37270 Federal Register / Vol. 74, No. 143 / Tuesday, July 28, 2009 / Notices 

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

2 17 CFR 240.19b–4. 

3 15 U.S.C. 78s(b)(1). 

4 17 CFR 240.19b–4. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.12

Florence E. Harmon, 

Deputy Secretary. 

[FR Doc. E9–17858 Filed 7–27–09; 8:45 am] 

BILLING CODE 8010–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–60363; File No. SR–Phlx– 

2009–61] 

Self-Regulatory Organizations; 

NASDAQ OMX PHLX, Inc.; Notice of 

Filing of Proposed Rule Change 

Relating to Exchange Rules for the 

Options Order Protection and Locked/ 

Crossed Market Plan 

July 22, 2009. 

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

Securities Exchange Act of 1934 

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

notice is hereby given that on July 20, 

2009, NASDAQ OMX PHLX, Inc. 

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

Securities and Exchange Commission 

(‘‘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, pursuant to Section 

19(b)(1) of the Act 3 and Rule 19b–4 

thereunder,4 proposes to modify the 

Exchange’s rules to reflect its 

participation in the Options Order 

Protection and Locked/Crossed Market 

Plan (‘‘Plan’’). The proposed rules 

implement the Exchange’s participation 

in the Plan, and will be substantially 

similar to the rules of other exchanges 

that are also implementing the Plan 

with minor variations to account for 

differences between the exchanges’ 

market structures. 

The text of the proposed rule change 

is available on the Exchange’s Web site 

at http://www.nasdaqtrader.com/ 

micro.aspx?id=PHLXRulefilings, at the 

principal office of the Exchange, and at 

the Commission’s Public Reference 

Room. 

II. Self-Regulatory Organization’s 

Statement of the Purpose of, and 

Statutory Basis for, the Proposed Rule 

Change 

In its filing with the Commission, the 

Exchange included statements 

concerning the purpose of and basis for 

the proposed rule change and discussed 

any comments it received on the 

proposed rule change. The text of these 

statements may be examined at the 

places specified in Item IV below. The 

Exchange has prepared summaries, set 

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

the most significant aspects of such 

statements. 

A. Self-Regulatory Organization’s 

Statement of the Purpose of, and 

Statutory Basis for, the Proposed Rule 

Change 

1. Purpose 

On June 17, 2008, the Exchange filed 

an executed copy of the Options Order 

Protection and Locked/Crossed Market 

Plan (‘‘Plan’’), joining all other approved 

options markets in adopting [sic] the 

Plan. The Plan requires each options 

exchange to adopt rules implementing 

various requirements specified in the 

Plan. This proposal is designed to fulfill 

that obligation. 

Background 

The Plan will replace the current Plan 

for the Purpose of Creating and 

Operating an Intermarket Option 

Linkage (‘‘Linkage Plan’’). That plan 

requires its participant exchanges to 

operate a stand-alone system or 

‘‘Linkage’’ for sending order-flow 

between exchanges to limit tradethroughs. The Options Clearing 

Corporation (‘‘OCC’’) operates the 

Linkage system (the ‘‘System’’). The 

Linkage rules provide for unique types 

of Linkage orders, with a complicated 

set of requirements as to who may send 

such orders and under what conditions. 

Before a market maker can trade through 

another exchange’s quote, it first must 

send a Linkage order and then wait 

three seconds for a response. 

While the Linkage largely has 

operated satisfactorily, it is under 

significant strain. When the 

Commission approved the Linkage Plan 

in 2000, average daily volume (‘‘ADV’’) 

in the options market was 

approximately 2.6 million contracts 

across all exchanges. By 2007, the ADV 

had increased four-fold to more than 

10.8 million contracts, putting added 

strain on the ability of market makers to 

comply with the complex Linkage rules. 

At the same time, the options markets 

have been moving towards quoting in 

pennies. This greatly increases the 

number of price changes in an option, 

giving rise to greater chances of tradethroughs and missing markets as market 

makers send Linkage orders and have to 

wait three seconds for a response. 

Based upon experience in the equities 

markets following the adoption of 

Regulation NMS in 2005, the options 

exchanges have determined to replace 

the System with the Plan providing for 

a set of rules and procedures designed 

to avoid trade-throughs and locked 

markets. The key to Regulation NMS’s 

price-protection provisions is the 

Intermarket Sweep Order (‘‘ISO’’). Each 

equity exchange must adopt rules 

‘‘reasonably designed to prevent tradethroughs.’’ Exempted from tradethrough liability is an ISO, which is an 

order a member sends to an exchange 

displaying a price inferior to the 

national best bid and offer (‘‘NBBO’’), 

while simultaneously sending orders to 

trade against the full size of any other 

exchange that is displaying the NBBO. 

