Federal Register / Vol. 74, No. 70 / Tuesday, April 14, 2009 / Notices 17245 

12 17 CFR 200.30–3(a)(12). 

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

2 17 CFR 240.19b–4. 

3See Securities Exchange Act Release No. 50100 

(July 27, 2004), 69 FR 44612 [sic] (August 3, 2004) 

(SR–Phlx–2003–59). 

4The Exchange acknowledges that the proposed 

Options Order Protection and Locked/Crossed 

Market Plan may necessitate modifications. 

5Phlx XL and Phlx XL II participants are 

specialists, Streaming Quote Traders (‘‘SQTs’’) and 

Remote Streaming Quote Traders (‘‘RSQTs’’), as 

defined in Phlx Rule 1014(b), assigned to an option. 

Paper Comments 

• Send paper comments in triplicate 

to Elizabeth M. Murphy, Secretary, 

Securities and Exchange Commission, 

100 F Street, NE., Washington, DC 

20549–1090. 

All submissions should refer to File 

Number SR–FINRA–2009–021. This file 

number should be included on the 

subject line if e-mail is used. To help the 

Commission process and review your 

comments more efficiently, please use 

only one method. The Commission will 

post all comments on the Commission’s 

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

rules/sro.shtml). Copies of the 

submission, all subsequent 

amendments, all written statements 

with respect to the proposed rule 

change that are filed with the 

Commission, and all written 

communications relating to the 

proposed rule change between the 

Commission and any person, other than 

those that may be withheld from the 

public in accordance with the 

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

available for inspection and copying in 

the Commission’s Public Reference 

Room, 100 F Street, NE., Washington, 

DC 20549, on official business days 

between the hours of 10 a.m. and 3 p.m. 

Copies of such filing also will be 

available for inspection and copying at 

the principal office of FINRA. 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–FINRA–2009–021 and 

should be submitted on or before May 

5, 2009. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.12

Florence E. Harmon, 

Deputy Secretary. 

[FR Doc. E9–8420 Filed 4–13–09; 8:45 am] 

BILLING CODE 8010–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

Release No. 34–59721; File No. SR–Phlx– 

2009–32 

Self-Regulatory Organizations; 

NASDAQ OMX PHLX, Inc.; Notice of 

Filing of Proposed Rule Change 

Relating to the Exchange’s Enhanced 

Electronic Trading Platform for 

Options, Phlx XL II 

April 7, 2009. 

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

Securities Exchange Act of 1934 

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

notice is hereby given that on April 3, 

2009, NASDAQ OMX PHLX, Inc. 

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

Securities and Exchange Commission 

(‘‘SEC’’ or ‘‘Commission’’) the proposed 

rule change as described in Items I, II, 

and III below, which Items have been 

prepared by the Exchange. The 

Commission is publishing this notice to 

solicit comments on the proposed rule 

change from interested persons. 

I. Self-Regulatory Organization’s 

Statement of the Terms of Substance of 

the Proposed Rule Change 

The Exchange proposes to implement 

several enhancements to its electronic 

options trading system, Phlx XL. The 

enhanced system will be known as Phlx 

XL II and will reflect enhancements to 

the opening, linkage and routing, 

quoting, and order management 

processes. 

The text of the proposed rule change 

is available on the Exchange’s Web site 

at http:// 

nasdaqomxphlx.cchwallstreet.com/ 

NASDAQOMXPHLX/Filings/, at the 

principal office of the Exchange, and at 

the Commission’s Public Reference 

Room. 

II. Self-Regulatory Organization’s 

Statement of the Purpose of, and 

Statutory Basis for, the Proposed Rule 

Change 

In its filing with the Commission, the 

Exchange included statements 

concerning the purpose of and basis for 

the proposed rule change and discussed 

any comments it received on the 

proposed rule change. The text of these 

statements may be examined at the 

places specified in Item IV below. The 

Exchange has prepared summaries, set 

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

the most significant aspects of such 

statements. 

A. Self-Regulatory Organization’s 

Statement of the Purpose of, and 

Statutory Basis for, the Proposed Rule 

Change 

1. Purpose 

The purpose of the proposed rule 

change is to implement several 

enhancements to the Phlx electronic 

options trading platform, Phlx XL.3 The 

system that includes these 

enhancements will be referred to as 

Phlx XL II. These enhancements should 

improve the execution quality for its 

Phlx users by improving a number of 

processes, including the opening 

process, the order handling process and 

the execution of orders process. The 

changes to the opening process should 

provide better executions to users, more 

consistent prices on executions and a 

smoother transition from the opening to 

the regular trading day. The changes to 

the order handling process will improve 

routing to liquidity available at other 

exchanges while preventing non-exempt 

trade-throughs of other markets, and 

will provide users with increased 

flexibility and control in how their 

orders are handled. Execution of order 

processing will become more consistent, 

with greater continuity in prices as a 

result of these changes, because several 

of the changes are intended to introduce 

a price check to limit executions at far 

away prices (which are known as 

outliers). The Exchange believes that 

these changes benefit investors and 

users through better and more 

consistent system behavior and 

resulting prices. These modifications 

and enhancements are outlined below.4

New Opening Process 

The Exchange proposes to improve its 

opening process for options in several 

ways. Currently, Exchange Rule 1017 

provides that the system will open an 

option series for trading once certain 

conditions have been met. Specifically, 

Rule 1017(a) currently states that the 

system will automatically open a series 

in equity options when a quote or trade 

has been disseminated by the market for 

the underlying security, and there is a 

specialist quote or a defined number of 

Phlx XL participants 5 quoting after a 

certain time period has elapsed. 

Provided there is no order imbalance, 

17246 Federal Register / Vol. 74, No. 70 / Tuesday, April 14, 2009 / Notices 

6Similar to the Exchange’s current routing 

methodology under the Plan for the Purpose of 

Creating and Operating an Intermarket Option 

Linkage (the ‘‘Linkage Plan’’), the Exchange will 

only route customer, non-contingency orders. 

7See Exchange Rule 1017(b)(ii) and proposed 

Rule 1017(k). 

8Such time will be published in an Options 

Trader Alert, which will be available on the 

Exchange’s Web site. 

9 In the case of index options, the quotes must be 

submitted within two minutes of the receipt of the 

opening price in the underlying index or within 

two minutes of market opening in the case of U.S. 

dollar-settled foreign currency options. 

10The specialist is required under current Rule 

1017(b), and would be required under proposed 

Rule 1017(k), to enter opening quotes not later than 

one minute following the dissemination of a quote 

or trade by the market for the underlying security 

or, in the case of index options, following the 

receipt of the opening price in the underlying 

index. There may be circumstances where the 

specialist is unable to disseminate an opening quote 

due to, for example, a system malfunction. In such 

a circumstance, these current and proposed rules 

provide for the Exchange to open upon the receipt 

of quotes from participants other than the specialist. 11Rule 1014(c)(i)(A)(1)(a) requires that quotes in 

equities and index options create differences of no 

more than $.25 between the bid and the offer for 

each option contract for which the prevailing bid 

is less than $2; no more than $.40 where the 

prevailing bid is $2 or more but less than $5; no 

more than $.50 where the prevailing bid is $5 or 

more but less than $10; no more than $.80 where 

the prevailing bid is $10 or more but less than $20; 

and no more than $1 where the prevailing bid is 

$20 or more, provided that, in the case of equity 

options, the bid/ask differentials stated above shall 

not apply to in-the-money series where the market 

for the underlying security is wider than the 

differentials set forth above. For such series, the 

bid/ask differentials may be as wide as the 

quotation for the underlying security on the 

primary market, or its decimal equivalent rounded 

up to the nearest minimum increment. The 

Exchange may establish differences other than the 

above for one or more series or classes of options. 12The Phlx XL II system will not consider orders, 

nor will it consider quotations that do not comply 

with such bid/ask differential (quotations that are 

too ‘‘wide’’), in its calculation of the lowest quote 

bid and the highest quote offer. 

13See proposed Rule 1017(l)(vi)(A). 

14An ‘‘imbalance’’ occurs when there is 

unexecutable trading interest at a certain price. See 

proposed Rule 1017(l)(ii)(A). 

15All references to a ‘‘Route Timer’’ in the Phlx 

XL II system and in the proposed rules mean a 

system pause for a brief period. Phlx XL II 

participants will not receive any notification that a 

Route Timer has been initiated. 

16The duration of the Route Timer will be 

published in an Options Trader Alert, which will 

be available on the Exchange’s Web site. 

the system will automatically open an 

option series under these conditions. 

As outlined in more detail below, 

Phlx proposes to introduce opening 

process enhancements under Phlx XL II 

that will: (1) Ensure that an option will 

open within a reasonable period of time 

after the underlying security is open and 

do so within an appropriate Phlx 

opening price range; (2) allow Phlx to 

now route,6 if necessary, to other same 

or better-priced markets 

contemporaneously with its opening of 

an option series so as to maximize the 

number of contracts executing at the 

open; and (3) allow quoting market 

participants to enter trading interest at 

multiple price levels. 

Beginning of Opening Process 

In order to ensure that there will be 

liquidity on the Exchange at the 

beginning of the trading day, the 

proposal will require the specialist 

assigned in a particular equity option to 

enter opening quotes not later than one 

minute following the dissemination of a 

quote or trade by the market for the 

underlying security or, in the case of 

index options, following the receipt of 

the opening price in the underlying 

index. The specialist assigned in a 

particular U.S. dollar-settled Foreign 

Currency Option (‘‘FCO’’) must enter 

opening quotes not later than 30 

seconds after the announced market 

opening.7

Under the proposal, the Phlx XL II 

system will begin the opening process 

only when certain conditions are 

present. Specifically, the automated 

opening process can only begin when 

either (A) the specialist’s quote has been 

submitted; (B) the quotes of at least two 

Phlx XL II participants have been 

submitted within two minutes (or such 

shorter time established by the 

Exchange) 8 of the opening trade or 

quote on the market for the underlying 

security in the case of equity options; 9

or (C) if neither the specialist’s quote 10

nor the quotes of two Phlx XL II 

participants have been submitted within 

two minutes of the opening trade or 

quote on the market for the underlying 

security in the case of equity options, 

one Phlx XL II participant has submitted 

their quote. This is consistent with the 

current opening process on Phlx XL, 

which is described in Phlx Rule 1017. 

Furthermore, a Phlx XL II participant 

that submits a quote in any series when 

the specialist’s quote has not been 

submitted will be required to submit 

continuous, two-sided quotes in such 

series until such time as the specialist 

submits his/her quote, after which the 

Phlx XL II participant that submitted 

such quote shall be obligated to submit 

quotations pursuant to Rule 

1014(b)(ii)(D). 

Opening Process 

Proposed Rule 1017(l)(i) would state 

that, if there are no opening quotes or 

orders that lock or cross each other, the 

system will open by disseminating the 

Exchange’s best bid and offer among 

quotes and orders that exist in the Phlx 

XL II system at that time (because if no 

quotes or orders lock/cross each other, 

nothing matches and there is no trade). 

Under proposed Rule 1017(l)(ii), if 

there are opening quotes or orders that 

lock or cross each other, the Phlx XL II 

system will take the lowest bid and the 

highest offer among quotations received 

that have a bid/ask differential that is 

compliant with Rule 

1014(c)(i)(A)(1)(a) 11 to determine the 

lowest quote bid and highest quote 

offer.12 To calculate the opening price, 

the Phlx XL II system will take into 

consideration all valid Phlx quotes, 

sweeps (as defined more fully below) 13

and orders, together with other 

exchanges’ markets for the series and 

identify the price at which the 

maximum number of contracts can 

trade. If that price is within the lowest 

quote bid and highest quote offer and 

leaves no imbalance,14 the Exchange 

will open at that price, executing 

marketable trading interest, as long as 

the opening price includes only Phlx 

interest. Proposed Rule 1017(l)(ii)(A) 

provides that an ‘‘imbalance’’ occurs 

where there is unexecutable trading 

interest at a certain price. 

Under proposed Rule 1017(l)(ii)(B), 

when two or more prices within the 

range of the lowest quote bid and 

highest quote offer for the affected series 

would satisfy the maximum quantity 

criterion, the Phlx XL II system takes the 

highest and lowest of those prices and 

takes the mid-point for the opening 

price; if such mid-point is not expressed 

as a permitted minimum price variation, 

it will be rounded to the minimum price 

variation that is closest to the closing 

price for the affected series from the 

immediately prior trading session to 

determine the opening price. If there is 

no closing price from the immediately 

prior trading session, the Phlx XL II 

system will round up to the minimum 

price variation to determine the opening 

price. 

