must be 

of a conforming ratio, and all component option 

legs of the order must be for at least 500 contracts 

(or, in the case of mini options, at least 5000 

contracts). See proposed Rule 1081(i). The 

Exchange also accommodates the crossing of two 

public customer orders in PIXL. See Rule 1080(n). 

29The execution price for a Complex Order may 

be in $.01 increments. 

30All-or-none orders can only be submitted for 

non-broker-dealer customers. As stated above, allor-none orders are not considered when checking 

the acceptability of the stop price of an Agency 

Order. 

31The term ‘‘cPBBO’’ means the best net debit or 

credit price for a Complex Order Strategy based on 

the PBBO for the individual options components of 

such Complex Order Strategy, and, where the 

underlying security is a component of the Complex 

Order, the National Best Bid and/or Offer for the 

underlying security. See Rule 1080.08(a)(iv). 

32The Exchange’s trading system is capable of 

accepting all-or-none Complex Orders which are 

not, however, affirmatively permitted to be 

submitted under Exchange rules. Rule 1080.08 

(b)(v) provides in part that ‘‘Complex Orders may 

be submitted as: All-or-none orders—to be executed 

in its entirety or not at all.’’ See Securities Exchange 

Act Release No. 72351 (June 9, 2014), 79 FR 33977 

(June 13, 2014) (SR–Phlx–2014–39). Nevertheless, 

all-or-none Complex Orders may not be submitted 

at this time. The Exchange anticipates that it will 

file a proposed rule change to provide for the 

handling and execution of all-or-none Complex 

Orders and thereafter permit the trading system to 

accept them. The instant proposed rule change 

describes how the solicitation mechanism would 

deal with all-or-none Complex Orders once they are 

permitted under Exchange rules. Complex Agency 

Orders and Complex Solicited Orders provided for 

herein are not Complex Orders that would require 

filing of a proposed rule change in order to be 

submitted into the system. Complex Agency Orders 

and Complex Solicited Orders, while all-or-none in 

character, are unique to the solicitation mechanism 

and are explicitly provided for herein. 

33See Rule 1080(n)(vi). 

34The Exchange states that, by omitting the side 

in the Request for Response, the system avoids 

disclosure of potentially material information that 

could move the market in the event the Agency 

Order does not trade at the conclusion of the 

Solicitation Auction. Market participants may enter 

Responses on both sides of the market. 

35The PHLX Orders data feed is designed to 

provide the real-time status of simple and Complex 

Orders on the Phlx order book directly to 

subscribers. This includes new orders and changes 

to orders resting on the Phlx book for all Phlx listed 

options. PHLX Orders also includes opening 

imbalance information, PIXL information and 

Complex Order Live Auction (‘‘COLA’’) data. 

36SQF is an interface that allows specialists and 

market makers to connect and send quotes into Phlx 

XL and assists them in responding to auctions and 

providing liquidity to the market. 

37CBOE Rule 6.74B(b)(1)(B) suggests that Agency 

Orders submitted to CBOE’s Solicitation Auction 

Mechanism include the proposed price at which an 

Agency Order is to be crossed with a solicited 

order, as well as the size of the order. According 

to Phlx, the rule does not specify that the side is 

to be indicated on the order. See also C2 Rule 

6.52(b)(1)(B), which is similar. 

38 In April/May 2014, to determine whether the 

proposed Solicitation Auction timer would provide 

sufficient time to respond to a Request for 

Response, the Exchange polled all Phlx market 

makers, 20 of which responded. Of those that 

responded to the survey, 15 are currently 

responding to auctions on Phlx or intend to do so. 

100% of those respondents indicated that their firm 

could respond to auctions with a duration of at least 

50 milliseconds. Thus, the Exchange believes that 

the proposed Solicitation Auction duration of 500 

milliseconds would provide a meaningful 

opportunity for participants on Phlx to respond to 

a Solicitation Auction, whether initiated by an 

Agency Order or a Complex Agency Order, while 

at the same time facilitating the prompt execution 

of orders. The Exchange notes that both ISE and 

Miami International Securities Exchange LLC 

(‘‘MIAX’’) rules provide for a 500 millisecond 

response time. See ISE Rule 716, Supplementary 

Material .04 and MIAX Rule 515A(b)(2)(i)(C). 

39Rule 1080(c)(ii)(C)(2), which states that Order 

Entry Firms must expose orders they represent as 

agent for at least one second before such orders may 

be automatically executed against solicited orders, 

is being amended to clarify that it does not apply 

to proposed Rule 1081, Solicitation Mechanism. See 

also proposed Rule 1081(ii)(A)(4). 

40Responses may not be submitted with an allor-none contingency. (Note, however, that all-ornone orders entered and present in the system at 

the end of the Solicitation Auction would be 

considered for execution, as discussed below.) 

41Similarly, in the case of Complex Order 

Responses, the Response must be equal to or better 

than the cPBBO on both sides, as defined in 

be automatically executed without a 

Solicitation Auction.28 The execution 

price for such paired public customer 

orders (except if they are Complex 

Orders) must be expressed in the 

minimum quoting increment applicable 

to the affected series.29 Such an 

execution may not trade through the 

NBBO or at the same price as any 

resting public customer order. If all-ornone orders are on the order book in the 

affected series, the public customer-topublic customer order may not be 

executed at a price at which the all-ornone order would be eligible to trade 

based on its limit price and size.30

In the case of a Complex Order, a 

public customer-to-public customer 

cross may only occur at a price which 

improves the calculated Phlx Best Bid/ 

Offer or ‘‘cPBBO’’ and improves upon 

the net limit price of any Complex 

Orders (excluding all-or-none) on the 

Complex Order book in the same 

strategy.31 If all-or-none Complex 

Orders 32 are on the Complex Order 

book in the same strategy, the public 

customer-to-public customer Complex 

Order may not be executed at a price at 

which the all-or-none Complex Order 

would be eligible to trade based on its 

limit price and size. 

The Exchange believes that permitting 

such executions would benefit public 

customers on both sides of the crossing 

transaction by providing speedy and 

efficient executions to public customer 

orders in this circumstance while 

maintaining the priority of public 

customer interest on the book. The 

proposed handling of a public customer 

Agency Order paired with a public 

customer Solicited Order is similar to 

the handling of a public customer PIXL 

Order paired with a public customer 

Initiating Order which is submitted into 

the PIXL mechanism.33

Solicitation Auction Notification 

Pursuant to proposed Rule 

1081(ii)(A)(3), when the Exchange 

receives an order for Solicitation 

Auction processing, a Request for 

Response with the option details 

(meaning, the security, strike price, and 

expiration date), size and stop price, but 

not the side 34 of the Agency Order and 

the Solicitation Auction start time is 

then sent over the PHLX Orders data 

feed 35 and Specialized Quote Feed 

(‘‘SQF’’).36 The Exchange believes that 

providing option details, size, and stop 

price is sufficient information for 

participants to determine whether to 

submit responses to the Solicitation 

Auction.37

Solicitation Auction 

The Solicitation Auction process is 

described in proposed Rules 

1081(ii)(A)(4)–(10). Following the 

issuance of the Request for Response, 

the Solicitation Auction would last for 

a period of 500 milliseconds 38 unless it 

is concluded as the result of any of the 

circumstances described below.39

Any person or entity may submit 

Responses to the Request for Response, 

provided such Response is properly 

marked specifying the price, size and 

side of the market at which it would be 

willing to participate in the execution of 

the Agency Order. The Exchange 

believes that permitting any person or 

entity to submit Responses to the 

Request for Response should attract 

Responses from all sources, maximizing 

the potential for liquidity in the 

Solicitation Auction and thus affording 

the Agency Order the best opportunity 

for price improvement. Responses 

would not be visible to Solicitation 

Auction participants, and would not be 

disseminated to the Options Price 

Reporting Authority (‘‘OPRA’’). A 

Response may be for any size up to the 

size of the Agency Order.40 The 

minimum price increment for 

Responses would be $0.01. A Response 

must be equal to or better than the 

NBBO on both sides of the market at the 

time of receipt of the Response. A 

Response with a price that is outside the 

NBBO at the time of receipt would be 

rejected.41 Multiple Responses from the 


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Commentary .08(a)(iv) of Rule 1080 at the time of 

receipt of the Complex Order Response but need 

not improve upon the limit of orders on the 

CBOOK. A Complex Order Response submitted 

with a price that is outside the cPBBO at the time 

of receipt would be rejected. See proposed Rule 

1081(ii)(A)(9). 