A simple prohibition against most tradethroughs, coupled with the ISO 

mechanism, has given the equities 

markets a straight-forward system to 

provide customers with price protection 

in a fast-moving, high-volume market 

that is quoted in pennies. 

Proposed Temporary Linkage Rule. 

The Exchange proposes to adopt Rule 

1088 which provides that the Exchange 

will continue to accept Principal Acting 

as Agent (‘‘P/A’’) and Principal Orders 

from options exchanges that continue to 

use such orders to address 

trade-throughs via the existing linkage 

for a temporary period. 

Deletion of References to Linkage 

Orders. The Exchange proposes to 

delete references to Linkage P and P/A 

orders from its rules. Specifically, the 

Exchange proposes to delete current 

Rules 1081 and 1083 through 1087, 

which currently make up the 

Exchange’s rules that track the Linkage 

Plan. Additionally, for consistency, the 

Exchange proposes to delete references 

to Linkage P and P/A Orders from Rule 

1080. 

The Proposed New Definitions. The 

proposed Plan incorporates a number of 

defined terms, some identical to 

definitions from the existing Linkage 

Plan and others that have been 

developed along with the proposed Plan 

itself. Accordingly, Phlx is proposing to 

adopt new Rule 1083, which sets forth 

the defined terms for use under the 

proposed Plan. 

The Proposed Trade Through Rule. 

The Plan essentially would apply the 

Regulation NMS price-protection 

provisions to the options markets. 

Similar to Regulation NMS, the Plan 

would require participants to adopt 

mstockstill on DSKH9S0YB1PROD with NOTICES

Federal Register / Vol. 74, No. 143 / Tuesday, July 28, 2009 / Notices 37271 

5See Rule 611(b)(1) under the Act. 

6See Linkage Plan Section 8(c)(iii)(E). 

7See Rule 611(b)(3) under the Exchange Act. 

8See Rule 611(b)(4) under the Exchange Act. 

9See Rule 611(b)(5) and (6) under the Exchange 

Act. 

10See Rule 611(b)(8) under the Exchange Act. 

11See Linkage Plan Section 8(c)(iii)(C). 

12See Linkage Plan Section 8(c)(iii)(G). 

13See Rule 611(b)(9) under the Exchange Act. 

14For a further discussion on how this exemption 

operates, see Regulation NMS Adopting Release, 

Exchange Act Release No. 51808 (June 9, 2005) at 

notes 322–325. 15See Rule 611(b)(7) under the Exchange Act. 

rules ‘‘reasonably designed to prevent 

Trade-Throughs,’’ while exempting ISOs 

from that prohibition. 

Accordingly, the Exchange is 

proposing to adopt new Rule 1084, 

which codifies the requirement that the 

Exchange and other Plan participants 

avoid trading through superior prices on 

other markets. The Exchange is also 

proposing to add an ISO order in Rule 

1066 based upon the definition of ISO 

currently used by Nasdaq for 

compliance with Regulation NMS when 

trading equities. Rule 1080(b) would be 

amended to reflect that an ISO is a 

permitted order that may be entered on 

the Exchange’s systems. The ISO order 

will be exempt from the prohibition 

against trading-through, as well as 

several additional exceptions to the 

trade-through prohibition that track the 

exceptions under Regulation NMS or 

correspond to unique aspects of the 

options market, or both. Specifically: 

• System Issues: Proposed Rule 

1084(b)(i) tracks Section 5(b)(i) of the 

Plan which corresponds to the systemfailure exception in Regulation NMS 5

for equity securities and permits trading 

through an Eligible Exchange that is 

experiencing system problems. 

• Trading Rotations: Proposed Rule 

1084(b)(ii) tracks Section 5(b)(ii) of the 

Plan which carries forward the current 

Trade-Through exception in the Old 

Plan 6 and is the options equivalent to 

the single price opening exception in 

Regulation NMS for equity securities.7

Some Options exchanges use a trading 

rotation to open an option for trading, 

or to reopen an option after a trading 

halt. The rotation is effectively a single 

price auction to price the option and 

currently there are no practical means to 

include prices on other exchanges in 

that auction. 

