64862 Federal Register / Vol. 79, No. 211 / Friday, October 31, 2014 / Notices 

25 17 CFR 200.30–3(a)(12). 

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

2 17 CFR 240.19b–4. 

3Rule 1080(c)(ii)(A)(1) defines ‘‘Order Entry 

Firm’’ as a member organization of the Exchange 

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

the Exchange’s electronic quoting and trading 

system, which has been denoted in Exchange rules 

as XL II, XL and AUTOM.) 

4Section (c), Solicited Orders, of Exchange Rule 

1064, Crossing, Facilitation and Solicited Orders, 

governs execution of solicited orders by open 

outcry, on the Exchange trading floor, and is 

unaffected by proposed Rule 1081. Additionally, 

many aspects of the functionality of the proposed 

solicitation mechanism are similar to those 

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

the rules proposed herein consequently track the 

existing PIXL rules. The Exchange adopted PIXL in 

October 2010 as a price-improvement mechanism 

that is a component of the Exchange’s fully 

automated options trading system, Phlx XL, now 

known as XL II. Like the solicitation mechanism, 

PIXL is a mechanism whereby an initiating member 

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

auction process soliciting price improvement. See 

Securities Exchange Act Release Nos. 63027 

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

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

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

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

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

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

(Order Granting Approval To Proposed Rule 

Change, as Modified by Amendment No. 1, 

Regarding Complex Order PIXL). 

5Rule 1080(b)(i)(A) provides in part that ‘‘[f]or 

purposes of Exchange options trading, an agency 

order is any order entered on behalf of a public 

customer, and does not include any order entered 

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

in which a broker-dealer or an associated person of 

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

However, that provision did not contemplate, and 

is not applicable to, the capitalized and defined 

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

1081. 

6To be clear, participants must ensure that their 

records adequately demonstrate the solicitation of 

an order that is entered into the mechanism for 

execution against an Agency Order as a Solicited 

Order prior to entry of such order into this 

mechanism. 

7Exchange Rule 1066(c)(4) defines an ‘‘all-ornone’’ order as a market or limit order which is to 

be executed in its entirety or not at all. 

8A given Solicitation Auction may be for options 

contracts exclusively or for mini options contracts 

exclusively, but cannot be used for a combination 

of both options contracts and mini options contracts 

together. 

9Similar electronic functionality is offered today 

by competing exchanges. See Chicago Board 

Options Exchange (‘‘CBOE’’) Rule 6.74B, 

Solicitation Auction Mechanism (the ‘‘CBOE 

Mechanism’’), and International Securities 

Exchange (‘‘ISE’’) Rule 716(e), Solicited Order 

Mechanism (the ‘‘ISE Mechanism’’). 

10A Complex Order is any order involving the 

simultaneous purchase and/or sale of two or more 

different options series in the same underlying 

security, priced at a net debit or credit based on the 

relative prices of the individual components, for the 

same account, for the purpose of executing a 

particular investment strategy. A Complex Order 

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

to buy or sell a stated number of units of an 

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

coupled with the purchase or sale of options 

contract(s). Complex Orders on Phlx are discussed 

in Commentary .08 to Rule 1080. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.25

Kevin M. O’Neill, 

Deputy Secretary. 

[FR Doc. 2014–25877 Filed 10–30–14; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–73441; File No. SR–Phlx– 

2014–66] 

Self-Regulatory Organizations; 

NASDAQ OMX PHLX LLC; Notice of 

Filing of Proposed Rule Change To 

Adopt New Exchange Rule 1081, 

Solicitation Mechanism, To Introduce a 

New Electronic Solicitation Mechanism 

October 27, 2014. 

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

Securities Exchange Act of 1934 

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

notice is hereby given that on October 

14, 2014, NASDAQ OMX PHLX LLC 

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

Securities and Exchange Commission 

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

rule change as described in Items I and 

II, below, which Items have been 

prepared by the Exchange. The 

Commission is publishing this notice to 

solicit comments on the proposed rule 

change from interested persons. 

I. Self-Regulatory Organization’s 

Statement of the Terms of Substance of 

the Proposed Rule Change 

The Exchange proposes to adopt new 

Exchange Rule 1081, Solicitation 

Mechanism, to introduce a new 

electronic solicitation mechanism 

pursuant to which a member can 

electronically submit all-or-none orders 

of 500 contracts or more (or, in the case 

of mini options, 5000 contracts or more) 

the member represents as agent against 

contra orders the member solicited. The 

Exchange is also proposing a 

corresponding amendment to the 

definition of ‘‘professional’’ in Rule 

1000(b)(14) and a clarification to Rule 

1080, Phlx XL and Phlx XL II. 

The text of the proposed rule change 

is available on the Exchange’s Web site 

at http://

nasdaqomxphlx.cchwallstreet.com, at 

the principal office of the Exchange, and 

at the Commission’s Public Reference 

Room. 

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 proposal is to 

introduce an electronic solicitation 

mechanism. Currently, under Phlx Rule 

1080(c)(ii)(C)(2), Order Entry Firms 3

must expose orders they represent as 

agent for at least one second before such 

orders may be automatically executed, 

in whole or in part, against orders 

solicited from members and nonmember broker-dealers to transact with 

such orders.4 The proposed rule change 

would provide an alternative, enabling 

a member to electronically execute 

orders it represents on behalf of a public 

customer, broker-dealer, or any other 

entity (an ‘‘Agency Order’’) 5 against 

solicited limit orders of a public 

customer, broker-dealer, or any other 

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

solicitation mechanism designed for this 

purpose.6

The new mechanism is a process by 

which a member (the ‘‘Initiating 

Member’’) can electronically submit allor-none orders 7 of 500 contracts or 

more (or, in the case of mini options,8

5000 contracts or more) that it 

represents as agent against contra orders 

that it has solicited, and initiate an 

auction (the ‘‘Solicitation Auction’’).9

As explained below, at the end of the 

Solicitation Auction, allocation will 

occur with all contracts of the Agency 

Order trading at an improved price 

against non-solicited contra-side interest 

or at the stop price, defined below, 

against the Solicited Order. The 

solicitation mechanism would 

accommodate both simple orders and 

Complex Orders.10 Prior to the first time 

a member enters an Agency Order into 

the solicitation mechanism on behalf of 

a customer, the member would be 

required to deliver to the customer a 

written notification informing the 

customer that its Agency Orders may be 

executed using the Phlx’s solicitation 

mechanism. Such written notification 

would be required to disclose the terms 


asabaliauskas on DSK5VPTVN1PROD with NOTICES
Federal Register / Vol. 79, No. 211 / Friday, October 31, 2014 / Notices 64863 

11See Rule 1081(i)(H). The rule would require 

delivery of this disclosure only prior to the first 

submission of an Agency Order on behalf of a 

customer rather than prior to the submission of 

each and every Agency Order on behalf of such 

customer. 

12 In the case of Complex Orders, the underlying 

components of both Complex Orders must also 

match. Additionally, all the option legs of each 

Complex Order must consist entirely of options or 

entirely of mini options. 

13For example, assume an Agency Order to buy 

1000 contracts for $2.00 and a Solicited Order to 

sell 1000 contracts at $1.90 are entered into the 

solicitation mechanism. Since the limits of these 

orders cross in price, the Agency Order and 

Solicited Order are considered to be submitted into 

the mechanism with a stop price equal to the 

Solicited Order price of $1.90. 

14Whether an order is marked with a time in 

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

cancelled or immediate or cancel is irrelevant to the 

manner in which they will be treated once they are 

entered into the solicitation mechanism. 

15A contingent order is a limit or market order 

to buy or sell that is contingent upon a condition 

being satisfied. PIXL also does not consider 

contingent orders on the book when checking the 

acceptability of the stop price. 

16Rule 1081(i)(B) does not apply if the Agency 

Order is a Complex Order (a ‘‘Complex Agency 

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

Agency Orders and requires them to be of a 

conforming ratio, as defined in 

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

Agency Order which is not of a conforming ratio 

will be rejected. Rule 1081(i)(C) requires all 

component option legs of the order to be for at least 

500 contracts (or, in the case of mini options, at 

least 5000 contracts). It also provides that the 

Initiating Member must stop the entire Complex 

Agency Order at a price that is better by at least 

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

available on the Complex Order book regardless of 

the Complex Order book size; and (ii) achievable 

from the best Phlx bids and offers for the individual 

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

size, provided in either case that such price is equal 

to or better than the Complex Agency Order’s limit 

price. Stop prices for Complex Agency Orders may 

be submitted in $0.01 increments, regardless of 

MPV, and contingent orders on the book will not 

be considered when checking the acceptability of 

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

17See Rule 1081(i)(D). 

18See Rule 1081(i)(E). 

19The term ‘‘series’’ of options means all option 

contracts of the same class having the same 

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

options means all option contracts of the same 

‘‘type’’ of option covering the same underlying 

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

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

1000, Applicability, Definitions and References. 

20See Rule 1081(i)(F). 

21A similar restriction applies with respect to 

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

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

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

22However, a simple Agency Order in one series 

that is submitted while an electronic auction is 

already in process with respect to a Complex 

Agency Order that includes the same series will not 

be rejected. Instead, a Solicitation Auction will be 

initiated for that incoming Agency Order offering 

each unique strategy or individual series the same 

opportunity to initiate an auction. This behavior is 

consistent with the handling of overlapping PIXL 

and Complex PIXL auctions. See PIXL Rule 

1080(n)(ii). Complex Orders submitted during 

normal trading hours in a strategy which has not 

yet opened under Commentary .08 of Exchange 

Rule 1080 will cause the strategy to immediately 

open and a Solicitation Auction may be initiated. 

