Document ID: SEC-2013-0622-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: NASDAQ OMX PHLX LLC
Posted Date: 2013-04-01T04:00Z

[Federal Register Volume 78, Number 62 (Monday, April 1, 2013)]
[Notices]
[Pages 19556-19559]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2013-07477]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-69241; File No. SR-Phlx-2013-36]

Self-Regulatory Organizations; NASDAQ OMX PHLX LLC; Notice of 
Filing and Immediate Effectiveness of Proposed Rule Change Relating To 
Trading QCC and PIXL Orders in Mini Options

March 26, 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 March 26, 2013, NASDAQ OMX PHLX LLC (``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.
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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 address the manner in which options 
contracts overlying 10 shares of a security (``Mini Options'') will 
trade in a PIXL \3\ auction

[[Page 19557]]

or as a Qualified Contingent Cross (``QCC'') Order.\4\
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    \3\ PIXL is the Exchange's price improvement mechanism known as 
Price Improvement XL or (PIXL\SM\). See Rule 1080(n).
    \4\ A QCC Order is comprised of an order to buy or sell at least 
1000 contracts that is identified as being part of a qualified 
contingent trade, as that term is defined in Rule 1080(o)(3), 
coupled with a contra-side order to buy or sell an equal number of 
contracts. The QCC Order must be executed at a price at or between 
the National Best Bid and Offer (``NBBO'') and be rejected if a 
Customer order is resting on the Exchange book at the same price. A 
QCC Order shall only be submitted electronically from off the floor 
to the PHLX XL II System. See Rule 1080(o). See also Securities 
Exchange Act Release No. 64249 (April 7, 2011), 76 FR 20773 (April 
13, 2011) (SR-Phlx-2011-47) (a rule change to establish a QCC Order 
to facilitate the execution of stock/option Qualified Contingent 
Trades (``QCTs'') that satisfy the requirements of the trade through 
exemption in connection with Rule 611(d) of the Regulation NMS).
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    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 further clarify the 
manner in which Mini Options will trade in a PIXL auction or as a QCC 
Order pursuant to Exchange Rule 1080. The Exchange previously filed to 
list and trade Mini Options.\5\ Exchange Rule 1080 entitled ``Phlx XL 
and Phlx XL II'' describes the manner in which PIXL orders \6\ and QCC 
Orders \7\ trade on the Exchange. The Exchange will describe below the 
manner in which it seeks to clarify Rules 1064 and 1080 with respect to 
Mini Options.
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    \5\ See Securities Exchange Act Release No. 68132 (November 1, 
2012), 77 FR 66904 (November 7, 2012) (SR-Phlx-2012-126). The 
Exchange amended amend [sic] Rules 1001 (Position Limits), 1012 
(Series of Options Open for Trading) and 1033 (Bids and Offers--
Premium) to list and trade Mini Options overlying five (5) high-
priced securities for which the standard contract overlying the same 
security exhibits significant liquidity. Specifically, the Exchange 
filed to list Mini Options on SPDR S&P 500 (``SPY''), Apple, Inc. 
(``AAPL''), SPDR Gold Trust (``GLD''), Google Inc. (``GOOG'') and 
Amazon.com Inc. (``AMZN'').
    \6\ See Exchange Rule 1080(n).
    \7\ See Exchange Rule 1080(o). The Exchange is also proposing to 
amend Rule 1064 entitled ``Crossing, Facilitation and Solicited 
Orders,'' as this rule also describes the manner in which QCC Orders 
shall trade on Phlx.
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    With respect to PIXL, Rule 1080(n) specifies that a member may 
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 (except 
as provided in Rule 1080(n)(i)(E)) it represents as agent (an 
``Initiating Order'') provided it submits the PIXL Order for electronic 
execution into the PIXL Auction (``Auction'') pursuant to this Rule. 
The Exchange is proposing to clarify that with respect to Mini Options, 
the same contract size shall apply consistent with standard options. 
The Exchange proposes to add a sentence to Rule 1080(n) to note that a 
Mini Options PIXL Order will trade consistent with standard options.
    Today the Exchange provides the Commission certain PIXL pilot 
reports, including, but not limited to orders of fewer than 50 
contracts into the PIXL Auction.\8\ The Exchange will also submit to 
the Commission these same reports with respect to Mini Options for PIXL 
Orders fewer than 500 contracts as well as the pilot reports for Mini 
Options in the other categories.\9\ The

[[Page 19558]]