• Crossed Markets: Proposed Rule 

1084(b)(iii) tracks Section 5(b)(iii) 

which corresponds to the crossed quote 

exception in Regulation NMS for equity 

securities.8 If a Protected Bid is higher 

than a Protected Offer, it indicates that 

there is some form of market dislocation 

or inaccurate quoting. Permitting 

transactions to be executed without 

regard to Trade-Throughs in a Crossed 

Market will allow the market to quickly 

return to equilibrium. 

• Intermarket Sweep Orders (‘‘ISOs’’): 

These two exceptions correspond to the 

ISO exceptions in Regulation NMS for 

equity securities.9 Proposed Rule 

1084(b)(iv) tracks Section 5(b)(iv) of the 

Plan which permits a Participant to 

execute orders it receives from other 

Participants or members that are marked 

as ISO even when it is not at the NBBO. 

Proposed Rule 1084(b)(v) tracks Section 

5(b)(v) of the Plan which allows a 

Participant to execute inbound orders 

when it is not at the NBBO, provided it 

simultaneously ‘‘sweeps’’ all betterpriced interest displayed by Eligible 

Exchanges. 

• Quote Flickering: Proposed Rule 

1084(b)(vi) tracks Section 5(b)(vi) of the 

Plan which corresponds to the flickering 

quote exception in Regulation NMS for 

equity securities.10 Options quotations 

change as rapidly, if not more rapidly, 

than equity quotations. Indeed, they 

track the price of the underlying 

security and thus change when the price 

of the underlying security changes. This 

exception provides a form of ‘‘safe 

harbor’’ to market participants to allow 

them to trade through prices that have 

changed within a second of the 

transaction causing a nominal TradeThrough. 

• Non-Firm Quotes: Proposed Rule 

1084(b)(vii) tracks Section 5(b)(vii) of 

the Plan which carries forward the 

current non-firm quote Trade-Through 

exception in the Old Plan.11 By 

definition, an Eligible Exchange’s 

quotations may not be firm for 

automatic execution during this trading 

state and thus should not be protected 

from Trade-Throughs. In effect, these 

quotations are akin to ‘‘manual 

quotations’’ under Regulation NMS. 

• Complex Trades: Proposed Rule 

1084(b)(viii) tracks Section 5(b)(viii) of 

the Plan which carries forward the 

current complex trade exception in the 

Old Plan 12 and will be implemented 

through rules adopted by the 

Participants and approved by the 

Commission. Complex trades consist of 

multiple transactions (‘‘legs’’) effected at 

a net price, and it is not practical to 

price each leg at a price that does not 

constitute a Trade-Through. Narrowlycrafted implementing rules will ensure 

that this exception does not undercut 

Trade-Through protections. 

• Customer Stopped Orders: 

Proposed Rule 1084(b)(ix) tracks Section 

5(b)(ix) of the Plan which corresponds 

to the customer stopped order exception 

in Regulation NMS for equity 

securities.13 It permits broker dealers to 

execute large orders over time at a price 

agreed upon by a customer, even though 

the price of the option may change 

before the order is executed in its 

entirety.14

• Stopped Orders and Price 

Improvement: Proposed Rule 1084(b)(x) 

tracks Section 5(b)(x) of the Plan which 

would apply if an order is stopped at 

price that did not constitute a TradeThrough at the time of the stop. In this 

case, an exchange could seek price 

improvement for that order, even if the 

market moves in the interim, and the 

transaction ultimately is effected at a 

price that would trade through the then 

currently-displayed market. 

• Benchmark Trades: Proposed Rule 

1084(b)(xi) tracks Section 5(b)(xi) of the 

Plan which would cover trades executed 

at a price not tied to the price of an 

option at the time of execution, and for 

which the material terms were not 

reasonably determinable at the time of 

the commitment to make the trade. This 

corresponds to a Trade-Through 

exemption in Regulation NMS for equity 

trades.15 Phlx does not currently permit 

these types of options trades, and any 

transaction-type relying on this 

exemption would require Phlx to adopt 

implementing rules, subject to 

Commission review and approval. 

The Proposed Locked and Crossed 

Markets Rule. Similar to Regulation 

NMS, the Plan requires its participants 

to adopt, maintain and enforce rules 

requiring members: to avoid displaying 

locked and crossed markets; to reconcile 

such markets; and to prohibit members 

from engaging in a pattern or practice of 

displaying locked and crossed markets. 