42See Rule 1080(n). 

43 In the case of a Complex Solicitation Auction, 

it would end any time the cPBBO or the Complex 

Order book, excluding all-or-none Complex Orders, 

on the same side of the market as the Complex 

Agency Order, crosses the stop price. See proposed 

Rule 1081(ii)(B)(3). 

44Trading on the Exchange in any option contract 

is halted whenever trading in the underlying 

security has been paused or halted by the primary 

listing market. See Rule 1047(e). See also Securities 

Exchange Act Release No. 62269 (June 10, 2010), 75 

FR 34491 (June 17, 2010) (SR-Phlx-2010–82). Any 

executions that occur during any latency between 

the pause or halt in the underlying security and the 

processing of the halt on the Exchange are nullified 

pursuant to Rule 1092(c)(iv)(B). 

45The Exchange’s PIXL auction features similar 

functionality. Pursuant to Rule 1080(n)(ii)(C), in the 

case of a trading halt on the Exchange in the 

affected series, a PIXL Order will be executed solely 

against the Initiating Order at the stop price and any 

unexecuted PAN responses will be cancelled. 

46Similarly, pursuant to proposed Rule 

1081(ii)(D), in the case of a Complex Solicitation 

Auction, an unrelated market or marketable limit 

Complex Order on the opposite side of the market 

from the Complex Agency Order as well as orders 

for the individual components of the unrelated 

Complex Order received during the Complex 

Solicitation Auction would not cause the Complex 

Solicitation Auction to end early and would 

execute against interest outside of the Complex 

Solicitation Auction. If contracts remain from such 

unrelated Complex Order at the time the Complex 

Solicitation Auction ends, the total unexecuted 

volume of such unrelated interest would be 

considered for participation in the order allocation 

process, regardless of the number of contracts in 

relation to the Complex Solicitation Auction size, 

described in proposed Rule 1081(ii)(E). 

47See Rule 1080(n)(ii)(D). 

same member may be submitted at 

different prices on either or both sides 

of the market during the Solicitation 

Auction. Responses may be modified or 

cancelled during the Solicitation 

Auction. The acceptance and handling 

of Responses to a Solicitation Auction is 

the same as the acceptance and 

handling of Responses today for a PIXL 

Auction.42

Conclusion of the Solicitation Auction 

Proposed Rules 1081(ii)(B)(1)–(4) 

describe a number of circumstances that 

would cause the Solicitation Auction to 

conclude. Generally, it would conclude 

at the end of the Solicitation Auction 

period, except that it may conclude 

earlier: (i) any time the Phlx Best Bid/ 

Offer (‘‘PBBO’’) on the same side of the 

market as the Agency Order crosses the 

stop price (since further price 

improvement would be unlikely and 

any Responses offering improvement 

would be likely to be cancelled),43 or (ii) 

any time there is a trading halt on the 

Exchange in the affected series (or, in 

the case of a Complex Solicitation 

Auction, any time there is a trading halt 

on the Exchange in any component of a 

Complex Agency Order).44

Pursuant to proposed Rule 1081(ii)(C), 

if the Solicitation Auction concludes 

before the expiration of the Solicitation 

Auction period as the result of the 

PBBO, cPBBO or Complex Order book 

(excluding all-or-none Complex Orders) 

crossing the stop price as described in 

proposed Rules 1081(ii)(B)(2) and 

1081(ii)(B)(3), the entire Agency Order 

would be executed using the allocation 

algorithm set forth in proposed Rule 

1081(ii)(E). The algorithm is described 

below under the heading ‘‘Order 

Allocation’’. 

Also pursuant to proposed Rule 

1081(ii)(C), if the Solicitation Auction 

concludes before the expiration of the 

Solicitation Auction period as the result 

of a trading halt, the entire Agency 

Order or Complex Agency Order would 

be executed solely against the Solicited 

Order or Complex Solicited Order at the 

stop price and any unexecuted 

Responses would be cancelled.45

Responses and other interest present in 

the system would not be considered for 

trading against the Agency Order in the 

case of a trading halt. The Exchange 

believes that this is appropriate since 

the participants representing tradable 

interest in the Solicitation Auction have 

not ‘stopped’ the Agency Order in its 

entirety and would have no means after 

the auction executions occur to offset 

the trading risk they would incur 

because the market is halted if they 

were permitted to execute against the 

Agency Order in this instance. However, 

the Solicited Order ‘stopped’ the 

Agency Order when the order was 

submitted into the Solicitation Auction 

and would therefore execute against the 

Agency Order if the Solicitation Auction 

concludes before the expiration of the 

Solicitation Auction period as the result 

of a trading halt. 

Furthermore, when Agency and 

Solicited Orders are submitted into the 

Solicitation Auction, the stop price 

must be equal to or improve the NBBO 

and be at least $0.01 better than any 

public customer non-contingent limit 

orders on the Phlx order book. The 

Exchange believes that public customer 

interest submitted to Phlx after 

submission of the Agency and Solicited 

Orders but prior to the trading halt 

should not prevent the Agency Order 

from being executed at the stop price 

since such public customer interest was 

not present at the time the Agency 

Order was ‘stopped’ by the Solicited 

Order. 

Entry of an unrelated market or 

marketable limit order on the opposite 

side of the market from the Agency 

Order received during the Solicitation 

Auction would not cause the 

Solicitation Auction to end early. 

Rather, the unrelated order would 

execute against interest outside the 

Solicitation Auction (if marketable 

against the PBBO) or would post to the 

book and then route if eligible for 

routing (in the case of an order 

marketable against the NBBO but not 

against the PBBO), pursuant to proposed 

Rule 1081(ii)(D). If contracts remain 

from such unrelated order at the time 

the Solicitation Auction ends, the total 

unexecuted volume of such unrelated 

interest would be considered for 

participation in the order allocation 

process, regardless of the number of 

contracts in relation to the Solicitation 

Auction size, described in proposed 

Rule 1081(ii)(E).46 The handling of 

unrelated opposite side interest which 

is received during the Solicitation 

Auction is the same as the handling of 

unrelated opposite side interest which 

is received during a PIXL Auction.47

Participants submitting such unrelated 

interest may not be aware that an 

auction is in progress and should 

therefore be able to access firm quotes 

that comprise the NBBO without delay. 

Considering such unrelated interest 

which remains unexecuted upon receipt 

for participation in the order allocation 

process described in proposed Rule 

1081(ii)(E) would increase the number 

of contracts against which an Agency 

Order could be executed, and should 

therefore create more opportunities for 

the Agency Order to be executed at 

better prices. 

Order Allocation 

The allocation of orders executed 

upon the conclusion of a Solicitation 

Auction would depend upon whether 

the Solicitation Auction has yielded 

sufficient improving interest to improve 

the price of the entire Agency Order. As 

noted above, all contracts of the Agency 

Order would trade at an improved price 

against non-solicited contra-side interest 

or, in the event of insufficient 

improving interest to improve the price 

of the entire Agency Order, at the stop 

price against the Solicited Order. 

