Document ID: SEC-2011-1169-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: NASDAQ OMX PHLX LLC
Posted Date: 2011-08-11T04:00Z

[Federal Register Volume 76, Number 155 (Thursday, August 11, 2011)]
[Notices]
[Pages 49816-49818]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2011-20390]

[[Page 49816]]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-65050; File No. SR-Phlx-2011-101]

Self-Regulatory Organizations; NASDAQ OMX PHLX LLC; Notice of 
Filing of Proposed Rule Change Regarding Streaming Quote Traders and 
Remote Streaming Quote Traders Entering Certain Option Day Limit Orders

August 5, 2011.
    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 27, 2011, 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, II, 
and III, below, which Items have been prepared by the Exchange. The 
Commission is publishing this notice to solicit comments on the 
proposed rule change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange is filing with the Commission a proposal to allow 
entry of day limit orders for the proprietary accounts of Streaming 
Quote Traders and Remote Streaming Quote Traders.
    The text of the proposed rule change is available on the Exchange's 
Web site at http://nasdaqomxphlx.cchwallstreet.com/NASDAQOMXPHLX/Filings/, at the principal office of the Exchange, and at the 
Commission's Public Reference Room.

II. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    In its filing with the Commission, the Exchange included statements 
concerning the purpose of and basis for the proposed rule change and 
discussed any comments it received on the proposed rule change. The 
text of these statements may be examined at the places specified in 
Item IV below. The Exchange has prepared summaries, set forth in 
sections A, B, and C below, of the most significant aspects of such 
statements.

A. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The purpose of the proposal is to amend two subsections of Exchange 
Rule 1080 to allow entry of day limit orders for the proprietary 
accounts of Streaming Quote Traders (SQTs'') and Remote Streaming Quote 
Traders (``RSQTs''). The proposal will promote consistency among 
Registered Options Traders (``ROT'') on the Exchange by allowing SQTs 
and RSQTs to enter day limit orders exactly as non-SQT ROTs may 
currently do under the rules.
Background
    There are several types of market makers on the Exchange, including 
ROTs,\3\ SQTs,\4\ RSQTs,\5\ and specialists.\6\ Each option class and 
series listed on the Exchange must currently have a specialist that is 
either a floor-based specialist or an off-floor specialist known as a 
Remote Specialist. The specialist system remains un-impacted by this 
proposal. This proposal deals exclusively with the electronic entry of 
day limit orders in SQT and RSQT proprietary accounts.
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    \3\ An ROT is a regular member or a foreign currency options 
participant of the Exchange located on the trading floor who has 
received permission from the Exchange to trade in options for his 
own account. See Rule 1014 (b)(i).
    \4\ An SQT is an ROT who has received permission from the 
Exchange to generate and submit option quotations electronically in 
options to which such SQT is assigned. An SQT may only submit such 
quotations while such SQT is physically present on the floor of the 
Exchange. See Rule 1014(b)(ii)(A).
    \5\ An RSQT is an ROT that is a member or member organization 
with no physical trading floor presence who has received permission 
from the Exchange to generate and submit option quotations 
electronically in options to which such RSQT has been assigned. An 
RSQT may only submit such quotations electronically from off the 
floor of the Exchange. See Rule 1014(b)(ii)(B).
    \6\ A Specialist (which includes an off-floor Remote Specialist) 
is an Exchange member who is registered as an options specialist 
pursuant to Rule 1020(a).
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    Current Rule 1080 (Phlx XL and XL II) discusses the Exchange's 
enhanced electronic order, trading, and execution system (the 
``electronic interface''). The current iteration of the Exchange's 
electronic interface is known as Phlx XL II.\7\ Rule 1080 states that 
it governs the orders, execution reports and administrative order 
messages transmitted between the offices of member organizations and 
the trading floors of the Exchange. Rule 1080 also discusses what 
agency and proprietary orders are eligible for entry into the 
Exchange's electronic interface.\8\
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    \7\ See Securities Exchange Act Release No. 59995 (May 28, 
2009), 74 FR 26750 (June 3, 2009) (SR-Phlx-2009-32)(order approving 
Phlx XL II). Phlx XL II is the Exchange's electronic order delivery 
and reporting system, which provides for the automatic entry and 
routing of Exchange-listed equity options, index options and U.S. 
dollar-settled foreign currency options orders to the Exchange 
trading floor. Rule 1080(a).
    \8\ In addition, Rule 1080 deals with, among other things, how 
quotations interact with limit orders on the book, order routing 
through the electronic interface, Price Improvement XL (known as 
``PIXL''), specialized quote feed (known as ``SQF''), qualified 
contingent cross orders, and complex orders.
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    Subsection (b)(i)(A) of Rule 1080 indicates the types of agency 
orders that are eligible for entry via electronic interface.\9\ The 
Exchange does not propose any changes regarding entry of agency orders.
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    \9\ Rule 1080(b)(i)(A). This section states that for 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.
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    Subsection (b)(i)(B) of Rule 1080 indicates the types of 
proprietary (non-agency) orders that are eligible for entry via 
electronic interface. This subsection states that certain types of 
proprietary orders are eligible for entry via electronic interface 
subject to Commentary .04 of Rule 1080, discussed below.\10\
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    \10\ Commentary .04 of Rule 1080 states that Orders for the 
proprietary accounts of SQTs, RSQTs and non-SQT ROTs that may be 
entered for delivery through the electronic interface (through the 
use of Exchange approved proprietary systems to interface with the 
electronic interface of the Exchange) shall be for a minimum of one 
(1) contract. Orders for the proprietary account(s) of non-SQT ROTs 
with a size of less than 10 contracts shall be submitted as IOC 
only. Orders for the proprietary account(s) of SQTs and RSQTs shall 
be submitted as IOC only.
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    Subsection (b)(i)(B)(1) of Rule 1080 indicates the types of non-SQT 
ROTs and specialists proprietary orders that are eligible for entry via 
electronic interface, including GTC, day limit, IOC, ISO, limit on 
opening, and simple cancel orders.\11\ The Exchange does not propose 
any changes regarding this subsection.\12\
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    \11\ Rule 1066 discusses certain order types.
    \12\ Subsection (b)(i)(B)(1), states that the following types of 
orders for the proprietary account(s) of non-SQT ROTs and 
specialists with a size of 10 contracts or greater are eligible for 
entry via electronic interface with AUTOM: GTC, day limit, IOC, ISO, 
limit on opening and simple cancel. The subsection states also that 
orders for the proprietary account(s) of non-SQT ROTs and 
specialists with a size of less than 10 contracts shall be submitted 
as IOC only.
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    Subsection (b)(i)(B)(2) states that the following types of orders 
for the proprietary account(s) of SQTs and RSQTs are eligible for entry 
via electronic interface: Limit on opening, IOC, and ISO. Currently, 
there is no ability for SQTs and RSQTs to enter day limit orders in 
their proprietary