These provisions are subject to 

exceptions that are contained in the 

rules of each participant and that are to 

be approved by the Commission. 

Accordingly, the Exchange proposes 

to adopt new Rule 1086, which would 

set forth the general prohibition against 

locking/crossing other eligible 

exchanges as well as several exceptions 

that the Plan participants approved that 

permit locked markets in limited 

circumstances. Specifically, the 

exceptions to the general prohibition on 

locking and crossing occur when (1) the 

locking or crossing quotation was 

displayed at a time when the Exchange 

was experiencing a failure, material 

delay, or malfunction of its systems or 

equipment; (2) the locking or crossing 

quotation was displayed at a time when 

there is a Crossed Market; or (3) the 

Member simultaneously routed an ISO 

to execute against the full displayed size 

of any locked or crossed Protected Bid 

or Protected Offer. 

mstockstill on DSKH9S0YB1PROD with NOTICES

37272 Federal Register / Vol. 74, No. 143 / Tuesday, July 28, 2009 / Notices 

16A FIND order is an order that is routable upon 

receipt, or any time the option goes through an 

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

17A SRCH order is an order that is routable at any 

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

Phlx Routing Arrangements. The 

Exchange proposes to rely upon the 

order routing arrangements already in 

place on its market, except that the 

Exchange proposes amendments to 

Rules 1080(m)(iv)(B) and (C) concerning 

FIND 16 and SRCH 17 Orders. 

Currently, when the Phlx Best Bid/ 

Offer (‘‘PBBO’’) is inferior to the Away 

Best Bid/Offer (‘‘ABBO’’) FIND and 

SRCH Orders are routed to the ABBO 

markets (following a ‘‘Route Timer’’ 

during which Phlx participants may 

price improve) and, if size remains in 

the FIND or SRCH Order following such 

routing, the Exchange will trade the 

order at the next PBBO price up to one 

minimum price variation (‘‘MPV’’) 

through the ABBO price subject to the 

order’s limit price, or be entered into the 

Phlx XL II book and posted at its limit 

price one MPV inferior to the ABBO 

price if its limit price is equal to or 

through the ABBO price. 

Under the instant proposal, Rules 

1080(m)(iv)(B) and (C) would be 

amended to provide that if, at the end 

of the Route Timer, the ABBO is still the 

best price, the FIND Order will route to 

the away market(s) whose disseminated 

price is better than the PBBO (not just 

to the ABBO markets), up to a size equal 

to the lesser of either: (a) the away 

markets’ size, or (b) the remaining size 

of the FIND Order. If the FIND Order 

still has remaining size after such 

routing, it will (i) trade at the next PBBO 

price (with no limitation of one MPV 

through the ABBO price), subject to the 

order’s limit price, and, if contracts still 

remain unexecuted, the remaining size 

will be routed to away markets 

disseminating the same price as the 

PBBO, or (ii) be entered into the Phlx 

XL II book and posted at its limit price. 

A FIND Order that is routed to an away 

market will be marked as an ISO. Such 

ISO will conform to the requirements 

contained in proposed Rules 1066(i) and 

1083(h). 

Under the proposal, respecting SRCH 

Orders, if, at the end of the Route Timer, 

the ABBO is still the best price, the 

SRCH order will route to the away 

market(s) whose disseminated price is 

better than the PBBO, up to a size equal 

to the lesser of either: (a) The away 

markets’ size, or (b) the remaining size 

of the SRCH order. If the SRCH order 

still has remaining size after such 

routing, it may (1) trade at the next 

PBBO price (or prices) if the order price 

is locking or crossing that price (or 

prices) up to the ABBO price, and/or (2) 

be entered into the Phlx XL II book at 

its limit price if not locking or crossing 

the Phlx price or the ABBO. The Phlx 

XL II system will route and execute 

contracts contemporaneously at the end 

of the Route Timer. Once on the book, 

the SRCH order is eligible for routing if 

it is locked or crossed by an away 

market. A SRCH Order that is routed to 

an away market will be marked as an 

ISO. Such ISO will conform to the 

requirements contained in proposed 

Rules 1066(i) and 1083(h). 

Thus, the limitation on execution 

and/or booked limit order prices of one 

MPV away from the ABBO following 

routing of a FIND or SRCH Order to the 

ABBO markets (and all better-priced 

away markets) would be eliminated. 