Consideration of All-or-None Interest. 

All-or-none interest of a size which 

could potentially be executed consistent 

with its all-or-none contingency is 

considered when determining whether 

there is sufficient size to execute 

Agency Orders which are not Complex 

Agency Orders at price(s) better than the 

stop price. However, pursuant to 

proposed Rule 1081(ii)(E)(5), when 


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48All-or-none simple orders reside with simple 

orders on the book. By contrast, all-or-none 

Complex Orders reside in a separate book, in a 

different part of the trading system. Thus 

aggregation of all-or-none Complex Orders with 

other Complex Orders is a more difficult process 

than aggregation of all-or-none simple orders with 

other simple orders. 

49The Exchange reviewed six months of data 

which showed that all-or-none Complex Orders 

represented only 0.12% of all Complex Orders. 

50Similarly, pursuant to proposed Rule 

1081(ii)(E)(3), in the case of a Complex Solicitation 

Auction, if there is sufficient size (considering 

resting Complex Orders and Responses) to execute 

the entire Complex Agency Order at a price(s) better 

than the stop price, the Complex Agency Order 

would be executed against better priced Complex 

Orders, Responses, as well as quotes and orders 

which comprise the cPBBO at the end of the 

Complex Solicitation Auction. (The cPBBO is not 

considered in determining whether there is 

sufficient improving size because the market and/ 

or size of the individual components can change 

between the calculation of sufficient size and the 

actual execution.) Such interest would be allocated 

at a given price in the following order: (i) to public 

customer Complex Orders and Responses in time 

priority; (ii) to SQT, RSQT, and non-SQT ROT 

Complex Orders and Responses on a size pro-rata 

basis; (iii) to non-market maker off-floor brokerdealer Complex Orders and Responses on a size 

pro-rata basis, and (iv) to quotes and orders which 

comprise the cPBBO at the end of the Complex 

Solicitation Auction with public customer interest 

being satisfied first in time priority, then to SQT, 

RSQT, and non-SQT ROT interest satisfied on a size 

pro-rata basis, and lastly to non-market maker offfloor broker-dealers on a size pro-rata basis. This 

allocation methodology is consistent with the 

allocation methodology utilized for a Complex 

Order executed in PIXL. In addition, providing 

public customer’s with priority over SQT, RSQT, 

and non-SQT ROTs, who in turn have priority over 

non-market maker off-floor broker-dealers is the 

same priority scheme used for regular orders. See 

Rule 1014(g). 

When determining if there is sufficient size to 

execute the entire Complex Agency Order at a 

price(s) better than the stop price, if the short sale 

price test in Rule 201 of Regulation SHO is triggered 

for a covered security, Complex Orders and 

Responses which are marked ‘‘short’’ will not be 

considered because of the possibility that a short 

sale price restriction may apply during the interval 

between assessing for adequate size and the 

execution of the Complex Agency Order. However, 

if there is sufficient size to execute the entire 

Complex Agency Order at a price(s) better than the 

stop price irrespective of any covered securities for 

which the price test is triggered that may be 

present, then all Complex Orders and Responses 

which are marked ‘‘short’’ will be considered for 

allocation in accordance with proposed Rule 

1081(ii)(J)(3). 

determining if there is sufficient size to 

execute Complex Agency Orders at a 

price(s) better than the stop price, no 

all-or-none interest of any size would be 

considered. If there is sufficient size to 

execute the entire Complex Agency 

Order at a price(s) better than the stop 

price irrespective of any all-or-none 

interest that may be present, then all-ornone interest would be considered for 

trade and executed if possible. This 

difference in behavior is due to a system 

limitation relating to all-or-none 

Complex Orders.48 The Exchange 

believes this behavior is not impactful 

since all-or-none Complex Orders are 

rare 49 and if sufficient size exists to 

execute the entire Complex Agency 

Order at an improved price, the all-ornone Complex Order would be 

considered for trade and executed if 

possible. 

In all Solicitation Auctions, all-ornone interest would be executed 

pursuant to normal priority rules, 

except that it would not be executed if 

the all-or-none contingency cannot be 

satisfied. If an execution which can 

adhere to the all-or-none contingency is 

not possible, such all-or-none interest 

would be ignored and would remain on 

the order book or be cancelled if such 

interest is an immediate or cancel order. 

For example, assume an Agency 

Order to buy 1000 contracts stopped by 

a Solicited Order at $2.00 is entered 

when the PBBO is $1.90–$2.10. Assume 

that during the Solicitation Auction, 

Responses are received to sell 700 

contracts at $1.97 and sell 150 contracts 

at $1.99. In addition, assume an order to 

sell 300 contracts at $1.98 with an allor-none contingency is received. At the 

end of the Solicitation Auction, the 

system would consider the all-or-none 

order when determining if there is 

sufficient size to execute the Agency 

Order at a price(s) better than the stop 

price since the all-or-none contingency 

can be satisfied by an execution. In this 

example, at the end of the Solicitation 

Auction, the Agency Order would 

execute against improving interest with 

700 contracts executing at $1.97 and 300 

contracts (representing the all-or-none 

order) executing at $1.98. Consider a 

similar scenario whereby the Responses 

received were to sell 700 contracts at 

$1.97 and sell 300 contracts at $1.99 and 

an all-or-none order to sell 500 contracts 

at $1.98 was received. In this scenario, 

the system would not consider the allor-none order when determining if there 

is sufficient size to execute the Agency 

Order at a price(s) better than the stop 

price since the all-or-or none 

contingency cannot be satisfied by an 

execution. However, excluding the allor-none order, the Agency Order can 

still be satisfied at a price(s) better than 

the stop price. In this scenario, at the 

end of the Solicitation Auction, the 

Agency Order would execute against 

improving interest with 700 contracts 

executing at $1.97 and 300 contracts 

executing at $1.99. The 500 contract allor-none order does not execute because 

the all-or-none contingency cannot be 

satisfied. 

Similarly, assume a Complex Agency 

Order to buy 1000 contracts stopped by 

a Complex Solicited Order at $2.00 is 

entered when the cPBBO is $1.90–$2.10. 

Assume that during the Solicitation 

Auction a Response is received to sell 

900 contracts at $1.98 and an all-ornone Complex Order is received to sell 

150 contracts at $1.99. At the end of the 

Solicitation Auction involving a 

Complex Order, the system does not 

consider all-or-none interest in 

determining whether it can execute the 

Complex Agency Order at a better price 

than the stop price. In this case, 

excluding the all-or-none Complex 

Order, only 900 contracts are available 

to sell at a better price than the stop 

price. Therefore, the Complex Agency 

Order would trade against the Solicited 

Order at the $2.00 stop price. The allor-none contracts would not be 

included because although more than 

1000 contracts are offered at a better 

price than the $2.00 stop price, the 

system cannot both trade best prices 

first and adhere to the contingency of 

the all-or-none order while ensuring 

that the Agency Order trades 1000 

contracts. If, however, the example is 

changed and Responses are received to 

sell 900 contracts at $1.98 and sell 100 

contracts at $1.99 and an order to sell 

100 contracts at $1.98 all-or-none is 

received, at the end of the Solicitation 

Auction involving this Complex Order, 

there is enough interest which is not allor-none to satisfy the Complex Agency 

Order at a better price than the $2.00 

stop price. Therefore, the Agency Order 

would be executed against the 900 lot at 

$1.98 and the remaining 100 contracts 

executed against the all-or-none 

Complex Order at $1.98. 