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

Solicitation Auction for a simple Agency Order or 

Complex Agency Order may be initiated prior to the 

regular opening of all individual components of the 

Solicited simple or Complex Agency Order. 

23See Rule 1081(i)(G). An SQT is an Exchange 

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

received permission from the Exchange to generate 

and submit option quotations electronically through 

AUTOM in eligible options to which such SQT is 

assigned. An SQT may only submit such quotations 

while such SQT is physically present on the floor 

of the Exchange. See Exchange Rule 1014(b)(ii)(A). 

A RSQT is defined in Exchange Rule 1014(b)(ii)(B) 

as an ROT that is a member affiliated with a Remote 

Streaming Quote Trader Organization (‘‘RSQTO’’) 

with no physical trading floor presence who has 

received permission from the Exchange to generate 

and submit option quotations electronically in 

options to which such RSQT has been assigned. A 

qualified RSQT may function as a Remote Specialist 

upon Exchange approval. An RSQT may only 

submit such quotations electronically from off the 

floor of the Exchange. An RSQT may not submit 

option quotations in eligible options to which such 

RSQT is assigned to the extent that the RSQT is also 

approved as a Remote Specialist in the same 

options. An RSQT may only trade in a market 

making capacity in classes of options in which he 

is assigned or approved as a Remote Specialist. An 

RSQTO is a member organization in good standing 

that satisfies the SQTO readiness requirements in 

Rule 507(a). 

and conditions contained in Rule 1081 

and to be in a form approved by the 

Exchange.11

Solicitation Auction Eligibility 

Requirements 

All options traded on the Exchange, 

including mini options, are eligible for 

the Solicitation Auction. Proposed Rule 

1081(i) describes the circumstances 

under which an Initiating Member may 

initiate a Solicitation Auction. 

Proposed Rule 1081(i)(A) provides 

that the Agency Order and the Solicited 

Order must each be limit orders for at 

least 500 contracts (or, in the case of 

mini options, at least 5000 contracts) 

and be designated as all-or-none. The 

orders must match in size, and their 

limit prices must match or cross in 

price.12 If the orders cross in price, the 

price at which the Agency Order and 

the Solicited Order may be considered 

for submission pursuant to Rules 

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

price of the Solicited Order.13 The 

orders may not be stop or stop limit 

orders, must be marked with a time in 

force of day, good till cancelled or 

immediate or cancel, and will not be 

routed regardless of routing strategy 

indicated on the order.14

Pursuant to Rule 1081(i)(B) the 

Initiating Member must stop the entire 

Agency Order at a price (the ‘‘stop 

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

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

both sides of the market, provided that 

such price must be at least $0.01 better 

than any public customer noncontingent limit order on the Phlx order 

book and must be equal to the Agency 

Order’s limit price or provide the 

Agency Order with a better price than 

its limit price. Stop prices may be 

submitted in $0.01 increments, 

regardless of the applicable Minimum 

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

orders 15 (including all-or-none, stop or 

stop-limit orders) on the book will not 

be considered when checking the 

acceptability of the stop price. 

Contingent orders are not represented as 

part of the Exchange Best Bid/Offer 

since they may only be executed if 

specific conditions are met. Given these 

orders are not represented as part of the 

Exchange Best Bid/Offer, they are not 

included in the NBBO and thus not 

considered when checking the 

acceptability of the stop price.16

Orders which are submitted which do 

not comply with the eligibility 

requirements set forth in proposed Rule 

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

upon receipt and ineligible to initiate a 

Solicitation Auction.17 In addition, 

Agency Orders submitted at or before 

the opening of trading are not eligible to 

initiate a Solicitation Auction and will 

be rejected.18 Orders submitted during a 

specified period of time, as determined 

by the Exchange and communicated to 

Exchange membership on the 

Exchange’s Web site, prior to the end of 

the trading session in the affected 

series 19 (including, in the case of 

Complex Orders, in any series which is 

a component of the Complex Order) are 

not eligible to initiate a Solicitation 

Auction and will be rejected.20 Agency 

Orders which are not Complex Orders 

received while another electronic 

auction (including any Solicitation 

Auction, PIXL auction, or any other 

kind of auction) involving the same 

option series is in progress are not 

eligible to initiate a Solicitation Auction 

and will be rejected.21 Similarly, a 

Complex Agency Order received while 

another auction in the same Complex 

Order strategy is in progress is not 

eligible to initiate a Solicitation Auction 

and will be rejected.22

Finally a solicited order for the 

account of any Exchange specialist, 

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

streaming quote trader (‘‘RSQT’’) or 

non-streaming registered options trader 

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

may not be a Solicited Order.23

Consistent with the explanation the 

Exchange made in the PIXL Filing, the 

Exchange believes that in order to 

maintain fair and orderly markets, a 

market maker assigned in an option 

should not be solicited for participation 

in a Solicitation Auction by an Initiating 


asabaliauskas on DSK5VPTVN1PROD with NOTICES
64864 Federal Register / Vol. 79, No. 211 / Friday, October 31, 2014 / Notices 

24For clarity, Rule 1080(ii)(A)(l) does not apply 

to Complex Agency Orders. Rather, in a parallel 

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

that to initiate a Solicitation Auction in the case of 

a Complex Agency Order and Complex Solicited 

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

Initiating Member must mark the orders for 

Solicitation Auction processing, and specify the 

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

Complex Agency Order with the Complex Solicited 

Order. Once the Initiating Member has submitted 

the orders for processing pursuant to this 

subparagraph, they may not be modified or 

cancelled. 

25The eligibility requirements require the orders 

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

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

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

match in size, and the limit prices must match or 

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

limit orders, must be marked with a time in force 

of day, good till cancelled or immediate or cancel, 

In the case of Complex Orders, the orders must be 

of a conforming ratio, and all component option 

legs of the order must be for at least 500 contracts 

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

contracts). See Rule 1081(i). The Exchange also 

accommodates the crossing of two public customer 

orders in PIXL. See Rule 1080(n). 26The execution price for a Complex Order may 

be in $.01 increments. 27All-or-none orders can only be submitted for 

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

the acceptability of the stop price of an Agency 

Order. 

28The term ‘‘cPBBO’’ means the best net debit or 

credit price for a Complex Order Strategy based on 

the PBBO for the individual options components of 

such Complex Order Strategy, and, where the 

underlying security is a component of the Complex 

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

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

29The Exchange’s trading system is capable of 

accepting all-or-none Complex Orders which are 

not, however, affirmatively permitted to be 

submitted under Exchange rules. Rule 1080.08(b)(v) 

provides in part that ‘‘Complex Orders may be 

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

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

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

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

all-or-none Complex Orders may not be submitted 

at this time. The Exchange anticipates that it will 

file a proposed rule change to provide for the 

handling and execution of all-or-none Complex 

Orders and thereafter permit the trading system to 

accept them. The instant proposed rule change 

describes how the solicitation mechanism will deal 

with all-or-none Complex Orders once they are 

permitted under Exchange rules. Complex Agency 

Orders and Complex Solicited Orders provided for 

herein are not Complex Orders that will require 

filing of a proposed rule change in order to be 

submitted into the system. Complex Agency Orders 

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

character, are unique to the solicitation mechanism 

and are explicitly provided for herein. 

30See Rule 1080(n)(vi). 

31By omitting the side in the Request for 

Response, the system avoids disclosure of 

potentially material information that could move 

the market in the event the Agency Order does not 

trade at the conclusion of the Solicitation Auction. 

Market participants may enter Responses on both 

sides of the market. 

32The PHLX Orders data feed is designed to 

provide the real-time status of simple and Complex 

Orders on the Phlx order book directly to 

subscribers. This includes new orders and changes 

to orders resting on the Phlx book for all Phlx listed 

options. PHLX Orders also includes opening 

imbalance information, PIXL information and 

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

33SQF is an interface that allows specialists and 

market makers to connect and send quotes into Phlx 

XL and assists them in responding to auctions and 

providing liquidity to the market. 

34CBOE Rule 6.74B(b)(1)(B) suggests that Agency 

Orders submitted to its Solicitation Auction 

Mechanism include the proposed price at which an 

Agency Order is to be crossed with a solicited order 

as well as the size of the order. The rule does not 

specify that the side is to be indicated on the order. 

See also C2 Rule 6.52(b)(1)(B), which is similar. 

35 In April/May 2014, to determine whether the 

proposed Solicitation Auction timer would provide 

sufficient time to respond to a Request for 

Response, the Exchange polled all Phlx market 

makers, 20 of which responded. Of those that 

responded to the survey, 15 are currently 

responding to auctions on Phlx or intend to do so. 

100% of those respondents indicated that their firm 

could respond to auctions with a duration of at least 

Member. The Exchange believes that 

market makers interested in 

participating in transactions on the 

Exchange should do so by way of his/ 

her quotations, and should respond to 

Solicitation Auction notifications rather 

than create them by having an Initiating 

Member submitting Solicited Orders on 

the market maker’s behalf. 

Solicitation Auction Process 

Pursuant to Rule 1081(ii)(A)(1), to 

begin the process the Initiating Member 

must mark the Agency Order and the 

Solicited Order for Solicitation Auction 

processing, and specify the stop price at 

which it seeks to cross the Agency 

Order with the Solicited Order. Once 

the Initiating Member has submitted an 

Agency Order and Solicited Order for 

processing pursuant to this 

subparagraph, such Agency Order and 

Solicited Order may not be modified or 

cancelled.24

Crossing Two Public Customer Orders 

Without a Solicitation Auction 

As noted above, the proposed rule 

change would enable a member to 

electronically execute an Agency Order, 

which is an order it represents on behalf 

of a public customer, broker-dealer, or 

any other entity, against a Solicited 

Order, which is a solicited limit order 

of a public customer, broker-dealer, or 

any other entity through the solicitation 

mechanism. 