This is consistent with the Plan and 

with the ISO Order type. 

The Exchange proposes to amend its 

rules concerning orders that have been 

subject to its Quote Exhaust and Market 

Exhaust processes. 

Respecting the Quote Exhaust feature, 

Exchange Rule 1082(a)(ii)(B)(3)(g)(iv)(A) 

and (B) currently state that remaining 

order volume from orders that have 

been subject to Quote Exhaust and 

routed to away markets will be posted 

on the Exchange at the ABBO price. 

Under the current proposal, if there still 

remain unexecuted contracts after 

trading at the Phlx and/or routing, the 

Quote Exhaust process of evaluating the 

Best Price will be repeated for any 

remaining order volume that is 

marketable. 

Specifically, if the Exchange’s Best 

Price is the Exchange’s next available 

price standing alone, the Phlx XL II 

system will execute the initiating quote 

or order at the Exchange’s next available 

price up to the Exchange’s disseminated 

size. If the Best Price is equal to the 

ABBO price, the Phlx XL II system will 

execute the initiating quote or order at 

the Exchange’s next available price up 

to the Exchange’s disseminated size, 

and any remaining order volume from 

the execution on the Exchange will be 

routed away to the away market(s). If 

the Best Price is equal to the Exchange’s 

pre-determined ‘‘Acceptable Range’’ 

price (based on a table published on the 

Exchange’s web site), the Phlx XL II 

system will execute the initiating quote 

or order at the Exchange’s next available 

price up to the Exchange’s disseminated 

size, and any remaining volume from 

the execution on the Exchange will be 

posted at the Acceptable Range price for 

the remaining size, for a period of time 

not to exceed ten seconds and then 

cancelled after such period of time has 

elapsed. 

Under the proposal, Rule 

1082(a)(ii)(B)(4)(d)(vi) would be 

amended to state that, under the various 

Best Price scenarios, if after trading at 

the Phlx and/or routing, there is a 

remainder of the initiating order, and 

such remainder is still marketable, the 

entire process of evaluating the Best 

Phlx price and the ABBO will be 

repeated until: (A) The order size is 

exhausted, or (B) the order reaches its 

limit price. If there still remain 

unexecuted contracts after routing but 

the order has reached its limit price, the 

remainder will be posted at the order’s 

limit price, except that, when the limit 

price crosses the Acceptable Range 

Price, the remainder will be posted at 

the Acceptable Range Price for a period 

of time not to exceed ten seconds and 

then cancelled after such period of time 

has elapsed. For a pilot period 

scheduled to expire November 30, 2009, 

during this up to ten second period, the 

Phlx XL II system will disseminate on 

the opposite side of the market from 

remaining unexecuted contracts: (i) A 

bid price of $0.00, with a size of one 

contract if the remaining size is a seller, 

or (ii) an offer price of $200,000, with 

a size of one contract if the remaining 

size is a buyer. 

Respecting the Market Exhaust 

Auction, Exchange Rule 

1082(a)(ii)(B)(4)(d)(iv) describes what 

happens to remaining order volume 

respecting orders subject to Market 

Exhaust. Currently, if the total number 

of contracts priced at the ABBO would 

not satisfy the number of marketable 

contracts the Exchange has, the Phlx XL 

II system will determine how many 

contracts it has available on the 

Exchange at a price equal to the ABBO. 

If the total number of ABBO contracts 

plus the number of contracts available 

on the Exchange at the ABBO price 

would satisfy the number of marketable 

contracts the Exchange has, the ABBO 

price becomes the ‘‘Exchange Auction 

Price’’ and the Phlx XL II system will 

trade available contracts on the 

Exchange at the Exchange Auction Price 

and contemporaneously route any 

remaining contracts to away markets at 

the Exchange Auction Price. 

Additionally, if the total number of 

ABBO contracts plus the number of 

contracts available on the Exchange at 

the ABBO price would not satisfy the 

number of marketable contracts the 

Exchange has, the Phlx XL II system 

currently will determine how many 

contracts are available on the Exchange 

at a price that is one Minimum Price 

Variation (‘‘MPV’’) through the ABBO 

price. If the total number of ABBO 

contracts plus the number of contracts 

mstockstill on DSKH9S0YB1PROD with NOTICES

Federal Register / Vol. 74, No. 143 / Tuesday, July 28, 2009 / Notices 37273 

available on the Exchange at the ABBO 

price plus the number of contracts 

available on the Exchange at a price that 

is one MPV through the ABBO price 

would satisfy the number of marketable 

contracts the Exchange has, the price 

that is one MPV through the ABBO 

becomes the Exchange Auction Price. 