Solicitation Auction with Sufficient 

Improving Interest. Pursuant to the 

proposed Rule 1081(ii)(E)(1) algorithm, 

if there is sufficient size (considering all 

resting orders, quotes and Responses) to 

execute the entire Agency Order at a 

price or prices better than the stop price, 

the Agency Order would be executed 

against such better priced interest with 

public customers having priority at each 

price level. After public customer 

interest at a particular price level has 

been satisfied, including all-or-none 

orders with a size which can be 

satisfied, remaining contracts would be 

allocated among all Exchange quotes, 

orders and Responses in accordance 

with Rules 1014(g)(vii)(B)(1)(b) and (d), 

and the Solicited Order would be 

cancelled.50

Example of Solicitation Auction with 

Sufficient Improving Interest. To 

illustrate a case where a Solicitation 

Auction yields enough improving 

interest to better the stop price and the 

application of the proposed Rule 

1081(ii)(E)(1) algorithm, assume the 

NBBO is $0.95–$1.03, and a buy side 

Agency Order for 1000 contracts is 


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51To illustrate a Complex Solicitation Auction 

with enough improving interest and the operation 

of proposed Rule 1081(ii)(E)(3), assume that a 

Complex Order to buy one of option A and sell one 

of option B, 1000 times, with a cPBBO of $0.40 bid, 

$0.70 offer, is submitted with a stop price of $0.65. 

Assume that during the Solicitation Auction, the 

following Responses and order interest are received: 

a market maker (‘‘MM1’’) responds to sell the 

strategy 100 times at a price of $0.55; MM1 

responds to sell the strategy 100 times at a price of 

$0.60; a broker-dealer responds to sell the strategy 

400 times at a price of $0.60; a public customer 

Complex Order to sell the strategy 300 times at a 

price of $0.60; and another market maker (‘‘MM2’’) 

responds to sell the strategy 200 times at $0.60. 

After all these Responses and orders are received, 

option A of the simple market moves causing the 

cPBBO to become offered 200 times at $0.60. 

Option A is quoted in the simple market as $1.00– 

$1.10 and Option B is quoted in the simple market 

as $0.50–$0.60. At the end of the Solicitation 

Auction, the Complex Agency Order would be 

executed as follows: the Complex Agency Order 

trades 100 contracts at $0.55 against MM1; the 

Complex Agency Order trades 300 contracts at 

$0.60 against public customer; the Complex Agency 

Order trades 100 contracts at $0.60 against MM1; 

the Complex Agency Order trades 200 contracts at 

$0.60 against MM2; the Complex Agency Order 

trades 300 contracts at $0.60 against the brokerdealer; and the Solicited Order and the residual 

unexecuted contracts of the broker-dealer Response 

are cancelled. 

52Proposed Rule 1081(ii)(E)(2) does not apply to 

Complex Solicitation Auctions. Rather, a parallel 

provision, proposed Rule 1081(ii)(E)(4), provides 

that in a Complex Solicitation Auction, if there is 

not sufficient size (considering resting Complex 

Orders and Responses) to execute the entire 

Complex Agency Order at a price(s) better than the 

stop price, the Complex Agency Order would be 

executed against the Solicited Order at the stop 

price, provided such stop price is better than the 

limit of any public customer Complex Order 

(excluding all-or-none) on the Complex Order book, 

better than the cPBBO when a public customer 

order (excluding all-or-none) is resting on the book 

in any component of the Complex Agency Order, 

and equal to or better than the cPBBO on the 

opposite side of the Complex Agency Order. This 

proposed behavior ensures non-contingent public 

customers on the limit order book maintain priority. 

Otherwise, both the Complex Agency Order and the 

Solicited Order would be cancelled with no trade 

occurring. 

53See ISE Rule 716(e)(2)(i) which provides in part 

that in the case of insufficient improving interest 

‘‘[i]f there are Priority Customer Orders on the 

Exchange on the opposite side of the Agency Order 

at the proposed execution price and there is 

sufficient size to execute the entire size of the 

Agency Order, the Agency Order will be executed 

against the bid or offer, and the solicited order will 

be cancelled.’’ 

54To illustrate a Complex Solicitation Auction 

that yields insufficient improving interest and the 

operation of proposed Rule 1081(ii)(E)(4), assume a 

Complex Order to buy one of option A and sell one 

of option B, 1000 times, with a cPBBO of $0.40 bid, 

$0.70 offer, is submitted with a stop price of $0.65. 

Assume that during the Complex Solicitation 

Auction, the following Responses and order interest 

are received: a market maker (‘‘MM1’’) responds to 

sell the strategy 100 times at a price of $0.55; MM1 

responds to sell the strategy 100 times at a price of 

$0.60; a broker-dealer responds to sell the strategy 

300 times at a price of $0.60; and another market 

maker (‘‘MM2’’) responds to sell the strategy 200 

times at $0.60. 

At the end of the Complex Solicitation Auction, 

since there is not sufficient size to execute the 

entire Complex Agency Order at a price(s) better 

than the stop price, the Complex Agency Order 

executes at the stop price of $0.65 against the 

Solicited Order. All unexecuted Responses are 

cancelled back to the sending participants. 

55This provision parallels PIXL Rule 

1080(n)(ii)(E)(2)(g) and is being proposed for the 

same reasons explained in the Complex PIXL 

Filing. This limitation is also consistent with the 

handling of Complex Orders that include a stock/ 

ETF component and are entered into the Phlx XL 

system. Commentary .08(a)(i) to Rule 1080 states, 

for example, that stock-option orders can only be 

executed against other stock-option orders and 

cannot be executed by the System against orders for 

the individual components. 

submitted with a contra-side Solicited 

Order to stop the Agency Order at $1.00. 

During the Solicitation Auction, assume 

a market maker (‘‘MM1’’) Response is 

submitted to sell 800 contracts at $0.97, 

a broker-dealer Response is submitted to 

sell 100 contracts at $0.99, and a public 

customer sends in an order, outside of 

the Solicitation Auction, to sell 100 

contracts at $0.99. Upon receipt of the 

public customer order, the NBBO 

changes to $0.95–$0.99. In addition, 

assume two market makers send in 

quotes of $0.95–$0.99 during the 

Solicitation Auction. Market Maker 2 

(‘‘MM2’’) quotes $0.95–$0.99 with 100 

contracts and Market Maker 3 (‘‘MM3’’) 

quotes $0.95–$0.99 with 50 contracts. 

At the end of the Solicitation Auction, 

since there is enough interest to execute 

the entire Agency Order at a price(s) 

better than the stop price, the Agency 

Order would be executed against the 

better priced interest as follows: 

— the Agency Order trades 800 

contracts at $0.97 against MM1 

Response; 

— the Agency Order trades 100 

contracts at $0.99 against public 

customer; 

— the Agency Order trades 67 

contracts at $0.99 against MM2 quote 

(pro-rata allocation); and 

— the Agency Order trades 33 

contracts at $0.99 against MM3 quote 

(pro-rata allocation). 

The broker-dealer does not trade any 

contracts since broker-dealer orders 

execute only after all public customer 

and market maker interest is satisfied. 

The unexecuted Solicited Order and 

broker-dealer Response are cancelled 

back to the sending participants.51

Solicitation Auction with Insufficient 

Improving Interest. Pursuant to 

proposed Rule 1081(ii)(E)(2), if there is 

not sufficient size (considering all 

resting orders, quotes and Responses) to 

execute the entire Agency Order at a 

price(s) better than the stop price, the 

Agency Order would be executed 

against the Solicited Order at the stop 

price provided such price is better than 

the limit of any public customer order 

(excluding all-or-none) on the limit 

order book, on either the same side as 

or the opposite side of the Agency 

Order, and equal to or better than the 

contra-side PBBO.52 Otherwise, both the 

Agency Order and Solicited Order 

would be cancelled without a trade 

occurring. This proposed behavior 

ensures non-contingent public customer 

orders on the limit order book maintain 

priority. While the Exchange recognizes 

that at least one other solicitation 

mechanism offered by another exchange 

considers public customer orders on the 

limit order book at the stop price when 

determining if there is sufficient 

improving interest to satisfy the Agency 

Order, the proposed solicitation 

mechanism offered on Phlx would not 

consider such interest.53 The Exchange 

believes that requiring the stop price to 

be at least $0.01 better than any public 

customer interest on the limit order 

book ensures public customer priority of 

existing interest and in turn provides 

the Solicited Order participant certainty 

that if an execution occurs at the stop 

price, such execution would represent 

the Solicited Order and not interest 

which arrived after the Solicited Order 

participant stopped the Agency Order 

for its entire size. 

