Federal Register / Vol. 80, No. 77 / Wednesday, April 22, 2015 / Notices 22569 

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

2 17 CFR 240.19b–4. 

3The Exchange filed Amendment No. 1 on April 

1, 2015. Amendment No. 1 was withdrawn on April 

8, 2015. 

4See infra note 7. See also infra note 14 for the 

Exchange’s description of the changes in 

Amendment No. 2. 

5 15 U.S.C. 78s(b)(1). 

6 17 CFR 240.19b–4. 

7See Securities Exchange Act Release No. 73441 

(October 27, 2014), 79 FR 64862 (‘‘Notice’’). 8See Securities Exchange Act Release No. 73791 

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

2014). 9 15 U.S.C. 78s(b)(2)(B). 

10See Securities Exchange Act Release No. 74167 

(January 28, 2015), 80 FR 5865 (February 3, 2015) 

(‘‘Order Instituting Proceedings’’). 11See Letter from Michael J. Simon, Secretary and 

General Counsel, International Securities Exchange 

LLC, dated February 25, 2015. 

12See Letter from Carla Behnfeldt, Associate 

General Counsel, Nasdaq, dated March 11, 2015. 

13See Securities Exchange Act Release No. 73441 

(October 27, 2014), 79 FR 64862 (October 31, 2014). 

The Exchange filed Amendment No. 1 on April 1, 

2015. Amendment No. 1 was withdrawn on April 

8, 2015. 

14The amendment makes certain changes to 

Exchange Rule 1080(n) regarding the PIXL auction 

process, clarifies that the trading system does not 

currently accept all-or-none Complex Orders, 

provides that the side of the Agency Order will be 

disseminated at the commencement of an auction, 

clarifies the treatment of responsive all-or-none 

interest in the auction, adds examples and makes 

certain other technical and clarifying changes. 

15Rule 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.) 

16Section (c), Solicited Orders, of Exchange 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. Additionally, 

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 rules proposed herein consequently track the 

existing PIXL rules. The Exchange adopted PIXL in 

October 2010 as a price-improvement mechanism 

that is a component of the Exchange’s fully 

automated options trading system, Phlx XL, now 

known as XL II. Like the solicitation mechanism, 

PIXL is a mechanism whereby an initiating member 

submits a two-sided (buy and sell) order into an 

auction process soliciting price improvement. See 

Securities Exchange Act Release Nos. 63027 

(October 1, 2010), 75 FR 62160 (October 7, 2010) 

(order approving SR–Phlx–2010–108, for purposes 

of this proposed rule change, the ‘‘PIXL Filing’’) 

and 69845 (June 25, 2013), 78 FR 39429 (July 1, 

2013) (SR–Phlx–2013–46 and, for purposes of this 

proposed rule change, the ‘‘Complex PIXL Filing’’) 

(Order Granting Approval To Proposed Rule 

Change, as Modified by Amendment No. 1, 

Regarding Complex Order PIXL). 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–74746; File No. SR–Phlx– 

2014–66] 

Self-Regulatory Organizations; 

NASDAQ OMX PHLX LLC; Notice of 

Filing of Amendment No. 2 and 

Designation of Longer Period for 

Commission Action on Proceedings To 

Determine Whether To Approve or 

Disapprove Proposed Rule Change, as 

Modified by Amendment No. 2, To 

Adopt New Exchange Rule 1081, 

Solicitation Mechanism, To Introduce a 

New Electronic Solicitation Mechanism 

April 16, 2015. 

I. Introduction 

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

Securities Exchange Act of 1934 

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

notice is hereby given that on April 9, 

2015, NASDAQ OMX PHLX LLC 

(‘‘Phlx’’ or ‘‘Exchange’’) filed with the 

Securities and Exchange Commission 

(‘‘SEC’’ or ‘‘Commission’’) Amendment 

No. 2 to the proposed rule change as 

described in Items II and III below, 

which Items have been substantially 

prepared by the Exchange.3 Amendment 

No. 2 replaces the original filing in its 

entirety.4 The Commission is publishing 

this notice to solicit comments on the 

proposed rule change, as modified by 

Amendment No. 2, from interested 

persons and to designate a longer period 

within which to issue an order 

approving or disapproving the proposed 

rule change, as modified by Amendment 

No. 2. 

On October 14, 2014, the Exchange 

filed with the Commission, pursuant to 

Section 19(b)(1) of the Act 5 and Rule 

19b–4 thereunder,6 a proposed rule 

change to adopt new Exchange Rule 

1081, Solicitation Mechanism, to 

introduce a new electronic solicitation 

mechanism pursuant to which a 

member would be able to electronically 

submit all-or-none orders of 500 

contracts or more (or, in the case of mini 

options, 5,000 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, 2014.7 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, 2015.8 On January 28, 2015, 

the Commission instituted proceedings 

under Section 19(b)(2)(B) of the Act 9 to 

determine whether to approve or 

disapprove the proposed rule change.10

The Commission received one comment 

letter regarding the proposal,11 as well 

as a response to the comment letter from 

the Exchange.12

II. Self-Regulatory Organization’s 

Statement of the Terms of Substance of 

the Proposed Rule Change 

The Exchange proposes to adopt new 

Exchange Rule 1081, Solicitation 

Mechanism, to introduce a new 

electronic solicitation mechanism 

pursuant to which a member can 

electronically submit all-or-none orders 

of 500 contracts or more (or, in the case 

of mini options, 5,000 contracts or 

more) the member represents as agent 

against contra orders the member 

solicited. The Exchange is also 

proposing a corresponding amendment 

to the definition of ‘‘professional’’ in 

Rule 1,000(b)(14) and a clarification to 

Rule 1080, Phlx XL and Phlx XL II. The 

proposed rule change was filed on 

October 14, 2014.13 Amendment No. 2 

amends and replaces the original filing 

in its entirety.14

The text of the proposed rule change 

is available on the Exchange’s Web site 

at http://

nasdaqomxphlx.cchwallstreet.com, at 

the principal office of the Exchange, and 

at the Commission’s Public Reference 

Room. 