Under the proposal, the ‘‘one MPV 

away’’ calculation will be deleted, and 

the Exchange’s system will determine 

how many marketable contracts can be 

routed to all better priced away markets, 

not limited to the ABBO markets as 

stated in the current rule. This is 

because under the Plan, orders may be 

traded on the Exchange at the best 

Exchange price without the ‘‘one MPV’’ 

limitation if ISOs are routed to better 

priced away markets. Under both Quote 

Exhaust and Market Exhaust, all orders 

routed to away markets will be marked 

as ISOs. Such ISOs will conform to the 

requirements contained in proposed 

Rules 1066(i) and 1083(h). 

Proposed Rule 

1082(a)(ii)(B)(4)(d)(iv)(B) would state 

that, if the total number of contracts 

priced at the ABBO would not satisfy 

the number of marketable contracts the 

Exchange has, the Phlx XL II system 

will determine how many contracts are 

available on all better priced away 

markets. If the total number of contracts 

available on better priced away markets 

would satisfy the number of marketable 

contracts available on the Exchange, the 

Phlx XL II system will route all 

marketable contracts on the Exchange to 

other markets at the better prices. 

If the total number of contracts priced 

at better priced away markets would not 

satisfy the number of marketable 

contracts the Exchange has, the Phlx XL 

II system will determine how many 

contracts it has available on the 

Exchange at the best Exchange price. If 

the total number of better priced away 

contracts plus the number of contracts 

available on the Exchange at the best 

Exchange price would satisfy the 

number of marketable contracts the 

Exchange has, the best Exchange price 

becomes the Exchange Auction Price 

and the Phlx XL II system will 

contemporaneously route the full size of 

displayed interest at better priced away 

markets to such better priced away 

markets, and trade remaining contracts 

on the Exchange at the Exchange 

Auction Price. In this situation, the Phlx 

XL II system will price any contracts 

routed to other markets at the away 

market price. 

If the total number of better priced 

away contracts plus the number of 

contracts available on the Exchange at 

the PBBO price would not satisfy the 

number of marketable contracts the 

Exchange has, the Phlx XL II system 

will determine an Exchange Auction 

Price, using all available better priced 

away markets plus all available 

Exchange contracts, that will satisfy the 

number of marketable contracts the 

Exchange has. If that price is equal to or 

within the order limit price and the 

‘‘Auction Quote Range’’ (‘‘AQR’’) 

determined by the Exchange, that price 

becomes the Exchange Auction Price 

and the system will contemporaneously 

route the full size of displayed interest 

at better priced away markets to such 

better priced away markets, and trade 

remaining contracts on the Exchange at 

the Exchange Auction Price. In this 

situation, the Phlx XL II system will 

price any contracts routed to other 

markets at the Exchange Auction Price. 

Finally, the Exchange proposes 

similar changes to its ‘‘Provisional 

Auction.’’ Again, the ‘‘one MPV’’ 

calculation would be deleted, and 

pricing will be based on the best 

Exchange price instead of the ABBO. 

Under the proposal, if the total 

number of better priced away contracts 

plus the number of contracts available 

on the Exchange at the Exchange 

Auction Price would not satisfy the 

number of marketable contracts the 

Exchange has, the system may repeat 

the auction process up to three times. If 

after that number of times, the Phlx XL 

II system still cannot either route and/ 

or trade the entire initiating order, the 

Phlx XL II system will conduct a 

Provisional Auction by establishing the 

Exchange Auction Price at the AQR 

Price, routing to all away markets 

disseminating prices better than or 

equal to the Exchange Auction Price for 

their disseminated size, and trading as 

many contracts as possible on the 

Exchange at the AQR price. In this 

situation, the Phlx XL II system will 

price any contracts routed to other 

markets at the AQR price. Any 

unexecuted contracts from the initiating 

order will be displayed in the Exchange 

quote at the Exchange Auction Price for 

the remaining size for a brief period not 

to exceed ten seconds and subsequently 

cancelled back to the entering 

participant if they remain unexecuted 

and priced through the Auction Price. 