Exchange will provide this information for a particular month not later 
than the last business day of the subsequent month, as is the case with 
other PIXL pilot reports.
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    \8\ Regarding PIXL Orders of fewer than 50 contracts, the 
Exchange has undertaken to provide the following information on a 
monthly basis during the pilot period: (1) The number of orders of 
fewer than 50 contracts entered into the PIXL Auction; (2) The 
percentage of all orders of fewer than 50 contracts sent to Phlx 
that are entered into the PIXL Auction; (3) The percentage of all 
Phlx trades represented by orders of fewer than 50 contracts; (4) 
The percentage of all Phlx trades effected through the PIXL Auction 
represented by orders of fewer than 50 contracts; (5) The percentage 
of all contracts traded on Phlx represented by orders of fewer than 
50 contracts; (6) The percentage of all contracts effected through 
the PIXL Auction represented by orders of fewer than 50 contracts; 
(7) The spread in the option, at the time an order of fewer than 50 
contracts is submitted to the PIXL Auction; (8) The number of orders 
of 50 contracts or greater entered into the PIXL Auction; (9) The 
percentage of all orders of 50 contracts or greater sent to Phlx 
that are entered into the PIXL Auction; (10) The spread in the 
option, at the time an order of 50 contracts or greater is submitted 
to the PIXL Auction; (11) Of PIXL trades where the PIXL Order is for 
the account of a public customer, and is for a size of fewer than 50 
contracts, the percentage done at the NBBO plus $ .01, plus $ .02, 
plus $ .03, etc.; (12) Of PIXL trades where the PIXL Order is for 
the account of a public customer, and is for a size of 50 contracts 
or greater, the percentage done at the NBBO plus $ .01, plus $ .02, 
plus $ .03, etc.; and (13) Of PIXL trades where the PIXL Order is 
for the account of a broker dealer or any other person or entity 
that is not a public customer, and is for a size of fewer than 50 
contracts, the percentage done at the NBBO plus $ .01, plus $ .02, 
plus $ .03, etc. (14) Of PIXL trades where the PIXL Order is for the 
account of a broker dealer or any other person or entity that is not 
a public customer, and is for a size of 50 contracts or greater, the 
percentage done at the NBBO plus $ .01, plus $ .02, plus $ .03, 
etc.; and (15) The number of orders submitted by Initiating Members 
when the spread was $ .05, $ .10, $ .15, etc. For each spread, 
specify the percentage of contracts in orders of fewer than 50 
contracts submitted to the PIXL Auction that were traded by: (a) The 
Initiating Member that submitted the order to the PIXL; (b) Phlx 
Market Makers assigned to the class; (c) other Phlx members; (d) 
Public Customer Orders; and (e) unrelated orders (orders in standard 
increments entered during the PIXL Auction). For each spread, also 
specify the percentage of contracts in orders of 50 contracts or 
greater submitted to the PIXL Auction that were traded by: (a) the 
Initiating Member that submitted the order to the PIXL Auction; (b) 
Phlx market makers assigned to the class; (c) other Phlx members; 
(d) Public Customer Orders; and (e) unrelated orders (orders in 
standard increments entered during the PIXL Auction). See Securities 
Exchange Act Release Nos. 63027 (October 1, 2010), 75 FR 62160 
(October 7, 2010) (SR-Phlx-2010-108) (initial order approving PIXL), 
65043 (August 5, 2011), 76 FR 49824 (August 11, 2011), (SR-Phlx-
2011-104) (order extending the PIXL pilot program through July 18, 
2012); 67399 (July 11, 2012), 77 FR 42048 (July 17, 2012) (SR-Phlx-
2012-94) (order extending the PIXL pilot program through July 18, 
2013). The PIXL pilot period is set to expire on July 18, 2013. See 
Rule 1080(n).
    \9\ In the order approving PIXL, the Exchange undertook to 
provide the Commission with the below information on a monthly basis 
during the pilot period in addition to the other pilot reports noted 
herein. The Exchange will provide Mini Options pilot reports for the 
following categories in addition to the reports noted above, except 
for reports requiring orders of 50 contracts the Exchange would 
instead provide reports for orders of 500 contracts with respect to 
Mini Options: (1) The number of times that the PBBO crossed the PIXL 
Order stop price on the same side of the market as the PIXL Order 
and prematurely ended the PIXL Auction, and at what time the PIXL 
Auction ended; (2) The number of times that a trading halt 
prematurely ended the PIXL auction and at what time the trading halt 
ended the PIXL Auction; (3) Of the Auctions terminated early due to 
the PBBO crossing the PIXL order stop price, the number that 
resulted in price improvement over the PIXL Order stop price, and 
the average amount of price improvement provided to the PIXL Order; 
(4) In the Auctions terminated early due to the PBBO crossing the 
PIXL order stop price, the percentage of contracts that received 
price improvement over the PIXL order stop price; (5) Of the 
Auctions terminated early due to a trading halt, the number that 
resulted in price improvement over the PIXL Order stop price, and 
the average amount of price improvement provided to the PIXL Order; 
(6) In the auctions terminated early due to a trading halt, the 
percentage of contracts that received price improvement over the 
PIXL order stop price; and (7) The average amount of price 
improvement provided to the PIXL Order when the PIXL Auction is not 
terminated early (i.e., runs the full one second). (8) The number of 
times an unrelated market or marketable limit order (against the 
PBBO) on the opposite side of the PIXL Order is received during the 
Auction Period; and (9) The price(s) at which an unrelated market or 
marketable limit order (against the PBBO) on the opposite side of 
the PIXL Order that is received during the Auction Period is 
executed, compared to the execution price of the PIXL Order. 
Regarding PIXL auto-match, the Exchange has undertaken to provide 
the following information on a monthly basis during the pilot 
period: (1) The percentage of all Phlx trades effected through the 
PIXL Auction in which the Initiating Member has chosen the auto-
match feature, and the average amount of price improvement provided 
to the PIXL Order when the Initiating Member has chosen the auto-