III. Self-Regulatory Organization’s 

Statement of the Purpose of, and 

Statutory Basis for, the Proposed Rule 

Change 

In its filing with the Commission, the 

Exchange included statements 

concerning the purpose of and basis for 

the proposed rule change and discussed 

any comments it received on the 

proposed rule change. The text of these 

statements may be examined at the 

places specified in Item IV below. The 

Exchange has prepared summaries, set 

forth in sections A, B, and C below, of 

the most significant aspects of such 

statements. 

A. Self-Regulatory Organization’s 

Statement of the Purpose of, and 

Statutory Basis for, the Proposed Rule 

Change 

1. Purpose 

The purpose of the proposal is to 

introduce an electronic solicitation 

mechanism. Currently, under Phlx Rule 

1080(c)(ii)(C)(2), Order Entry Firms 15

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 nonmember broker-dealers to transact with 

such orders.16 The proposed rule change 

would provide an alternative, enabling 

a member to electronically execute 

orders it represents on behalf of a public 

customer, broker-dealer, or any other 


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17Rule 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.’’ 

However, that provision did not contemplate, and 

is not applicable to, the capitalized and defined 

term ‘‘Agency Order’’ as used in proposed Rule 

1081. 

18To be clear, 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. 

19Exchange Rule 1066(c)(4) defines an ‘‘all-ornone’’ order as a market or limit order which is to 

be executed in its entirety or not at all. 

20A 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. 

21Similar electronic functionality is offered today 

by competing 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’’). 

22A 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 .07 to Rule 1080. 

23See 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. 

24 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. 

25For example, assume an Agency Order to buy 

1000 contracts for $2.00 and a Solicited Order to 

sell 1,000 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. 

26Whether 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 will be treated once they are 

entered into the solicitation mechanism. 

27A 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. 

28Rule 1081(i)(B) does not apply if the Agency 

Order is a Complex Order (a ‘‘Complex Agency 

Order’’). Rather, Rule 1081(i)(C) applies to Complex 

Agency Orders and requires them to be of a 

conforming ratio, as defined in Commentary 

.07(a)(ix) to Rule 1080. A Complex Agency Order 

which is not of a conforming ratio will be rejected. 

(PIXL operates in the same manner. See Rule 

1080(n)(i)(C).) 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 5,000 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 will not 

be considered when checking the acceptability of 

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

29See Rule 1081(i)(D). 

30See Rule 1081(i)(E). 

31The 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. 

entity (an ‘‘Agency Order’’) 17 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.18

The new mechanism is a process by 

which a member (the ‘‘Initiating 

Member’’) can electronically submit allor-none orders 19 of 500 contracts or 

more (or, in the case of mini options,20

5,000 contracts or more) that it 

represents as agent against contra orders 

that it has solicited, and initiate an 

auction (the ‘‘Solicitation Auction’’).21

As explained below, at the end of the 

Solicitation Auction, allocation will 

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.22 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 Rule 1081 

and to be in a form approved by the 

Exchange.23

Solicitation Auction Eligibility 

Requirements 

All options traded on the Exchange, 

including mini options, are 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 5,000 contracts) 

and be designated as all-or-none. The 

orders must match in size, and their 

limit prices must match or cross in 

price.24 If the orders cross in price, the 

price at which the Agency Order and 

the Solicited Order may be considered 

for submission pursuant to Rules 

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

price of the Solicited Order.25 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 will not be 

routed regardless of routing strategy 

indicated on the order.26

Pursuant to 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 

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 27 (including all-or-none, stop or 

stop-limit orders) on the book will 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 these 

orders are not represented as part of the 

Exchange Best Bid/Offer, they are not 

included in the NBBO and thus not 

considered when checking the 

acceptability of the stop price.28

Orders which are submitted which do 

not comply with the eligibility 

requirements set forth in proposed Rule 

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

upon receipt and ineligible to initiate a 

Solicitation Auction.29 In addition, 

Agency Orders submitted at or before 

the opening of trading are not eligible to 

initiate a Solicitation Auction and will 

be rejected.30 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 31 (including, in the case of 

Complex Orders, in any series which is 

a component of the Complex Order) are 


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32See Rule 1081(i)(F). 

33A 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.’’ 

The Exchange is proposing to revise this provision 

to make clear that only one electronic auction of 

any kind may be conducted at a time in any given 

series or strategy. The Exchange is proposing to 

further amend the PIXL rule by adding Rule 

1080(n)(i)(H) to provide that PIXL Orders that are 

received while another electronic auction involving 

the same option series or the same Complex Order 

strategy is in progress are not eligible to initiate a 

PIXL Auction and will be rejected. 

34However, 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 will not 

be rejected. Instead, a Solicitation Auction will 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). Any Legging Orders will automatically 

be removed from the order book upon receipt of an 

Agency or Complex Agency Order which consists 

of a component in which there is a Legging Order 

(whether a buy order or a sell order) that initiates 

a Solicitation Auction. See Rule 

1080.07(f)(iii)(C)(4)(vi). Complex Orders submitted 

during normal trading hours in a strategy which has 

not yet opened under Commentary .07 of Exchange 

Rule 1080 will cause the strategy to immediately 

open and a Solicitation Auction may be initiated. 

See 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 the individual option in the case 

of a simple Agency Order, or the regular opening 

of all individual components in the case of a 

Complex Agency Order. 

35See 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 Exchange Rule 1014(b)(ii)(A). 

A RSQT is defined in Exchange 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). 

36For 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. The system will determine the stop price 

based upon the submitted limit prices if such prices 

do not match as discussed above. Once the 

Initiating Member has submitted the orders for 

processing pursuant to this subparagraph, they may 

not be modified or cancelled. 

37The 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 Rule 1081(i). The Exchange also 

accommodates the crossing of two public customer 

orders in PIXL. See Rule 1080(n). 

38The execution price for a Complex Order may 

be in $.01 increments. 

39All-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. 

40The 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 1080.07(a)(iv). 