However, pursuant to Rule 1081(v), if 

a member enters an Agency Order for 

the account of a public customer paired 

with a Solicited Order for the account 

of public customer and if the paired 

orders adhere to the eligibility 

requirements of Rule 1081(i), such 

paired orders will be automatically 

executed without a Solicitation 

Auction.25 The execution price for such 

paired public customer orders (except if 

they are Complex Orders) must be 

expressed in the minimum quoting 

increment applicable to the affected 

series.26 Such an execution may not 

trade through the NBBO or at the same 

price as any resting public customer 

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

order book in the affected series, the 

public customer-to-public customer 

order may not be executed at a price at 

which the all-or-none order would be 

eligible to trade based on its limit price 

and size. 27

In the case of a Complex Order, a 

public customer-to-public customer 

cross may only occur at a price which 

improves the calculated Phlx Best Bid/ 

Offer or ‘‘cPBBO’’ and improves upon 

the net limit price of any Complex 

Orders (excluding all-or-none) on the 

Complex Order book in the same 

strategy.28 If all-or-none Complex 

Orders 29 are on the Complex Order 

book in the same strategy, the public 

customer-to-public customer Complex 

Order may not be executed at a price at 

which the all-or-none Complex Order 

would be eligible to trade based on its 

limit price and size. 

The Exchange believes that permitting 

such executions will benefit public 

customers on both sides of the crossing 

transaction by providing speedy and 

efficient executions to public customer 

orders in this circumstance while 

maintaining the priority of public 

customer interest on the book. The 

proposed handling of a public customer 

Agency Order paired with a public 

customer Solicited Order is similar to 

the handling of a public customer PIXL 

Order paired with a public customer 

Initiating Order which is submitted into 

the PIXL mechanism.30

Solicitation Auction Notification 

Pursuant to proposed Rule 

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

receives an order for Solicitation 

Auction processing, a Request for 

Response with the option details 

(meaning, the security, strike price, and 

expiration date), size and stop price, but 

not the side 31 of the Agency Order and 

the Solicitation Auction start time is 

then sent over the PHLX Orders data 

feed 32 and Specialized Quote Feed 

(‘‘SQF’’).33 The Exchange believes that 

providing option details, size, and stop 

price is sufficient information for 

participants to determine whether to 

submit responses to the Solicitation 

Auction.34

Solicitation Auction 

The Solicitation Auction process is 

described in proposed Rules 

1081(ii)(A)(4)–(10). Following the 

issuance of the Request for Response, 

the Solicitation Auction will last for a 

period of 500 milliseconds 35 unless it is 


asabaliauskas on DSK5VPTVN1PROD with NOTICES
Federal Register / Vol. 79, No. 211 / Friday, October 31, 2014 / Notices 64865 

50 milliseconds. Thus, the Exchange believes that 

the proposed Solicitation Auction duration of 500 

milliseconds would provide a meaningful 

opportunity for participants on Phlx to respond to 

a Solicitation Auction, whether initiated by an 

Agency Order or a Complex Agency Order, while 

at the same time facilitating the prompt execution 

of orders. The Exchange notes that both ISE and 

Miami International Securities Exchange LLC 

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

response time. See ISE Rule 716, Supplementary 

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

36Rule 1080(c)(ii)(C)(2), which states that Order 

Entry Firms must expose orders they represent as 

agent for at least one second before such orders may 

be automatically executed against solicited orders, 

is being amended to clarify that it does not apply 

to Rule 1081, Solicitation Mechanism. See also Rule 

1081(ii)(A)(4). 

37Responses may not be submitted with an allor-none contingency. (Note, however, that all-ornone orders entered and present in the system at 

the end of the Solicitation Auction will be 

considered for execution, as discussed below.) 

38Similarly, in the case of Complex Order 

Responses, the Response must be equal to or better 

than the cPBBO on both sides, as defined in 

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

receipt of the Complex Order Response but need 

not improve upon the limit of orders on the 

CBOOK. A Complex Order Response submitted 

with a price that is outside the cPBBO at the time 

of receipt will be rejected. See proposed Rule 

1081(ii)(A)(9). 

39See Exchange Rule 1080(n). 

40 In the case of a Complex Solicitation Auction, 

it would end any time the cPBBO or the Complex 

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

on the same side of the market as the Complex 

Agency Order, crosses the stop price. See Rule 

1081(ii)(B)(3). 

41Trading on the Exchange in any option contract 

is halted whenever trading in the underlying 

security has been paused or halted by the primary 

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

Securities Exchange Act Release No. 62269 (June 

10, 2010), 75 FR 34491 (June 17, 2010) (SR–Phlx– 

2010–82). Any executions that occur during any 

latency between the pause or halt in the underlying 

security and the processing of the halt on the 

Exchange are nullified pursuant to Exchange Rule 

1092(c)(iv)(B). 

42The Exchange’s PIXL auction features similar 

functionality. Pursuant to Exchange Rule 

1080(n)(ii)(C), in the case of a trading halt on the 

Exchange in the affected series, a PIXL Order will 

be executed solely against the Initiating Order at the 

stop price and any unexecuted PAN responses will 

be cancelled. 

43Similarly, pursuant to Rule 1081(ii)(D), in the 

case of a Complex Solicitation Auction, an 

unrelated market or marketable limit Complex 

Order on the opposite side of the market from the 

Complex Agency Order as well as orders for the 

individual components of the unrelated Complex 

Order received during the Complex Solicitation 

Continued 

concluded as the result of any of the 

circumstances described below.36

Any person or entity may submit 

Responses to the Request for Response, 

provided such Response is properly 

marked specifying the price, size and 

side of the market at which it would be 

willing to participate in the execution of 

the Agency Order. The Exchange 

believes that permitting any person or 

entity to submit Responses to the 

Request for Response should attract 

Responses from all sources, maximizing 

the potential for liquidity in the 

Solicitation Auction and thus affording 

the Agency Order the best opportunity 

for price improvement. Responses will 

not be visible to Solicitation Auction 

participants, and will not be 

disseminated to the Options Price 

Reporting Authority (‘‘OPRA’’). A 

Response may be for any size up to the 

size of the Agency Order.37 The 

minimum price increment for 

Responses will be $0.01. A Response 

must be equal to or better than the 

NBBO on both sides of the market at the 

time of receipt of the Response. A 

Response with a price that is outside the 

NBBO at the time of receipt will be 

rejected.38 Multiple Responses from the 

same member may be submitted at 

different prices on either or both sides 

of the market during the Solicitation 

Auction. Responses may be modified or 

cancelled during the Solicitation 

Auction. The acceptance and handling 

of Responses to a Solicitation Auction is 

the same as the acceptance and 

handling of Responses today for a PIXL 

Auction.39

Conclusion of the Solicitation Auction 

Rules 1081(ii)(B)(1)–(4) describe a 

number of circumstances that will cause 

the Solicitation Auction to conclude. 

Generally, it will conclude at the end of 

the Solicitation Auction period, except 

that it may conclude earlier: (i) Any 

time the Phlx Best Bid/Offer (‘‘PBBO’’) 

on the same side of the market as the 

Agency Order crosses the stop price 

(since further price improvement will be 

unlikely and any Responses offering 

improvement are likely to be 

cancelled),40 or (ii) any time there is a 

trading halt on the Exchange in the 

affected series (or, in the case of a 

Complex Solicitation Auction, any time 

there is a trading halt on the Exchange 

in any component of a Complex Agency 

Order).41

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

if the Solicitation Auction concludes 

before the expiration of the Solicitation 

Auction period as the result of the 

PBBO, cPBBO or Complex Order book 

(excluding all-or-none Complex Orders) 

crossing the stop price as described in 

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

the entire Agency Order will be 

executed using the allocation algorithm 

set forth in Rule 1081(ii)(E). The 

algorithm is described below under the 

heading ‘‘Order Allocation’’. 

Also pursuant to proposed Rule 

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

concludes before the expiration of the 

Solicitation Auction period as the result 

of a trading halt, the entire Agency 

Order or Complex Agency Order will be 

executed solely against the Solicited 

Order or Complex Solicited Order at the 

stop price and any unexecuted 

Responses will be cancelled.42

Responses and other interest present in 

the system will not be considered for 

trade against the Agency Order in the 

case of a trading halt. The Exchange 

believes this is appropriate since the 

participants representing tradable 

interest in the Solicitation Auction have 

not ‘stopped’ the Agency Order in its 

entirety and would have no means after 

the auction executions occur to offset 

the trading risk they would incur 

because the market is halted if they 

were permitted to execute against the 

Agency Order in this instance. However, 

the Solicited Order ‘stopped’ the 

Agency Order when the order was 

submitted into the Solicitation Auction 

and will therefore execute against the 

Agency Order if the Solicitation Auction 

concludes before the expiration of the 

Solicitation Auction period as the result 

of a trading halt. 

Furthermore, when Agency and 

Solicited Orders are submitted into the 

Solicitation Auction, the stop price 

must be equal to or improve the NBBO 

and be at least $0.01 better than any 

public customer non-contingent limit 

orders on the Phlx order book. The 

Exchange believes that public customer 

interest submitted to Phlx after 

submission of the Agency and Solicited 

Orders but prior to the trading halt 

should not prevent the Agency Order 

from being executed at the stop price 

since such public customer interest was 

not present at the time the Agency 

Order was ‘stopped’ by the Solicited 

Order. 