Example of Solicitation Auction with 

Insufficient Improving Interest. To 

illustrate a case where the Solicitation 

Auction has not yielded sufficient 

interest to improve the price for the 

entire Agency Order, assume the NBBO 

is $0.97–$1.03, and a buy side Agency 

Order for 1000 contracts is submitted 

with a contra-side Solicited Order to 

stop the Agency Order at $1.00. During 

the Solicitation Auction, assume a 

Response is submitted to sell 100 

contracts at $0.97 and another to sell 

100 contracts at $0.99. At the end of the 

Solicitation Auction period, since there 

is not enough interest to execute the 

entire Agency Order at a price(s) better 

than the stop price, the Agency Order 

would be executed at $1.00 against the 

Solicited Order. The unexecuted 

Responses are then cancelled back to 

the sending participant.54

Proposed Rule 1081(ii)(E)(6) provides 

that a single quote, order or Response 

shall not be allocated a number of 

contracts that is greater than its size. 

Finally, proposed Rule 1081(ii)(E)(7) 

provides that a Complex Agency Order 

consisting of a stock/ETF component 

would not execute against interest 

comprising the cPBBO at the end of the 

Complex Solicitation Auction.55

Legging of a stock/ETF component 

would introduce the risk of a participant 

not receiving an execution on all 

components of the Complex Order and 

is therefore not considered as a means 


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56Similarly, in the case of a Complex Solicitation 

Auction, if there are Responses that cross the thenexisting cPBBO at the time of conclusion of the 

Complex Solicitation Auction, such Responses 

would be executed, if possible, at their limit prices. 

This provision parallels PIXL Rule 1080(n)(ii)(F). 

57See also PIXL Rule 1080(n)(ii)(H). Proposed 

Rule 1081(ii)(G) does not apply to Complex 

Solicitation Auctions. Rather, a parallel provision, 

proposed Rule 1081(ii)(H), provides that if the 

Complex Solicitation Auction price when trading 

against non-solicited interest would be the same as 

or cross the limit of that of a Complex Order 

(excluding all-or-none) on the Complex Order Book 

on the same side of the market as the Complex 

Agency Order, the Complex Agency Order may only 

be executed at a price that improves the resting 

order’s limit price by at least $0.01, provided such 

execution price improves the stop price. If such 

execution price would be equal to or would not 

improve the stop price, the Agency Order would be 

executed $0.01 better than the stop price provided 

the price does not equal or cross a non-all-or-none 

public customer Complex Order or a non-all-ornone public customer order present in the cPBBO 

on the same side as the Complex Agency Order in 

a component of the Complex Order Strategy and is 

equal to or better than the cPBBO on the opposite 

side of the Complex Agency Order. If such price is 

not possible, the Agency Order and Solicited Order 

would be cancelled with no trade occurring. This 

functionality is consistent with that of Complex 

PIXL auctions. 58See Rule 1080(n)(ii)(I). 

of executing a Complex Order which 

includes a stock/ETF component. The 

Exchange believes that introducing the 

risk of inability to fully execute a 

complex strategy is counterproductive 

to, and inconsistent with, the effort to 

allow Complex Orders in the 

solicitation mechanism. 

Miscellaneous Provisions 

Proposed Rules 1081(ii)(F) through (I) 

address the handling of the Agency 

Order and other orders, quotes and 

Responses when certain conditions are 

present. Pursuant to proposed Rule 

1081(ii)(F), if the market moves 

following the receipt of a Response, 

such that there are Responses that cross 

the then-existing NBBO (provided such 

NBBO is not crossed) at the time of the 

conclusion of the Solicitation Auction, 

such Responses would be executed, if 

possible, at their limit price(s).56 Since 

Responses may be cancelled at any time 

prior to the conclusion of the 

Solicitation Auction, the Exchange 

believes that this behavior is, at best, 

highly unlikely as participants would 

cancel Responses when better priced 

interest that they could trade against is 

present in the marketplace. This 

behavior is consistent with the current 

handling of PAN Responses in a PIXL 

Auction. 

Proposed Rule 1081(ii)(G) provides 

that if the Solicitation Auction price 

when trading against non-solicited 

interest (except if it is a Complex 

Solicitation Auction) would be the same 

as or cross the limit of an order 

(excluding an all-or-none order) on the 

limit order book on the same side of the 

market as the Agency Order, the Agency 

Order may only be executed at a price 

that is at least $0.01 better than the 

resting order’s limit price provided such 

execution price improves the stop price. 

If such execution price would not 

improve the stop price, the Agency 

Order would be executed at a price 

which is $0.01 better for the Agency 

Order than the stop price provided the 

price does not equal or cross a public 

customer order and is equal to or 

improves upon the PBBO on the 

opposite side of the Agency Order.57 If 

such price is not possible, the Agency 

Order and Solicited Order would be 

cancelled with no trade occurring. For 

example, assume the NBBO is $1.03– 

$1.10 when an order is submitted into 

the Solicitation Auction, that the 

Agency Order is buying and that the 

order is stopped at $1.05. The $1.03 bid 

is an order on Phlx. During the 

Solicitation Auction a Response arrives 

to sell at $1.03. At the end of the 

Solicitation Auction, if the Response to 

sell at $1.03 can fully satisfy the Agency 

Order, the auction price would be $1.03 

but, since that price is the same as the 

price of a resting order on the book, the 

Agency Order would trade against the 

Response at $1.04 (an improvement of 

$0.01 over the resting order’s limit). By 

contrast, assume a case where the NBBO 

is $1.03–$1.10 and where during the 

Auction an unrelated non-customer 

order to pay $1.04 is received. This 

order rests on the book and the NBBO 

becomes $1.04–$1.10. Assume the same 

stop price of $1.05 for an Agency Order 

to buy, and the receipt of a Response to 

sell at $1.04 which can fully satisfy the 

Agency order. At the end of the 

Solicitation Auction, the auction price 

would be $1.04 which equals the resting 

order on the book. In this case, if the 

trade were executed with $0.01 

improvement over the resting order 

limit (that is, if the trade were executed 

at $1.05) the execution would be at the 

stop price. The system would not 

consider the origin of the resting order 

but ensures the priority of such order, 

regardless of origin by requiring that any 

execution occur at a price which 

improves upon the limit of a resting 

order by at least $0.01. In addition, the 

system only would permit the Solicited 

Order and no other interest to trade 

against the Agency Order at the stop 

price since the Solicited Order stopped 

the entire size Agency Order at a price 

which was required upon receipt to be 

equal to or improve the NBBO and to be 

at least $0.01 improvement over any 

public customer orders resting on the 

Phlx limit order book, thereby 

establishing priority at the stop price. 

Therefore, the execution price in this 

case ($1.04) would be $0.01 better than 

the stop price. This system logic ensures 

that the Agency Order receives a better 

priced execution than the stop price 

when trading against interest other than 

the Solicited Order. 

Proposed Rule 1081(ii)(I) provides 

that any unexecuted Responses or 

Solicited Orders would be cancelled at 

the end of the Solicitation Auction. This 

behavior is consistent with the handling 

of unexecuted PAN Responses and 

Initiating Orders in PIXL.58 Both 

Responses and Solicited Orders are 

specifically entered into the Solicitation 

Auction to trade against the Agency 

Order. The Exchange believes that 

cancelling the unexecuted portion of 

Responses and Solicited Orders is 

consistent with the expected behavior of 

such interest by the submitting 

participants. 