41The 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 1080.07(b)(v) 

provides in part that ‘‘Complex Orders may be 

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

Continued 

not eligible to initiate a Solicitation 

Auction and will be rejected.32 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 are not 

eligible to initiate a Solicitation Auction 

and will be rejected.33 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 will be rejected.34

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.35

Consistent with the explanation the 

Exchange made in the PIXL Filing, 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 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. The 

system will determine the stop price 

based upon the submitted limit prices if 

such prices do not match as discussed 

above. 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.36

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 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 Rule 1081(i), such 

paired orders will be automatically 

executed without a Solicitation 

Auction.37 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.38 Such an execution may not 

trade through the NBBO or at the same 

price as any resting public customer 

order. If all-or-none orders are on the 

order book in the affected series, the 

public customer-to-public customer 

order may not be executed at a price at 

which the all-or-none order would be 

eligible to trade based on its limit price 

and size.39

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.40 If all-or-none Complex 

Orders 41 are on the Complex Order 


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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. To make this clear, the Exchange 

proposes to add a sentence at the end of Rule 

1080.07(b)(v) stating that ‘‘[n]otwithstanding the 

above, the trading system does not currently accept 

all-or-none Complex Orders.’’ The Exchange 

anticipates that it will file a proposed rule change 

to provide for the handling and execution of all-ornone Complex Orders and thereafter permit the 

trading system to accept them. The Exchange 

therefore intends to delete this new sentence if the 

Exchange submits and the Commission approves a 

proposed rule change that provides for all-or-none 

orders to be submitted through the trading system. 

The instant proposed rule change describes how the 

solicitation mechanism will 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 will 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. 

42See Rule 1080(n)(vi). 

43The 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. 

44SQF 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. 

45 In the case of a Complex Agency Order, the 

Request for Response will include the strategy, side, 

size, and stop price of the Agency Order as well as 

the Solicitation Auction start time. 

46 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). 

47Rule 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 Rule 1081, Solicitation Mechanism. See also Rule 

1081(ii)(A)(4). 

48 In the case of a Complex Agency Order, the 

Response must also specify the price, size and side 

of the market at which the person submitting the 

Response would be willing to participate in the 

execution of the Complex Agency Order. 

49Responses may not be submitted with an allor-none contingency. All-or-none (as a Response) is 

not available for any type of auction in the Phlx 

market because all-or-none orders may be submitted 

only for Customer accounts under Exchange rules, 

and Customers typically do not respond to auctions 

in any event. (Note, however, that all-or-none 

orders entered and present in the system at the end 

of the Solicitation Auction will be considered for 

execution, as discussed below.) 

50Similarly, in the case of Complex Order 

Responses, the Response must be equal to or better 

than the cPBBO on both sides, as defined in 

Commentary .07(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 

since the CBOOK is not displayed on OPRA and 

may not be known to the responding participant. If 

a Complex Order Response was received which was 

equal to or crossed the limit of orders on the 

CBOOK, such Responses will only be executed at 

a price which improves the resting order’s limit 

price by at least $0.01. See proposed rule 

1081(ii)(H). A Complex Order Response submitted 

with a price that is outside the cPBBO at the time 

of receipt will be rejected. See proposed Rule 

1081(ii)(A)(9). 

51See Exchange Rule 1080(n). 

52 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 Rule 

1081(ii)(B)(3). The Exchange believes that when 

either the cPBBO or Complex Order interest, 

excluding all-or-none, is present on the Exchange 

on the same side as the Complex Agency Order and 

crosses the stop price that further price 

improvement will be unlikely and Responses 

offering improvement are likely to be cancelled. 

The Exchange also believes that an all-or-none 

Complex Order crossing the stop price should not 

end the Complex Solicitation Auction since the 

order is contingent and may not actually be tradable 

based on its size contingency. The Exchange 

believes continuing to run the Complex Solicitation 

Auction for the duration of the auction timer 

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 will 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.42

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, side and stop 

price of the Agency Order and the 

Solicitation Auction start time is then 

sent over the PHLX Orders data feed 43

and Specialized Quote Feed (‘‘SQF’’).44

The Exchange believes that providing 

option details, size, side and stop price 

is sufficient information for participants 

to determine whether to submit 

responses to the Solicitation Auction.45

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 will last for a 

period of 500 milliseconds 46 unless it is 

concluded as the result of any of the 

circumstances described below.47

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.48 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 will 

not be visible to Solicitation Auction 

participants, and will 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.49 The 

minimum price increment for 

Responses will 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 will be 

rejected.50 Multiple Responses from the 

same member may be submitted at 

different prices 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.51

Conclusion of the Solicitation Auction 

Rules 1081(ii)(B)(1)–(4) describe a 

number of circumstances that will cause 

the Solicitation Auction to conclude. 

Generally, it will 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 will be 

unlikely and any Responses offering 

improvement are likely to be 

cancelled),52 or (ii) any time there is a 


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benefits the Agency Order in allowing for interest 

to continue to be collected which may offer price 

improvement over the stop price. This behavior is 

consistent with Solicitation Auctions involving 

simple orders. Simple Solicitation Auctions 

conclude early when the PBBO on the same side of 

the market as the Agency Order crosses the stop 

price. All-or-none orders are not part of the PBBO 

as they are contingent and not displayed on OPRA. 

53Trading 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 Exchange 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 Exchange Rule 

1092(c)(iv)(B). 

54The Exchange’s PIXL auction features similar 

functionality. Pursuant to Exchange 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. 

55Similarly, pursuant to 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 will not cause the Complex Solicitation 

Auction to end early and will 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 will 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 

Rule 1081(ii)(E). 

56See Exchange Rule 1080(n)(ii)(D). 

57All-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. 

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).53

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 

Rules 1081(ii)(B)(2) and 1081(ii)(B)(3), 

the entire Agency Order will be 

executed using the allocation algorithm 

set forth in 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 will be 

executed solely against the Solicited 

Order or Complex Solicited Order at the 

stop price and any unexecuted 

Responses will be cancelled.54

Responses and other interest present in 

the system will not be considered for 

trade against the Agency Order in the 

case of a trading halt. The Exchange 

believes 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 will 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 will not cause the Solicitation 

Auction to end early. Rather, the 

unrelated order will execute against 

interest outside the Solicitation Auction 

(if marketable against the PBBO) or will 

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 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 will be considered for 

participation in the order allocation 

process, regardless of the number of 

contracts in relation to the Solicitation 

Auction size, described in Rule 

1081(ii)(E).55 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.56 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 Rule 1081(ii)(E) 

will 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 will 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 will 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. 