Route Timer 

Generally, the automated opening 

process logic seeks to first route away 

all contracts executable at a better price 

than the Exchange’s opening price, then 

executes all contracts available on the 

Exchange at the opening price and, 

lastly, routes away all contracts 

available at other exchanges at the 

Exchange’s opening price. The foregoing 

processes occur contemporaneously. 

Specifically, under proposed Rules 

1017(l)(ii)(C) and (D), if the opening 

price included interest other than solely 

Phlx interest, the system will initiate a 

‘‘Route Timer,’’ 15 not to exceed one 

second.16 If no new interest is received 

during the Route Timer, the Phlx XL II 

system will route to other markets 

disseminating prices better than Phlx’s 

Federal Register / Vol. 74, No. 70 / Tuesday, April 14, 2009 / Notices 17247 

17The Phlx XL II system continuously 

recalculates the opening price during the opening 

process. At this point in the process, the opening 

price may be different from the original opening 

price calculated by the Phlx XL II system. A 

different opening price will not require the Phlx XL 

II system to repeat the entire opening process. 

18See proposed Rule 1017(l)(iii). 

19The initial table, and any subsequent 

modifications thereto, will be published in an 

Options Trader Alert, which will be available on 

the Exchange’s Web site. 

20 If the ABBO is crossed, it will not be taken into 

consideration by the system and the system will 

immediately execute. 

21The duration of the Route Timer will be 

published in an Options Trader Alert, which will 

be available on the Exchange’s Web site. 

22See proposed Rule 1017(l)(iv). 23The Imbalance Message will contain the option 

symbol, buy/sell, size of matched contracts, the size 

of the imbalance, and price, such as ‘‘ABC Jan 50 

calls, match 0, 10 to buy at 2.40.’’ 24Phlx XL II participants may disclose the 

contents of the Imbalance Message to their 

customers. 

25Currently, the Exchange intends to set the 

number of seconds system-wide, rather than optionby-option. 

26The number of seconds will be published in an 

Options Trader Alert, which will be available on 

the Exchange’s Web site. 

27The duration of the Route Timer will be 

published in an Options Trader Alert, which will 

be available on the Exchange’s Web site. 

28See proposed Rules 1017(l)(v)(C)(1) and (2). 29The Phlx XL II system will continually 

recalculate the opening price based on interest 

received during the Route Timer and changes to the 

ABBO. 30See proposed Rule 1017(l)(v)(C)(5). 

opening price, execute marketable 

interest at the opening price on Phlx, 

and route to other markets 

disseminating prices equal to the Phlx 

opening price if necessary. Orders that 

are routed and executed may receive 

executions at multiple prices. Orders 

will be routed as Immediate or Cancel 

(‘‘IOC’’) orders with a limit price equal 

to the Exchange’s opening price. If 

interest is received during the Route 

Timer, the Phlx XL II system will 

recalculate the opening price taking 

such new interest into account.17 Then, 

if there is no imbalance, the system will 

execute marketable interest at the 

opening price on the Phlx and route the 

remainder to other markets. 

Opening Quote Range 

Where there is an imbalance at the 

price at which the maximum number of 

contracts can trade that is also at or 

within the lowest quote bid and highest 

quote offer, the Phlx XL II system will 

calculate an Opening Quote Range 

(‘‘OQR’’) for a particular series.18 To 

determine the minimum value for the 

OQR, an amount, as defined in a table 

to be determined by the Exchange, will 

be subtracted from the lowest quote bid. 

To determine the maximum value for 

the OQR, an amount, as defined in a 

table to be determined by the 

Exchange,19 will be added to the highest 

quote offer. 

If there is sufficient size on the 

Exchange and on away markets on the 

opposite side of the market from the 

imbalance to execute all opening 

marketable interest at a price that is at 

or within the established OQR and the 

Away Best Bid/Offer (‘‘ABBO’’) without 

leaving an imbalance, the Phlx XL II 

system will open the affected series for 

trading at that price by executing 

opening marketable interest on the Phlx 

XL II system, as long as the system does 

not trade through the ABBO.20 If it 

would trade through the ABBO, the 

Phlx XL II system will initiate a ‘‘Route 

Timer,’’ not to exceed one second.21 If 

no new interest is received during the 

Route Timer, the Phlx XL II system will 

then route to other markets 

disseminating prices better than Phlx’s 

opening price, execute marketable 

interest at the opening price on Phlx 

and, route to other markets 

disseminating prices equal to the Phlx 

opening price if necessary. If there is an 

imbalance, the Phlx XL II system will 

begin the imbalance process. 

Imbalance Process 

If all opening marketable size cannot 

be completely executed at or within the 

OQR without trading through the 

ABBO, the Phlx XL II system will 

automatically institute an imbalance 

process.22

Phlx XL II will broadcast an 

Imbalance Message 23 to Phlx XL II 

participants,24 and begin an ‘‘Imbalance 

Timer,’’ not to exceed three seconds,25

as determined by the Exchange.26 Phlx 

XL II participants may enter opening 

quotes, Opening Sweeps and orders 

during the Imbalance Timer. If such 

opening quotes, Opening Sweeps (as 

defined below) and orders, or other 

changes to the ABBO, would allow the 

entire imbalance amount to trade at the 

Exchange at or within the OQR without 

trading through the ABBO, the 

Imbalance Timer will end and the Phlx 

XL II system will execute at the 

appropriate opening price. 

If opening quotes, Opening Sweeps 

and orders submitted during the 

Imbalance Timer, or other changes to 

the ABBO, would not allow the entire 

imbalance amount to trade at the 

Exchange at or within the OQR without 

trading through the ABBO, the Phlx XL 

II system will send a new Imbalance 

Message to Phlx XL II participants, 

indicating that marketable trading 

interest may be routed to markets 

disseminating a price better than or 

equal to the Exchange opening price and 

the Phlx XL II system will initiate a 

Route Timer, not to exceed one 

second.27 If during the Route Timer, 

interest is received by the Phlx XL II 

system which would allow all interest 

to trade on the Phlx XL II system (i.e., 

there is no longer an imbalance) at the 

opening price without trading through 

other markets, the Phlx XL II system 

will trade and the Route Timer will end. 

The Phlx XL II system will monitor 

quotes received during the Route Timer 

period and make ongoing corresponding 

changes to the permitted OQR to reflect 

them.28

Under proposed Rule 

1017(l)(iv)(C)(3), if the Route Timer 

expires, the End of Route Timer Process 

will ensue, as follows. The Phlx XL II 

system will determine if the total 

number of contracts displayed at better 

prices than the Exchange’s potential 

opening price 29 on away markets 

(‘‘better priced away contracts’’) would 

satisfy the number of marketable 

contracts available on the Exchange. If 

it does, the Phlx XL II system will route 

a number of contracts with a size equal 

to the size of the interest at other 

markets at prices better than interest on 

the Exchange, and determine an 

opening Phlx Best Bid/Offer (‘‘PBBO’’) 

that reflects the interest remaining on 

the Exchange. In this situation, the Phlx 

XL II system will price any contracts 

routed to other markets at the better 

away market price(s). 

Under proposed Rule 

1017(l)(iv)(C)(4), if the total number of 

better priced away contracts would not 

satisfy the number of marketable 

contracts the Exchange has, the Phlx XL 

II system will determine how many 

contracts it has available at the 

Exchange opening price. If the total 

number of better priced away contracts 

plus the number of contracts available at 

the Exchange opening price would 

satisfy the number of marketable 

contracts the Exchange has, the Phlx XL 

II system will contemporaneously route 

a number of contracts that will satisfy 

interest at other markets at prices better 

than the Phlx opening price, and trade 

available contracts on the Exchange at 

the Exchange opening price.30 In this 

situation, the Phlx XL II system will 

price any contracts routed to other 

markets at the Exchange opening price. 

Under proposed Rule 

1017(l)(iv)(C)(5), if the total number of 

better priced away contracts plus the 

number of contracts available at the 

Exchange opening price would not 

satisfy the number of marketable 

contracts the Exchange has, the Phlx XL 

II system will determine how many 

contracts are available at other markets 

at the Exchange opening price. If the 

17248 Federal Register / Vol. 74, No. 70 / Tuesday, April 14, 2009 / Notices 

31The number of times will be published in an 

Options Trader Alert, which will be available on 

the Exchange’s Web site. 

32The number of seconds will be published in an 

Options Trader Alert, which will be available on 

the Exchange’s Web site. 

33See proposed Exchange Rule 1080(m). 

34See proposed Rule 1017(l)(v)(D). 35An 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). 

36An RSQT is an ROT that is a member or 

member organization with no physical trading floor 

presence who has received permission from the 

Exchange to generate and submit option quotations 

electronically through AUTOM in eligible options 

to which such RSQT has been assigned. An RSQT 

may only submit such quotations electronically 

from off the floor of the Exchange. See Exchange 

Rule 1014(b)(ii)(B). 

37A non-SQT ROT is an ROT who is neither an 

SQT nor an RSQT. See Exchange Rule 

1014(b)(ii)(C). 

38See proposed Rule 1017(l)(v)(A). 

total number of better priced away 

contracts plus the number of contracts 

available on the Exchange at the 

Exchange opening price plus the 

contracts available at other markets at 

the Exchange opening price would 

satisfy the number of marketable 

contracts the Exchange has, the Phlx XL 

II system will contemporaneously route 

a number of contracts that will satisfy 

interest at other markets at prices better 

than the Phlx opening price, trade 

available contracts on the Exchange at 

the Exchange opening price, and route 

a number of contracts that will satisfy 

interest at other markets at prices equal 

to the Phlx opening price. In this 

situation, the Phlx XL II system will 

price any contracts routed to other 

markets at the Exchange opening price. 

This is illustrated in the following 

example: 

Example I 

Assume the Following Facts 

The initiating order is a market order 

to buy 150 contracts; 

The specialist submits a quote of 2.20 

bid, 2.40 offer, with a size of 10x10; 

Market Maker 1 submits a quote of 

2.15 bid, 2.45 offer, with a size of 10x10; 

Market Maker 2 submits a quote of 

2.00 bid, 2.50 offer, with a size of 25x25. 

The Phlx XL II system will not consider 

this quote because it is wider than the 

permitted bid/ask differential set forth 

in Rule 1014(c)(i)(A)(1)(a). 

The away market is 2.20 bid, 2.40 

offer, with a size of 20x10. 

The Following Events Will Occur 

Concurrently 

An Imbalance timer will be initiated; 

The Phlx XL II system will send an 

Imbalance Message, indicating 20 

matched contracts 130 contracts to buy 

at 2.45. 

Assume During the Imbalance Timer 

Market Maker 1 sends two sweeps; 

sell 30 at 2.50 and sell 50 at 3.00; 

The specialist sends two sweeps; sell 

50 at 2.50 and sell 50 at 2.60. 

After the Imbalance Timer 

The Phlx XL II system will initiate a 

Route Timer and send a new Imbalance 

Message, match 150, 00 to buy at 2.60. 

After the Route Timer 

The Phlx XL II system will open 140 

contracts at 2.60. The initiating order 

buys 100 contracts from the Specialist 

and 40 from Market Maker 1, and will 

route 10 to the away market to buy at 

2.60 (the Phlx Opening Price). The away 

market should execute the 10 contracts 

at its 2.40 offer. 

Under proposed Rule 

1017(l)(iv)(C)(6), if the total number of 

better priced away contracts plus the 

number of contracts available at the 

Exchange opening price plus the 

contracts available at other markets at 

the Exchange opening price would not 

satisfy the number of marketable 

contracts the Exchange has, the Phlx XL 

II system will repeat the Imbalance 

Process. The Phlx XL II system may 

repeat the Imbalance Process up to three 

times (as established by the 

Exchange).31

Under proposed Rule 

1017(l)(iv)(C)(7), if after that number of 

times, the Phlx XL II system still cannot 

route and/or trade the entire imbalance 

amount, the Phlx XL II system will 

conduct a Provisional Opening by 

routing to other markets at prices better 

than the Exchange opening price for 

their disseminated size, trading 

available contracts on the Exchange at 

the Exchange opening price, and routing 

contracts to other markets at prices 

equal to the Phlx opening price at their 

disseminated size. In this situation, the 

Phlx XL II system will price any 

contracts routed to other markets at the 

Exchange opening price. The Exchange 

opening price will always be equal to or 

better than the OQR. 

The opening process is now complete. 

Accordingly, unexecuted Opening 

Sweeps (as defined below) will be 

cancelled. Any unexecuted contracts 

from the imbalance not traded or routed 

will be displayed in the Exchange quote 

at the opening price for a period not to 

exceed ten seconds 32 and subsequently 

cancelled back to the entering 

participant if they remain unexecuted 

and priced through the opening price. 

During this display time period, the 

Phlx XL II system will disseminate a bid 

and offer that is equal to the opening 

price, with a size of zero on the opposite 

side of the market from remaining 

unexecuted contracts. 