Complex Agency Orders With Stock/

ETF Components 

Proposed Rule 1081(ii)(J) deals with 

Complex Agency Orders with stock or 

ETF components and generally tracks 

Rule 1080(n)(ii)(J) applicable to PIXL. 

Proposed Rule 1081(ii)(J)(1) states that 

member organizations may only submit 

Complex Agency Orders, Complex 

Solicited Orders, Complex Orders and/ 

or Responses with a stock/ETF 

component if such orders/Responses 

comply with the Qualified Contingent 

Trade Exemption from Rule 611(a) of 

Regulation NMS pursuant to the Act. 

Member organizations submitting such 

orders with a stock/ETF component 

represent that such orders comply with 

the Qualified Contingent Trade 

Exemption. Members of FINRA or the 

NASDAQ Stock Market (‘‘NASDAQ’’) 

are required to have a Uniform Service 

Bureau/Executing Broker Agreement 

(‘‘AGU’’) with Nasdaq Execution 

Services LLC (‘‘NES’’) in order to trade 

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 NES in order 

to trade orders containing a stock/ETF 

component. 

Proposed Rule 1081(ii)(J)(2) provides 

that where one component of a Complex 

Agency Order, Complex Solicited Order, 

Complex Order or Response is the 

underlying security, the Exchange shall 

electronically communicate the 

underlying security component of the 

Complex Agency Order (together with 

the Complex Solicited Order or 


rljohnson on DSK3VPTVN1PROD with NOTICES
Federal Register / Vol. 80, No. 22 / Tuesday, February 3, 2015 / Notices 5873 

59 17 CFR 242.201. See Securities Exchange Act 

Release No. 61595 (February 26, 2010), 75 FR 11232 

(March 10, 2010). See also Division of Trading and 

Markets: Responses to Frequently Asked Questions 

Concerning Rule 201 of Regulation SHO, January 

20, 2011 (‘‘SHO FAQs’’) at www.sec.gov/divisions/ 

marketreg/mrfaqregsho1204.htm. 

60The term ‘‘national best bid’’ is defined in SEC 

Rule 201(a)(4). 17 CFR 242.201(a)(4). 

61The Exchange notes that a broker or dealer may 

mark a sell order ‘‘short exempt’’ only if the 

provisions of SEC Rule 201(c) or (d) are met. 17 CFR 

242.200(g)(2). Since NES and the Exchange do not 

display the stock or ETF portion of a Complex 

Order, however, a broker-dealer should not mark 

the short sale order ‘‘short exempt’’ under Rule 

201(c). See SHO FAQs Question and Answer Nos. 

4.2, 5.4, and 5.5. See also Securities Exchange Act 

Release No. 63967 (February 25, 2011), 76 FR 12206 

(March 4, 2011) (SR-Phlx-2011–27) (discussing, 

among other things, Complex Orders marked ‘‘short 

exempt’’) and the Complex PIXL Filing. The system 

would handle short sales of the orders and 

Responses described herein the same way it 

handles the short sales discussed in the Complex 

PIXL Filing. 

62 17 CFR 242.201(a)(4). 

63See Rules 1080(n)(iii) and (iv). 

64See Securities Exchange Act Release No. 61802 

(March 30, 2010), 75 FR 17193 (April 5, 2010) 

(approving SR–Phlx–2010–05). 

65 15 U.S.C. 78s(b)(2)(B). 

66Section 19(b)(2)(B) of the Act provides that 

proceedings to determine whether to disapprove a 

proposed rule change must be concluded within 

180 days of the date of publication of notice of the 

filing of the proposed rule change. The time for 

conclusion of the proceedings may be extended for 

up to an additional 60 days if the Commission finds 

good cause for such extension and publishes its 

reasons for so finding or if the self-regulatory 

organization consents to the extension. 

67 15 U.S.C. 78f(b)(5). 

Response, as applicable) to NES, its 

designated broker-dealer, for immediate 

execution. 

Such execution and reporting would 

occur otherwise than on the Exchange 

and would be handled by NES pursuant 

to applicable rules regarding equity 

trading. 

Finally, proposed Rule 1081(ii)(J)(3) 

states that when the short sale price test 

in Rule 201 of Regulation SHO 59 is 

triggered for a covered security, NES 

would not execute a short sale order in 

the underlying covered security 

component of a Complex Agency Order, 

Complex Solicited Order, Complex 

Order or Response if the price is equal 

to or below the current national best 

bid.60 However, NES would execute a 

short sale order in the underlying 

covered security component of a 

Complex Agency Order, Complex 

Solicited Order, Complex Order or 

Response if such order is marked ‘‘short 

exempt,’’ regardless of whether it is at 

a price that is equal to or below the 

current national best bid.61 If NES could 

not execute the underlying covered 

security component of a Complex 

Agency Order, Complex Solicited Order, 

Complex Order or Response in 

accordance with Rule 201 of Regulation 

SHO, the Exchange would cancel back 

the Complex Agency Order, Complex 

Solicited Order, Complex Order or 

Response to the entering member 

organization. For purposes of this 

paragraph, the term ‘‘covered security’’ 

has the same meaning as in Rule 

201(a)(1) of Regulation SHO.62

Regulatory Issues 

The proposed rule change contains 

two paragraphs describing prohibited 

practices when participants use the 

solicitation mechanism. These new 

provisions track similar provisions in 

the PIXL rule.63

Proposed Rule 1081(iii) states that the 

Solicitation Auction may be used only 

where there is a genuine intention to 

execute a bona fide transaction. It would 

be considered a violation of proposed 

Rule 1081 and would be deemed 

conduct inconsistent with just and 

equitable principles of trade and a 

violation of Rule 707 if an Initiating 

Member submits an Agency Order 

(thereby initiating a Solicitation 

Auction) and also submits its own 

Response in the same Solicitation 

Auction. The purpose of this provision 

is to prevent Solicited Members from 

submitting an inaccurate or misleading 

stop price or trying to improve their 

allocation entitlement by participating 

with multiple expressions of interest. 

Proposed Rule 1081(iv) states that a 

pattern or practice of submitting 

unrelated orders or quotes that cross the 

stop price causing a Solicitation 

Auction to conclude before the end of 

the Solicitation Auction period would 

be deemed conduct inconsistent with 

just and equitable principles of trade 

and a violation of Rule 707. 

Definition of Professional in Rule 

1000(b)(14) 

In addition to proposing Rule 1081, 

the Exchange also proposes an 

amendment to Rule 1000(b)(14). In 

2010, the Exchange amended its priority 

rules to give certain non-broker-dealer 

orders the same priority as broker-dealer 

orders. In so doing, the Exchange 

adopted a new defined term, the 

‘‘professional,’’ for certain persons or 

entities.64 Rule 1000(b)(14) defines 

professional as a 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 account is 

treated in the same manner as an offfloor broker-dealer for purposes of Phlx 

Rule 1014(g), to which the trade 

allocation algorithm described in 

proposed Rule 1081(ii)(E)(1) refers. 

However, Rule 1000(b)(14) also 

currently states that all-or-none 

professional orders would be treated 

like customer orders. The Exchange 

proposes to amend Rule 1000(b)(14) by 

(i) specifying that orders submitted 

pursuant to Rule 1081 for the accounts 

of professionals would be treated in the 

same manner as off-floor broker-dealer 

orders for purposes of Rule 1014(g), and 

(ii) adding proposed Rule 1081 to the 

list of rules for the purpose of which a 

professional would be treated in the 

same manner as an off-floor brokerdealer. The effect of these changes to 

Rule 1014 is that professionals would 

not receive the same priority afforded to 

public customers in a Solicitation 

Auction under proposed Rule 1081, and 

instead would be treated as brokerdealers in this regard. 