The treatment of all-or-none interest in 

assessing the presence of sufficient 

improving interest differs between 

simple Solicitation Auctions and 

Complex Solicitation Auctions. In all 

Solicitation Auctions, whether simple 

or complex, the system will not 

consider an all-or-none order when 

determining if there is sufficient size to 

execute the Agency Order (or Complex 

Agency Order) at a price(s) better than 

the stop price if the all-or-or none 

contingency cannot be satisfied by an 

execution. However, 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 simple Agency Orders at 

price(s) better than the stop price. By 

contrast, pursuant to proposed Rule 

1081(ii)(E)(5), when 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 will be considered. This 

difference in behavior is due to a system 

limitation relating to all-or-none 

Complex Orders.57 The Exchange 

believes this behavior is not impactful 

since all-or-none Complex Orders are 


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58The Exchange reviewed six months of data 

which showed that all-or-none Complex Orders 

represented only 0.12% of all Complex Orders. 

59Consider 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-ornone order to sell 500 contracts at $1.98 was 

received. In this scenario, the system will not 

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 allor-or none contingency cannot be satisfied by an 

execution. However, excluding the all-or-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 will execute against improving interest with 

700 contracts executing at $1.97 and 300 contracts 

executing at $1.99. The 500 contract all-or-none 

order does not execute because the all-or-none 

contingency cannot be satisfied. 

60 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, there is enough 

interest which is not all-or-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-ornone Complex Order at $1.98. 

61Similarly, pursuant to 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 will 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 will 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 nonmarket maker off-floor broker-dealer 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 prorata basis, and lastly to non-market maker off-floor 

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 

Exchange 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 Rule 1081(ii)(J)(3). 

rare 58 and if sufficient size exists to 

execute the entire Complex Agency 

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

for trade and executed if possible as 

explained below. 

Assessing Sufficiency of Improving 

Interest in a Simple Solicitation 

Auction. 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 will 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.59 In 

this example, at the end of the 

Solicitation Auction, the Agency Order 

will execute against improving interest 

with 700 contracts executing at $1.97 

and 300 contracts (representing the allor-none order) executing at $1.98. 

Assessing Sufficiency of Improving 

Interest in a Complex Solicitation 

Auction. 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 

100 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.60 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. 

In both simple Solicitation Auctions 

and Complex Solicitation Auctions, 

once a determination is made that 

sufficient improving interest exists, allor-none interest will be executed 

pursuant to normal priority rules, 

except that it will 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 

will be ignored and will remain on the 

order book. 

Solicitation Auction with Sufficient 

Improving Interest. Pursuant to the 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 will 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 will be 

allocated among all Exchange quotes, 

orders and Responses in accordance 

with Exchange Rules 

1014(g)(vii)(B)(1)(b) and (d), and the 

Solicited Order will be cancelled.61

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 Rule 1081(ii)(E)(1) 

algorithm, assume the NBBO is $0.95– 

$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 market 

maker (‘‘MM1’’) Response is submitted 

to sell 800 contracts at $0.97, a brokerdealer 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 will 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 


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62To illustrate a Complex Solicitation Auction 

with enough improving interest and the operation 

of 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 brokerdealer 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 will 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. 

63Rule 1081(ii)(E)(2) does not apply to Complex 

Solicitation Auctions. Rather, a parallel provision, 

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 will 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 

will be cancelled with no trade occurring. 

64See ISE Rule 716(e)(2) 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.’’ 

65To illustrate a Complex Solicitation Auction 

that yields insufficient improving interest and the 

operation of 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. 

66This 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 .07(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. 

67Similarly, 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 will 

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

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

and market maker interest is satisfied. 

The unexecuted Solicited Order and 

broker-dealer Response are cancelled 

back to the sending participants.62

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 will 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.63 Otherwise, both the 

Agency Order and Solicited Order will 

be cancelled without a trade occurring. 

This proposed behavior ensures noncontingent 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 will not 

consider such interest.64 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 will 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 

will be executed at $1.00 against the 

Solicited Order. The unexecuted 

Responses are then cancelled back to 

the sending participant.65

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, Rule 1081(ii)(E)(7) provides 

that a Complex Agency Order consisting 

of a stock/ETF component will not 

execute against interest comprising the 

cPBBO at the end of the Complex 

Solicitation Auction.66 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 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 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 will be executed, if possible, 

at their limit price(s).67 Although 

Exchange Rule 1084, Order Protection, 

generally prohibits trade-throughs, an 

exception to the prohibition exists 

pursuant to Rule 1084(b)(x) when the 

transaction that constituted the tradethrough was the execution of an order 

that was stopped at a price that did not 

trade-through at the time of the stop. 

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 will 

cancel Responses when better priced 


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68The system does not consider the origin of the 

resting order but seeks to ensure the priority of all 

resting orders on the book by requiring that any 

execution occur at a price which improves upon the 

limit of a resting order by at least $0.01 if possible. 

If an execution cannot occur at least $0.01 better 

than the limit of a resting order on the book, the 

system will permit the Solicited Order to trade 

against the Agency Order at the resting limit order 

price provided the resting order is not for a public 

customer. 

69See also PIXL Rule 1080(n)(ii)(H). Proposed 

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

Solicitation Auctions. Rather, a parallel provision, 

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 allor-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 will 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-or-none 

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 

will be cancelled with no trade occurring. This 

functionality is consistent with that of Complex 

PIXL auctions. 70See Exchange Rule 1080(n)(ii)(I). 

71 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. 

72The term ‘‘national best bid’’ is defined in SEC 

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

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. 

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 68 provided such execution price 

improves the stop price. If such 

execution price would not improve the 

stop price, the Agency Order will 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.69

If such price is not possible, the Agency 

Order and Solicited Order will 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 

theoretically be $1.03 but, since that 

price is the same as the price of a resting 

order on the book, the Agency Order 

will 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 

theoretically executed at $1.05 due to 

the $1.04 order on the book) the 

execution would be at the stop price. 

However, the system only permits 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 

example will be $1.04, which is the 

same price as the $1.04 resting noncustomer order on the book, in order to 

execute at a price which is $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. 

Rule 1081(ii)(I) provides that any 

unexecuted Responses or Solicited 

Orders will 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.70 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 

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 . 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. 