Entry of an unrelated market or 

marketable limit order on the opposite 

side of the market from the Agency 

Order received during the Solicitation 

Auction will not cause the Solicitation 

Auction to end early. Rather, the 

unrelated order will execute against 

interest outside the Solicitation Auction 

(if marketable against the PBBO) or will 

post to the book and then route if 

eligible for routing (in the case of an 

order marketable against the NBBO but 

not against the PBBO), pursuant to Rule 

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

such unrelated order at the time the 

Solicitation Auction ends, the total 

unexecuted volume of such unrelated 

interest will be considered for 

participation in the order allocation 

process, regardless of the number of 

contracts in relation to the Solicitation 

Auction size, described in Rule 

1081(ii)(E).43 The handling of unrelated 


asabaliauskas on DSK5VPTVN1PROD with NOTICES
64866 Federal Register / Vol. 79, No. 211 / Friday, October 31, 2014 / Notices 

Auction will not cause the Complex Solicitation 

Auction to end early and will execute against 

interest outside of the Complex Solicitation 

Auction. If contracts remain from such unrelated 

Complex Order at the time the Complex Solicitation 

Auction ends, the total unexecuted volume of such 

unrelated interest will be considered for 

participation in the order allocation process, 

regardless of the number of contracts in relation to 

the Complex Solicitation Auction size, described in 

Rule 1081(ii)(E). 

44See Exchange Rule 1080(n)(ii)(D). 

45All-or-none simple orders reside with simple 

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

Complex Orders reside in a separate book, in a 

different part of the trading system. Thus 

aggregation of all-or-none Complex Orders with 

other Complex Orders is a more difficult process 

than aggregation of all-or-none simple orders with 

other simple orders. 

46The Exchange reviewed six months of data 

which showed that all-or-none Complex Orders 

represented only 0.12% of all Complex Orders. 

opposite side interest which is received 

during the Solicitation Auction is the 

same as the handling of unrelated 

opposite side interest which is received 

during a PIXL Auction.44 Participants 

submitting such unrelated interest may 

not be aware that an auction is in 

progress and should therefore be able to 

access firm quotes that comprise the 

NBBO without delay. Considering such 

unrelated interest which remains 

unexecuted upon receipt for 

participation in the order allocation 

process described in Rule 1081(ii)(E) 

will increase the number of contracts 

against which an Agency Order could be 

executed, and should therefore create 

more opportunities for the Agency 

Order to be executed at better prices. 

Order Allocation 

The allocation of orders executed 

upon the conclusion of a Solicitation 

Auction will depend upon whether the 

Solicitation Auction has yielded 

sufficient improving interest to improve 

the price of the entire Agency Order. As 

noted above, all contracts of the Agency 

Order will trade at an improved price 

against non-solicited contra-side interest 

or, in the event of insufficient 

improving interest to improve the price 

of the entire Agency Order, at the stop 

price against the Solicited Order. 

Consideration of All-or-None Interest. 

All-or-none interest of a size which 

could potentially be executed consistent 

with its all-or-none contingency is 

considered when determining whether 

there is sufficient size to execute 

Agency Orders which are not Complex 

Agency Orders at price(s) better than the 

stop price. However, pursuant to 

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

determining if there is sufficient size to 

execute Complex Agency Orders at a 

price(s) better than the stop price, no 

all-or-none interest of any size will be 

considered. If there is sufficient size to 

execute the entire Complex Agency 

Order at a price(s) better than the stop 

price irrespective of any all-or-none 

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

trade and executed if possible. This 

difference in behavior is due to a system 

limitation relating to all-or-none 

Complex Orders.45 The Exchange 

believes this behavior is not impactful 

since all-or-none Complex Orders are 

rare 46 and if sufficient size exists to 

execute the entire Complex Agency 

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

for trade and executed if possible. 

In all Solicitation Auctions, all-ornone interest will be executed pursuant 

to normal priority rules, except that it 

will not be executed if the all-or-none 

contingency cannot be satisfied. If an 

execution which can adhere to the allor-none contingency is not possible, 

such all-or-none interest will be ignored 

and will remain on the order book or be 

cancelled if such interest is an 

immediate or cancel order. 

For example, assume an Agency 

Order to buy 1000 contracts stopped by 

a Solicited Order at $2.00 is entered 

when the PBBO is $1.90—$2.10. 

Assume that during the Solicitation 

Auction, Responses are received to sell 

700 contracts at $1.97 and sell 150 

contracts at $1.99. In addition, assume 

an order to sell 300 contracts at $1.98 

with an all-or-none contingency is 

received. At the end of the Solicitation 

Auction, the system will consider the 

all-or-none order when determining if 

there is sufficient size to execute the 

Agency Order at a price(s) better than 

the stop price since the all-or-none 

contingency can be satisfied by an 

execution. In this example, at the end of 

the Solicitation Auction, the Agency 

Order will execute against improving 

interest with 700 contracts executing at 

$1.97 and 300 contracts (representing 

the all-or-none order) executing at 

$1.98. Consider a similar scenario 

whereby the Responses received were to 

sell 700 contracts at $1.97 and sell 300 

contracts at $1.99 and an all-or-none 

order to sell 500 contracts at $1.98 was 

received. In this scenario, the system 

will not consider the all-or-none order 

when determining if there is sufficient 

size to execute the Agency Order at a 

price(s) better than the stop price since 

the all-or-or none contingency cannot be 

satisfied by an execution. However, 

excluding the all-or-none order, the 

Agency Order can still be satisfied at a 

price(s) better than the stop price. In 

this scenario, at the end of the 

Solicitation Auction, the Agency Order 

will execute against improving interest 

with 700 contracts executing at $1.97 

and 300 contracts executing at $1.99. 

The 500 contract all-or-none order does 

not execute because the all-or-none 

contingency cannot be satisfied. 

Similarly, assume a Complex Agency 

Order to buy 1000 contracts stopped by 

a Complex Solicited Order at $2.00 is 

entered when the cPBBO is $1.90— 

$2.10. Assume that during the 

Solicitation Auction a Response is 

received to sell 900 contracts at $1.98 

and an all-or-none Complex Order is 

received to sell 150 contracts at $1.99. 

At the end of the Solicitation Auction 

involving a Complex Order, the system 

does not consider all-or-none interest in 

determining whether it can execute the 

Complex Agency Order at a better price 

than the stop price. In this case, 

excluding the all-or-none Complex 

Order, only 900 contracts are available 

to sell at a better price than the stop 

price. Therefore the Complex Agency 

Order would trade against the Solicited 

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

included because although more than 

1000 contracts are offered at a better 

price than the $2.00 stop price, the 

system cannot both trade best prices 

first and adhere to the contingency of 

the all-or-none order while ensuring 

that the Agency Order trades 1000 

contracts. If however, the example is 

changed and Responses are received to 

sell 900 contracts at $1.98 and sell 100 

contracts at $1.99 and an order to sell 

100 contracts at $1.98 all-or-none is 

received, at the end of the Solicitation 

Auction involving this Complex Order, 

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

Order at a better price than the $2.00 

stop price. Therefore the Agency Order 

would be executed against the 900 lot at 

$1.98 and the remaining 100 contracts 

executed against the all-or-none 

Complex Order at $1.98. 

Solicitation Auction with Sufficient 

Improving Interest. Pursuant to the Rule 

1081(ii)(E)(1) algorithm, if there is 

sufficient size (considering all resting 

orders, quotes and Responses) to 

execute the entire Agency Order at a 

price or prices better than the stop price, 

the Agency Order will be executed 

against such better priced interest with 

public customers having priority at each 

price level. After public customer 

interest at a particular price level has 

been satisfied, including all-or-none 

orders with a size which can be 

satisfied, remaining contracts will be 

allocated among all Exchange quotes, 

orders and Responses in accordance 

with Exchange Rules 


asabaliauskas on DSK5VPTVN1PROD with NOTICES
Federal Register / Vol. 79, No. 211 / Friday, October 31, 2014 / Notices 64867 

47Similarly, pursuant to Rule 1081(ii)(E)(3), in 

the case of a Complex Solicitation Auction, if there 

is sufficient size (considering resting Complex 

Orders and Responses) to execute the entire 

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

stop price, the Complex Agency Order will be 

executed against better priced Complex Orders, 

Responses, as well as quotes and orders which 

comprise the cPBBO at the end of the Complex 

Solicitation Auction. (The cPBBO is not considered 

in determining whether there is sufficient 

improving size because the market and/or size of 

the individual components can change between the 

calculation of sufficient size and the actual 

execution.) Such interest will be allocated at a given 

price in the following order: (i) to public customer 

Complex Orders and Responses in time priority; (ii) 

to SQT, RSQT, and non-SQT ROT Complex Orders 

and Responses on a size pro-rata basis; (iii) to nonmarket maker off-floor broker-dealer Complex 

Orders and Responses on a size pro-rata basis, and 

(iv) to quotes and orders which comprise the 

cPBBO at the end of the Complex Solicitation 

Auction with public customer interest being 

satisfied first in time priority, then to SQT, RSQT, 

and non-SQT ROT interest satisfied on a size prorata basis, and lastly to non-market maker off-floor 

broker-dealers on a size pro-rata basis. This 

allocation methodology is consistent with the 

allocation methodology utilized for a Complex 

Order executed in PIXL. In addition, providing 

public customer’s with priority over SQT, RSQT, 

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

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

same priority scheme used for regular orders. See 

Exchange Rule 1014(g). 