III. Proceedings to Determine Whether 

to Approve or Disapprove SR–Phlx– 

2014–66 and Grounds for Disapproval 

Under Consideration 

The Commission is instituting 

proceedings pursuant to Section 

19(b)(2)(B) of the Act 65 to determine 

whether the proposed rule change 

should be approved or disapproved.66

Institution of such proceedings is 

appropriate at this time in view of the 

legal and policy issues that are raised by 

the proposal and are discussed below. 

Institution of proceedings does not 

indicate that the Commission has 

reached any conclusions with respect to 

any of the issues involved. Rather, as 

described in greater detail below, the 

Commission seeks and encourages 

interested persons to comment on the 

proposal and inform the Commission’s 

analysis whether to approve or 

disapprove the proposed rule change. 

Pursuant to Section 19(b)(2)(B) of the 

Act, the Commission is providing notice 

of the grounds for disapproval under 

consideration. The Commission is 

instituting proceedings to allow for 

additional analysis of, and input from, 

commenters with regard to the proposed 

rule change’s consistency with Section 

6 of the Act, and in particular Sections 

6(b)(5).67 Section 6(b)(5) requires that 

the rules of an exchange be designed, 

among other things, to prevent 

fraudulent and manipulative acts and 

practices, 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; and are not designed to 


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68 15 U.S.C. 78f(b)(5). 

69Section 19(b)(2) of the Act, as amended by the 

Securities Act Amendments of 1975, Pub. L. 94–29 

(June 4, 1975), grants the Commission flexibility to 

determine what type of proceeding—either oral or 

notice and opportunity for written comments—is 

appropriate for consideration of a particular 

proposal by a self-regulatory organization. See 

Securities Act Amendments of 1975, Senate Comm. 

on Banking, Housing & Urban Affairs, S. Rep. No. 

75, 94th Cong., 1st Sess. 30 (1975). 

70See proposed Rule 1081(ii)(E)(1). 

71See proposed Rule 1081(ii)(E)(5). 

72The Exchange states that it reviewed six 

months of data which showed that all-or-none 

Complex Orders represented only 0.12% of all 

Complex Orders. See supra note 49. The Exchange 

also notes that the proposed rule provides that, if 

sufficient size exists to execute the entire Complex 

Agency Order at an improved price, an all-or-none 

Complex Order would be considered for trade and 

executed if possible. 

73See proposed Rule 1081(ii)(E)(2). 

74See also supra, text accompanying footnote 30, 

regarding deference to all-or-none orders in the 

context of crossing two public customer orders. 

75See ISE Rule 716(e), Solicited Order 

Mechanism. 

permit unfair discrimination between 

customers, issuers, brokers, or dealers.68

IV. Procedure: Request for Written 

Comments 

The Commission requests that 

interested persons provide written 

submissions of their views, data and 

arguments with respect to the concerns 

identified above, as well as any others 

they may have with the proposal. In 

particular, the Commission invites the 

written views of interested persons 

concerning whether the proposed rule 

change is inconsistent with Section 6 or 

any other provision, of the Act, or the 

rules and regulations thereunder. 

Although there do not appear to be any 

issues relevant to approval or 

disapproval that would be facilitated by 

an oral presentation of views, data, and 

arguments, the Commission will 

consider, pursuant to Rule 19b-4, any 

request for an opportunity to make an 

oral presentation.69

In addition to any other facets of the 

proposal on which persons may seek to 

comment, the Commission is soliciting 

the views of interested persons 

regarding provisions of the proposed 

rule change concerning the handling of 

all-or-none orders. The Commission 

notes that, in the case of a Solicitation 

Auction for simple orders, all interest 

on the opposite side of the Agency 

Order would be considered in 

determining whether the price has been 

improved for the full size of the Agency 

Order.70 However, in the case of a 

Complex Order auction, all-or-none 

interest would not be considered.71 As 

discussed above, the Exchange explains 

that this difference is due to a system 

limitation relating to all-or-none 

Complex Orders: ‘‘All-or-none simple 

orders reside with simple orders on the 

book. By contrast, all-or-none Complex 

Orders reside in a separate book, in a 

different part of the trading system. 

Thus aggregation of all-or-none 

Complex Orders with other Complex 

Orders in order to determine the 

presence of sufficient improving interest 

is a more difficult process than 

aggregation of all-or-none simple orders 

with other simple orders.’’ 

The Commission notes the impact 

that the proposed difference in 

treatment of all-or-none Complex Orders 

would have. For example, if a proposed 

cross was submitted to the Solicitation 

Auction for 1000 contracts at a certain 

price, and during the auction period an 

all-or-none order for the full 1000 

contracts was received by the Exchange 

in its Complex Order book at a superior 

price, the Agency Order nonetheless 

would be awarded to the solicited party 

at the stop price. As discussed above, 

Phlx argues that not counting all-ornone interest in the case of all-or-none 

Complex Orders would not be 

impactful, maintaining that all-or-none 

Complex Orders are rare.72

The Commission seeks comment on 

this feature of the Solicitation 

Mechanism. The Commission notes that 

a critical factor in its consideration of 

prior solicited order mechanism 

proposals has been whether the Agency 

Order was adequately exposed to all 

potential price improvement before the 

Solicited Order may trade against it at 

the proposed cross price. 

In addition, the Commission seeks 

comment on the proposal’s 

consideration of all-or-none orders that 

are resting on the book at the stop price 

at the conclusion of the auction (in both 

simple and Complex Order 

solicitations). The proposed rules 

provide, generally, that if, upon the 

conclusion of an auction, a public 

customer order is resting on the book 

opposite the Agency Order at the 

Solicited Order’s stop price, both the 

Solicited Order and the Agency Order 

are canceled. However, if the public 

customer order was an all-or-none 

order, the proposal provides that the 

execution of the Solicited Order against 

the Agency Order can take place.73 The 

Commission understands this result to 

apply even if the size of the all-or-none 

public customer order was such that it 

otherwise would be eligible to trade 

against the Agency Order. The 

Commission seeks commenters’ views 

on this feature of the Solicitation 

Mechanism.74

The Commission further requests 

commenters’ views on Phlx’s proposed 

cancellation of the Agency Order (along 

with the Solicited Order) in certain 

cases where non-solicited interest is 

present that could fill the Agency Order. 

The Commission notes, for example, 

one result of proposed Rule 1081(ii)(G), 

which concerns a situation (in the case 

of simple orders) where the nonsolicited interest has improved the price 

to a price that is the same as, or would 

cross, the limit of an order on the limit 

order book on the same side of the 

market as the Agency Order. The 

Commission understands the proposed 

rule as providing that the Agency Order 

would be permitted to be executed only 

at a price that is at least $0.01 better 

(i.e., toward the opposite side) than the 

resting order’s limit price. However, if 

that price, as adjusted by $.01, would be 

equal to (i.e., would not improve) the 

stop price, the non-solicited interest 

would not be permitted to execute 

against the Agency Order at that price. 

In such case, as the Commission 

understands the proposal, the price 

would be adjusted back to $.01 better 

(for the Agency Order) than the stop 

price, but only if the resting limit order 

on the Agency Order side is not a public 

customer order. Otherwise, the Agency 

Order and Solicited Order would be 

cancelled with no trade occurring. 

With respect to this cancellation 

scenario, as discussed above, Phlx 

explains that ‘‘the system only would 

permit the Solicited Order and no other 

interest to trade against the Agency 

Order at the stop price since the 

Solicited Order stopped the entire size 

Agency Order at a price which was 

required upon receipt to be equal to or 

improve the NBBO and to be at least 

$0.01 improvement over any public 

customer orders resting on the Phlx 

limit order book, thereby establishing 

priority at the stop price.’’ The 

Commission seeks comment on this 

rationale and its result. 