[[Page 49817]]

accounts. The proposal corrects this limitation by allowing day limit 
orders for the proprietary account(s) of SQTs and RSQTs to be entered 
pursuant to subsection (b)(i)(B)(2). The proposed change will promote 
consistency among ROTs by allowing SQTs and RSQTs to do what Commentary 
.04 of Rule 1080 now allows non-SQT ROTs to do: enter certain day limit 
orders (10 or more contracts) in their proprietary accounts.\13\
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    \13\ Also, subsection (b)(i)(B)(1) allows non-SQTs and 
specialists to enter certain day limit orders (10 or more contracts) 
in their proprietary accounts.
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    Commentary .04 of Rule 1080 states that orders for the proprietary 
accounts of SQTs, RSQTs and non-SQT ROTs may be entered for delivery 
via electronic interface through the use of Exchange approved 
proprietary systems of members that interface with the Exchange's 
electronic interface.\14\ Currently, proprietary non-SQT ROT orders 
with a size of less than 10 contracts have to be submitted as IOC and 
larger orders may be submitted as day limit and other order types; 
while proprietary SQT and RSQT orders may only be submitted as IOC.
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    \14\ Such orders have to be for a minimum of one (1) contract.
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    The Exchange is proposing to put all the ROTs (SQTs, RSQTs and non-
SQT ROTs) on an equal footing. Specifically, the Exchange proposes to 
state in Commentary .04 that orders for the proprietary account(s) of 
SQTs, RSQTs, and non-SQT ROTs with a size of less than 10 contracts 
shall be submitted as IOC only. Thus, where SQT and RSQT orders under 
the current rule could only be submitted as IOC, the proposed change to 
Commentary .04 would allow these SQTs and RSQTs to enter non IOC orders 
(e.g. day orders) in proprietary accounts if they are for 10 or more 
contracts.
    The Exchange is proposing to amend subsection (b)(i)(B)(2) and 
Commentary.04 of Exchange Rule 1080 in order to encourage more 
liquidity by allowing market makers to rest more orders on the book. 
Initially with the onset of electronic quoting, the Exchange wanted to 
encourage electronic quoting and trading and thus did not accept day or 
day limit orders in the proprietary accounts of liquidity providers 
such as RSQTs and SQTs nor allow SQTs and RSQTs to submit non-IOC 
orders. With the extensive development of electronic market making, 
however, the Exchange has come to believe that allowance of day orders 
per subsection (b)(i)(B)(2) and Commentary .04 would enhance liquidity 
rather than discourage electronic quoting and trading on the Exchange, 
to the benefit of traders and public customers.
2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act \15\ in general, and furthers the objectives of Section 
6(b)(5) of the Act \16\ in particular, in that it 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 facilitating transactions in 
securities, and to remove impediments to and perfect the mechanisms of 
a free and open market and a national market system by further 
enhancing liquidity to the benefit of traders and public customers. 
This would be achieved by conforming subsection (b)(i)(B)(2) and 
Commentary .04 of Rule 1080 and thereby promoting consistency through 
uniformly allowing day limit orders for the proprietary account(s) of 
Registered Options Traders (SQTs, RSQTs, and non-SQT ROTs) to be 
entered via the Exchange's electronic interface. Prior to this 
proposal, such orders were allowed only for non-SQT ROTs.
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    \15\ 15 U.S.C. 78f(b).
    \16\ 15 U.S.C. 78f(b)(5).
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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 45 days of the date of publication of this notice in the 
Federal Register or within such longer period (i) as the Commission may 
designate up to 90 days of such date if it finds such longer period to 
be appropriate and publishes its reasons for so finding or (ii) as to 
which the Exchange consents, the Commission shall: (a) By order approve 
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 e-mail to rule-comments@sec.gov. Please include 
File Number SR-Phlx-2011-101 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-2011-101. 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 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 
a.m. and 3 p.m. Copies of the filing also will be available for 
inspection and copying at the principal office of the Exchange. All 
comments received will be posted without change; the Commission does 
not edit personal identifying information from submissions. You should 
submit only information that you wish to make available publicly. All 
submissions should refer to File Number SR-Phlx-2011-101 and should be 
submitted on or before September 1, 2011.

[[Page 49818]]

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\17\
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    \17\ 17 CFR 200.30-3(a)(12).
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Elizabeth M. Murphy,
Secretary.
[FR Doc. 2011-20390 Filed 8-10-11; 8:45 am]
BILLING CODE 8011-01-P