Under proposed Rule 

1017(l)(iv)(C)(8), the Phlx XL II system 

will execute orders at the opening price 

that have contingencies (such as, 

without limitation, All-or-None) and 

non-routable orders, such as ‘‘Do Not 

Route’’ or ‘‘DNR’’ Orders,33 to the extent 

possible. The Phlx XL II system will 

only route non-contingency customer 

orders. 

The Phlx XL II system will: (i) Reprice Do Not Route orders (that would 

otherwise have to be routed to the 

exchange(s) disseminating the ABBO for 

an opening to occur) to a price that is 

one minimum trading increment 

inferior to the ABBO, and (ii) 

disseminate the re-priced DNR Order as 

part of the new PBBO.34

During the Opening Process, 

permitted responses to an Imbalance 

Message are quotes, Opening Sweeps (as 

defined more fully below), and orders. 

Specialists, Streaming Quote Traders 

(‘‘SQTs’’),35 Remote Streaming Quote 

Traders (‘‘RSQTs’’),36 may submit 

quotes, Opening Sweeps and orders in 

response to an Imbalance Message. NonSQT ROTs 37 may submit orders in 

response to an Imbalance Message. 

An Opening Sweep is a one-sided 

electronic quotation submitted for 

execution against opening trading 

interest in the Phlx XL II system.38 A 

Phlx XL II participant assigned in a 

particular option may only submit an 

Opening Sweep if, at the time of entry 

of the Opening Sweep, they have 

already submitted and maintained a 

valid opening-width quote. All Opening 

Sweeps in the affected series entered by 

a Phlx XL II participant will be 

cancelled immediately if that Phlx XL II 

participant fails to maintain a 

continuous quote with a permitted 

opening bid/ask differential in the 

affected series. 

Under proposed Rule 1017(l)(v)(B), 

Opening Sweeps may be entered at any 

price with a minimum price variation 

applicable to the affected series, on 

either side of the market, at single or 

multiple price level(s), and may be 

cancelled and re-entered. A single Phlx 

XL II participant may enter multiple 

Opening Sweeps, with each Opening 

Sweep at a different price level. If a Phlx 

XL II participant submits multiple 

Opening Sweeps, the Phlx XL II system 

will consider only the most recent 

Opening Sweep at each price level 

submitted by such Phlx XL II 

Federal Register / Vol. 74, No. 70 / Tuesday, April 14, 2009 / Notices 17249 

39This brief period will not exceed .25 of one 

second. The duration of the brief period will be 

published in an Options Trader Alert, which will 

be available on the Exchange’s Web site. This brief 

period is similar to the current brief period during 

the opening. See Exchange Rule 1017(c)(iv). 

40See Rule 1080(l). 

41As a technical matter, the Exchange proposes 

to delete references to ‘‘Streaming Quote Options,’’ 

because all options traded on the Exchange are now 

‘‘Streaming Quote Options’’ and therefore it is not 

necessary to distinguish them from other options 

traded on the Exchange. 

42See Exchange Rule 1093. 

43The duration of the timer will be published in 

an Options Trader Alert, which will be available on 

the Exchange’s Web site. 

44The duration of the Quote Exhaust Timer will 

be published in an Options Trader Alert, which will 

be available on the Exchange’s Web site. 

45 In keeping with the Exchange’s current 

practice, Phlx XL II will not route non-customer 

and contingency orders. 

participant in determining the opening 

price. The Phlx XL II system will 

aggregate the size of all Opening Sweeps 

(i.e., for all Phlx XL II participants) at a 

particular price level for trade allocation 

purposes. The Phlx XL II system will 

not cancel Opening Sweeps until the 

end of the opening process. Unexecuted 

Opening Sweeps will be cancelled once 

the affected series is open. 

Under proposed Rule 1017(l)(vi), the 

Phlx XL II system will give priority to 

market orders first in time priority 

(including limit orders that are treated 

as market orders), then to resting limit 

orders at the opening price. 

Under proposed Rule 1017(l)(vii), 

inbound orders, Opening Sweeps and 

quotes will not be included in the 

calculation of the opening price for a 

brief period established by the Phlx XL 

II system while the Phlx XL II system is 

in the process of completing the 

opening trade. After such brief period, 

inbound orders, Opening Sweeps and 

quotes received during the period will 

be entered into the Phlx XL II system in 

order of their arrival.39

Amendments to the Exchange’s Firm 

Quote Rule 

The Exchange also proposes to adopt 

amendments to its Rule 1082, Firm 

Quotations, that would reflect system 

improvements that should enhance the 

ability for Phlx XL II participants (i.e., 

specialists, SQTs and RSQTs) to refresh, 

and potentially improve, their 

quotations when their option quotation 

size is exhausted at a particular price 

level, and that would reflect the 

Exchange’s ability to refresh its 

disseminated market following the 

exhaustion of the Exchange’s 

disseminated size. 

Current Rule 1082(a)(ii)(B)(1) 

generally provides that if an SQT or 

RSQT’s (other than a Directed SQT or 

RSQT) 40 quotation size in a particular 

series in a Streaming Quote Option 41 is 

exhausted or removed by the Risk 

Monitor Mechanism,42 such SQT or 

RSQT’s quotation is deleted from the 

Exchange’s disseminated quotation until 

the time the SQT or RSQT revises his/ 

her quotation. 

Rule 1082(a)(ii)(B)(2) currently states 

that, if the Exchange’s disseminated size 

in a particular series is exhausted at that 

particular price level, and no specialist, 

SQT or RSQT has revised their 

quotation immediately following the 

exhaustion of the Exchange’s 

disseminated size at such price level, 

the Exchange shall automatically 

provide two-sided quotes that comply 

with the Exchange’s rules concerning 

quote spread parameters on behalf of the 

specialist until such time as the 

specialist revises the quotation, with a 

size of one contract. 

The instant proposed rule change to 

Rule 1082 is intended to reflect Phlx XL 

system improvements that should 

enhance the ability of Phlx XL II 

participants and the Exchange to refresh 

exhausted quotes while offering the 

maximum opportunity for better prices 

when remaining contracts from quotes 

or orders that exhaust the Exchange 

disseminated market are marketable and 

due for execution. The enhancements, 

discussed in detail below, are referred to 

as ‘‘Quote Exhaust’’ and ‘‘Market 

Exhaust,’’ respectively. 

IOC Orders 

Proposed Rule 1066(c)(8) defines an 

Immediate-or-Cancel (‘‘IOC’’) order as a 

limit order that is to be executed in 

whole or in part upon receipt. Any 

portion not so executed shall be 

cancelled. IOC Orders are not routable 

and will not be subject to any routing 

process or timer described in the 

Exchange’s rules. If not executed 

immediately, an IOC Order will be 

cancelled by the Phlx XL II system. 

Contracts remaining in an IOC Order 

following a partial execution will be 

cancelled. IOC Orders will not be 

subject to any Route Timer and will not 

be included in the Quote Exhaust and 

Market Exhaust processes described 

below. 

Quote Exhaust 

The Exchange proposes to adopt Rule 

1082(a)(ii)(B)(3) to codify the Quote 

Exhaust feature of the Phlx XL II system. 

Quote Exhaust occurs when the 

Exchange’s disseminated market at a 

particular price level includes a quote, 

and such market is exhausted by an 

inbound contra-side quote or order 

(‘‘initiating quote or order’’), and 

following such exhaustion, contracts 

remain to be executed from the 

initiating quote or order through the 

initial execution price. For purposes of 

the proposed rule change and the 

proposed rule text, the initial execution 

price that gives rise to Quote Exhaust 

will be known as the ‘‘reference price.’’ 

Rather than immediately executing at 

the next available price, the system will 

employ a timer not to exceed one 

second 43 in order to allow market 

participants to refresh their quotes. 

Quote Exhaust Timer 

Proposed Rules 1082(a)(ii)(B)(3)(a) 

and (b) describe the Quote Exhaust 

Timer. When a Quote Exhaust occurs, 

the Phlx XL II system will initiate a 

‘‘Quote Exhaust Timer’’ that will apply 

to all options traded on the Phlx XL II 

system, not to exceed one second 44

during which any Phlx XL II participant 

(including any participant(s) whose size 

was exhausted) may submit quotes, 

sweeps or orders at any price level. This 

gives the Phlx XL II participant who 

initially attracted the initiating quote or 

order to the Exchange, together with 

other Phlx XL II participants who wish 

to join, the ability to refresh his/her 

quote and thus provide an opportunity 

for better prices to be submitted on the 

Exchange before trading at the next 

available price or routing the order to an 

away market.45

During the Quote Exhaust Timer, the 

Exchange will disseminate the reference 

price, provided that such price does not 

lock an away market, in which case, the 

Exchange will disseminate a bid and 

offer that is one Minimum Price 

Variation (‘‘MPV’’) from the away 

market price, with a size of zero on the 

opposite side of the market from 

remaining unexecuted contracts. 

If the remaining contracts in the 

initiating quote or order are either 

traded or cancelled during the Quote 

Exhaust Timer, the Quote Exhaust 

Timer will be terminated and normal 

trading will resume. 

New Interest on the Opposite Side of the 

Market 

Proposed Rule 1082(a)(ii)(B)(3)(c) 

describes what happens in the Phlx XL 

II system when interest is received on 

the opposite side of the market from the 

initiating quote or order during the 

Quote Exhaust Timer. If the Exchange 

receives an order, quote or sweep on the 

opposite side of the market from the 

initiating quote or order during the 

Quote Exhaust Timer that locks or 

crosses the reference price at any time 

17250 Federal Register / Vol. 74, No. 70 / Tuesday, April 14, 2009 / Notices 

46The PBBO will include the remaining 

unexecuted portion of the initiating quote or order 

plus any new interest received on the same side of 

the market at the reference price, or if locking or 

crossing the ABBO, at one minimum trading 

increment away from the ABBO, for the full 

available size. The other side of the PBBO will be 

the actual Exchange interest at the best price. 

47The initial table, and any subsequent 

modifications thereto, will be published in an 

Options Trader Alert, which will be available on 

the Exchange’s Web site. 

48The Acceptable Range price is, with respect to 

an initiating buy order, the highest price of the 

Acceptable Range, and, with respect to an initiating 

sell order, the lowest price of the Acceptable Range. 49Similarly to the Acceptable Range price, 

because the ABBO consists of a bid and an offer 

price, the ABBO price is, with respect to an 

initiating buy order, the away best offer, and, with 

respect to an initiating sell order, the away best bid. 

during the Quote Exhaust Timer, it will 

execute immediately against the 

initiating quote or order at the reference 

price. If the initiating quote or order that 

caused the Quote Exhaust is exhausted, 

the Quote Exhaust Timer will be 

terminated. 

With respect to any order, quote or 

sweep received on the opposite side of 

the market from the initiating quote or 

order during the Quote Exhaust Timer 

that is inferior to the reference price, the 

system will place any non-IOC order 

onto the book and cancel all nonmarketable sweeps and IOC orders. IOC 

Orders will be cancelled immediately if 

not executed and will not participate in 

the Quote Exhaust process. 

New Interest on the Same Side of the 

Market 

Proposed Rule 1082(a)(ii)(B)(3)(d) 

describes what happens in the Phlx XL 

II system when interest is received on 

the same side of the market as the 

initiating quote or order during the 

Quote Exhaust Timer. If the Exchange 

receives an order, quote or sweep on the 

same side of the market as the initiating 

quote or order during the Quote Exhaust 

Timer, the Phlx XL II system will cancel 

any sweep or IOC order. If such new 

quote or order, other than an IOC order, 

is a market or marketable limit order or 

marketable quote (i.e., priced at or 

through the reference price) the Phlx XL 

II system will display it at the reference 

price, with a disseminated size that is 

the sum of such order and/or quote plus 

the remaining contracts in the initiating 

order or quote. The purpose of this 

provision is to enhance liquidity on the 

Exchange by adding all available 

liquidity received during the Quote 

Exhaust Timer to the PBBO at the 

reference price. 

End of the Quote Exhaust Timer 

Proposed Rule 1082(a)(ii)(B)(3)(e) 

describes what happens in the Phlx XL 

II system at the end of the Quote 

Exhaust Timer. If there are still 

unexecuted contracts remaining in the 

initiating quote or order or any new 

interest on the same side of the market, 

the Phlx XL II system will calculate a 

new PBBO.46 The Phlx XL II system will 

conduct an Acceptable Range price 

‘‘test’’ to determine whether there is a 

valid next available price at which the 

Phlx XL II system may execute the 

remaining unexecuted contracts. 

Passing the test is required to establish 

a valid price and proceed to execution 

processing. The Exchange believes that 

executions should not occur at prices 

outside of the Acceptable Range. The 

Quote Exhaust feature provides an 

opportunity for additional price 

discovery both on the Exchange and at 

away markets to which the remaining 

contracts could be routed. 