When determining if there is sufficient size to 

execute the entire Complex Agency Order at a 

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

price test in Rule 201 of Regulation SHO is triggered 

for a covered security, Complex Orders and 

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

considered because of the possibility that a short 

sale price restriction may apply during the interval 

between assessing for adequate size and the 

execution of the Complex Agency Order. However, 

if there is sufficient size to execute the entire 

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

stop price irrespective of any covered securities for 

which the price test is triggered that may be 

present, then all Complex Orders and Responses 

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

allocation in accordance with Rule 1081(ii)(J)(3). 

48To illustrate a Complex Solicitation Auction 

with enough improving interest and the operation 

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

to buy one of option A and sell one of option B, 

1000 times, with a cPBBO of $0.40 bid, $0.70 offer, 

is submitted with a stop price of $0.65. Assume that 

during the Solicitation Auction, the following 

Responses and order interest are received: a market 

maker (‘‘MM1’’) responds to sell the strategy 100 

times at a price of $0.55; MM1 responds to sell the 

strategy 100 times at a price of $0.60; a brokerdealer responds to sell the strategy 400 times at a 

price of $0.60; a public customer Complex Order to 

sell the strategy 300 times at a price of $0.60; and 

another market maker (‘‘MM2’’) responds to sell the 

strategy 200 times at $0.60. 

After all these Responses and orders are received, 

option A of the simple market moves causing the 

cPBBO to become offered 200 times at $0.60. 

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

$1.10 and Option B is quoted in the simple market 

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

Auction, the Complex Agency Order will be 

executed as follows: the Complex Agency Order 

trades 100 contracts at $0.55 against MM1; the 

Complex Agency Order trades 300 contracts at 

$0.60 against public customer; the Complex Agency 

Order trades 100 contracts at $0.60 against MM1; 

the Complex Agency Order trades 200 contracts at 

$0.60 against MM2; the Complex Agency Order 

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

unexecuted contracts of the broker-dealer Response 

are cancelled. 

49Rule 1081(ii)(E)(2) does not apply to Complex 

Solicitation Auctions. Rather, a parallel provision, 

Rule 1081(ii)(E)(4), provides that in a Complex 

Solicitation Auction, if there is not sufficient size 

(considering resting Complex Orders and 

Responses) to execute the entire Complex Agency 

Order at a price(s) better than the stop price, the 

Complex Agency Order will be executed against the 

Solicited Order at the stop price, provided such 

stop price is better than the limit of any public 

customer Complex Order (excluding all-or-none) on 

the Complex Order book, better than the cPBBO 

when a public customer order (excluding all or 

none) is resting on the book in any component of 

the Complex Agency Order, and equal to or better 

than the cPBBO on the opposite side of the 

Complex Agency Order. This proposed behavior 

ensures non-contingent public customers on the 

limit order book maintain priority. Otherwise, both 

the Complex Agency Order and the Solicited Order 

will be cancelled with no trade occurring. 

50See ISE Rule 716(e)(1) [sic] which provides in 

part that in the case of insufficient improving 

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

the Exchange on the opposite side of the Agency 

Order at the proposed execution price and there is 

sufficient size to execute the entire size of the 

Agency Order, the Agency Order will be executed 

against the bid or offer, and the solicited order will 

be cancelled.’’ 

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

Solicited Order will be cancelled.47

Example of Solicitation Auction with 

Sufficient Improving Interest. To 

illustrate a case where a Solicitation 

Auction yields enough improving 

interest to better the stop price and the 

application of the Rule 1081(ii)(E)(1) 

algorithm, assume the NBBO is $0.95— 

$1.03, and a buy side Agency Order for 

1000 contracts is submitted with a 

contra-side Solicited Order to stop the 

Agency Order at $1.00. During the 

Solicitation Auction, assume a market 

maker (‘‘MM1’’) Response is submitted 

to sell 800 contracts at $0.97, a brokerdealer Response is submitted to sell 100 

contracts at $0.99, and a public 

customer sends in an order, outside of 

the Solicitation Auction, to sell 100 

contracts at $0.99. Upon receipt of the 

public customer order, the NBBO 

changes to $0.95—$0.99. In addition, 

assume two market makers send in 

quotes of $0.95—$0.99 during the 

Solicitation Auction. Market Maker 2 

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

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

quotes $0.95—$0.99 with 50 contracts. 

At the end of the Solicitation Auction, 

since there is enough interest to execute 

the entire Agency Order at a price(s) 

better than the stop price, the Agency 

Order will be executed against the better 

priced interest as follows: 

— the Agency Order trades 800 

contracts at $0.97 against MM1 

Response; 

— the Agency Order trades 100 

contracts at $0.99 against public 

customer; 

— the Agency Order trades 67 

contracts at $0.99 against MM2 quote 

(pro-rata allocation); and 

— the Agency Order trades 33 

contracts at $0.99 against MM3 quote 

(pro-rata allocation). 

The broker-dealer does not trade any 

contracts since broker-dealer orders 

execute only after all public customer 

and market maker interest is satisfied. 

The unexecuted Solicited Order and 

broker-dealer Response are cancelled 

back to the sending participants.48

Solicitation Auction with Insufficient 

Improving Interest. Pursuant to 

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

not sufficient size (considering all 

resting orders, quotes and Responses) to 

execute the entire Agency Order at a 

price(s) better than the stop price, the 

Agency Order will be executed against 

the Solicited Order at the stop price 

provided such price is better than the 

limit of any public customer order 

(excluding all-or-none) on the limit 

order book, on either the same side as 

or the opposite side of the Agency 

Order, and equal to or better than the 

contra-side PBBO.49 Otherwise, both the 

Agency Order and Solicited Order will 

be cancelled without a trade occurring. 

This proposed behavior ensures noncontingent public customer orders on 

the limit order book maintain priority. 

While the Exchange recognizes that at 

least one other solicitation mechanism 

offered by another exchange considers 

public customer orders on the limit 

order book at the stop price when 

determining if there is sufficient 

improving interest to satisfy the Agency 

Order, the proposed solicitation 

mechanism offered on Phlx will not 

consider such interest.50 The Exchange 

believes that requiring the stop price to 

be at least $0.01 better than any public 

customer interest on the limit order 

book ensures public customer priority of 

existing interest and in turn provides 

the Solicited Order participant certainty 

that if an execution occurs at the stop 

price, such execution will represent the 

Solicited Order and not interest which 

arrived after the Solicited Order 

participant stopped the Agency Order 

for its entire size. 

Example of Solicitation Auction with 

Insufficient Improving Interest. To 

illustrate a case where the Solicitation 

Auction has not yielded sufficient 

interest to improve the price for the 

entire Agency Order, assume the NBBO 

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

Order for 1000 contracts is submitted 

with a contra-side Solicited Order to 

stop the Agency Order at $1.00. During 

the Solicitation Auction, assume a 


asabaliauskas on DSK5VPTVN1PROD with NOTICES
64868 Federal Register / Vol. 79, No. 211 / Friday, October 31, 2014 / Notices 

51To illustrate a Complex Solicitation Auction 

that yields insufficient improving interest and the 

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

Order to buy one of option A and sell one of option 

B, 1000 times, with a cPBBO of $0.40 bid, $0.70 

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

Assume that during the Complex Solicitation 

Auction, the following Responses and order interest 

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

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

responds to sell the strategy 100 times at a price of 

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

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

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

times at $0.60. 

At the end of the Complex Solicitation Auction, 

since there is not sufficient size to execute the 

entire Complex Agency Order at a price(s) better 

than the stop price, the Complex Agency Order 

executes at the stop price of $0.65 against the 

Solicited Order. All unexecuted Responses are 

cancelled back to the sending participants. 

52This provision parallels PIXL Rule 

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

same reasons explained in the Complex PIXL 

Filing. This limitation is also consistent with the 

handling of Complex Orders that include a stock/ 

ETF component and are entered into the Phlx XL 

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

for example, that stock-option orders can only be 

executed against other stock-option orders and 

cannot be executed by the System against orders for 

the individual components. 

53Similarly, in the case of a Complex Solicitation 

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

Complex Solicitation Auction, such Responses will 

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

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

54See also PIXL Rule 1080(n)(ii)(H). Proposed 

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

Solicitation Auctions. Rather, a parallel provision, 

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

Solicitation Auction price when trading against 

non-solicited interest would be the same as or cross 

the limit of that of a Complex Order (excluding allor-none) on the Complex Order Book on the same 

side of the market as the Complex Agency Order, 

the Complex Agency Order may only be executed 

at a price that improves the resting order’s limit 

price by at least $0.01, provided such execution 

price improves the stop price. If such execution 

price would be equal to or would not improve the 

stop price, the Agency Order will be executed $0.01 

better than the stop price provided the price does 

not equal or cross a non-all-or-none public 

customer Complex Order or a non-all-or-none 

public customer order present in the cPBBO on the 

same side as the Complex Agency Order in a 

component of the Complex Order Strategy and is 

equal to or better than the cPBBO on the opposite 

side of the Complex Agency Order. If such price is 

not possible, the Agency Order and Solicited Order 

will be cancelled with no trade occurring. This 

functionality is consistent with that of Complex 

PIXL auctions. 55See Exchange Rule 1080(n)(ii)(I). 

Response is submitted to sell 100 

contracts at $0.97 and another to sell 

100 contracts at $0.99. At the end of the 

Solicitation Auction period, since there 

is not enough interest to execute the 

entire Agency Order at a price(s) better 

than the stop price, the Agency Order 

will be executed at $1.00 against the 

Solicited Order. The unexecuted 

Responses are then cancelled back to 

the sending participant. 51

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

that a single quote, order or Response 

shall not be allocated a number of 

contracts that is greater than its size. 

