Document ID: SEC-2013-0977-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: NASDAQ OMX PHLX LLC
Posted Date: 2013-05-24T04:00Z

[Federal Register Volume 78, Number 101 (Friday, May 24, 2013)]
[Notices]
[Pages 31621-31623]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2013-12437]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-69610; File No. SR-Phlx-2013-54]

Self-Regulatory Organizations; NASDAQ OMX PHLX LLC; Notice of 
Filing and Immediate Effectiveness of Proposed Rule Change To Amend 
Rule 3306 and Rule 3303 To Stipulate How Participants in NASDAQ OMX PSX 
May Modify Previously Entered Orders and To Describe How Modified 
Orders Are Processed

May 20, 2013.
    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 May 10, 2013, 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 proposes to amend Rule 3306 (Entry and Display of 
Quotes and Orders) and Rule 3303 (Short Sale Price Test Pursuant to 
Rule 201 of Regulation SHO) to stipulate how Participants in NASDAQ OMX 
PSX (``PSX'') may modify previously entered orders and to describe how 
modified orders are processed. The text of the proposed rule change is 
below; proposed new language is italicized, and proposed deletions are 
in brackets.

3303. Short Sale Price Test Pursuant to Rule 201 of Regulation SHO

    (a)-(c) No change.
    (d) Re-pricing of Orders during Short Sale Period. Except as 
provided below, [D]during the Short Sale Period, short sale orders that 
are limited to the national best bid or lower and short sale market 
orders will be re-priced by the

[[Page 31622]]

System one minimum allowable price increment above the current national 
best bid (``Permitted Price''). To reflect declines in the national 
best bid, the Exchange will continue to re-price a short sale order at 
the lowest Permitted Price down to the order's original limit price, or 
if a market order, until the order is filled. Non-displayed orders 
between the PSX bid and offer at the time of receipt will also be re-
priced upward to a Permitted Price to correspond with a rise in the 
national best bid.
    (1) No change.
    (2) During the Short Sale Period, if an order was entered as a long 
sale order or a short sale exempt order but is subsequently marked 
pursuant to Phlx Rule 3306(a)(3) as a short sale order, the System will 
cancel the order unless it is priced at a Permitted Price or higher.
    (e)-(f) No change.
* * * * *

3306. Entry and Display of Quotes and Orders

    (a) Entry of Orders--Participants can enter orders into the System, 
subject to the following requirements and conditions:
    (1)-(2) No change.
    (3) Orders can be entered into the System (or previously entered 
orders cancelled or modified) from 8:00 a.m. until 5:00 p.m. Eastern 
Time. Participants may modify a previously entered order without 
cancelling it or affecting the priority of the order on the book solely 
for the purpose of modifying the marking of a sell order as long, 
short, or short exempt; provided, however, that if an order is 
redesignated as short, a Short Sale Period is in effect under Rule 
3303, and the order is not priced at a Permitted Price or higher under 
Rule 3303(d), the order will be cancelled. In addition, a partial 
cancellation of an order to reduce its share size will not affect the 
priority of the order on the book. All other modifications of orders 
will result in the replacement of the original order with a new order 
with a new time stamp.
    (b)-(c) No change.
* * * * *

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

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

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

1. Purpose
    The purpose of the proposed rule change is to stipulate how 
Participants in PSX may modify previously entered orders and to 
describe how modified orders are processed. Currently, Rule 3306 
permits previously entered orders to be cancelled, a fact that has been 
interpreted by Phlx to allow a Participant to cancel an order in full 
or in part. However, new language is being added to the rule to make it 
clear that a partial cancellation of an order (i.e., a reduction in the 
share size of the order) does not cause the order to lose priority on 
the PSX book. Phlx believes that it is reasonable to allow the partial 
cancellation of an order without the order losing priority because the 
Participant that entered the order continues to express its willingness 
to trade at the price entered when the order first came onto the book. 
Moreover, if the order is displayed, other Participants quoting at the 
same price are aware of the priority of their orders relative to the 
partially cancelled order. While a partial cancellation may provide 
these other Participants with greater opportunities to provide a fill, 
Phlx does not believe that it would be reasonable for the Participants 
to jump ahead of an order with time priority merely because the size of 
the order has been reduced. Similarly, if the partially cancelled order 
is non-displayed, other Participants would have no awareness of its 
price, its original size, or its reduced size. Again, while other 
Participants at that price may have an increased opportunity to provide 
a fill when the order's size is reduced, they would not have an 
expectation that the priority of their orders would change vis-
[agrave]-vis that of an order that arrived on the book at an earlier 
time. Finally, with respect to Participants seeking to access 
liquidity, the reduced size of the order would be disseminated (if a 
displayed order) or not disseminated (if a non-displayed order) via 
market data feeds, but these Participants would be indifferent as to 
the order's priority vis-[agrave]-vis other orders with the same price.
    In addition, Phlx is modifying Rule 3303 to provide that a sell 
order may be modified in order to change its marking as long, short, or 
short exempt without affecting its priority on the book.\3\ 
Participants sometimes wish to modify the marking of a sell order on 
the book due to changes in the Participant's holdings of the security 
in question. At present, such a modification may only be achieved by 
the cancellation of the existing order and its replacement with a new 
order with a different time stamp. Phlx believes that it is reasonable 
to allow the modification of an order for this purpose without 
affecting its priority, since the order's marking has no bearing on the 
timing of its entry onto the book vis-[agrave]-vis other orders at the 
same price.\4\ In the event, however, that a long or short exempt order 
is redesignated as a short sale order and the security that is the 
subject of the order is in a Short Sale Period, as provided for in Rule 
3303 and Rule 201 under Regulation SHO,\5\ the order will be evaluated 
to determine whether its price would be a Permitted Price within the 
meaning of Rule 3303(d). If not, the order will be cancelled rather 
than repriced.\6\ Phlx believes that cancelling the order under these 
circumstances is preferable to repricing it, because it alerts the 
Participant entering the order to the existence of the Short Sale 
Period and forces the Participant to evaluate its intentions with 
regard to the order.
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    \3\ The proposed rule does not affect Participants' obligations 
contained in Regulation SHO under the Act, and Participants must 
continue to comply with such obligations, including the order 
marking and locate requirements. See 17 CFR 242.200 et seq.
    \4\ A change to the marking of the order would be effected 
through the submission of a ``modify order'' message.
    \5\ 17 CFR 242.201.
    \6\ If an order originally marked as long or short is marked as 
short exempt, the order will not be cancelled or repriced. Rule 
3303(f).
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    Finally, Phlx is amending Rule 3303 to make it clear that all other 
modifications of previously submitted orders, including increases in 
size \7\ and changes in price, will result in the cancellation of the 
original order and its replacement with a new order with a new time 
stamp. Although the addition of this rule language does not reflect a 
change in the way the Phlx system currently operates, Phlx believes 
that the clarity of the rule will be enhanced by including the new 
language. Phlx further believes that the functionality described by the 
rule language is important to ensuring that Participants cannot use an 
existing order unfairly to