New 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 stock or ETF share, the 

Exchange shall electronically 

communicate the underlying security 

component of the Complex Agency 

Order (together with the Complex 

Solicited Order or Response, as 

applicable) to NES, its designated 

broker-dealer, for immediate execution. 

Such execution and reporting will occur 

otherwise than on the Exchange and 

will be handled by NES pursuant to 

applicable rules regarding equity 

trading. 

Finally, new Rule 1081(ii)(J)(3) states 

that when the short sale price test in 

Rule 201 of Regulation SHO 71 is 

triggered for a covered security, NES 

will 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.72

However, NES will execute a short sale 


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73The 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 

will handle short sales of the orders and Responses 

described herein the same way it handles the short 

sales discussed in the Complex PIXL Filing. 

74 17 CFR 242.201(a)(4). 

75See Rules 1080(n)(iii) and (iv). 

76See Securities Exchange Act Release No. 61802 

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

(approving SR–Phlx–2010–05). 

77 15 U.S.C. 78f(b). 

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

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.73

If NES cannot 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 will 

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.74

The Exchange believes that this 

approach is consistent with Rule 201. 

Under this proposal, the Exchange and 

NES, as trading centers, will prevent the 

execution or display of a short sale of 

the stock/ETF component of a complex 

order priced at or below the current 

national best bid when the short sale 

price test restriction is triggered. 

Specifically, while the Exchange and 

NES are determining, respectively, the 

prices of the options component and of 

the stock or ETF component of the 

complex order, as described above, NES 

will check the current national best bid 

of the stock or ETF component at the 

time of execution. The execution of one 

component is contingent upon the 

execution of all other components and 

once a complex order is accepted and 

validated by the Phlx trading System, 

the entire package is processed as a 

single transaction and both the option 

leg and stock/ETF components are 

simultaneously processed. 

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.75

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 will 

be considered a violation of Rule 1081 

and will be deemed conduct 

inconsistent with just and equitable 

principles of trade and a violation of 

Exchange 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 will 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 adopting Rule 1081, the 

Exchange is amending Rule 1000(b)(14). 

In 2010 the Exchange amended its 

priority rules to give certain non-brokerdealer 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.76 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 will 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 will 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 will be treated in the same 

manner as an off-floor broker-dealer. 

The effect of these changes to Rule 

1000(b)(14) is that professionals will not 

receive the same execution priority 

afforded to public customers in a 

Solicitation Auction under new Rule 

1081, and instead will be treated as 

broker-dealers in this regard. Therefore, 

Agency Orders or Solicited Orders 

submitted for professionals are not 

public customer orders and will not be 

paired with a public customer order or 

another professional order and 

automatically executed without a 

Solicitation Auction pursuant to Rule 

1081(v) discussed above. Additionally, 

unrelated professional orders, excluding 

all-or-none orders, or responses for the 

account of a professional will be treated 

as broker-dealers for purposes of 

execution priority. Unrelated 

professional all-or-none orders will 

continue to receive customer priority as 

stipulated in rule 1000(b)(14). 

Deployment 

The Exchange anticipates that it will 

deploy the solicitation mechanism 

within 30 days of the Commission’s 

approval of this proposed rule change. 

Members will be notified of the 

deployment date by an Options Trader 

Alert posted on the Exchange’s Web 

site. 

2. Statutory Basis 

The Exchange believes that its 

proposal is consistent with Section 6(b) 

of the Act 77 in general, and furthers the 

objectives of Section 6(b)(5) of the Act 78

in particular, in that it is designed to 

promote just and equitable principles of 

trade, to remove impediments to and 

perfect the mechanism of a free and 

open market and a national market 

system, and, in general to protect 

investors and the public interest by 

providing new functionality that offers 

the potential for price improvement. 

Specifically, the new functionality may 

lead to an increase in Exchange volume 

and should allow the Exchange to better 

compete against other markets that 

already offer an electronic solicitation 

mechanism, while providing an 

opportunity for price improvement for 

Agency Orders. 

As discussed below, the proposed 

solicitation mechanism on Phlx is 

similar in relevant respects to 

solicitation mechanisms on other 

exchanges. The Commission previously 

has found such mechanisms consistent 

with the Act, stating that they should 

allow for greater flexibility in pricing 

large-sized orders and may provide a 

greater opportunity for price 


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79See Securities Exchange Act Release Nos. 

49141 (January 28, 2004), 69 FR 5625 (February 5, 

2004) (SR–ISE–2001–22) (approval of ISE Solicited 

Order Mechanism); and 57610 (April 3, 2008), 73 

FR 19535 (April 10, 2008) (SR–CBOE–2008–14) 

(approval of CBOE Solicitation Auction 

Mechanism). 

80 15 U.S.C. 78k(a)(1). 

81 17 CFR 240.11a2–2(T). 

82The member may, however, participate in 

clearing and settling the transaction. 

83See, e.g., Securities Exchange Act Release Nos. 

61419 (January 26, 2010), 75 FR 5157 (February 1, 

2010) (SR–BATS–2009–031) (approving BATS 

options trading); 59154 (December 23, 2008), 73 FR 

80468 (December 31, 2008) (SR–BSE–2008–48) 

(approving equity securities listing and trading on 

BSE); 57478 (March 12, 2008), 73 FR 14521 (March 

18, 2008) (SR–NASDAQ–2007–004 and SR– 

NASDAQ–2007–080) (approving NOM options 

trading); 53128 (January 13, 2006), 71 FR 3550 

(January 23, 2006) (File No. 10–131) (approving The 

Nasdaq Stock Market LLC); 44983 (October 25, 

2001), 66 FR 55225 (November 1, 2001) (SR–PCX– 

00–25) (approving Archipelago Exchange); 29237 

(May 24, 1991), 56 FR 24853 (May 31, 1991) (SR– 

NYSE–90–52 and SR–NYSE–90–53) (approving 

NYSE’s Off-Hours Trading Facility); and 15533 

(January 29, 1979), 44 FR 6084 (January 31, 1979) 

(‘‘1979 Release’’). 

84As discussed above, 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 Exchange Rule 1014(b)(ii)(A). 

85See 15 U.S.C. Section 78k(a)(1)(A); 17 CFR 

240.11a2–2(T)(a)(1). There are no other on-floor 

members, other than Exchange specialists and 

SQTs, who have the ability to submit orders into 

the Solicitation Auction. 