match feature vs. the average amount of price improvement provided 
to the PIXL Order when the Initiating Member has chosen a stop price 
submission. Regarding competition, the Exchange has undertaken to 
provide the following information on a monthly basis during the 
pilot period: (1) For the first Wednesday of each month: (a) The 
total number of PIXL auctions on that date; (b) the number of PIXL 
auctions where the order submitted to the PIXL was fewer than 50 
contracts; (c) the number of PIXL auctions where the order submitted 
to the PIXL was 50 contracts or greater; (d) the number of PIXL 
auctions (for orders of fewer than 50 contracts) with 0 participants 
(excluding the initiating participant), 1 participant (excluding the 
initiating participant), 2 participants (excluding the initiating 
participant), 3 participants (excluding the initiating participant), 
4 participants (excluding the initiating participant), etc., and (e) 
the number of PIXL auctions (for orders of 50 contracts or greater) 
with 0 participants (excluding the initiating participant), 1 
participant (excluding the initiating participant), 2 participants 
(excluding the initiating participant), 3 participants (excluding 
the initiating participant), 4 participants (excluding the 
initiating participant), etc.; and (2) For the third Wednesday of 
each month: (a) The total number of PIXL auctions on that date; (b) 
the number of PIXL auctions where the order submitted to the PIXL 
was fewer than 50 contracts; (c) the number of PIXL auctions where 
the order submitted to the PIXL was 50 contracts or greater; (d) the 
number of PIXL auctions (for orders of fewer than 50 contracts) with 
0 participants (excluding the initiating participant), 1 participant 
(excluding the initiating participant), 2 participants (excluding 
the initiating participant), 3 participants (excluding the 
initiating participant), 4 participants (excluding the initiating 
participant), etc., and (e) the number of PIXL auctions (for orders 
of 50 contracts or greater) with 0 participants (excluding the 
initiating participant), 1 participant (excluding the initiating 
participant), 2 participants (excluding the initiating participant), 
3 participants (excluding the initiating participant), 4 
participants (excluding the initiating participant), etc. See 
Securities Exchange Act Release Nos. 63027 (October 1, 2010), 75 FR 
62160 (October 7, 2010) (SR-Phlx–2010-108) (initial order 
approving PIXL), 65043 (August 5, 2011), 76 FR 49824 (August 11, 
2011), (SR-Phlx-2011-104) (order extending the PIXL pilot program 
through July 18, 2012); 67399 (July 11, 2012), 77 FR 42048 (July 17, 
2012) (SR-Phlx-2012-94) (order extending the PIXL pilot program 
through July 18, 2013). The PIXL pilot period is set to expire on 
July 18, 2013. See Rule 1080(n).
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    With respect to QCC Orders, Exchange Rule 1080(o) provides that a 
QCC Order is comprised of an order to buy or sell at least 1000 
contracts that is identified as being part of a qualified contingent 
trade, as that term is defined in subsection [sic] Rule 1080(o)(3), 
coupled with a contra-side order to buy or sell an equal number of 
contracts. The Exchange proposes to permit Mini Option QCC Orders to be 
defined as an order to buy or sell at least 10,000 contracts, instead 
of 1,000 contracts. The Exchange proposes to add text to Rule 1080(o) 
and Rule 1064(e) to note the different quantity required to transact 
QCC Orders in Mini Options.
    The Exchange proposes to commence trading Mini Options on March 28, 
2013.\10\ The Exchange will not commence trading of Mini Options 
contracts until specific fees for Mini Options contracts trading have 
been filed with the Commission.
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    \10\ The Exchange noted in SR-Phlx-2012-126 that it would not 
commence trading of Mini Option contracts until specific fees for 
Mini Options contracts trading have been filed with the Commission. 
See Securities Exchange Act Release No. 68132 (November 1, 2012), 77 
FR 66904 (November 7, 2012) (SR-Phlx-2012-126). The Exchange has 
filed such fees. See SR-Phlx-2013-35 (not yet published).
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2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with the provisions of Section 6 of the Securities and [sic] Exchange 
Act of 1934 (``Exchange Act''),\11\ in general, and with Section 
6(b)(5) of the Exchange Act,\12\ 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 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.
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    \11\ 15 U.S.C. 78f.
    \12\ 15 U.S.C. 78f(b)(5).
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    Specifically, the Exchange believes that investors and other market 
participants would benefit from the current rule proposal because it 
would allow market participants to take advantage of legitimate 
investment strategies and execute PIXL Orders and QCC Orders in Mini 
Options. Additionally, the Exchange believes the proposed rule change 
will avoid investor confusion by clarifying how Mini Options will trade 
the same or different as compared to standard options with respect to 
PIXL Orders and QCC Orders.
    The Exchange believes that trading PIXL Orders in Mini Options and 
standard options in the same manner will avoid investor confusion. 
Also, the Exchange believes that the current PIXL rules in Rule 1080(n) 
as applied to Mini Options will promote just and equitable principles 
of trade and continue to permit fair competition. The Exchange does not 
believe treating Mini Option and standard option PIXL Orders in a like 
manner creates any unfair disadvantage to investors.
    The Exchange believes that adjusting the quantity of a QCC Orders 
[sic] in Rule 1080(o) (applicable to electronic orders) and Rule 
1064(e) (applicable to floor orders) from 1,000 to 10,000 contracts 
with respect to QCC Orders will protect investors by maintaining the 
same number of underlying securities for Mini Options as with standard 
options. The Exchange believes that maintaining the same number of 
underlying securities will prevent unfair discrimination among market 
participants. All members are eligible to transact PIXL Orders and QCC 
Orders on Phlx.