Just as under current rules, for a pilot 

period scheduled to expire November 

30, 2009, during the brief period, the 

Phlx XL II system will disseminate, on 

the opposite side of the market from 

remaining unexecuted contracts: (i) A 

bid price of $0.00, with a size of one 

contract if the remaining size is a seller, 

or (ii) an offer price of $200,000, with 

a size of one contract if the remaining 

size is a buyer. 

Miscellaneous. The Exchange 

proposes miscellaneous changes to its 

rules in connection with the new Plan. 

Specifically, The Exchange proposes the 

following amendments: 

• Exchange By-Law Article XII, 

Section 12–11 would be amended to 

delete references to the Linkage Plan. 

• Exchange Rule 1017(k) respecting 

automated openings on the Phlx XL II 

system, would be amended to state that 

any order volume that is routed to away 

markets pursuant to Rule 1017 will be 

marked as an ISO. Such ISO will 

conform to the requirements contained 

in proposed Rules 1066(i) and 1083(h). 

• Exchange Rule 1033(a)(ii) and 

Options Floor Procedure Advice 

(‘‘OFPA’’) F–32, Solicitation of 

Quotations, currently state that, in 

response to a floor broker’s solicitation 

of a single bid or offer, the members of 

a trading crowd (including the specialist 

and ROTs) may discuss, negotiate and 

agree upon the price or prices at which 

an order of a size greater than the 

AUTO–X guarantee can be executed at 

that time. The Rule and OFPA would be 

amended to delete references to the 

Linkage Plan and instead refer to the 

new Plan, and to delete references to 

Exchange rules that are being deleted in 

this filing. Additionally, the Rule and 

OFPA would be updated to reflect that 

the rule applies to single crowd bids 

and offers for orders of a size greater 

than the Exchange’s disseminated size, 

instead of the obsolete ‘‘AUTO–X 

guarantee’’ (the Exchange’s 

disseminated size is firm and is the 

guaranteed electronic order execution 

size). 

• Rule 1034(a)(i)(C) currently states 

that a Linkage P/A Order that has been 

sent from the Exchange to, and priceimproved on, another exchange at a 

price expressed in other than the 

appropriate minimum trading increment 

described in this rule, and then 

submitted to the Exchange for execution 

against the original customer limit order 

that gave rise to the Linkage P/A Order, 

may be traded on the Exchange at such 

price. Under the proposal, Rule 

1034(a)(i)(C) would be amended to state 

that the Phlx XL II system will reject 

any order received at a price expressed 

in other than the appropriate minimum 

trading increment. 

• The Exchange proposes to amend 

Rule 1066, Certain Types of Orders 

Defined, by adopting Rule 1066(i), 

which defines an ISO as a limit order 

that is designated as an ISO in the 

manner prescribed by the Exchange and 

is executed within the system by 

Participants at multiple price levels 

without respect to Protected Quotations 

of other Eligible Exchanges as defined in 

mstockstill on DSKH9S0YB1PROD with NOTICES

37274 Federal Register / Vol. 74, No. 143 / Tuesday, July 28, 2009 / Notices 

18 15 U.S.C. 78f. 

19 15 U.S.C. 78f(b)(5). 20 17 CFR 200.30–3(a)(12). 

Rule 1083. ISOs are immediately 

executable within the Phlx XL II system 

or cancelled, and shall not be eligible 

for routing as set out in Rule 1080. 

Simultaneously with the routing of an 

ISO to the Phlx XL II system, one or 

more additional limit orders, as 

necessary, are routed by the entering 

party to execute against the full 

displayed size of any Protected Bid or 

Offer (as defined in Rule 1083(n)) in the 

case of a limit order to sell or buy with 

a price that is superior to the limit price 

of the limit order identified as an ISO. 

These additional routed orders must be 

identified as ISOs. 

• Rules 1080(b)(i)(A), (B) and (C) 

would be amended to permit ISOs on 

the Phlx XL II system. 

• Rule 1080(c)(iv)(F), currently states 

that the specialist will handle an order 

manually when the price of a limit order 

is not in the appropriate minimum 

trading increment pursuant to Rule 

1034, including a Linkage P/A Order 

that has been sent from the Exchange to, 

and price-improved on, another 

exchange at a price expressed in other 

than such appropriate minimum trading 

increment, and then submitted to the 

Exchange for execution against the 

original customer limit order that gave 

rise to the Linkage P/A Order. As stated 

above in the proposed amendment to 

Rule 1034(a)(i)(C), the Phlx XL II system 

will reject any order received at a price 

expressed in other than the appropriate 

minimum trading increment. Therefore, 

Rule 1080(c)(iv)(F) will be deleted. 