86As discussed above, an RSQT is defined in 

Exchange 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). While RSQTs may only submit orders 

into the Auction from off the Exchange floor, 

RSQTs also would be subject to the ‘‘market maker’’ 

exception to Section 11(a) of the Act and Rule 

11a2–2(T)(a)(1) thereunder. 

87Because FBMS does not have the coding 

required to enter orders into the Solicitation 

Auction, it is impossible for such Floor Brokers to 

submit orders into the Solicitation Auction. 

88A member may cancel or modify the order, or 

modify the instruction for executing the order, but 

only from off the floor. The Commission has stated 

that the non-participation requirement is satisfied 

under such circumstances, so long as such 

modifications or cancellations are also transmitted 

from off the floor. See Securities Exchange Act 

Release No. 14713 (April 27, 1978), 43 FR 18557 

(May 1, 1978) (‘‘1978 Release’’) (stating that the 

‘‘non-participation requirement does not prevent 

initiating members from canceling or modifying 

orders (or the instructions pursuant to which the 

initiating member wishes orders to be executed) 

after the orders have been transmitted to the 

executing member, provided that any such 

instructions are also transmitted from off the 

floor’’). 

89 In considering the operation of automated 

execution systems operated by an exchange, the 

Commission has noted that, while there is not an 

independent executing exchange member, the 

execution of an order is automatic once it has been 

transmitted into the system. Because the design of 

these systems ensures that members do not possess 

any special or unique trading advantages in 

handling their orders after transmitting them to the 

exchange, the Commission has stated that 

executions obtained through these systems satisfy 

the independent execution requirement of Rule 

11a2–2(T). 

improvement.79 The Exchange believes 

that its proposal will allow the 

Exchange to better compete for solicited 

transactions, while providing an 

opportunity for price improvement for 

Agency Orders and assuring that public 

customers on the book are protected. 

The new solicitation mechanism should 

promote and foster competition and 

provide more options contracts with the 

opportunity for price improvement, 

which should benefit market 

participants, investors, and traders. 

Section 11(a)(1) of the Act 80 prohibits 

a member of a national securities 

exchange from effecting transactions on 

that exchange for its own account, the 

account of an associated person, or an 

account over which it or its associated 

person exercises discretion (collectively, 

‘‘covered accounts’’) unless an 

exception applies. Rule 11a2–2(T) under 

the Act,81 known as the ‘‘effect versus 

execute’’ rule, provides exchange 

members with an exemption from the 

Section 11(a)(1) prohibition. Rule 11a2– 

2(T) permits an exchange member, 

subject to certain conditions, to effect 

transactions for covered accounts by 

arranging for an unaffiliated member to 

execute transactions on the exchange. 

To comply with Rule 11a2–2(T)’s 

conditions, a member: (i) Must transmit 

the order from off the exchange floor; 

(ii) may not participate in the execution 

of the transaction once it has been 

transmitted to the member performing 

the execution; 82 (iii) may not be 

affiliated with the executing member; 

and (iv) with respect to an account over 

which the member has investment 

discretion, neither the member nor its 

associated person may retain any 

compensation in connection with 

effecting the transaction except as 

provided in the Rule. The Exchange 

believes that this proposed rule change 

is consistent with Section 11(a)(1) of the 

Act and the Commission’s regulations 

thereunder. 

The Rule’s first condition is that 

orders for covered accounts be 

transmitted from off the exchange floor. 

In the context of automated trading 

systems, the Commission has found that 

the off-floor transmission requirement is 

met if a covered account order is 

transmitted from a remote location 

directly to an exchange’s floor by 

electronic means.83 Only specialists and 

on-floor SQTs 84 have the ability to 

submit orders into the solicitation 

mechanism from on the floor of the 

Exchange. These members, however, 

would be subject to the ‘‘market maker’’ 

exception to Section 11(a) of the Act 

and Rule 11a2–2(T)(a)(1) thereunder.85

RSQTs may only submit orders into the 

solicitation mechanism from off the 

floor of the Exchange.86 While Floor 

Brokers have the ability to submit orders 

they represent as agent to the electronic 

limit order book through the Exchange’s 

Options Floor Broker Management 

System (‘‘FBMS’’), there is no 

mechanism by which such Floor 

Brokers can directly submit orders to 

the solicitation mechanism or send 

orders to off-floor broker-dealers 

through FBMS for indirect submission 

into the solicitation mechanism.87

Because no Exchange members, other 

than specialists and SQTs, may submit 

orders into the solicitation mechanism 

from on the floor of the Exchange, the 

Exchange believes that the solicitation 

mechanism satisfies the off-floor 

transmission requirement. 

Second, the Rule requires that the 

member not participate in the execution 

of its order. At no time following the 

submission of an order is a member 

organization able to acquire control or 

influence over the result or timing of an 

order’s execution. The execution of a 

member’s order is determined by what 

other orders are present in the 

solicitation mechanism and the priority 

of those orders.88 Accordingly, the 

Exchange believes that a member does 

not participate in the execution of an 

order submitted to the solicitation 

mechanism. 

Third, Rule 11a2–2(T) requires that 

the order be executed by an exchange 

member who is unaffiliated with the 

member initiating the order. The 

Commission has stated that this 

requirement is satisfied when 

automated systems, such as the 

solicitation mechanism, are used, as 

long as the design of these systems 

ensures that members do not possess 

any special or unique trading 

advantages in handling their orders after 

transmitting them to the exchange.89

The design of the solicitation 

mechanism ensures that no member 

organization has any special or unique 

trading advantage in the handling of its 


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Federal Register / Vol. 80, No. 77 / Wednesday, April 22, 2015 / Notices 22579 

90See 17 CFR 240.11a2–2(T)(a)(2)(iv). In addition, 

Rule 11a2–2(T)(d) requires a member or associated 

person authorized by written contract to retain 

compensation, in connection with effecting 

transactions for covered accounts over which such 

member or associated persons thereof exercises 

investment discretion, to furnish at least annually 

to the person authorized to transact business for the 

account a statement setting forth the total amount 

of compensation retained by the member in 

connection with effecting transactions for the 

account during the period covered by the statement. 