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

that a Complex Agency Order consisting 

of a stock/ETF component will not 

execute against interest comprising the 

cPBBO at the end of the Complex 

Solicitation Auction.52 Legging of a 

stock/ETF component would introduce 

the risk of a participant not receiving an 

execution on all components of the 

Complex Order and is therefore not 

considered as a means of executing a 

Complex Order which includes a stock/ 

ETF component. The Exchange believes 

that introducing the risk of inability to 

fully execute a complex strategy is 

counterproductive to, and inconsistent 

with, the effort to allow Complex Orders 

in the solicitation mechanism. 

Miscellaneous Provisions 

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

address the handling of the Agency 

Order and other orders, quotes and 

Responses when certain conditions are 

present. Pursuant to Rule 1081(ii)(F), if 

the market moves following the receipt 

of a Response, such that there are 

Responses that cross the then-existing 

NBBO (provided such NBBO is not 

crossed) at the time of the conclusion of 

the Solicitation Auction, such 

Responses will be executed, if possible, 

at their limit price(s).53 Since Responses 

may be cancelled at any time prior to 

the conclusion of the Solicitation 

Auction, the Exchange believes that this 

behavior is, at best, highly unlikely as 

participants will cancel Responses 

when better priced interest that they 

could trade against is present in the 

marketplace. This behavior is consistent 

with the current handling of PAN 

Responses in a PIXL Auction. 

Rule 1081(ii)(G) provides that if the 

Solicitation Auction price when trading 

against non-solicited interest (except if 

it is a Complex Solicitation Auction) 

would be the same as or cross the limit 

of an order (excluding an all-or-none 

order) on the limit order book on the 

same side of the market as the Agency 

Order, the Agency Order may only be 

executed at a price that is at least $0.01 

better than the resting order’s limit price 

provided such execution price improves 

the stop price. If such execution price 

would not improve the stop price, the 

Agency Order will be executed at a 

price which is $0.01 better for the 

Agency Order than the stop price 

provided the price does not equal or 

cross a public customer order and is 

equal to or improves upon the PBBO on 

the opposite side of the Agency Order.54

If such price is not possible, the Agency 

Order and Solicited Order will be 

cancelled with no trade occurring. For 

example, assume the NBBO is $1.03– 

$1.10 when an order is submitted into 

the Solicitation Auction, that the 

Agency Order is buying and that the 

order is stopped at $1.05. The $1.03 bid 

is an order on Phlx. During the 

Solicitation Auction a Response arrives 

to sell at $1.03. At the end of the 

Solicitation Auction, if the Response to 

sell at $1.03 can fully satisfy the Agency 

Order, the auction price would be $1.03 

but, since that price is the same as the 

price of a resting order on the book, the 

Agency Order will trade against the 

Response at $1.04 (an improvement of 

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

contrast, assume a case where the NBBO 

is $1.03–$1.10 and where during the 

Auction an unrelated noncustomer 

order to pay $1.04 is received. This 

order rests on the book and the NBBO 

becomes $1.04–$1.10. Assume the same 

stop price of $1.05 for an Agency Order 

to buy, and the receipt of a Response to 

sell at $1.04 which can fully satisfy the 

Agency order. At the end of the 

Solicitation Auction, the auction price 

would be $1.04 which equals the resting 

order on the book. In this case, if the 

trade were executed with $0.01 

improvement over the resting order 

limit (that is, if the trade were executed 

at $1.05) the execution would be at the 

stop price. The system does not 

consider the origin of the resting order 

but ensures the priority of such order, 

regardless of origin by requiring that any 

execution occur at a price which 

improves upon the limit of a resting 

order by at least $0.01. In addition, the 

system only permits the Solicited Order 

and no other interest to trade against the 

Agency Order at the stop price since the 

Solicited Order stopped the entire size 

Agency Order at a price which was 

required upon receipt to be equal to or 

improve the NBBO and to be at least 

$0.01 improvement over any public 

customer orders resting on the Phlx 

limit order book, thereby establishing 

priority at the stop price. Therefore the 

execution price in this case ($1.04) will 

be $0.01 better than the stop price. This 

system logic ensures that the Agency 

Order receives a better priced execution 

than the stop price when trading against 

interest other than the Solicited Order. 

Rule 1081(ii)(I) provides that any 

unexecuted Responses or Solicited 

Orders will be cancelled at the end of 

the Solicitation Auction. This behavior 

is consistent with the handling of 

unexecuted PAN Responses and 

Initiating Orders in PIXL.55 Both 

Responses and Solicited Orders are 

specifically entered into the Solicitation 

Auction to trade against the Agency 


asabaliauskas on DSK5VPTVN1PROD with NOTICES
Federal Register / Vol. 79, No. 211 / Friday, October 31, 2014 / Notices 64869 

56 17 CFR 242.201. See Securities Exchange Act 

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

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

Markets: Responses to Frequently Asked Questions 

Concerning Rule 201 of Regulation SHO, January 

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

marketreg/mrfaqregsho1204.htm. 

57The term ‘‘national best bid’’ is defined in SEC 

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

58The Exchange notes that a broker or dealer may 

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

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

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

display the stock or ETF portion of a Complex 

Order, however, a broker-dealer should not mark 

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

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

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

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

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

among other things, Complex Orders marked ‘‘short 

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

will handle short sales of the orders and Responses 

described herein the same way it handles the short 

sales discussed in the Complex PIXL Filing. 

59 17 CFR 242.201(a)(4). 

60See Rules 1080(n)(iii) and (iv). 

61See Securities Exchange Act Release No. 61802 

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

(approving SR–Phlx–2010–05). 

Order. The Exchange believes that 

cancelling the unexecuted portion of 

Responses and Solicited Orders is 

consistent with the expected behavior of 

such interest by the submitting 

participants. 

Complex Agency Orders With Stock/

ETF Components 

Rule 1081(ii)(J) deals with Complex 

Agency Orders with stock or ETF 

components and generally tracks Rule 

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

1081(ii)(J)(1) states that member 

organizations may only submit Complex 

Agency Orders, Complex Solicited 

Orders, Complex Orders and/or 

Responses with a stock/ETF component 

if such orders/Responses comply with 

the Qualified Contingent Trade 

Exemption from Rule 611(a) of 

Regulation NMS pursuant to the Act. 

Member organizations submitting such 

orders with a stock/ETF component 

represent that such orders comply with 

the Qualified Contingent Trade 

Exemption. Members of FINRA or the 

NASDAQ Stock Market (‘‘NASDAQ’’) 

are required to have a Uniform Service 

Bureau/Executing Broker Agreement 

(‘‘AGU’’) with Nasdaq Execution 

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

orders containing a stock/ETF 

component; firms that are not members 

of FINRA or NASDAQ are required to 

have a Qualified Special Representative 

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

to trade orders containing a stock/ETF 

component. 

New Rule 1081(ii)(J)(2) provides that 

where one component of a Complex 

Agency Order, Complex Solicited Order, 

Complex Order or Response is the 

underlying security, the Exchange shall 

electronically communicate the 

underlying security component of the 

Complex Agency Order (together with 

the Complex Solicited Order or 

Response, as applicable) to NES, its 

designated broker-dealer, for immediate 

execution. 

Such execution and reporting will 

occur otherwise than on the Exchange 

and will be handled by NES pursuant to 

applicable rules regarding equity 

trading. 

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

that when the short sale price test in 

Rule 201 of Regulation SHO 56 is 

triggered for a covered security, NES 

will not execute a short sale order in the 

underlying covered security component 

of a Complex Agency Order, Complex 

Solicited Order, Complex Order or 

Response if the price is equal to or 

below the current national best bid.57

However, NES will execute a short sale 

order in the underlying covered security 

component of a Complex Agency Order, 

Complex Solicited Order, Complex 

Order or Response if such order is 

marked ‘‘short exempt,’’ regardless of 

whether it is at a price that is equal to 

or below the current national best bid.58

If NES cannot execute the underlying 

covered security component of a 

Complex Agency Order, Complex 

Solicited Order, Complex Order or 

Response in accordance with Rule 201 

of Regulation SHO, the Exchange will 

cancel back the Complex Agency Order, 

Complex Solicited Order, Complex 

Order or Response to the entering 

member organization. For purposes of 

this paragraph, the term ‘‘covered 

security’’ has the same meaning as in 

Rule 201(a)(1) of Regulation SHO.59

Regulatory Issues 

The proposed rule change contains 

two paragraphs describing prohibited 

practices when participants use the 

solicitation mechanism. These new 

provisions track similar provisions in 

the PIXL rule.60

Proposed Rule 1081(iii) states that the 

Solicitation Auction may be used only 

where there is a genuine intention to 

execute a bona fide transaction. It will 

be considered a violation of Rule 1081 

and will be deemed conduct 

inconsistent with just and equitable 

principles of trade and a violation of 

Exchange Rule 707 if an Initiating 

Member submits an Agency Order 

(thereby initiating a Solicitation 

Auction) and also submits its own 

Response in the same Solicitation 

Auction. The purpose of this provision 

is to prevent Solicited Members from 

submitting an inaccurate or misleading 

stop price or trying to improve their 

allocation entitlement by participating 

with multiple expressions of interest. 

Proposed Rule 1081(iv) states that a 

pattern or practice of submitting 

unrelated orders or quotes that cross the 

stop price causing a Solicitation 

Auction to conclude before the end of 

the Solicitation Auction period will be 

deemed conduct inconsistent with just 

and equitable principles of trade and a 

violation of Rule 707. 