Acceptable Range Test 

Proposed Rule 1082(a)(ii)(B)(3)(f) 

describes the Phlx XL II system’s 

‘‘Acceptable Range Test.’’ The 

Acceptable Range Test determines if 

such next available price is within an 

Acceptable Range. The Acceptable 

Range for the next available price will 

be calculated by the Phlx XL II system 

by taking the reference price, plus or 

minus a value to be determined by the 

Exchange (i.e., the reference price¥(x) 

for sell orders and the reference price + 

(x) for buy orders). 

EXAMPLE TABLE * 

Bid price = or > than Bid price < than 

Acceptable Bid/ 

Ask Differential— 

less than 9 

months to 

expiration 

Acceptable Bid/ 

Ask Differential—9 

Months or more 

expiration 

multiplier 

$0.00 .......................................................................................................................... $2.00 $0.40 X 

$2.00 .......................................................................................................................... 5.00 0.80 2X 

$5.00 .......................................................................................................................... 10.00 1.00 2X 

$10.00 ........................................................................................................................ 20.00 1.60 2X 

$20.00 ........................................................................................................................ n/a 2.00 2X 

* Note: The table presented here is for example purposes only. The Exchange may modify the Bid Price ranges, the Differential values and the 

Multipliers and will announce such changes on its Web site.47

The purpose of this provision is to 

ensure that remaining contracts from the 

initiating quote or order do not execute 

at a price that is outside the Acceptable 

Range due to the potential for wide 

markets at the next price level. 

Quote Exhaust Resolution 

Proposed Rule 1082(a)(ii)(B)(3)(g) 

describes Quote Exhaust Resolution. 

The Phlx XL II system will first 

determine whether to trade at the next 

available Phlx price by comparing it to 

the Acceptable Range price 48 and the 

ABBO price 49 to establish a Best Price. 

The Phlx XL II system then considers 

whether the price of the initiating quote 

or order locks or crosses the Best Price, 

which, in turn, determines whether the 

initiating quote or order trades, is routed 

or is posted. This occurs as follows: 

First, under proposed Rule 

1082(a)(ii)(B)(3)(g)(i), the Phlx XL II 

system establishes the Best Price as the 

best of: The next available Phlx price, 

the Acceptable Range price and the 

ABBO price. The best of these three 

prices (‘‘Best Price’’) is, with respect to 

an initiating buy order, the lowest price 

of: (A) The next available Phlx offer; (B) 

the ABBO offer; or (C) the Acceptable 

Range price on the offer side of the 

market; and, with respect to an 

initiating sell order, the highest price of: 

(A) The next available Phlx bid; (B) the 

ABBO bid; or (C) the Acceptable Range 

price on the bid side of the market. 

Once the Best Price is established, the 

Phlx XL II system will consider whether 

the price of the initiating quote or order 

locks or crosses the Best Price. Under 

proposed Rule 1082(a)(ii)(B)(3)(g)(ii), if 

the price of the initiating quote or order 

(if a limit order) does not lock or cross 

the Best Price, the Phlx XL II system 

will post the remaining portion of the 

initiating quote or order at its limit price 

and normal trading will resume. 

Federal Register / Vol. 74, No. 70 / Tuesday, April 14, 2009 / Notices 17251 

50The posting time will be published in an 

Options Trader Alert, which will be available on 

the Exchange’s Web site. 51The posting time will be published in an 

Options Trader Alert, which will be available on 

the Exchange’s Web site. 

52The posting time will be published in an 

Options Trader Alert, which will be available on 

the Exchange’s Web site. 

53The posting time will be published in an 

Options Trader Alert, which will be available on 

the Exchange’s Web site. 

Initiating Quote or Order Locks Best 

Price 

Proposed Rule 1082(a)(ii)(B)(3)(g)(iii) 

describes what happens in the Phlx XL 

II system when the initiating quote or 

order locks the Best Price. If the 

initiating quote or order locks the Best 

Price, the system will execute, route if 

a routable order, and/or post the 

initiating quote or order as described 

below: 

If the Best Price is the next Phlx price, 

the system will execute a trade up to its 

disseminated size. If this Best Price 

(next Phlx price) is equal to the ABBO 

price, any remaining unexecuted 

routable order volume from the 

execution on the Phlx will be routed 

away. After such routing, any remaining 

unexecuted contracts will be posted on 

the Exchange at the ABBO price. If this 

Best Price (next Phlx price) is equal to 

the Acceptable Range price, any 

remaining unexecuted routable order 

volume from the execution on the Phlx 

will be posted on the Exchange at the 

Acceptable Range price. Lastly, if this 

Best Price (next Phlx price) is equivalent 

to both the ABBO and the Acceptable 

Range price, any remainder order 

volume from the execution on the Phlx 

will be routed away, and if after routing 

there still remains open contracts, the 

remainder will be posted on the Phlx at 

the Acceptable Range price. 

If the Best Price is the ABBO, where 

the ABBO is not equal to the next Phlx 

price, the initiating order will be routed 

away up to the size of the ABBO and, 

after routing, any remaining unexecuted 

contracts from the initiating order will 

be posted on the Exchange at the ABBO 

price. If the Best Price (ABBO is not 

equal to the next Phlx price) equals the 

Acceptable Range price, the initiating 

order will be routed away and after such 

routing, any remaining unexecuted 

contracts will be posted on the 

Exchange at the ABBO price. 

If the Best Price is the Acceptable 

Range Price, where the Acceptable 

Range Price is not equal to either the 

next Phlx price or the ABBO, the 

initiating order or quote will be posted 

at the Acceptable Range Price. 

Initiating Quote or Order Crosses Best 

Price 

Proposed Rule 1082(a)(ii)(B)(3)(g)(iv) 

describes what happens in the Phlx XL 

II system when the initiating quote or 

order crosses the Best Price. If the 

initiating quote or order crosses the Best 

Price, the Phlx XL II system will 

execute, route, and/or post the initiating 

quote or order as described below: 

If the Best Price is the next Phlx price, 

the Phlx XL II system will execute a 

trade at the Exchange’s next available 

price up to the Exchange’s disseminated 

size. If this Best Price (next Phlx price) 

is equal to the ABBO price, any 

remaining order volume from the 

execution on the Exchange will be 

routed away and, after such routing, any 

remainder volume will be posted on the 

Exchange at the ABBO price. If this Best 

Price (next Phlx price) is equal to the 

Acceptable Range price, any remaining 

volume from the execution on the Phlx 

will be posted at the Acceptable Range 

Price for a period not to exceed ten 

seconds 50 and cancelled after this time 

has elapsed. During this period, the 

Phlx XL system will disseminate a bid 

and offer that is one minimum variation 

from the away market price with a size 

of zero on the opposite side of the 

market from remaining unexecuted 

contracts. 

Lastly, if this Best Price (next Phlx 

price) is equal to both the ABBO and the 

Acceptable Range price, any remainder 

order volume from the execution on the 

Phlx will be routed away, and if after 

routing there still remain unexecuted 

contracts, the remainder will be posted 

on the Phlx at the Acceptable Range 

price for a period not to exceed ten 

seconds,51 and cancelled after this time 

has elapsed. During this period, the 

Phlx XL system will disseminate a bid 

and offer at the Acceptable Range price, 

with a size of zero on the opposite side 

of the market from remaining 

unexecuted contracts. 

The purpose of the posting period is 

to expose the initiating quote or order at 

the Exchange-determined Acceptable 

Range price so that interested 

participants have the opportunity to 

trade against such initiating quote or 

order. The purpose of the cancellation 

following the posting period is to return 

any unexecuted portion of the initiating 

quote or order to the sender so that the 

sender may determine how they want 

the remainder handled (e.g., re-price the 

initiating quote or order, trade at the 

next available price on the Exchange, or 

route to another market center). 

If the Best Price is the ABBO, where 

the ABBO is not equal to the next Phlx 

price, the initiating order will be routed 

away and if after routing there remain 

unexecuted contracts, the remainder of 

the initiating order will be posted on the 

Phlx at the ABBO price. If this Best 

Price (ABBO is not equal to the next 

Phlx price) equals the Acceptable Range 

price, the initiating order will be routed 

away and if after routing there remain 

unexecuted contracts, the remainder of 

the order will be posted on the Phlx at 

the ABBO price for a period not to 

exceed ten seconds,52 and cancelled 

after this time has elapsed. During this 

period, the Phlx XL II system will 

disseminate a bid and offer at the 

Acceptable Range price, with a size of 

zero on the opposite side of the market 

from remaining unexecuted contracts. 

If the Best Price is the Acceptable 

Range price, where the Acceptable 

Range price is not equal to either the 

next Phlx price or the ABBO, the 

initiating quote or order will be posted 

on the Exchange at the Acceptable 

Range price for a period not to exceed 

ten seconds,53 and cancelled after this 

time has elapsed. During this period, the 

Phlx XL II system will disseminate a bid 

and offer at the Acceptable Range price, 

with a size of zero on the opposite side 

of the market from remaining 

unexecuted contracts. 

Under proposed Rule 

1082(a)(ii)(B)(3)(g)(v), if the initiating 

order is non-routable, when the order 

would otherwise route according to the 

process described above, the order will 

be posted on the Phlx at a price one 

minimum trading increment inferior to 

the Best Price so as not to lock an away 

market. 

Under proposed Rule 

1082(a)(ii)(B)(3)(g)(vi), if, after trading at 

the Phlx and/or routing, the remainder 

of the initiating order is still marketable, 

the entire process of evaluating the best 

Phlx price and the ABBO will continue 

until: (A) The order size is exhausted, 

(B) the order reaches its limit price, or 

(C) the order is posted at the original 

Acceptable Range price. 

These order handling processes are 

illustrated in the chart below: 

17252 Federal Register / Vol. 74, No. 70 / Tuesday, April 14, 2009 / Notices 

54See proposed Rule 1082(a)(ii)(B)(4)(a). This 

would replace the Exchange’s current practice of 

automatically providing two-sided quotes that 

comply with the Exchange’s rules concerning quote 

spread parameters on behalf of the specialist until 

such time as the specialist revises the quotation, 

with a size of one contract. The Exchange 

represents that it will, as it does today, surveil for 

compliance on the part of specialists (and SQTs and 

RSQTs) with the Exchange’s continuous quoting 

requirements. See Exchange Rule 1014(b)(ii)(D). 

55Market Exhaust can only be triggered by an 

initiating order. 

Identify the best of Test 

Initiating order or quote 

(1) Next Phlx price or 

(2) Acceptable range (AR) or 

(3) ABBO Does not lock or cross the best Locks the best Crosses the best 

Next Phlx price ............................... Post at limit price .......................... Trade ............................................ Trade. 

Next Phlx price = ABBO ................ Post at limit price .......................... Trade, will route if Phlx exhausted Trade, will route if Phlx exhausted. 

Next Phlx price = Acceptable 

Range.

Post at limit price .......................... Trade and post any remainder 

balance.

Trade, post any remainder balance at AR price, cancel after 

timer. 

Next Phlx price = Acceptable 

Range = ABBO.

Post at limit price .......................... Trade, will route if Phlx exhausted, post any remainder 

balance.

Trade, will route if Phlx exhausted, post any remainder 

balance at AR price, cancel 

after timer. 

ABBO ............................................. Post at limit price .......................... Route and post any remainder 

balance.

Route and/or post. 

ABBO = Acceptable Range ........... Post at limit price .......................... Route and/or post ......................... Route and/or post cancel after 

timer. 

Acceptable Range ......................... Post at limit price .......................... Post at Acceptable Range ............ Post at Acceptable Range, cancel 

after timer. 

* Non-routable orders will be handled according to the above table unless routing would occur. At such point, the non-routable order will be 

posted at one minimum trading increment away from the established Best Price. 

** After routing, any unexecuted portions of routed order will be posted on the Phlx in accordance with current Phlx rules. 

The purpose of Quote Exhaust is to 

enhance the process for refreshing a 

participant’s quote that has been fully 

exhausted by an incoming quote or 

order that has, after exhausting the Phlx 

quote at a particular price level, 

remaining size to be executed at a price 

through the reference price. In addition, 

Quote Exhaust is intended to provide an 

opportunity for such quote or order to 

receive a price for that order better than 

the next available price. This process is 

illustrated in the example below. 

Example II 

Assume the Following Facts 

The initiating order is a market order 

to buy 40 contracts; 

The specialist submits a quote of 2.20 

bid, 2.40 offer, with a size of 10x10; 

Market Maker 1 submits a quote of 

2.20 bid, 2.70 offer, with a size of 25x25; 

The Away Market is 2.20 bid, 2.65 

offer, with a size of 20x10; 

The PBBO is 2.20 bid, 2.40 offer, with 

a size of 35x10. 

