Document ID: SEC-2011-1166-0001
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 49824-49826]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2011-20363]

-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-65043; File No. SR-Phlx-2011-104]

Self-Regulatory Organizations; NASDAQ OMX PHLX LLC; Notice of 
Filing and Immediate Effectiveness of Proposed Rule Change Relating to 
the Extension of a Pilot Program Regarding Price Improvement XL

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 August 1, 2011, NASDAQ OMX PHLX LLC (``Phlx'' or ``Exchange'') 
filed with the Securities and Exchange Commission (``Commission'') the 
proposed rule change as described in Items I, II, and III, below, which 
Items have been prepared by the Exchange. The Commission is publishing 
this notice to solicit comments on the proposed rule change from 
interested persons.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------

I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to amend Exchange Rule 1080(n), Price 
Improvement XL (``PIXL\SM\'') to extend, through July 18, 2012, a pilot 
program (the ``pilot'') concerning (i) The early conclusion of the PIXL 
Auction (as described below), and (ii) permitting orders of fewer than 
50 contracts into the PIXL Auction. The current pilot is scheduled to 
expire August 31, 2011.
    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
    The purpose of the proposed rule change is to extend the pilot 
through July 18, 2012.
Background
    The Exchange adopted PIXL in October, 2010 as a price-improvement 
mechanism on the Exchange.\3\ PIXL is a

[[Page 49825]]

component of the Exchange's fully automated options trading system, 
PHLX XL[supreg] \4\ that allows an Exchange member (an ``Initiating 
Member'') to electronically submit for execution an order it represents 
as agent on behalf of a public customer, broker dealer, or any other 
entity (``PIXL Order'') against principal interest or against any other 
order it represents as agent (an ``Initiating Order'') provided it 
submits the PIXL Order for electronic execution into the PIXL Auction 
(``Auction'') pursuant to the Rule.
---------------------------------------------------------------------------

    \3\ See Securities Exchange Act Release No. 63027 (October 1, 
2010), 75 FR 62160 (October 7, 2010) (SR-Phlx-2010-108) (Order 
Granting Approval to a Proposed Rule Change Relating to a Proposed 
Price Improvement System, Price Improvement XL).
    \4\ This proposal refers to ``PHLX XL'' as the Exchange's 
automated options trading system. In May 2009 the Exchange enhanced 
the system and adopted corresponding rules referring to the system 
as ``Phlx XL II.'' See Securities Exchange Act Release No. 59995 
(May 28, 2009), 74 FR 26750 (June 3, 2009) (SR-Phlx-2009-32). The 
Exchange intends to submit a separate technical proposed rule change 
that would change all references to the system from ``Phlx XL II'' 
to ``PHLX XL'' for branding purposes.
---------------------------------------------------------------------------

