Document ID: SEC-2010-1563-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: NASDAQ OMX PHLX LLC
Posted Date: 2010-10-14T04:00Z

[Federal Register: October 14, 2010 (Volume 75, Number 198)]
[Notices]               
[Page 63225-63227]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr14oc10-123]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-63050; File No. SR-Phlx-2010-137]

 
Self-Regulatory Organizations; NASDAQ OMX PHLX LLC; Notice of 
Filing and Immediate Effectiveness of Proposed Rule Change Regarding 
Anti-Internalization Functionality for NASDAQ OMX PSX

October 6, 2010.
    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 September 30, 2010, NASDAQ OMX PHLX LLC (``Phlx'' or the 
``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 amend Phlx Rule 3307 to provide an 
optional anti-internalization functionality on NASDAQ OMX PSX 
(``PSX''). The text of the proposed rule change is available from the 
Exchange's Web site at http://nasdaqomxphlx.cchwallstreet.com, at the 
Exchange's principal office, 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. The 
text of these statements may be examined at the places specified in 
Item IV below, and is set forth in Sections A, B, and C below.

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

1. Purpose
    The Exchange is proposing to provide a voluntary anti-
internalization function for the PSX System. Under the proposal, market 
participants entering orders under a specific market participant 
identifier (``MPID'') may voluntarily direct that they not execute 
against other orders entered into the System under the same MPID.
    Under the proposal, the System, if requested, will not execute 
orders entered under the same MPID against each other. Instead, the 
System will execute against all eligible trading interest of other 
market participants, in accordance with PSX's price-size execution 
priority, up to the point where an incoming order would interact with a 
resting order having the same MPID. In such a case, share amounts equal 
to the size of the portion of an incoming order that is designated by 
the order execution algorithm to interact with an order already in the 
System with the same MPID will be decremented from each order.
    For example, if market participant ABCD had an order to sell 1,000 
shares at $10 on the book, entered an order to buy 1,000 shares at $10, 
and the System allocated 100 shares of the incoming order to the 
resting ABCD order and 900 shares to other market participants' orders, 
the System would execute the 900 shares allocated to other market 
participants and would decrement, without execution, the remaining 100 
shares of the incoming order as well as 100 shares from ABCD's resting 
order. Similarly, if ABCD had a resting order to sell 2,000 shares at 
$10, entered an order to buy 500 shares at $10, and the System 
allocated all 500 shares to the resting ABCD order, the System would 
cancel the incoming order and

[[Page 63226]]

decrement the resting order by 500 shares.
    Anti-internalization functionality is designed to assist market 
participants in complying with certain rules and regulations of the 
Employee Retirement Income Security Act (``ERISA'') that preclude and/
or limit managing broker-dealers of such accounts from trading as 
principal with orders generated for those accounts. It can also assist 
market participants in reducing execution fees potentially resulting 
from the interaction of executable buy and sell trading interest from 
the same firm. The Exchange notes that use of the functionality does 
not relieve or otherwise modify the duty of best execution owed to 
orders received from public customers. As such, market participants 
using anti-internalization functionality will need to take appropriate 
steps to ensure that public customer orders that do not execute because 
of the use of anti-internalization functionality ultimately receive the 
same execution price (or better) that they would have originally 
obtained if execution of the order was not inhibited by the 
functionality.
2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with the provisions of Section 6 of the Act,\3\ in general, and with 
Sections 6(b)(5) of the Act,\4\ 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. The Exchange 
notes that similar functionality has previously been approved for The 
NASDAQ Stock Market LLC (the ``NASDAQ Exchange'').\5\
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    \3\ 15 U.S.C. 78f.
    \4\ 15 U.S.C. 78f(b)(5).
    \5\ NASDAQ Exchange Rule 4757(a)(4).
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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 that is 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

    Written comments were neither solicited nor received.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    Because the foregoing proposed rule change does not: (1) 
Significantly affect the protection of investors or the public 
interest; (2) impose any significant burden on competition; and (3) 
become operative for 30 days from the date on which it was filed, or 
such shorter time as the Commission may designate if consistent with 
the protection of investors and the public interest, it has become 
effective pursuant to Section 19(b)(3)(A) of the Act \6\ and Rule 19b-
4(f)(6) thereunder.\7\
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    \6\ 15 U.S.C. 78s(b)(3)(A).
    \7\ 17 CFR 240.19b-4(f)(6). In addition, Phlx has given the 
Commission 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 on which the 
Exchange filed the proposed rule change.
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    A proposed rule change filed under Rule 19b-4(f)(6) normally may 
not become operative prior to 30 days after the date of filing.\8\ 
However, Rule 19b-4(f)(6) \9\ 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 waive the 30-day operative delay so that the benefits of 
this functionality to PSX market participants expected from the rule 
change can be implemented on or about October 8, 2010, when the 
Exchange expects to launch trading on PSX and have the technological 
changes in place to support the proposed rule change. The Commission 
notes that the proposal is similar to rules adopted by other 
exchanges.\10\ For these reasons, the Commission believes it is 
consistent with the protection of investors and the public interest to 
waive the 30-day operative delay, and hereby grants such waiver.\11\
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    \8\ 17 CFR 240.19b-4(f)(6)(iii).
    \9\ Id.
    \10\ NASDAQ Exchange Rule 4757(a)(4), BATS Exchange Rule 11.9(f) 
and NYSE ArcaEquities Rule 7.31(qq).
    \11\ For the purposes only of waiving the operative date of this 
proposal, the Commission has 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 such 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 e-mail to rule-comments@sec.gov. Please include 
File Number SR-Phlx-2010-137 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-2010-137. 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,\12\ 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 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

[[Page 63227]]

information that you wish to make available publicly. All submissions 
should refer to File Number SR-Phlx-2010-137 and should be submitted on 
or before November 4, 2010.
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    \12\ The text of the proposed rule change is available on 
Exchange's Web site at http://nasdaqtrader.com/
micro.aspx?id=PHLXfilings, on the Commission's website at http://
www.sec.gov, at Phlx, and at the Commission's Public Reference Room.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\13\
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    \13\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
[FR Doc. 2010-25808 Filed 10-13-10; 8:45 am]
BILLING CODE 8011-01-P