The Following Events Will Occur 

Concurrently 

The initiating order buys 10 contracts 

from the specialist at 2.40, exhausting 

the 2.40 quote; 

The Phlx XL II system will start the 

Quote Exhaust Timer; 

The Phlx XL II system will 

disseminate a PBBO of 2.40 bid, 2.40 

offer, with a size of 30x0. 

After the Quote Exhaust Timer 

The initiating order buys 20 contracts 

from Market Maker 1 at 2.70 and the 

Phlx XL II system will 

contemporaneously route the 

unexecuted balance of the initiating 

order to the away market, 10 to buy at 

2.70. This should result in a buy of 10 

contracts at 2.65 on the away market. 

The disseminated PBBO is 2.20 bid, 

2.70 offer, with a size of 20x5. 

The Exchange believes that Quote 

Exhaust provides the best opportunity 

for remaining portions of incoming 

quotes or orders to be executed on the 

Exchange at prices that are better than 

away markets by allowing Phlx XL II 

participants to refresh their quotes 

before routing away, thus potentially 

providing better prices at which to 

execute such remaining portions. 

Exchange-Generated Quote 

In Phlx XL II, if the Exchange’s 

disseminated size in a particular series 

is exhausted at that particular price 

level, and no specialist, SQT or RSQT 

has revised their quotation immediately 

following the exhaustion of the 

Exchange’s disseminated size at such 

price level, in Phlx XL II, the Exchange 

will not, as it currently does in Phlx XL 

under Rule 1082(a)(ii)(B)(2), 

automatically provide two-sided quotes 

that comply with the Exchange’s rules 

concerning quote spread parameters on 

behalf of the specialist with a size of one 

contract. Instead, the Exchange will 

disseminate a bid of zero and an offer 

of $200,000, each for a size of one 

contract.54 This system generated quote 

will indicate that the Exchange has no 

better priced interest and will typically 

be generated only in Market Exhaust 

scenarios (see below). The Exchange 

believes that this quote is preferable to 

a 0 X 0 quote, because an offer of 0 

could be misinterpreted by a system as 

the best offer. 

Market Exhaust 

Proposed Rule 1082(a)(ii)(B)(4) 

describes the Phlx XL II system’s Market 

Exhaust feature. Market Exhaust occurs 

when there are no Phlx XL II participant 

(specialist, SQT or RSQT) quotations in 

the Exchange’s disseminated market for 

a particular series and an initiating 

order in the series is received.55 In such 

a circumstance, the Phlx XL II system, 

using Market Exhaust, will initiate a 

Market Exhaust Auction for the 

initiating order. 

Market Exhaust Auction 

Proposed Rule 1082(a)(ii)(B)(4)(b) 

describes the Market Exhaust Auction. 

When an initiating order is received 

when there are no quotations in the 

Exchange market, the Phlx XL II system 

will immediately broadcast a 

notification (an ‘‘Auction Notification’’) 

to Phlx XL II participants; the purpose 

of the auction is to seek participation 

and determine the best price at which 

the contracts in the initiating order may 

be executed (the ‘‘Auction Price’’). The 

Auction Notification will include the 

series, size and side of the market of the 

initiating order. The Auction 

Notification will not include a price. 

Federal Register / Vol. 74, No. 70 / Tuesday, April 14, 2009 / Notices 17253 

56The duration of the Auction Period will be 

published in an Options Trader Alert, which will 

be available on the Exchange’s Web site. 

57See proposed Rule 1082(a)(ii)(B)(4)(c)(i). 

58A single Phlx XL II participant may enter 

multiple Auction Sweeps, with each Auction 

Sweep at a different price level. If a Phlx XL II 

participant submits multiple Auction Sweeps, the 

Phlx XL II system will consider only the most 

recent Auction Sweep at each price level submitted 

by such Phlx XL II participant in determining the 

Auction Price. The Phlx XL II system will aggregate 

the size of all Auction Sweeps (i.e., for all Phlx XL 

II participants) at a particular price level for trade 

allocation purposes. 

59 Inbound marketable orders received during the 

Auction Period would also be cancelled in this 

situation at the end of the Auction Period, because, 

since there are still no valid-width quotes at the end 

of the Auction Period, the Phlx XL II system has 

no basis on which to determine what is an 

acceptable range within which to trade. 

60The initial table and any modifications thereto 

will be published in an Options Trader Alert, which 

will be available on the Exchange’s Web site. 

The Auction will be for a period of time 

not to exceed three seconds 56 (the 

‘‘Auction Period’’). The Market Exhaust 

Auction is used to determine the best 

price at which the contracts in the 

initiating order may be executed (the 

‘‘Auction Price’’). 

During the Auction Period 

Proposed Rule 1082(a)(ii)(B)(4)(c) 

describes the responses that Phlx XL II 

participants may submit during the 

Auction Period. Phlx XL II participants 

may submit bids and offers in response 

to the Auction Notification into the 

system until the end of the Auction 

Period. Such responsive bids and offers 

may be submitted to the system for the 

auction in three ways. First, Phlx XL II 

participants may submit a two-sided 

quote in response to the Auction 

Notification. Secondly, Phlx XL II 

participants may submit a single-sided, 

single-priced quotation for the auction 

to be known as ‘‘Auction Sweep’’ 57 that 

will be effective only for the Auction 

Period and cancelled at the end of that 

period if not executed.58 Auction 

sweeps may be entered at any price 

consistent with the minimum price 

variation applicable to the affected 

series, at single or multiple price 

level(s), and may be cancelled and reentered. Finally, they may submit limit 

orders. IOC Orders will be cancelled 

immediately if not executed and will 

not participate in the Market Exhaust 

process. Any quote, Auction Sweep or 

order can be cancelled and/or replaced 

during the Auction Period. In addition, 

incoming orders from non-Phlx XL II 

participants and existing orders on the 

book will be eligible to participate at the 

end of the Auction Period, together with 

responses to the Auction Notification. 

End of the Auction Period 

Proposed Rule 1082(a)(ii)(B)(4)(d) 

describes what happens at the end of 

the Auction Period. If at the end of the 

Auction Period there are no quotes in 

the Exchange market that have a bid/ask 

differential that complies with the 

following table (a ‘‘valid-width auction 

quote’’), the initiating order, plus all 

other Auction Sweeps and orders 

received during the Auction Period will 

be cancelled.59 Quotes that are not 

valid-width auction quotes will remain 

and a new PBBO will be calculated and 

disseminated. 

EXAMPLE TABLE* 

Valid width auction quote table 

Bid price = or > than Bid price < than 

Acceptable bid/ 

ask differential— 

less than 9 

months to 

expiration 

Acceptable bid/ 

ask differential— 

months or more to 

expiration 

multiplier 

$0.00 .......................................................................................................................... $2.00 $0.40 2X 

2.00 ............................................................................................................................ 5.00 0.80 2X 

5.00 ............................................................................................................................ 10.00 1.00 2X 

10.00 .......................................................................................................................... 20.00 1.60 2X 

20.00 .......................................................................................................................... n/a 2.00 2X 

*NOTE: The table presented here is for example purposes only. The Exchange may modify the Bid Price ranges, the Differential values and 

the Multipliers and will announce such changes on its Web site.60

If at the end of the Auction Period 

there are valid-width auction quotes, the 

Phlx XL II system will determine the 

allowable executable price range from 

the lowest valid-width auction quote 

bid and the highest valid-width auction 

quote ask; this is the Auction Quote 

Range (‘‘AQR’’). 

If the initiating order can be 

completely executed at or within the 

AQR and the ABBO, using contracts 

available from all available quotes, 

Auction Sweeps or orders priced at or 

within the AQR, a trade will be 

executed at the Exchange at the Auction 

Price. 

If quotes, Auction Sweeps and orders 

submitted during the Auction Period 

would not allow the entire initiating 

order to trade at a price within the AQR 

without trading through the ABBO, the 

Phlx XL II system will determine if the 

total number of contracts displayed at 

the ABBO price on away markets would 

satisfy the number of marketable 

contracts available on the Exchange. If 

it does, the Phlx XL II system will route 

a number of contracts that will satisfy 

interest at other markets at the ABBO 

price, and determine a PBBO that 

reflects the remaining Phlx interest 

without locking the away market. In this 

situation, the Phlx XL II system will 

price any contracts routed to other 

markets at the ABBO price. 

If the total number of contracts priced 

at the ABBO would not satisfy the 

number of marketable contracts the 

Exchange has, the Phlx XL II system 

will determine how many contracts it 

has available on the Exchange at a price 

equal to the ABBO. If the total number 

of ABBO contracts plus the number of 

contracts available on the Exchange at 

the ABBO price would satisfy the 

number of marketable contracts the 

Exchange has, the ABBO price becomes 

the Exchange Auction Price and the 

Phlx XL II system will trade available 

contracts on the Exchange at the 

Exchange Auction Price and 

contemporaneously route a number of 

contracts that will satisfy interest at 

other markets at prices better than the 

Exchange Auction Price. In this 

situation, the Phlx XL II system will 

price any contracts routed to other 

markets at the away market price. The 

Exchange Auction Price will always be 

at or within the AQR. 

If the total number of ABBO contracts 

plus the number of contracts available 

on the Exchange at the ABBO price 

would not satisfy the number of 

marketable contracts the Exchange has, 

the Phlx XL II system will determine 

17254 Federal Register / Vol. 74, No. 70 / Tuesday, April 14, 2009 / Notices 

61The Phlx XL II system will route contracts to 

the ABBO when the next Phlx price is greater than 

one MPV through the ABBO. 

62The number of times it will be repeated will 

be published in an Options Trader Alert, which will 

be available on the Exchange’s Web site. 

63The duration of the brief period will be 

published in an Options Trader Alert, which will 

be available on the Exchange’s Web site. 

64See proposed Rule 1082(a)(ii)(B)(4)(d)(v). 

65This brief period will not exceed .25 of one 

second. This brief period is similar to the brief 

period during the opening. See Exchange Rule 

1017(c)(iv). 

how many contracts are available on the 

Exchange at a price that is one 

Minimum Price Variation (‘‘MPV’’) 

through the ABBO price. If the total 

number of ABBO contracts plus the 

number of contracts available on the 

Exchange at the ABBO price plus the 

number of contracts available on the 

Exchange at a price that is one MPV 

through the ABBO price would satisfy 

the number of marketable contracts the 

Exchange has, the price that is one MPV 

through the ABBO becomes the 

Exchange Auction Price. The system 

will contemporaneously route a number 

of contracts that will satisfy interest at 

the ABBO and trade a number of 

contracts that will satisfy interest on the 

Exchange at the Exchange Auction 

Price.61 In this situation, the Phlx XL II 

system will price any contracts routed 

to other markets at the Exchange 

Auction Price. 

If the total number of ABBO contracts 

plus the number of contracts available 

on the Exchange at the ABBO price plus 

the number of contracts available on the 

Exchange at a price that is one MPV 

through the ABBO price would not 

satisfy the number of marketable 

contracts the Exchange has, the system 

may repeat the auction process. 

The Phlx XL II system may repeat this 

process up to three times.62 If after that 

number of times, the Phlx XL II system 

still cannot either route and/or trade the 

entire initiating order, the Phlx XL II 

system will conduct a Provisional 

Auction by routing to markets at the 

ABBO for their disseminated size, and 

trading as many contracts as possible on 

the Exchange at the ABBO price and at 

a price that is one MPV through the 

ABBO price. In this situation, the Phlx 

XL II system will price any contracts 

routed to other markets at the ABBO 

price. The Auction is now complete. 

Accordingly, unexecuted Auction 

Sweeps will be cancelled by the Phlx 

XL II system. 

Any unexecuted contracts from the 

initiating order will be displayed in the 

Exchange quote at the Auction Price for 

a brief period not to exceed ten 

seconds 63 and subsequently cancelled 

back to the entering participant if they 

remain unexecuted and priced through 

the Auction Price. During the brief 

period, the Phlx XL II system will 

disseminate a bid and offer that is equal 

to the Auction Price, with a size of zero 

on the opposite side of the market from 

remaining unexecuted contracts. The 

purpose of the posting period is to 

expose the initiating order at the 

Auction Price so that interested 

participants have the opportunity to 

trade against such initiating order. The 

purpose of the cancellation following 

the posting period is to return any 

unexecuted portion of the initiating 

order to the sender so that the sender 

may determine how they want the 

remainder handled (e.g., re-price the 

initiating order, trade at the next 

available price on the Exchange, or 

route to another market center). 