Definition of Professional in Rule 

1000(b)(14) 

In addition to adopting Rule 1081, the 

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

In 2010 the Exchange amended its 

priority rules to give certain non-brokerdealer orders the same priority as 

broker-dealer orders. In so doing, the 

Exchange adopted a new defined term, 

the ‘‘professional,’’ for certain persons 

or entities.61 Rule 1000(b)(14) defines 

professional as a person or entity that (i) 

is not a broker or dealer in securities, 

and (ii) places more than 390 orders in 

listed options per day on average during 

a calendar month for its own beneficial 

account(s). A professional account is 

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

Rule 1014(g), to which the trade 

allocation algorithm described in 

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

However, Rule 1000(b)(14) also 

currently states that all-or-none 

professional orders will be treated like 

customer orders. The Exchange 

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

(i) specifying that orders submitted 

pursuant to Rule 1081 for the accounts 

of professionals will be treated in the 

same manner as off-floor broker-dealer 

orders for purposes of Rule 1014(g), and 

(ii) adding proposed Rule 1081 to the 

list of rules for the purpose of which a 

professional will be treated in the same 

manner as an off-floor broker-dealer. 

The effect of these changes to Rule 

1014(b)(14) [sic] is that professionals 

will not receive the same priority 

afforded to public customers in a 

Solicitation Auction under new Rule 

1081, and instead will be treated as 

broker-dealers in this regard. 

Deployment 

The Exchange anticipates that it will 

deploy the solicitation mechanism 

within 30 days of the Commission’s 

approval of this proposed rule change. 

Members will be notified of the 

deployment date by an Options Trader 

Alert posted on the Exchange’s Web 

site. 


asabaliauskas on DSK5VPTVN1PROD with NOTICES
64870 Federal Register / Vol. 79, No. 211 / Friday, October 31, 2014 / Notices 

62 15 U.S.C. 78f(b). 

63 15 U.S.C. 78f(b)(5). 

64See Securities Exchange Act Release Nos. 

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

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

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

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

(approval of CBOE Solicitation Auction 

Mechanism). 

65 15 U.S.C. 78k(a)(1). 

66 17 CFR 240.11a2–2(T). 

67The member may, however, participate in 

clearing and settling the transaction. 

68See, e.g., Securities Exchange Act Release Nos. 

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

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

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

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

(approving equity securities listing and trading on 

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

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

NASDAQ–2007–080) (approving NOM options 

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

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

Nasdaq Stock Market LLC); 44983 (October 25, 

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

00–25) (approving Archipelago Exchange); 29237 

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

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

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

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

(‘‘1979 Release’’). 

69As discussed above, an SQT is an Exchange 

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

received permission from the Exchange to generate 

and submit option quotations electronically through 

AUTOM in eligible options to which such SQT is 

assigned. An SQT may only submit such quotations 

while such SQT is physically present on the floor 

of the Exchange. See Exchange Rule 1014(b)(ii)(A). 

70See 15 U.S.C. Section 78k(a)(1)(A); 17 CFR 

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

members, other than Exchange specialists and 

SQTs, who have the ability to submit orders into 

the Solicitation Auction. 

71As discussed above, an RSQT is defined in 

Exchange Rule 1014(b)(ii)(B) as an ROT that is a 

member affiliated with a Remote Streaming Quote 

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

trading floor presence who has received permission 

from the Exchange to generate and submit option 

quotations electronically in options to which such 

RSQT has been assigned. A qualified RSQT may 

function as a Remote Specialist upon Exchange 

approval. An RSQT may only submit such 

quotations electronically from off the floor of the 

Exchange. An RSQT may not submit option 

quotations in eligible options to which such RSQT 

is assigned to the extent that the RSQT is also 

approved as a Remote Specialist in the same 

options. An RSQT may only trade in a market 

making capacity in classes of options in which he 

is assigned or approved as a Remote Specialist. An 

RSQTO is a member organization in good standing 

that satisfies the SQTO readiness requirements in 

Rule 507(a). While RSQTs may only submit orders 

into the Auction from off the Exchange floor, 

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

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

11a2–2(T)(a)(1) thereunder. 

72Because FBMS does not have the coding 

required to enter orders into the Solicitation 

Auction, it is impossible for such Floor Brokers to 

submit orders into the Solicitation Auction. 

73A member may cancel or modify the order, or 

modify the instruction for executing the order, but 

only from off the floor. The Commission has stated 

that the non-participation requirement is satisfied 

under such circumstances, so long as such 

modifications or cancellations are also transmitted 

from off the floor. See Securities Exchange Act 

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

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

‘‘non-participation requirement does not prevent 

initiating members from canceling or modifying 

orders (or the instructions pursuant to which the 

initiating member wishes orders to be executed) 

2. Statutory Basis 

The Exchange believes that its 

proposal is consistent with Section 6(b) 

of the Act 62 in general, and furthers the 

objectives of Section 6(b)(5) of the Act 63

in particular, in that it is designed to 

promote just and equitable principles of 

trade, to remove impediments to and 

perfect the mechanism of a free and 

open market and a national market 

system, and, in general to protect 

investors and the public interest by 

providing new functionality that offers 

the potential for price improvement. 

Specifically, the new functionality may 

lead to an increase in Exchange volume 

and should allow the Exchange to better 

compete against other markets that 

already offer an electronic solicitation 

mechanism, while providing an 

opportunity for price improvement for 

Agency Orders. 

As discussed below, the proposed 

solicitation mechanism on Phlx is 

similar in relevant respects to 

solicitation mechanisms on other 

exchanges. The Commission previously 

has found such mechanisms consistent 

with the Act, stating that they should 

allow for greater flexibility in pricing 

large-sized orders and may provide a 

greater opportunity for price 

improvement.64 The Exchange believes 

that its proposal will allow the 

Exchange to better compete for solicited 

transactions, while providing an 

opportunity for price improvement for 

Agency Orders and assuring that public 

customers on the book are protected. 

The new solicitation mechanism should 

promote and foster competition and 

provide more options contracts with the 

opportunity for price improvement, 

which should benefit market 

participants, investors, and traders. 

Section 11(a)(1) of the Act 65 prohibits 

a member of a national securities 

exchange from effecting transactions on 

that exchange for its own account, the 

account of an associated person, or an 

account over which it or its associated 

person exercises discretion (collectively, 

‘‘covered accounts’’) unless an 

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

the Act,66 known as the ‘‘effect versus 

execute’’ rule, provides exchange 

members with an exemption from the 

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

2(T) permits an exchange member, 

subject to certain conditions, to effect 

transactions for covered accounts by 

arranging for an unaffiliated member to 

execute transactions on the exchange. 

To comply with Rule 11a2–2(T)’s 

conditions, a member: (i) Must transmit 

the order from off the exchange floor; 

(ii) may not participate in the execution 

of the transaction once it has been 

transmitted to the member performing 

the execution; 67 (iii) may not be 

affiliated with the executing member; 

and (iv) with respect to an account over 

which the member has investment 

discretion, neither the member nor its 

associated person may retain any 

compensation in connection with 

effecting the transaction except as 

provided in the Rule. The Exchange 

believes that this proposed rule change 

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

Act and the Commission’s regulations 

thereunder. 

The Rule’s first condition is that 

orders for covered accounts be 

transmitted from off the exchange floor. 

In the context of automated trading 

systems, the Commission has found that 

the off-floor transmission requirement is 

met if a covered account order is 

transmitted from a remote location 

directly to an exchange’s floor by 

electronic means.68 Only specialists and 

on-floor SQTs 69 have the ability to 

submit orders into the solicitation 

mechanism from on the floor of the 

Exchange. These members, however, 

would be subject to the ‘‘market maker’’ 

exception to Section 11(a) of the Act 

and Rule 11a2–2(T)(a)(1) thereunder.70

RSQTs may only submit orders into the 

solicitation mechanism from off the 

floor of the Exchange.71 While Floor 

Brokers have the ability to submit orders 

they represent as agent to the electronic 

limit order book through the Exchange’s 

Options Floor Broker Management 

System (‘‘FBMS’’), there is no 

mechanism by which such Floor 

Brokers can directly submit orders to 

the solicitation mechanism or send 

orders to off-floor broker-dealers 

through FBMS for indirect submission 

into the solicitation mechanism.72

Because no Exchange members, other 

than specialists and SQTs, may submit 

orders into the solicitation mechanism 

from on the floor of the Exchange, the 

Exchange believes that the solicitation 

mechanism satisfies the off-floor 

transmission requirement. 

Second, the Rule requires that the 

member not participate in the execution 

of its order. At no time following the 

submission of an order is a member 

organization able to acquire control or 

influence over the result or timing of an 

order’s execution. The execution of a 

member’s order is determined by what 

other orders are present in the 

solicitation mechanism and the priority 

of those orders.73 Accordingly, the 


asabaliauskas on DSK5VPTVN1PROD with NOTICES
Federal Register / Vol. 79, No. 211 / Friday, October 31, 2014 / Notices 64871 

after the orders have been transmitted to the 

executing member, provided that any such 

instructions are also transmitted from off the 

floor’’). 

74 In considering the operation of automated 

execution systems operated by an exchange, the 

Commission has noted that, while there is not an 

independent executing exchange member, the 

execution of an order is automatic once it has been 

transmitted into the system. Because the design of 

these systems ensures that members do not possess 

any special or unique trading advantages in 

handling their orders after transmitting them to the 

exchange, the Commission has stated that 

executions obtained through these systems satisfy 

the independent execution requirement of Rule 

11a2–2(T). 

75See 17 CFR 240.11a2–2(T)(a)(2)(iv). In addition, 

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

person authorized by written contract to retain 

compensation, in connection with effecting 

transactions for covered accounts over which such 

member or associated persons thereof exercises 

investment discretion, to furnish at least annually 

to the person authorized to transact business for the 

account a statement setting forth the total amount 

of compensation retained by the member in 

connection with effecting transactions for the 

account during the period covered by the statement. 