See 17 CFR 240.11a2–2(T)(d). See also 1978 Release 

(stating ‘‘[t]he contractual and disclosure 

requirements are designed to assure that accounts 

electing to permit transaction-related compensation 

do so only after deciding that such arrangements are 

suitable to their interests’’). 

91See supra notes 11 and 12. The letters are 

available on the Commission’s Web site at http:// 

www.sec.gov/comments/sr-phlx-2014-66/

phlx201466.shtml. 92 15 U.S.C. 78s(b)(2). 

orders after transmitting its orders to the 

solicitation mechanism. The Exchange 

therefore believes the solicitation 

mechanism satisfies this requirement. 

Fourth, in the case of a transaction 

effected for an account with respect to 

which the Initiating Member or an 

associated person thereof exercises 

investment discretion, neither the 

Initiating Member nor any associated 

person thereof may retain any 

compensation in connection with 

effecting the transaction, unless the 

person authorized to transact business 

for the account has expressly provided 

otherwise by written contract referring 

to Section 11(a) of the Act and Rule 

11a2–2(T) thereunder.90 Member 

organizations relying on Rule 11a2–2(T) 

for transactions effected through the 

solicitation mechanism must comply 

with this condition of the Rule. 

For all of the foregoing reasons and as 

discussed in the proposal, the Exchange 

believes the proposed rule change is 

consistent with the requirements of the 

Act and the rules and regulations 

thereunder applicable to the Exchange. 

B. Self-Regulatory Organization’s 

Statement on Burden on Competition 

The Exchange does not believe that 

the proposed rule change will impose 

any burden on competition not 

necessary or appropriate in furtherance 

of the purposes of the Act. To the 

contrary, the Exchange believes the 

proposal is pro-competitive. The 

proposal would diminish the potential 

for foregone market opportunities on the 

Exchange by allowing Agency Orders to 

be entered into the solicitation 

mechanism by all members. The 

solicitation mechanism is similar to 

electronic solicitation mechanism 

functionality that is allowed on two 

other options exchanges. The Exchange 

believes that the new solicitation 

mechanism functionality should help it 

compete with these other exchanges. 

With respect to intra-market 

competition, the solicitation mechanism 

will be available to all Phlx members for 

the execution of Agency Orders. 

Moreover, as explained above, the 

proposal should encourage Phlx 

participants to compete amongst each 

other by responding with their best 

price and size for a particular 

Solicitation Auction. 

C. Self-Regulatory Organization’s 

Statement on Comments on the 

Proposed Rule Change Received From 

Members, Participants, or Others 

The Exchange did not solicit or 

receive written comments prior to filing 

the proposed rule change. Written 

comments on the proposed rule change 

were solicited by the Commission in 

response to the institution of 

proceedings for SR–Phlx–2014–66. The 

Commission received one comment 

letter and one letter from the Exchange 

in response.91

IV. Date of Effectiveness of the Proposed 

Rule Change and Timing for 

Commission Action 

Within 180 days after the date of 

publication of the initial notice in the 

Federal Register (i.e., October 31, 2014) 

or within such longer period up to an 

additional 60 days (i) as the 

Commission may designate if it finds 

such longer period to be appropriate 

and publishes its reasons for so finding 

or (ii) as to which the self-regulatory 

organization consents, the Commission 

will issue an order approving or 

disapproving such proposed rule 

change, as amended. As discussed in 

Item VI below, the Commission is 

designating an additional 60 days 

within which to issue an order 

approving or disapproving the proposed 

rule change. 

V. Solicitation of Comments 

Interested persons are invited to 

submit written data, views, and 

arguments concerning the foregoing, 

including whether the proposed rule 

change, as modified by Amendment No. 

2, is consistent with the Act. Comments 

may be submitted by any of the 

following methods: 

Electronic Comments 

• Use the Commission’s Internet 

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

rules/sro.shtml); or 

• Send an email to rule-comments@

sec.gov. Please include File Number SR– 

Phlx–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 20549–1090, on official 

business days between the hours of 

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

filing also will be available for 

inspection and copying at the principal 

office of the Exchange. All comments 

received will be posted without change; 

the Commission does not edit personal 

identifying information from 

submissions. You should submit only 

information that you wish to make 

available publicly. All submissions 

should refer to File Number SR–Phlx– 

2014–66, and should be submitted on or 

before May 7, 2015. 

VI. Designation of Longer Period for 

Commission Action 

Section 19(b)(2) of the Act 92 provides 

that, after initiating disapproval 

proceedings, the Commission shall issue 

an order approving or disapproving the 

proposed rule change not later than 180 

days after the date of publication of 

notice of the filing of the proposed rule 

change. The Commission may extend 

the period for issuing an order 

approving or disapproving the proposed 

rule change, however, by not more than 

60 days if the Commission determines 

that a longer period is appropriate and 

publishes the reasons for such 

determination. The proposed rule 

change was published for comment in 

the Federal Register on October 31, 

2014. April 29, 2015 is 180 days from 


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22580 Federal Register / Vol. 80, No. 77 / Wednesday, April 22, 2015 / Notices 

93 15 U.S.C. 78f(b)(5). 

94See supra note 10. 

95 15 U.S.C. 78s(b)(2). 

96 17 CFR 200.30–3(a)(12) and (a)(57). 

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

2 17 CFR 240.19b–4. 

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

4 17 CFR 240.19b–4(f)(6). 

5 17 CFR 240.17d–2. 

6See Securities Exchange Act Release Nos. 70837 

(Nov. 8, 2013), 78 FR 68889 (Nov. 15, 2013) (SR– 

EDGA–2013–32) (Notice of Filing and Immediate 

Effectiveness of Proposed Rule Change to Amend 

EDGA Rule 3.5 (Advertising Practices) and to 

Repeal Rule 3.20 (Initial or Partial Payments) to 

Conform with the Rules of the Financial Industry 

Regulatory Authority); and 70836 (Nov. 8, 2013), 78 

FR 68897 (Nov. 15, 2013) (SR–EDGX–2013–40) 

(Notice of Filing and Immediate Effectiveness of 

Proposed Rule Change to Amend EDGX Rule 3.5 

(Advertising Practices) and to Repeal Rule 3.20 

(Initial or Partial Payments) to Conform with the 

Rules of the Financial Industry Regulatory 

Authority). 