This process is illustrated in the 

following example: 

Example III 

Assume the Following Facts 

There is an order (‘‘Order 1’’) on the 

book to sell 20 contracts at 8.00; 

The Phlx XL II system receives 

another order (‘‘Order 2’’) to buy 100 

contracts at the market; 

The specialist’s quote in the affected 

series has been purged; 

There are no Market Maker quotes in 

the affected series; 

The away market is disseminating a 

market of 2.20 bid, 2.65 offer, with a 

size of 20x10; 

The Phlx XL II system will 

disseminate a PBBO of 0.00 bid, 8.00 

offer, with a size of 1x20; 

The number of times the process will 

repeat is set to zero. 

The Phlx XL II System Sends an Auction 

Notification 

Assume, in response to the Auction 

Notification during the Auction Period: 

The specialist submits a quote of 2.20 

bid, 2.50 offer, with a size of 10x10; 

Market Maker 1 submits a quote of 

2.25 bid, 2.90 offer, with a size of 20x20; 

The Phlx XL II system receives a 

market order (‘‘Order 3’’) to sell 50 

contracts in the affected series; 

The specialist submits an Auction 

Sweep to sell 30 contracts at 2.70; 

The specialist submits another 

Auction Sweep to sell 60 contracts at 

3.00. 

At the End of the Auction Period 

Order 2 buys 50 from Order 3 at 2.70; 

Order 2 buys 40 from the specialist at 

2.70; 

The Phlx XL II system will route the 

balance of Order 2 (10 contracts) to the 

away market, to buy at 2.70. This should 

result in a buy of 10 contracts on the 

away market at 2.65; 

The Exchange will disseminate a 

PBBO of 2.25 bid, 2.90 offer, with a size 

of 20x20. 

In summary, the automated auction 

process logic seeks to first route away 

all contracts executable at a better price 

than the Exchange’s Auction Price, then 

executes all contracts available on the 

Exchange at the Auction Price or one 

MPV through the NBBO and, lastly, 

routes away all contracts available at 

other exchanges at the Exchange’s 

Auction Price. The foregoing processes 

occur contemporaneously. 

The Exchange will execute orders at 

the Auction Price that have 

contingencies (such as All-or-None) and 

non-routable orders (such as a ‘‘Do Not 

Route’’ or ‘‘DNR’’ Orders), to the extent 

possible. Consistent with its routing 

approach, the Exchange will only route 

non-contingency customer orders. Thus, 

in a Provisional Auction, even orders 

priced at or through the Auction Price 

may not be executed because of 

insufficient size. 

If a Market Exhaust Auction is in 

progress at (1) the close of the trading 

day or 2) at the time of a trading halt, 

the Auction will be immediately 

terminated and no trades would occur. 

Priority at the End of the Auction 

Just as provided in current Exchange 

Rule 1017(c)(i), the system will give 

priority to market orders first (including 

limit orders that are treated as market 

orders), then to resting limit orders at 

the Auction Price.64 In order to preserve 

an orderly auction on the Exchange, 

inbound orders and quotes will not be 

included in the calculation of the 

Auction Price for a brief period 

established by the Phlx XL II system 65

while the Phlx XL II system is in the 

process of completing the auction trade. 

During this period, inbound orders and 

quotes will be queued on the Phlx XL 

II system in the order in which they are 

received. After this period once the 

auction is complete, such inbound 

orders, sweeps and quotes will be 

processed by the Phlx XL II system in 

order of their arrival. 

Permitted Responses to Auction 

Notification 

Permitted responses to an Auction 

Notification include quotes, Auction 

Sweeps (as defined more fully below), 

and orders. 

An Auction Sweep is a proposed new 

method for entering electronic 

quotations by specialists, SQTs and 

RSQTs assigned to a particular option. 

An Auction Sweep is an electronic 

quotation submitted for execution 

Federal Register / Vol. 74, No. 70 / Tuesday, April 14, 2009 / Notices 17255 

66See Exchange Rules 1014(g)(vii) and (g)(viii). 

67Rule 985(b)(i)(B) defines a The term ‘‘business 

venture’’ as an arrangement under which (A) the 

Exchange or an entity with which it is affiliated, 

and (B) an Exchange member or an affiliate of an 

Exchange member, engage in joint activities with an 

expectation of shared profit and a risk of shared loss 

from common entrepreneurial efforts. 

68See Securities Exchange Act Release No. 58179 

(July 17, 2008), 73 FR 42874 (July 23, 2008) (SR– 

Phlx-2008–31). 

against trading interest in the system. 

Auction Sweeps may be entered at any 

price, at single or multiple price level(s), 

and may be cancelled and re-entered. A 

single Phlx XL II participant may enter 

multiple Auction Sweeps, with each 

Auction Sweep at a different price level. 

If a Phlx XL II participant submits 

multiple Auction Sweeps at different 

price levels, the Phlx XL II system will 

consider only the most recent Auction 

Sweep at each price level submitted by 

such Phlx XL II participant in 

determining the Exchange Auction 

Price. The Phlx XL II system will 

aggregate the size of all Auction Sweeps 

(i.e., for all Phlx XL II participants) at a 

particular price level for trade allocation 

purposes. Contracts will be allocated 

pursuant to Exchange rules concerning 

trade allocation.66 Unexecuted Auction 

Sweeps will be cancelled once the 

auction is complete. 

Order Routing 

The Phlx XL II system will route only 

customer FIND and SRCH Orders (as 

defined below) with no other 

contingencies. Under proposed Rule 

1080(m), customer FIND and SRCH 

Orders will first be checked by the Phlx 

XL II system for available contracts for 

potential execution. After checking the 

Phlx XL II system for available 

contracts, orders are sent to other 

available market centers for potential 

execution. When checking the book, the 

Phlx XL II system will seek to execute 

at the price at which it would send the 

order to a destination market center. In 

situations where the Exchange’s 

disseminated bid or offer is one MPV 

inferior to the NBBO price, the Phlx XL 

II system will contemporaneously route 

to the away market(s) disseminating the 

NBBO at such away market’s size, and 

execute remaining contracts at the 

Exchange’s disseminated bid or offer up 

to its disseminated size. 

If contracts remain unexecuted after 

routing, they are posted on the book. 

Once on the book, should the order 

subsequently be locked or crossed by 

another market center, the Phlx XL II 

system will not route the order to the 

locking or crossing market center, 

except as specified below. 

Proposed Rule 1080(m)(i) provides 

that orders sent to other markets do not 

retain time priority with respect to other 

orders in the Phlx XL II system and the 

Phlx XL II system will continue to 

execute other orders while routed orders 

are away at another market center. Once 

routed by the Phlx XL II system, an 

order becomes subject to the rules and 

procedures of the destination market 

including, but not limited to, order 

cancellation. If a routed order is 

subsequently returned, in whole or in 

part, that order, or its remainder, shall 

receive a new time stamp reflecting the 

time of its return to the Phlx XL II 

system. 

Proposed Rule 1080(m)(ii) provides 

that entering member organizations 

whose orders are routed to away 

markets shall be obligated to honor such 

trades that are executed on away 

markets to the same extent they would 

be obligated to honor a trade executed 

on the Exchange. 

The Exchange proposes to adopt 

proposed Rule 1080(m)(iii)(A) to 

establish Nasdaq Options Services LLC 

(‘‘NOS’’) as the Exchange’s exclusive 

order router. NOS is a member of an 

SRO unaffiliated with the Exchange that 

is its designated examining authority. 

NOS will serve as the Routing Facility 

of the Exchange (the ‘‘Routing 

Facility’’). The sole use of the Routing 

Facility by the Phlx XL II system will be 

to route orders in options listed and 

open for trading on the Phlx XL II 

system to away markets pursuant to 

Exchange rules on behalf of the 

Exchange. 

Proposed Rule 1080(m)(iii)(B) would 

provide that the use of NOS to route 

orders to other market centers is 

optional. Parties that do not desire to 

use NOS must designate orders as not 

available for routing (i.e., a Do Not 

Route Order, as described in proposed 

Rule 1080(m)(iv)(A)). 

Proposed Rule 1080(m)(iii)(C) would 

provide that the Exchange will establish 

and maintain procedures and internal 

controls reasonably designed to 

adequately restrict the flow of 

confidential and proprietary 

information between the Exchange and 

the Routing Facility, and any other 

entity, including any affiliate of the 

Routing Facility, and, if the Routing 

Facility or any of its affiliates engages in 

any other business activities other than 

providing routing services to the 

Exchange, between the segment of the 

Routing Facility or affiliate that 

provides the other business activities 

and the routing services. 

Finally, proposed Rule 1080(m)(iii)(D) 

would state that the books, records, 

premises, officers, directors, agents, and 

employees of the Routing Facility, as a 

facility of the Exchange, will be deemed 

to be the books, records, premises, 

officers, directors, agents, and 

employees of the Exchange for purposes 

of and subject to oversight pursuant to 

the Act. The books and records of the 

Routing Facility, as a facility of the 

Exchange, will be subject at all times to 

inspection and copying by the Exchange 

and the Commission. 

Phlx Affiliation With NOS 

Exchange Rule 985(b) generally 

prohibits the Phlx or an entity with 

which it is affiliated from acquiring or 

maintaining an ownership interest in, or 

engaging in a business venture 67 with a 

Phlx member or an affiliate of a Phlx 

member in the absence of an effective 

filing with the Commission under 

Section 19(b) of the Act. However, Rule 

985(b) also states Phlx or an entity 

affiliated with Phlx could acquire or 

maintain an ownership interest in, or 

engage in a business venture with, an 

affiliate of a Phlx member without the 

need for the Exchange to file such 

affiliation under Section 19(b) of the 

Act, if there were information barriers 

between the member and Phlx and its 

facilities. 

NOS is a member of Phlx. In July, 

2008, the Commission approved NOS as 

an affiliate of Phlx for the limited 

purpose of providing routing services 

for NASDAQ Exchange for orders that 

first attempt to access liquidity on 

NASDAQ Exchange’s systems before 

routing to Phlx.68

The Exchange requests that the 

Commission provide a further 

exemption from the restrictions on 

affiliation by allowing Phlx to use NOS 

to provide routing services for orders 

that first attempt to access liquidity on 

the Phlx’s systems before routing to 

other exchanges. 

Expanded Order Types 

DNR Order. Proposed Rule 

1080(m)(iv)(A) describes a Do Not Route 

(‘‘DNR’’) Order. A DNR order will never 

be routed outside of Phlx regardless of 

the prices displayed by away markets. A 

DNR order may execute on the 

Exchange at a price equal to or better 

than, but not inferior to, the best away 

market price but, if that best away 

market remains, the DNR order will 

remain in the Phlx book and be 

displayed at a price one minimum price 

variation inferior to that away best bid/ 

offer. Any incoming order interacting 

with such a resting DNR order will 

receive the best away market price. 

Should the best away market change its 

price, or move to an inferior price level, 

the DNR order will automatically reVerDate Nov<24>2008 16:39 Apr 13, 2009 Jkt 217001 PO 00000 Frm 00113 Fmt 4703 Sfmt 4703 E:\FR\FM\14APN1.SGM 14APN1
17256 Federal Register / Vol. 74, No. 70 / Tuesday, April 14, 2009 / Notices 

69The duration of the Route Timer and all timers 

relating to FIND and SRCH orders will be published 

in an Options Trader Alert, which will be available 

on the Exchange’s Web site. 

70The duration of the Route Timer and all timers 

relating to FIND and SRCH orders will be published 

in an Options Trader Alert, which will be available 

on the Exchange’s Web site. 

71This is consistent with the provisions 

contained in the current Linkage Plan (‘‘Plan’’) and 

Phlx Rule 1083(t), reflecting that the definition of 

a ‘‘trade-through’’ does not include an order 

executed at a price that is one MPV inferior to the 

NBBO if a Linkage Order is transmitted to the 

Participant Exchange(s) that are disseminating the 

NBBO to satisfy all interest at the NBBO price 

(‘‘trade and ship’’). 

72The duration of the Route Timer and all timers 

relating to FIND and SRCH orders will be published 

in an Options Trader Alert, which will be available 

on the Exchange’s Web site. 

price from its one minimum price 

variation inferior to the original away 

best bid/offer price to one minimum 

trading increment away from the new 

away best bid/offer price or its original 

limit price. Once priced at its original 

limit price, it will remain at that price 

until executed or cancelled. Should the 

best away market improve its price such 

that it locks or crosses the DNR order 

limit price, the Exchange will execute 

the resulting incoming order that is 

routed from the away market that locked 

or crossed the DNR order limit price. 