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

(stating ‘‘[t]he contractual and disclosure 

requirements are designed to assure that accounts 

electing to permit transaction-related compensation 

do so only after deciding that such arrangements are 

suitable to their interests’’). 

Exchange believes that a member does 

not participate in the execution of an 

order submitted to the solicitation 

mechanism. 

Third, Rule 11a2–2(T) requires that 

the order be executed by an exchange 

member who is unaffiliated with the 

member initiating the order. The 

Commission has stated that this 

requirement is satisfied when 

automated systems, such as the 

solicitation mechanism, are used, as 

long as the design of these systems 

ensures that members do not possess 

any special or unique trading 

advantages in handling their orders after 

transmitting them to the exchange.74

The design of the solicitation 

mechanism ensures that no member 

organization has any special or unique 

trading advantage in the handling of its 

orders after transmitting its orders to the 

solicitation mechanism. The Exchange 

therefore believes the solicitation 

mechanism satisfies this requirement. 

Fourth, in the case of a transaction 

effected for an account with respect to 

which the Initiating Member or an 

associated person thereof exercises 

investment discretion, neither the 

Initiating Member nor any associated 

person thereof may retain any 

compensation in connection with 

effecting the transaction, unless the 

person authorized to transact business 

for the account has expressly provided 

otherwise by written contract referring 

to Section 11(a) of the Act and Rule 

11a2–2(T) thereunder.75 Member 

organizations relying on Rule 11a2–2(T) 

for transactions effected through the 

solicitation mechanism must comply 

with this condition of the Rule. 

For all of the foregoing reasons and as 

discussed in the proposal, the Exchange 

believes the proposed rule change is 

consistent with the requirements of the 

Act and the rules and regulations 

thereunder applicable to the Exchange. 

B. Self-Regulatory Organization’s 

Statement on Burden on Competition 

The Exchange does not believe that 

the proposed rule change will impose 

any burden on competition not 

necessary or appropriate in furtherance 

of the purposes of the Act. To the 

contrary, the Exchange believes the 

proposal is pro-competitive. The 

proposal would diminish the potential 

for foregone market opportunities on the 

Exchange by allowing Agency Orders to 

be entered into the solicitation 

mechanism by all members. The 

solicitation mechanism is similar to 

electronic solicitation mechanism 

functionality that is allowed on two 

other options exchanges. The Exchange 

believes that the new solicitation 

mechanism functionality should help it 

compete with these other exchanges. 

With respect to intra-market 

competition, the solicitation mechanism 

will be available to all Phlx members for 

the execution of Agency Orders. 

Moreover, as explained above, the 

proposal should encourage Phlx 

participants to compete amongst each 

other by responding with their best 

price and size for a particular 

Solicitation Auction. 

C. Self-Regulatory Organization’s 

Statement on Comments on the 

Proposed Rule Change Received From 

Members, Participants, or Others 

No written comments were either 

solicited or received. 

III. Date of Effectiveness of the 

Proposed Rule Change and Timing for 

Commission Action 

Within 45 days of the date of 

publication of this notice in the Federal 

Register or within such longer period 

up to 90 days (i) as the Commission may 

designate if it finds such longer period 

to be appropriate and publishes its 

reasons for so finding or (ii) as to which 

the Exchange consents, the Commission 

will: 

(A) by order approve or disapprove 

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 email to rule-comments@

sec.gov. Please include File Number SR– 

Phlx–2014–66 on the subject line. 

Paper Comments 

• Send paper comments in triplicate 

to Brent J. Fields, Secretary, Securities 

and Exchange Commission, 100 F Street 

NE., Washington, DC 20549–1090. 

All submissions should refer to File 

Number SR–Phlx–2014–66. This file 

number should be included on the 

subject line if email is used. To help the 

Commission process and review your 

comments more efficiently, please use 

only one method. The Commission will 

post all comments on the Commission’s 

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

rules/sro.shtml). 

Copies of the submission, all 

subsequent amendments, all written 

statements with respect to the proposed 

rule change that are filed with the 

Commission, and all written 

communications relating to the 

proposed rule change between the 

Commission and any person, other than 

those that may be withheld from the 

public in accordance with the 

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

available for Web site viewing and 

printing in the Commission’s Public 

Reference Room, 100 F Street NE., 

Washington, DC 20549, on official 

business days between the hours of 

10:00 a.m. and 3:00 p.m. Copies of 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– 

2014–66 and should be submitted on or 

before November 21, 2014. 


asabaliauskas on DSK5VPTVN1PROD with NOTICES
64872 Federal Register / Vol. 79, No. 211 / Friday, October 31, 2014 / Notices 

76 17 CFR 200.30–3(a)(12). 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.76

Kevin M. O’Neill, 

Deputy Secretary. 

[FR Doc. 2014–25890 Filed 10–30–14; 8:45 am] 

BILLING CODE 8011–01–P 

SOCIAL SECURITY ADMINISTRATION 

Agency Information Collection 

Activities: Proposed Request and 

Comment Request 

The Social Security Administration 

(SSA) publishes a list of information 

collection packages requiring clearance 

by the Office of Management and 

Budget (OMB) in compliance with 

Public Law 104–13, the Paperwork 

Reduction Act of 1995, effective October 

1, 1995. This notice includes revisions 

and extensions of OMB-approved 

information collections. 

SSA is soliciting comments on the 

accuracy of the agency’s burden 

estimate; the need for the information; 

its practical utility; ways to enhance its 

quality, utility, and clarity; and ways to 

minimize burden on respondents, 

including the use of automated 

collection techniques or other forms of 

information technology. Mail, email, or 

fax your comments and 

recommendations on the information 

collection(s) to the OMB Desk Officer 

and SSA Reports Clearance Officer at 

the following addresses or fax numbers. 

(OMB) Office of Management and 

Budget, Attn: Desk Officer for SSA, 

Fax: 202–395–6974, Email address: 

OIRA_Submission@omb.eop.gov. 

(SSA) Social Security Administration, 

OLCA, Attn: Reports Clearance 

Director, 3100 West High Rise, 6401 

Security Blvd., Baltimore, MD 21235, 

Fax: 410–966–2830, Email address: 

OR.Reports.Clearance@ssa.gov. 

I. The information collections below 

are pending at SSA. SSA will submit 

them to OMB within 60 days from the 

date of this notice. To be sure we 

consider your comments, we must 

receive them no later than December 30, 

2014. Individuals can obtain copies of 

the collection instruments by writing to 

the above email address. 

1. Modified Benefit Formula 

Questionnaire-Foreign Pension—0960– 

0561. SSA uses Form SSA–308 to 

determine exactly how much (if any) of 

a foreign pension may be used to reduce 

the amount of Title II Social Security 

retirement or disability benefits under 

the modified benefit formula. The 

respondents are applicants for Title II 

Social Security retirement or disability 

benefits who have foreign pensions. 

Type of Request: Extension of an 

OMB-approved information collection. 

Modality of completion Number of 

responses 

Frequency of 

response 

Average 

burden per 

response 

(minutes) 

Estimated total 

annual burden 

(hours) 

SSA–308 .......................................................................................................... 13,452 1 10 2,242 

Greenberg cases ............................................................................................. 1,666 1 60 1,666 

Totals ........................................................................................................ 15,118 ........................ ........................ 3,908 

2. Filing Claims Under the Federal 

Tort Claims Act—20 CFR 429.101– 

429.110—0960–0667. The Federal Tort 

Claims Act is the legal mechanism for 

compensating persons injured by 

negligent or wrongful acts that occur 

during the performance of official duties 

by Federal employees. In accordance 

with the law, SSA accepts monetary 

claims filed under the Federal Tort 

Claims Act for damages against the 

United States, loss of property, personal 

injury, or death resulting from an SSA 

employee’s wrongful act or omission. 

The regulation sections cleared under 

this information collection request 

require claimants to provide 

information SSA can use to investigate 

and determine whether to make an 

award, compromise, or settlement under 

the Federal Tort Claims Act. The 

respondents are individuals or entities 

making a claim under the Federal Tort 

Claims Act. 

Type of Request: Extension of an 

OMB-approved information collection. 

Modality of completion Number of 

responses 

Frequency of 

response 

Average 

burden per 

response 

(minutes) 

Estimated total 

annual burden 

(hours) 

429.102; 429.103 1 ........................................................................................... 1 ........................ ........................ 1 

429.104(a) ........................................................................................................ 11 1 5 1 

429.104(b) ........................................................................................................ 43 1 5 4 

429.104(c) ........................................................................................................ 1 1 5 0 

429.106(b) ........................................................................................................ 6 1 10 1 

Totals ........................................................................................................ 62 ........................ ........................ 7 

1The 1 hour represents a placeholder burden. We are not reporting a burden for this collection because respondents complete OMB-approved 

Form SF–95. 

II. SSA submitted the information 

collections below to OMB for clearance. 

Your comments regarding the 

information collections would be most 

useful if OMB and SSA receive them 30 

days from the date of this publication. 

To be sure we consider your comments, 

we must receive them no later than 

December 1, 2014. Individuals can 

obtain copies of the OMB clearance 

package by writing to 

OR.Reports.Clearance@ssa.gov. 

1. Partnership Questionnaire—20 CFR 

404.1080–1082—0960–0025. SSA 

considers partnership income in 

determining entitlement to Social 

Security benefits. SSA uses information 

from Form SSA–7104 to determine 


asabaliauskas on DSK5VPTVN1PROD with NOTICES