7 17 CFR 240.17d–2. 

8See Securities and Exchange Release No. 61698 

(Mar. 12, 2010), 75 FR 13151 (Mar. 18, 2010) 

(approving File No. 10–196). 

9 ‘‘Member’’ is defined as ‘‘any registered broker 

or dealer, or any person associated with a registered 

broker or dealer, that has been admitted to 

membership in the Exchange. A Member will have 

the status of a ‘member’ of the Exchange as that 

that date, and June 28, 2015 is an 

additional 60 days from that date. 

The Commission finds it appropriate 

to designate a longer period within 

which to issue an order approving or 

disapproving the proposed rule change 

so that it has sufficient time to consider 

the proposed rule change, the issues 

raised in the comment letter that has 

been submitted in connection with the 

proposal and the response from the 

Exchange and any comments that may 

be submitted on the proposed rule 

change, as modified by Amendment No. 

2. As the Commission noted in the 

Order Instituting Proceedings, the 

proposal raises questions as to whether 

the Exchange’s proposed rule change is 

consistent with the requirements of 

Sections 6(b)(5) 93 of the Act.94

Extending the time within which to 

approve or disapprove the proposed 

rule change, as modified by Amendment 

No. 2, will enable the Commission to 

more fully consider the issues raised by 

the proposed rule change, the comment 

letter received to date and the 

Exchange’s response and any comments 

that may be submitted on the proposed 

rule change, as modified by Amendment 

No. 2. 

Accordingly, the Commission, 

pursuant to Section 19(b)(2) of the 

Act,95 designates June 28, 2015, as the 

date by which the Commission should 

either approve or disapprove the 

proposed rule change, as modified by 

Amendment No. 2 (File No. SR–Phlx– 

2014–66). 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.96

Brent J. Fields, 

Secretary. 

[FR Doc. 2015–09265 Filed 4–21–15; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–74743; File No. SR–BATS– 

2015–30] 

Self-Regulatory Organizations; BATS 

Exchange, Inc.; Notice of Filing and 

Immediate Effectiveness of a Proposed 

Rule Change To Amend Exchange 

Rule 3.5 (Advertising Practices) and 

Repeal Exchange Rule 3.20 (Initial or 

Partial Payments) 

April 16, 2015. 

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

Securities Exchange Act of 1934 

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

notice is hereby given that on April 1, 

2015, BATS Exchange, Inc. (‘‘Exchange’’ 

or ‘‘BATS’’) filed with the Securities 

and Exchange Commission 

(‘‘Commission’’) the proposed rule 

change as described in Items I and II 

below, which Items have been 

substantially prepared by the Exchange. 

The Exchange has designated this 

proposal as a ‘‘non-controversial’’ 

proposed rule change pursuant to 

Section 19(b)(3)(A) of the Act 3 and Rule 

19b–4(f)(6) thereunder,4 which renders 

it effective upon filing with the 

Commission. The Commission is 

publishing this notice to solicit 

comments on the proposed rule change 

from interested persons. 

I. Self-Regulatory Organization’s 

Statement of the Terms of Substance of 

the Proposed Rule Change 

The Exchange filed a proposal to: (i) 

Amend Exchange Rule 3.5 (Advertising 

Practices); and (ii) repeal Exchange Rule 

3.20 (Initial or Partial Payments) to 

conform with the rules of the Financial 

Industry Regulatory Authority, Inc. 

(‘‘FINRA’’) for purposes of an agreement 

between the Exchange and FINRA 

pursuant to Rule 17d–2 under the Act.5

The proposed rule change is identical to 

proposed rule changes submitted by the 

EDGX Exchange, Inc. (‘‘EDGX’’) and the 

EDGA Exchange, Inc. (‘‘EDGA’’) that 

were published by the Commission.6

The text of the proposed rule change 

is available at the Exchange’s Web site 

at www.batstrading.com, at the 

principal office of the Exchange, and at 

the Commission’s Public Reference 

Room. 

II. Self-Regulatory Organization’s 

Statement of the Purpose of, and 

Statutory Basis for, the Proposed Rule 

Change 

In its filing with the Commission, the 

Exchange included statements 

concerning the purpose of, and basis for, 

the proposed rule change and discussed 

any comments it received on the 

proposed rule change. The text of these 

statements may be examined at the 

places specified in Item IV below. The 

Exchange has prepared summaries, set 

forth in Sections A, B, and C below, of 

the most significant parts of such 

statements. 

A. Self-Regulatory Organization’s 

Statement of the Purpose of, and 

Statutory Basis for, the Proposed Rule 

Change 

1. Purpose 

Pursuant to Rule 17d–2 under the 

Act,7 the Exchange and FINRA entered 

into an agreement to allocate regulatory 

responsibility for common rules 

(‘‘17d–2 Agreement’’). The 17d–2 

Agreement covers common members of 

the Exchange and FINRA (‘‘Common 

Members’’) and allocates to FINRA 

regulatory responsibility, with respect to 

Common Members, for the following: (i) 

Examination of Common Members for 

compliance with federal securities laws, 

rules, and regulations, and rules of the 

Exchange that the Exchange has 

certified as identical or substantially 

similar to FINRA rules; (ii) investigation 

of Common Members for violations of 

federal securities laws, rules, and 

regulations, and Exchange rules that the 

Exchange has certified as identical or 

substantially identical to FINRA rules; 

and (iii) enforcement of compliance by 

Common Members with the federal 

securities laws, rules, and regulations, 

and the rules of the Exchange that the 

Exchange has certified as identical or 

substantially similar to FINRA rules.8

The 17d–2 Agreement included a 

certification by the Exchange that states 

that the requirements contained in 

certain Exchange rules are identical to, 

or substantially similar to, certain 

FINRA rules that have been identified as 

comparable. To conform with 

comparable FINRA rules for purposes of 

the 17d–2 Agreement, the Exchange 

proposes to: (i) Amend Exchange Rule 

3.5 (Advertising Practices); and (ii) 

repeal Exchange Rule 3.20 (Initial or 

Partial Payments). 

Rule 3.5 (Advertising Practices) 

The Exchange proposes to delete the 

current text of Rule 3.5 and adopt text 

that would require Exchange members 9


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