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. All members may transact PIXL 
Orders and QCC Orders on Phlx. The rule change does not permit unfair 
discrimination and does not impose a burden on Members with respect to 
trading Mini Options.

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: (1) Does not 
significantly affect the protection of investors or the public 
interest; (2) does not impose any significant burden on competition; 
and (3) by its terms does not become operative for 30 days after the 
date of this filing, or such shorter time as the Commission may 
designate if consistent with the protection of investors and the public 
interest, the proposed rule change has become effective pursuant to 
Section 19(b)(3)(A) of the Act \13\ and Rule 19b-4(f)(6) 
thereunder.\14\
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    \13\ 15 U.S.C. 78s(b)(3)(A).
    \14\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)(iii) 
requires a self-regulatory organization to provide the Commission 
with written notice of its intent to file the proposed rule change, 
along with a brief description and text of 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 fulfilled this requirement.
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    A proposed rule change filed under Rule 19b-4(f)(6) normally does 
not become operative for 30 days after the date of filing. However, 
Rule 19b-4(f)(6)(iii) permits the Commission to designate a shorter 
time if such action is consistent with the protection of investors and 
the public interest. The Exchange requests that the Commission

[[Page 19559]]

waive the 30-day operative delay so that the proposed rule change may 
coincide with the anticipated launch of trading in Mini Options on the 
Exchange. The Commission believes that waiving the 30-day operative 
delay is consistent with the protection of investors and the public 
interest.\15\ Waiver of the operative delay will allow the Exchange to 
implement its proposal consistent with the anticipated commencement of 
trading in Mini Options on the Exchange on March 28, 2013. For these 
reasons, the Commission designates the proposed rule change as 
operative upon filing.
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    \15\ For purposes only of waiving the 30-day operative delay, 
the Commission has also considered the proposed rule's impact on 
efficiency, competition, and capital formation. See 15 U.S.C. 
78c(f).
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    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.

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-2013-36 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-2013-36. 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-2013-36 and should be 
submitted on or before April 22, 2013.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\16\
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    \16\ 17 CFR 200.30-3(a)(12).
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Elizabeth M. Murphy,
Secretary.
[FR Doc. 2013-07477 Filed 3-29-13; 8:45 am]
BILLING CODE 8011-01-P