    An Initiating Member may initiate a PIXL Auction by submitting a 
PIXL Order in one of three ways:
     First, the Initiating Member could submit a PIXL Order 
specifying a single price at which it seeks to execute the PIXL Order 
(a ``stop price'').
     Second, an Initiating Member could submit a PIXL Order 
specifying that it is willing to automatically match as principal or as 
agent on behalf of an Initiating Order the price and size of all 
trading interest and responses to the PIXL Auction Notification 
(``PAN,'' as described below) (``auto-match''), in which case the PIXL 
Order will be stopped at the National Best Bid/Offer ('' NBBO'') on the 
Initiating Order side of the market (if 50 contracts or greater) or, if 
less than 50 contracts, the better of: (i) The PHLX Best Bid/Offer 
(``PBBO'') price on the opposite side of the market from the PIXL Order 
improved by at least one minimum price improvement increment, or (ii) 
the PIXL Order's limit price (if the order is a limit order), provided 
in either case that certain circumstances are met and that such price 
is at least one increment better than the limit of an order on the book 
on the same side as the PIXL Order.
     Third, an Initiating Member could submit a PIXL Order 
specifying that it is willing to either: (i) Stop the entire order at a 
single stop price and auto-match PAN responses, as described below, 
together with trading interest, at a price or prices that improve the 
stop price to a specified price above or below which the Initiating 
Member will not trade (a ``Not Worse Than'' or ``NWT'' price); (ii) 
stop the entire order at a single stop price and auto-match all PAN 
responses and trading interest at or better than the stop price; or 
(iii) stop the entire order at the NBBO on the Initiating Order side 
(if 50 contracts or greater) or the better of: (A) The PBBO price on 
the opposite side of the market from the PIXL Order improved by one 
minimum price improvement increment, or (B) the PIXL Order's limit 
price (if the order is a limit order) on the Initiating Order side (if 
for less than 50 contracts), and auto-match PAN responses and trading 
interest at a price or prices that improve the stop price up to the NWT 
price. In all cases, if the PBBO on the same side of the market as the 
PIXL Order represents a limit order on the book, the stop price must be 
at least one minimum price improvement increment better than the booked 
limit order's limit price.
    After the PIXL Order is entered, a PAN is broadcast and a one-
second blind Auction ensues. Anyone may respond to the PAN by sending 
orders or quotes. At the conclusion of the Auction, the PIXL Order will 
be allocated at the best price(s).
    Once the Initiating Member has submitted a PIXL Order for 
processing, such PIXL Order may not be modified or cancelled. Under any 
of the above circumstances, the Initiating Member's stop price or NWT 
price may be improved to the benefit of the PIXL Order during the 
Auction, but may not be cancelled[.]
    After a PIXL Order has been submitted, a member organization 
submitting the order has no ability to control the timing of the 
execution. The execution is carried out by the Exchange's PHLX 
XL[supreg] automated options trading system and pricing is determined 
solely by the other orders and quotes that are present in the Auction.
The Pilot
    Three components of the PILX system were approved by the Commission 
on a pilot basis: (1) Paragraphs (n)(i)(A)(2) and (n)(i)(B)(2) of Rule 
1080, relating to auction eligibility requirements; (2) paragraphs 
(n)(ii)(B)(4) and (n)(ii)(D) of Rule 1080, relating to the early 
conclusion of the PIXL Auction; and (3) paragraph (n)(vii) of Rule 
1080, stating that there shall be no minimum size requirement of orders 
entered into PIXL. The pilots were approved for a pilot period expiring 
on August 31, 2011.\5\ The Exchange notes that during the pilot period 
it has been required to submit, and has been submitting, certain data 
periodically as required by the Commission, to provide supporting 
evidence that, among other things, there is meaningful competition for 
all size orders and that there is an active and liquid market 
functioning on the Exchange outside of the Auction mechanism.\6\ The 
Exchange will continue to provide such data. The Exchange believes 
that, because the pilot has been operating for a relatively short 
amount of time, the proposed extension should afford the Commission 
additional time to evaluate the pilot.
---------------------------------------------------------------------------

    \5\ See supra note 3.
    \6\ See Exchange Rule 1080(n)(vii).
---------------------------------------------------------------------------

    The Exchange proposes to extend the pilot through July 18, 2012.
2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with the provisions of Section 6 of the Act,\7\ in general and with 
Section 6(b)(5) of the Act,\8\ in that it is designed 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; and is not designed to 
permit unfair discrimination between customers, issuers, brokers, or 
dealers, or to regulate by virtue of any authority conferred by the Act 
matters not related to the purposes of the Act or the administration of 
the Exchange.
---------------------------------------------------------------------------

    \7\ 15 U.S.C. 78f.
    \8\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

    The Exchange believes that the proposed rule change is also 
consistent with Section 6(b)(8) of the Act \9\ in that it does not 
impose any burden on competition not necessary or appropriate in 
furtherance of the purposes of the Act.
---------------------------------------------------------------------------

    \9\ 15 U.S.C. 78f(b)(8).
---------------------------------------------------------------------------

    Specifically, the Exchange believes that PIXL, including the rules 
to which the pilot applies, result in increased liquidity available at 
improved prices, with competitive final pricing out of the Initiating 
Member's complete control. The Exchange believes that PIXL promotes and 
fosters competition and affords the opportunity for price improvement 
to more options contracts.

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

[[Page 49826]]

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

    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 after the date of the filing, or such 
shorter time as the Commission may designate, it has become effective 
pursuant to 19(b)(3)(A) of the Act \10\ and Rule 19b-4(f)(6) \11\ 
thereunder.
---------------------------------------------------------------------------

    \10\ 15 U.S.C. 78s(b)(3)(A).
    \11\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6) 
requires a self-regulatory organization to give the Commission 
written notice of its intent to file the proposed rule change at 
least five business days prior to the date of filing of the proposed 
rule change, or such shorter time as designated by the Commission. 
The Exchange has satisfied this requirement.
---------------------------------------------------------------------------

    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. If the Commission 
takes such action, the Commission shall institute proceedings to 
determine whether the proposed rule should be approved or 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-2011-104 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-2011-104. 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 website 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 such 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-2011-104 and should be 
submitted on or before September 1, 2011.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\12\
---------------------------------------------------------------------------

    \12\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Elizabeth M. Murphy,
Secretary.
[FR Doc. 2011-20363 Filed 8-10-11; 8:45 am]
BILLING CODE 8011-01-P