• Rule 1080(vi) would be deleted in 

its entirety because it contains obsolete 

language the concerning routing of 

Linkage P/A Orders and the handling of 

broker-dealer orders in the legacy Phlx 

XL system. 

Implementation. The Exchange 

proposes to implement this proposed 

rule change upon withdrawal from the 

current Linkage Plan and effectiveness 

of the new Plan. Implementation is 

currently scheduled for August 31, 

2009. 

2. Statutory Basis 

The Exchange believes that the 

proposed rule change is consistent with 

the provisions of Section 6 of the Act,18

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

the Act,19 in particular, in that the 

proposal is designed to prevent 

fraudulent and manipulative acts and 

practices, to promote just and equitable 

principles of trade, to foster cooperation 

and coordination with persons engaged 

in regulating, clearing, settling, 

processing information with respect to, 

and facilitating transactions in 

securities, to remove impediments to 

and perfect the mechanism of, a free and 

open market and a national market 

system, and, in general, to protect 

investors and the public interest. In 

particular, the Exchange believes that 

adopting rules that implement the Plan 

will facilitate the trading of options in 

a national market system by establishing 

more efficient protection against tradethroughs and locked and crossed 

markets. 

B. Self-Regulatory Organization’s 

Statement on Burden on Competition 

The Exchange does not believe that 

the proposed rule change will impose 

any burden on competition not 

necessary or appropriate in furtherance 

of the purposes of the Act. 

C. Self-Regulatory Organization’s 

Statement on Comments on the 

Proposed Rule Change Received From 

Members, Participants, or Others 

No written comments were either 

solicited or received. 

III. Date of Effectiveness of the 

Proposed Rule Change and Timing for 

Commission Action 

Within 35 days of the date of 

publication of this notice in the Federal 

Register or within such longer period: 

(i) As the Commission may designate up 

to 90 days of such date if it finds such 

longer period to be appropriate and 

publishes its reasons for so finding or 

(ii) as to which the self-regulatory 

organization consents, the Commission 

will: 

(A) By order approve such proposed 

rule change, or 

(B) institute proceedings to determine 

whether the proposed rule change 

should be disapproved. 

The Exchange has requested 

accelerated approval of this proposed 

rule change prior to the 30th day after 

the date of publication of the notice in 

the Federal Register. The Commission 

is considering granting accelerated 

approval of the proposed rule change at 

the end of a 21-day comment period. 

IV. Solicitation of Comments 

Interested persons are invited to 

submit written data, views, and 

arguments concerning the foregoing, 

including whether the proposed rule 

change is consistent with the Act. 

Comments may be submitted by any of 

the following methods: 

Electronic Comments 

• Use the Commission’s Internet 

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

rules/sro.shtml); or 

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

Number SR–Phlx–2009–61 on the 

subject line. 

Paper Comments 

• Send paper comments in triplicate 

to Elizabeth M. Murphy, Secretary, 

Securities and Exchange Commission, 

100 F Street, NE., Washington, DC 

20549–1090. 

All submissions should refer to File 

Number SR–Phlx–2009–61. This file 

number should be included on the 

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

Commission process and review your 

comments more efficiently, please use 

only one method. The Commission will 

post all comments on the Commission’s 

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

rules/sro.shtml). Copies of the 

submission, all subsequent 

amendments, all written statements 

with respect to the proposed rule 

change that are filed with the 

Commission, and all written 

communications relating to the 

proposed rule change between the 

Commission and any person, other than 

those that may be withheld from the 

public in accordance with the 

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

available for inspection and copying in 

the Commission’s Public Reference 

Room, 100 F Street, NE., Washington, 

DC 20549, on official business days 

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

Copies of the filing will also be available 

for inspection and copying at the 

principal office of the self-regulatory 

organization. All comments received 

will be posted without change; the 

Commission does not edit personal 

identifying information from 

submissions. You should submit only 

information that you wish to make 

available publicly. All submissions 

should refer to File Number SR–Phlx– 

2009–61 and should be submitted on or 

before August 18, 2009. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.20

Florence E. Harmon, 

Deputy Secretary. 

[FR Doc. E9–17882 Filed 7–27–09; 8:45 am] 

BILLING CODE 8010–01–P 

mstockstill on DSKH9S0YB1PROD with NOTICES