Another example concerns a case 

where, at the conclusion of the auction 

period, a public customer order is 

resting on the book on the opposite side 

of the Agency Order at the stop price. 

As noted by the Exchange, its proposed 

rule and another exchange’s solicited 

order mechanism rule 75 prohibit the 

execution of the Solicited Order in such 

a case. However, the proposed Phlx rule 

differs from the other exchange’s rule in 

a case where, in addition to the public 

customer order at the stop price, there 

is price-improving interest of a size that 

is of insufficient size to fill the entire 

Agency Order on its own, but, when 

aggregated with the size of the public 

customer order, could fill the Agency 


rljohnson on DSK3VPTVN1PROD with NOTICES
Federal Register / Vol. 80, No. 22 / Tuesday, February 3, 2015 / Notices 5875 

76See proposed Rule 1081(ii)(B)(4). The 

described scenario applies in a simple Solicitation 

Auction. In a Complex Solicitation Auction, the 

auction would end early any time there is a trading 

halt on the Exchange in any component of the 

Complex Agency Order. Id. 

77See proposed Rule 1081(ii)(C). 

78 In explaining generally why Responses and 

other interest present in the system would not be 

considered for trading against the Agency Order in 

the case of a trading halt—which, the Commission 

notes, would apply even when the aggregate of such 

Responses and other interest was sufficient to fill 

the entire Agency Order at an improved price—the 

Exchange stated that ‘‘this is appropriate since the 

participants representing tradable interest in the 

Solicitation Auction have not ‘stopped’ the Agency 

Order in its entirety and would have no means after 

the auction executions occur to offset the trading 

risk they would incur because the market is halted 

if they were permitted to trade against the Agency 

Order in this instance.’’ 79 17 CFR 200.30–3(a)(57). 

Order. On the other exchange, while the 

Solicited Order is cancelled, the public 

customer order at the stop price and the 

improving interest trade against the 

Agency Order. Under the Phlx’s 

proposal, the Agency Order and 

Solicited Order are cancelled. 

The Exchange explains that its system 

‘‘only permits the Solicited Order and 

no other interest to trade against the 

Agency Order at the stop price, thus 

ensuring that the Agency Order receives 

a better priced execution than the stop 

price when trading against interest other 

than the Solicited Order.’’ The 

Commission notes that, when there is a 

public customer order on the book at the 

stop price, the Solicited Order would 

not be permitted to trade in any case, 

because a public customer on the book 

cannot be bypassed by another order. 

The Commission seeks comment on the 

aspect of the Exchange’s proposal that 

would cancel the Agency Order and the 

Solicited Order in a case where there is 

public customer interest at the stop 

price, and together with any improving 

interest, the Agency Order otherwise 

could be satisfied. 

The Commission further seeks 

commenters’ views regarding the 

proposal’s provisions regarding 

participation and priority in the 

allocation of the Agency Order, with 

respect to the Solicited Order and with 

respect to Responses, quotes and orders. 

For example, under the proposal, one 

of the scenarios in which a Solicitation 

Auction would conclude early is if there 

is a trading halt on the Exchange in the 

option series that is the subject of the 

auction.76 In such case, the Exchange’s 

proposal provides that the entire 

Agency Order would be executed solely 

against the Solicited Order at the stop 

price, and any unexecuted Responses 

would be cancelled.77 The Commission 

notes that there can be instances in 

which an unrelated order on the side 

opposite the Agency Order has arrived 

on the Exchange and is resting on the 

book at a price that is superior to the 

stop price (from the point of view of the 

Agency Order) when the trading halt 

occurs. By crossing the Agency Order 

against the Solicited Order at the stop 

price in this situation, the Exchange 

would be executing a trade at a price 

that is inferior to a price on the 

Exchange’s book. As noted above, the 

Exchange believes that public customer 

interest submitted to Phlx after 

submission of the Agency and Solicited 

Orders but prior to the trading halt 

should not prevent the Agency Order 

from being executed at the stop price 

since such public customer interest was 

not present at the time the Agency 

Order was ‘stopped’ by the Solicited 

Order.78 The Commission solicits 

comment on this functionality and the 

Exchange’s rationale. 

Interested persons are invited to 

submit written data, views and 

arguments regarding whether the 

proposed rule change should be 

approved or disapproved by [insert date 

21 days from publication in the Federal 

Register]. Any person who wishes to file 

a rebuttal to any other person’s 

submission must file that rebuttal by 

[insert date 35 days from publication in 

the Federal Register]. 

Comments may be submitted by any 

of the following methods: 

Electronic Comments 

• Use the Commission’s Internet 

comment form (http://www.sec.gov/

rules/sro.shtml); or 

• Send an email to rule-comments@

sec.gov. Please include File Number SR– 

Phlx–2014–66 on the subject line. 

Paper Comments 

• Send paper comments in triplicate 

to Brent J. Fields, Secretary, Securities 

and Exchange Commission, 100 F Street 

NE., Washington, DC 20549–1090. 

All submissions should refer to File 

Number SR–Phlx–2014–66. This file 

number should be included on the 

subject line if email is used. To help the 

Commission process and review your 

comments more efficiently, please use 

only one method. The Commission will 

post all comments on the Commission’s 

Internet Web site (http://www.sec.gov/

rules/sro.shtml). Copies of the 

submission, all subsequent 

amendments, all written statements 

with respect to the proposed rule 

change that are filed with the 

Commission, and all written 

communications relating to the 

proposed rule change between the 

Commission and any person, other than 

those that may be withheld from the 

public in accordance with the 

provisions of 5 U.S.C. 552, will be 

available for Web site viewing and 

printing in the Commission’s Public 

Reference Room, 100 F Street NE., 

Washington, DC 20549, on official 

business days between the hours of 

10:00 a.m. and 3:00 p.m. Copies of such 

filing also will be available for 

inspection and copying at the principal 

office of the Exchange. All comments 

received will be posted without change; 

the Commission does not edit personal 

identifying information from 

submissions. You should submit only 

information that you wish to make 

publicly available. All submissions 

should refer to File Number SR–Phlx– 

2014–66 and should be submitted on or 

before February 24, 2015. If comments 

are received, any rebuttal comments 

should be submitted by March 10, 2015. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.79

Jill M. Peterson, 

Assistant Secretary. 

[FR Doc. 2015–02017 Filed 2–2–15; 8:45 am] 

BILLING CODE 8011–01–P 

SMALL BUSINESS ADMINISTRATION 

Reporting and Recordkeeping 

Requirements Under OMB Review 

AGENCY: Small Business Administration. 

ACTION: 30-Day notice. 

SUMMARY: The Small Business 

Administration (SBA) is publishing this 

notice to comply with requirements of 

the Paperwork Reduction Act (PRA) (44 

U.S.C. Chapter 35), which requires 

agencies to submit proposed reporting 

and recordkeeping requirements to 

OMB for review and approval, and to 

publish a notice in the Federal Register 

notifying the public that the agency has 

made such a submission. This notice 

also allows an additional 30 days for 

public comments. 

DATES: Submit comments on or before 

March 5, 2015. 

ADDRESSES: Comments should refer to 

the information collection by name and/ 

or OMB Control Number and should be 

sent to: Agency Clearance Officer, Curtis 

Rich, Small Business Administration, 

409 3rd Street SW., 5th Floor, 

Washington, DC 20416; and SBA Desk 

Officer, Office of Information and 

Regulatory Affairs, Office of 

Management and Budget, New 

Executive Office Building, Washington, 

DC 20503. 


rljohnson on DSK3VPTVN1PROD with NOTICES