FIND Order. Proposed Rule 

1080(m)(v)(B) describes a FIND Order. A 

FIND order is an order that is routable 

upon receipt, or any time the option 

goes through an opening process. A 

FIND order on the Phlx XL II book 

during an opening, whether it is 

received prior to the opening or it is a 

good til cancelled (‘‘GTC’’) FIND order 

from a prior day, may be routed as part 

of the Opening Process. Once the 

Opening Process is complete, the FIND 

order is either eligible to trade at the 

Phlx price or placed on the Phlx book 

either at its limit price or at a price that 

is one Minimum Price Variation 

(‘‘MPV’’) from the ABBO price if it 

would otherwise lock or cross the 

ABBO. A FIND order will not be eligible 

for routing until the next time the 

option series is subject to a new 

Opening Process. 

A FIND order received during open 

trading that is not marketable against 

the PBBO or the ABBO will be entered 

into the Phlx XL II book at its limit 

price. The FIND order will not be 

eligible for routing until the next time 

the option series is subject to a new 

Opening Process. 

A FIND order received during open 

trading that is marketable against the 

PBBO when the ABBO is inferior to the 

PBBO will be traded at the Exchange at 

the PBBO price. If the FIND order has 

size remaining after exhausting the 

PBBO, it may (1) trade at the next PBBO 

price (or prices) if the order price is 

locking or crossing that price (or prices) 

up to and including the ABBO price, or 

(2) be entered into the Phlx XL II book 

at its limit price, or entered into the 

Phlx XL II book at one MPV away from 

the ABBO if locking or crossing the 

ABBO. The FIND order will not be 

eligible for routing until the next time 

the option series is subject to a new 

Opening Process. 

A FIND order received during open 

trading that is marketable against the 

PBBO when the ABBO is equal to the 

PBBO will be traded at the Exchange at 

the PBBO. If the FIND order has size 

remaining after exhausting the PBBO, it 

will initiate a Route Timer not to exceed 

one second 69 in order to allow Phlx XL 

II participants and other market 

participants an opportunity to interact 

with the remainder of the FIND order. 

During the Route Timer, the FIND order 

will be included in the PBBO at a price 

one MPV away from the ABBO. If, 

during the Route Timer, any new 

interest arrives opposite the FIND order 

that is equal to or better than the ABBO 

price, the FIND order will trade against 

such new interest at the ABBO price. 

What happens to a FIND order after 

the Route Timer expires depends on the 

ABBO price at that time. If, at the end 

of the Route Timer, the ABBO is still at 

the same or a better price, the FIND 

order will route to the away market up 

to a size equal to the lesser of either: (a) 

The away market’s size, or (b) the 

remaining size of the FIND order. If the 

FIND order still has remaining size after 

routing, it will be entered into the Phlx 

XL II book and posted at the same price 

at which it was routed. The FIND order 

will not be eligible for routing until the 

next time the option series is subject to 

a new Opening Process. 

A FIND order received during open 

trading that is marketable against the 

ABBO when the ABBO is better than the 

PBBO will initiate a Route Timer not to 

exceed one second 70 in order to allow 

Phlx XL II participants and other market 

participants an opportunity to interact 

with the FIND order. During the Route 

Timer, the FIND order will be included 

in the PBBO at a price one MPV away 

from the ABBO. If, during the Route 

Timer, any new interest arrives opposite 

the FIND order that is equal to or better 

than the ABBO price, the FIND order 

will trade against such new interest at 

the ABBO price. 

What happens to a FIND order after 

the Route Timer expires depends on the 

ABBO price at that time. If, at the end 

of the Route Timer, the ABBO is still the 

best price, the FIND order will route to 

the away market up to a size equal to 

the lesser of either (a) the away market’s 

size, or (b) the remaining size of the 

FIND order. If the FIND order still has 

remaining size, it will (i) trade at the 

next PBBO price up to one MPV through 

the ABBO price, subject to the order’s 

limit price; 71 or (ii) be entered into the 

Phlx XL II book and posted at: (A) its 

limit price, or (B) one MPV inferior to 

the ABBO price if its limit price is equal 

to or through the ABBO price. The Phlx 

XL II system will route and execute 

contracts contemporaneously at the end 

of the Route Timer. The FIND order will 

not be eligible for routing until the next 

time the option series is subject to a new 

Opening Process. 

SRCH Order. Proposed Rule 

1080(m)(v)(C) describes a SRCH Order. 

A SRCH order is an order that is 

routable at any time. 

A SRCH order on the Phlx XL II book 

during an opening, whether it is 

received prior to the opening or it is a 

GTC SRCH order from a prior day, may 

be routed as part of the Opening 

Process. Once the Opening Process is 

complete, a SRCH order is eligible either 

to: (1) Trade at the Phlx price, if that 

price is equal to or better than the ABBO 

or, if the ABBO is better than the Phlx 

price, orders have been routed to the 

ABBO markets for their full size; or (2) 

be routed to the ABBO if the ABBO 

price is the best price, and/or (3) be 

placed on the Phlx XL II book at its limit 

price if not participating in the Phlx 

opening at the opening price and not 

locking or crossing the ABBO. Once on 

the book, the SRCH order is eligible for 

routing if it is locked or crossed by an 

away market (see below). 

A SRCH order received during open 

trading that is not marketable against 

the PBBO or the ABBO will be entered 

into the Phlx XL II book. Once on the 

book, the SRCH order is eligible for 

routing if it is locked or crossed by an 

away market. 

A SRCH order received during open 

trading that is marketable against the 

PBBO when the ABBO is inferior to the 

PBBO will be traded at the Exchange at 

the PBBO price. If the SRCH order has 

size remaining after exhausting the 

PBBO, it may (1) trade at the next PBBO 

price (or prices) if the order price is 

locking or crossing that price (or prices) 

up to and including the price equal to 

the ABBO price, and/or (2) be routed, 

subject to a Route Timer not to exceed 

one second,72 to the ABBO markets if all 

Phlx interest at better or equal prices 

has been exhausted, and/or (3) be 

entered into the Phlx XL II book at its 

limit price if not locking or crossing the 

Phlx price or the ABBO. Once on the 

book, the SRCH order is eligible for 

Federal Register / Vol. 74, No. 70 / Tuesday, April 14, 2009 / Notices 17257 

73The duration of the Route Timer and all timers 

relating to FIND and SRCH orders will be published 

in an Options Trader Alert, which will be available 

on the Exchange’s Web site. 

74The duration of the Route Timer and all timers 

relating to FIND and SRCH orders will be published 

in an Options Trader Alert, which will be available 

on the Exchange’s Web site. 

75The duration of the Route Timer and all timers 

relating to FIND and SRCH orders will be published 

in an Options Trader Alert, which will be available 

on the Exchange’s Web site. 

76The duration of the Route Timer and all timers 

relating to FIND and SRCH orders will be published 

in an Options Trader Alert, which will be available 

on the Exchange’s Web site. 

77The duration of the Route Timer and all timers 

relating to FIND and SRCH orders will be published 

in an Options Trader Alert, which will be available 

on the Exchange’s Web site. 

78See proposed Rule 1080(c)(iii)(B). 

79A Book Sweep is a one-sided single-priced 

quote that may only trade with an order on the 

book. See Exchange Rule 1080(c). 

80See Exchange Rule 1080.08(e)(iii). 

81The Phlx XL Complex Order system currently 

executes only quotes and orders on the limit order 

Continued 

routing if it is locked or crossed by an 

away market. 

A SRCH order received during open 

trading that is marketable against the 

PBBO when the ABBO is equal to the 

PBBO will be traded at the Exchange at 

the PBBO. If the SRCH order has size 

remaining after exhausting the PBBO, it 

will initiate a Route Timer not to exceed 

one second 73 in order to allow Phlx XL 

II participants and other market 

participants an opportunity to interact 

with the SRCH order. During the Route 

Timer, the SRCH order will be included 

in the PBBO at a price one MPV away 

from the ABBO. If, during the Route 

Timer, any new interest arrives opposite 

the SRCH order that is equal to or better 

than the ABBO price, the SRCH order 

will trade against such new interest at 

the ABBO price. 

What happens to a SRCH order after 

the Route Timer expires depends on the 

ABBO price at that time. If, at the end 

of the Route Timer, the ABBO is still the 

best price, the SRCH order will route to 

the away market up to a size equal to 

the lesser of either (a) the away market’s 

size, or (b) the remaining size of the 

SRCH order. If the SRCH order still has 

remaining size after routing, it may: (1) 

Trade at the next PBBO price (or prices) 

if the order price is locking or crossing 

that price (or prices) up to one MPV 

through the ABBO price, and/or (2) be 

routed, subject to a Route Timer not to 

exceed one second,74 to the ABBO 

markets if all Phlx interest at better or 

equal prices has been exhausted, and/or 

(3) be entered into the Phlx XL II book 

at its limit price if not locking or 

crossing the Phlx price or the ABBO. 

The Phlx XL II system will route and 

execute contracts contemporaneously at 

the end of the Route Timer. Once on the 

book, the SRCH order is eligible for 

routing if it is locked or crossed by an 

away market. 

A SRCH order received during open 

trading that is marketable against the 

ABBO when the ABBO is better than the 

PBBO will initiate a Route Timer not to 

exceed one second 75 in order to allow 

Phlx XL II participants and other market 

participants an opportunity to interact 

with the remainder of the SRCH order. 

During the Route Timer, the SRCH order 

will be included in the PBBO at a price 

one MPV inferior to the ABBO. If, 

during the Route Timer, any new 

interest arrives opposite the SRCH order 

that is equal to or better than the ABBO 

price, the SRCH order will trade against 

such new interest at the ABBO price. 

What happens to a SRCH order after 

the Route Timer expires depends on the 

ABBO price at that time. If, at the end 

of the Route Timer, the ABBO is still the 

best price, the SRCH order will route to 

the away market up to a size equal to 

the lesser of either: (a) The away 

market’s size or (b) the remaining size 

of the SRCH order. If the SRCH order 

still has remaining size, it may: (1) 

Trade at the next PBBO price (or prices) 

if the order price is locking or crossing 

that price (or prices) up to one MPV 

through the ABBO price, and/or (2) be 

routed, subject to a Route Timer not to 

exceed one second,76 to the ABBO 

markets if all Phlx interest at better or 

equal prices has been exhausted, and/or 

(3) be entered into the Phlx XL II book 

at its limit price if not locking or 

crossing the Phlx price or the ABBO. 

Once on the book, the SRCH order is 

eligible for routing if it is locked or 

crossed by an away market. 

A SRCH order on the Phlx XL II book 

may be routed to an away market if it 

is locked or crossed by an away market. 

If an ABBO locks or crosses the PBBO 

which includes a SRCH order, the Phlx 

XL II system will initiate a Route Timer 

not to exceed one second 77 in order to 

allow Phlx users an opportunity to 

interact with the SRCH order. During 

the Route Timer, the SRCH order 

remains in the PBBO at its posted price. 

If, during the Route Timer, any new 

interest arrives opposite the SRCH order 

that is equal to or better than the ABBO 

price, the SRCH order will trade against 

such new interest at the ABBO price. 

What happens to a SRCH order after 

the Route Timer expires depends on the 

ABBO price at that time. If, at the end 

of the Route Timer, the ABBO is still the 

best price, the SRCH order will route to 

the away market up to a size equal to 

the lesser of either: (a) The away 

market’s size, or (b) the remaining size 

of the SRCH order. If the SRCH order 

still has remaining size, that size will 

remain on the book. 

New Sweeps 

In addition to the Opening Sweep 

described above, the Phlx will also 

introduce other new sweep capabilities. 

The Market Sweep 78 in Phlx XL II will 

replace the Phlx XL’s current Book 

Sweep 79 order processing, and allow a 

Phlx user the ability to automatically 

execute multiple order price levels and 

a single quote price level. A Market 

Sweep will execute against both quotes 

and orders, but when a quote level is 

exhausted, the system will cancel the 

balance of the Market Sweep back to the 

entering party to allow quotes to be 

updated. Market Sweeps are processed 

on an immediate-or-cancel basis, may 

not be routed, may be entered only at a 

single price, and may not trade through 

the ABBO. 

The Auction Sweep described above 

may be entered only during the auction 

process and will remain in effect only 

until the auction is completed. A single 

Phlx XL II participant may enter 

multiple Auction Sweeps, with each 

Auction Sweep at a different price level. 

If a Phlx XL II participant submits 

multiple Auction Sweeps at different 

price levels, the Phlx XL II system will 

consider only the most recent Auction 

Sweep at each price level submitted by 

such Phlx XL II participant in 

determining the Auction Price. The Phlx 

XL II system will aggregate the size of 

all Auction Sweeps (i.e., for all Phlx XL 

II participants) at a particular price level 

for trade allocation purposes. 

Sweeps of any type may only be 

entered by entities permitted to enter 

quotes in the class and series being 

swept. Unlike other types of sweeps, all 

Opening Sweeps in a series will be 

cancelled immediately if that Phlx XL II 

participant fails to maintain a 

continuous quote with a permitted 

opening bid/ask differential in the 

affected series. 