[[Page 31623]]

retain priority with respect to a materially different order.
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    \7\ Phlx reminds Participants that if a seller increases the 
size of a pending sell order, the resulting modified order is 
considered a new order and must be marked by the broker-dealer to 
reflect the seller's net position at the time of order modification 
pursuant to Rule 200 of Regulation SHO.
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2. Statutory Basis
    Phlx believes that its proposal is consistent with Section 6(b) of 
the Act \8\ in general, and furthers the objectives of Section 6(b)(5) 
of the Act \9\ 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. 
Specifically, Phlx believes that permitting Participants to change the 
marking of sell orders without affecting their priority on the Phlx 
book will eliminate an aspect of PSX that had unnecessarily made it 
more difficult for posted sell orders to execute. Thus, the change will 
enhance the fairness and efficiency of PSX without affecting the 
ability of Participants to comply with applicable regulatory 
requirements. In addition, the changes to the rule that describe the 
effect of a partial order cancellation promote the clarity of the rule 
with respect to the ability of a Participant to reduce the size of an 
existing order without affecting its priority. Phlx further believes 
that allowing an order to retain priority under these conditions is 
consistent with the operation of a free and open market and the 
protection of investors and the public interest, since the Participant 
that entered an order that is partially cancelled has nevertheless 
expressed a continued willingness to trade at a specified price, and 
therefore should retain priority over Participants that joined that 
price at a later time. Finally, Phlx believes that the proposed 
addition of language to clearly stipulate that all other order 
modifications will result in the cancellation and replacement of the 
original order with a new order with new time priority is consistent 
with the protection of investors and the public interest because the 
new language will make clear an existing feature of the market that 
Phlx believes is important to ensuring that Participants cannot use an 
existing order unfairly to retain priority with respect to a materially 
different order.
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    \8\ 15 U.S.C. 78f(b).
    \9\ 15 U.S.C. 78f(b)(5).
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B. Self-Regulatory Organization's Statement on Burden on Competition

    Phlx does not believe that the proposed rule change will result in 
any burden on competition that is not necessary or appropriate in 
furtherance of the purposes of the Act, as amended. Specifically, Phlx 
believes that the change with respect to allowing Participants to 
modify the long, short, or short exempt marking of a sell order without 
affecting its priority will assist Phlx in competing with the BATS 
Exchange and the BATS Y-Exchange, which already allow their 
Participants to do so. Phlx further believes that the other changes 
will not have any effect on competition.

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

    Because the foregoing proposed rule change does not: (i) 
Significantly affect the protection of investors or the public 
interest; (ii) impose any significant burden on competition; and (iii) 
become operative for 30 days from the date on which it was filed, or 
such shorter time as the Commission may designate, it has become 
effective pursuant to Section 19(b)(3)(A)(ii) of the Act \10\ and 
subparagraph (f)(6) of Rule 19b-4 thereunder.\11\ At any time within 60 
days of the filing of the proposed rule change, the Commission 
summarily may temporarily suspend such rule change if it appears to the 
Commission that such action is necessary or appropriate in the public 
interest, for the protection of investors, or otherwise in furtherance 
of the purposes of the Act.
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    \10\ 15 U.S.C. 78s(b)(3)(a)(ii).
    \11\ 17 CFR 240.19b-4(f)(6).
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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-2013-54 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-2013-54. 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-2013-54 and 
should be submitted on or before June 14, 2013.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\12\
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    \12\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2013-12437 Filed 5-23-13; 8:45 am]
BILLING CODE 8011-01-P