Complex Order Live Auction Order 

Cancellation 

Phlx also proposes to remove the 

prohibition in Rule 1080.08(e)(iii) on 

order cancellation in Complex Order 

Live Auction (‘‘COLA’’) and now allow 

the cancellation of any order in such 

auction including the original order that 

caused the auction to commence.80 This 

is to allow customers greater flexibility 

to manage their orders during a COLA. 

In addition, the Phlx XL II system will 

also execute the individual components 

of a Complex Order against sweeps that 

are executable.81 This provision would 

17258 Federal Register / Vol. 74, No. 70 / Tuesday, April 14, 2009 / Notices 

book against the individual components of a 

Complex Order. See Exchange Rule 

1080.08(f)(iii)(A). 

82See Exchange Rule 1080. 

83See Exchange Rule 1047A. 

84See Securities Exchange Act Release No. 59697 

(April 2, 2009) (SR–Phlx–2009–23). 

allow additional opportunity for Phlx 

XL II participants to trade with existing 

liquidity on the Exchange. 

Miscellaneous Rule Changes 

The Exchange proposes to make 

various updates to Rule 1080 to delete 

obsolete provisions and generally 

update the rule. For example, the 

Exchange proposes to add the terms 

‘‘Phlx XL’’ and ‘‘Phlx XL II’’ to the rule 

to more clearly identify the new features 

and to expressly begin replacing the 

outdated term ‘‘AUTOM.’’ 82 The 

Exchange also proposes to delete the 

requirement in Rule 1080.05 that offfloor broker-dealer limit orders 

delivered through the system must be 

represented on the Exchange floor by a 

floor member, as this provision is 

outdated. The Exchange believes that 

other forms of communication, such as 

telephone, are sufficient. The Exchange 

proposes to delete Rule 1080.03, which 

refers to a technology arrangement no 

longer in place. Similarly, the Exchange 

proposes to delete certain options floor 

procedure advices, such as Advice G–2, 

which duplicate existing rules 83 and do 

not impose any fines under the minor 

rule violation enforcement and 

reporting plan. In Rules 1014, 1080(k) 

and (l) and 1082, the Exchange proposes 

to delete the outdated term ‘‘Streaming 

Quote Options.’’ The Exchange also 

proposes to place a cross-reference to 

Rule 1017 in Rule 1080 to make clear 

that Rule 1080(a) applies to openings. 

The Exchange proposes to amend Rule 

1047 to add new text stating that the 

Phlx XL II system will automatically 

halt trading in an equity option when 

the underlying security is subject to a 

regulatory halt on the primary market 

for such underlying security. 

In addition, the Exchange proposes to 

replace numerous references to the 

Options Committee and the Foreign 

Currency Options Committee, and their 

respective Chairs, with ‘‘the Exchange’’ 

to reflect that the Exchange will have 

direct responsibility over these matters, 

consistent with a separate proposed rule 

change to make similar changes 

throughout the Exchange’s rules.84

Finally, the Exchange proposes the 

following specific miscellaneous rule 

changes: 

• Rule 1014(b)(ii)(E) would be 

amended to delete obsolete portions of 

the rule concerning expired dates of 

effectiveness for a 90-day effective 

period following commencement of the 

original Phlx XL system, and a one-year 

effective period for a requirement that 

non-SQT ROTs quote electronically in 

options in which they trade a certain 

percentage electronically; 

• Rules 1017(b)–(f) would be 

amended to reflect that the rules will 

continue to apply to options traded on 

the original Phlx XL system, and to 

reflect that notification to membership 

of various time periods will be made on 

the Exchange’s Web site. Any quantified 

term determined by the Exchange will 

be disseminated as an Options Trader 

Alert on the Exchange’s Web site and 

will be retained on the Web site 

indefinitely so that persons may review 

such determinations as necessary 

• Rules 1017(g)–(i) would be 

amended to reflect the applicability of 

each paragraph to options traded 

exclusively on the original Phlx XL 

system, and to options traded on the 

original Phlx XL system and the Phlx 

XL II system; 

• Commentaries .01–.03 to Rule 1017 

would be amended to state that 

Commentaries apply to the original Phlx 

XL system; 

• Rule 1080(b) would be amended to 

reflect that DNR, SRCH and FIND orders 

are eligible for entry into the Phlx XL II 

system as agency orders and as orders 

for the proprietary accounts of SQTs, 

RSQTs, non-SQT ROTs, specialists, and 

off-floor broker-dealers; 

• Rule 1080(c)(iv) would be amended 

to (i) reflect that orders in options 

traded on the original Phlx XL system 

will be handled manually by the 

specialist in certain situations, and (ii) 

to add new sub-paragraph (G) to the 

Rule stating that, respecting options 

traded on the Phlx XL II system, no 

orders will be executed manually; 

• Rule 1080(c)(v) would be amended 

to reflect that it will apply to options 

traded on the Phlx XL system; 

• Rule 1080, Commentary .06 would 

be amended to delete obsolete 

references to the deployment schedule 

for the Options Floor Broker 

Management System, which was 

completed in November 2003; 

• Options Floor Procedure Advice 

(‘‘OFPA’’) A–12 would be amended to 

delete redundant references to the 

opening price acceptable range for 

options traded on the original Phlx XL 

system which are already included in 

Rule 1017; 

• OFPA A–14, which has a fine 

schedule, would be amended to reflect 

that, respecting openings on the Phlx XL 

II system, the price of an opening 

transaction in an option series may only 

be arranged at a price that is within an 

acceptable OQR (as determined by the 

Exchange and announced to the 

membership on the Exchange’s Web 

site), and to include identical language 

to proposed Rule 1017(l)(iii) concerning 

the calculation of the OQR; 

• OFPA G–2, which has no fine 

schedule and which duplicates existing 

Exchange Rule 1047A, would be 

deleted. 

Rollout and Deployment 

The Exchange expects to roll out the 

Phlx XL II system over a period of 12 

weeks following Commission approval 

of this proposal (the ‘‘rollout period’’), 

beginning with one single option traded 

on the Phlx XL II system, while other 

options traded on the Exchange will 

continue to trade on the original Phlx 

XL system (the ‘‘legacy system’’) during 

the rollout period. The Exchange will 

continue to delete options from the 

legacy system and place such options on 

the Phlx XL II system during the rollout 

period, while other options continue to 

trade on the legacy system. Eventually 

all options traded on the Exchange will 

be traded on the Phlx XL II system, and 

no options will be traded on the legacy 

system. Accordingly, the Exchange 

proposes to distinguish the proposed 

rules applicable to options traded on the 

Phlx XL II system from existing 

Exchange rules applicable to options 

traded on the legacy system. 

Within 90 days following the 

completion of the rollout of the Phlx XL 

II system, the Exchange will offer a data 

feed to all market participants, which 

will include disseminated Exchange 

top-of-market data (including orders, 

quotes and trades). The new data feed 

will also include all information that is 

included in the Exchange’s Specialized 

Order Feed (‘‘SOF’’), which provides 

information concerning simple orders, 

complex orders and complex strategies 

to Exchange quoting members. With 

respect to the speed with which users 

will receive this information, SOF users 

will receive this information no sooner 

than users of the new data feed. 

Conclusion 

All of the above proposals are 

designed to improve the speed, 

efficiency and quality of Exchange 

options executions and to provide 

greater flexibility for Exchange users in 

how they quote and trade, while also 

enhancing overall market quality by 

expanded protection of better displayed 

prices in the market. 

2. Statutory Basis 

The Exchange believes that its 

proposal is consistent with Section 6(b) 

Federal Register / Vol. 74, No. 70 / Tuesday, April 14, 2009 / Notices 17259 

85 15 U.S.C. 78f(b). 

86 15 U.S.C. 78f(b)(5). 87 17 CFR 200.30–3(a)(12). 

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

2 17 CFR 240.19b–4. 

of the Act 85 in general, and furthers the 

objectives of Section 6(b)(5) of the Act 86

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. In 

particular, the Exchange believes that 

the proposals will improve the speed, 

efficiency and quality of Exchange 

options executions and to provide 

greater flexibility for Exchange users in 

how they quote and trade, while also 

enhancing overall market quality by 

expanded protection of better displayed 

prices in the market. 

B. Self-Regulatory Organization’s 

Statement on Burden on Competition 

The Exchange does not believe that 

the proposed rule change will impose 

any burden on competition not 

necessary or appropriate in furtherance 

of the purposes of the Act. 

C. Self-Regulatory Organization’s 

Statement on Comments on the 

Proposed Rule Change Received From 

Members, Participants, or Others 

No written comments were either 

solicited or received. 

III. Date of Effectiveness of the 

Proposed Rule Change and Timing for 

Commission Action 

Within 35 days of the date of 

publication of this notice in the Federal 

Register or within such longer period (i) 

as the Commission may designate up to 

90 days of such date if it finds such 

longer period to be appropriate and 

publishes its reasons for so finding or 

(ii) as to which the Exchange consents, 

the Commission shall: (a) By order 

approve such proposed rule change, or 

(b) institute proceedings to determine 

whether the proposed rule change 

should be disapproved. 

IV. Solicitation of Comments 

Interested persons are invited to 

submit written data, views, and 

arguments concerning the foregoing, 

including whether the proposed rule 

change is consistent with the Act. 

Comments may be submitted by any of 

the following methods: 

Electronic Comments 

• Use the Commission’s Internet 

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

rules/sro.shtml); or 

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

Number SR–Phlx–2009–32 on the 

subject line. 

Paper Comments 

• Send paper comments in triplicate 

to Elizabeth M. Murphy, Secretary, 

Securities and Exchange Commission, 

100 F Street, NE., Washington, DC 

20549–1090. 

All submissions should refer to File 

Number SR–Phlx–2009–32. This file 

number should be included on the 

subject line if e-mail is used. To help the 

Commission process and review your 

comments more efficiently, please use 

only one method. The Commission will 

post all comments on the Commission’s 

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

rules/sro.shtml). Copies of the 

submission, all subsequent 

amendments, all written statements 

with respect to the proposed rule 

change that are filed with the 

Commission, and all written 

communications relating to the 

proposed rule change between the 

Commission and any person, other than 

those that may be withheld from the 

public in accordance with the 

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

available for inspection and copying in 

the Commission’s Public Reference 

Room, 100 F Street, NE., Washington, 

DC 20549, on official business days 

between the hours of 10 a.m. and 3 p.m. 

Copies of the filing also will be available 

for inspection and copying at the 

principal office of the Exchange. All 

comments received will be posted 

without change; the Commission does 

not edit personal identifying 

information from submissions. You 

should submit only information that 

you wish to make available publicly. 

All submissions should refer to File 

Number SR–Phlx–2009–32 and should 

be submitted on or before May 5,2009. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.87

Florence E. Harmon, 

Deputy Secretary. 

[FR Doc. E9–8422 Filed 4–13–09; 8:45 am] 

BILLING CODE 8010–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–59723; File No. SR–NSX– 

2009–02] 

Self-Regulatory Organizations; 

National Stock Exchange, Inc.; Notice 

of Filing and Immediate Effectiveness 

of Proposed Rule Change To Amend 

the Fee and Rebate Schedule Relating 

to Liquidity Adding Rebates 

April 7, 2009. 

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

Securities Exchange Act of 1934 (the 

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

notice is hereby given that on March 31, 

2009, National Stock Exchange, Inc. 

filed with the Securities and Exchange 

Commission (‘‘Commission’’) the 

proposed rule change, as described in 

Items I, II and III below, which Items 

have been prepared by the Exchange. 

The Commission is publishing this 

notice to solicit comments on the 

proposed rule change from interested 

persons. 

I. Self-Regulatory Organization’s 

Statement of the Terms of Substance of 

the Proposed Rule Change 

National Stock Exchange, Inc. 

(‘‘NSX®’’ or ‘‘Exchange’’) is proposing to 

(i) amend the Fee and Rebate Schedule 

(the ‘‘Fee Schedule’’) issued pursuant to 

Exchange Rule 16.1(c) in order to 

increase the displayed order liquidity 

adding rebate for Tape A and C 

securities executed at one dollar or 

above in the Automatic Execution Mode 

of order interaction in the event that 

certain volume thresholds are achieved, 

(ii) provide a rebate for adding liquidity 

in displayed orders at one dollar or 

above in the Order Delivery Mode of 

order interaction in the event that 

certain volume thresholds are achieved 

and (iii) establish a new Rule 16.3 to 

provide that, for purposes of applying 

the provisions of the Fee Schedule and 

Exchange Rule 16, an ETP Holder may 

request that the Exchange aggregate its 

activity with the activity of its affiliates. 

The text of the proposed rule change 

is available on the Exchange’s Web site 

at http://www.nsx.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