Document ID: SEC-2013-0584-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: NASDAQ OMX PHLX LLC
Posted Date: 2013-03-26T04:00Z

[Federal Register Volume 78, Number 58 (Tuesday, March 26, 2013)]
[Notices]
[Pages 18386-18393]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2013-06880]

[[Page 18386]]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-69194; File No. SR-Phlx-2013-24]

Self-Regulatory Organizations; NASDAQ OMX PHLX LLC; Notice of 
Filing of Proposed Rule Change To Adopt a Price/Display/Time Priority 
Algorithm, Permit the Registration of Market Makers, and Amend the 
Order Types Available on PSX

March 20, 2013.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(the ``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given 
that on March 8, 2013, NASDAQ OMX PHLX LLC (``Phlx'' or ``Exchange'') 
filed with the Securities and Exchange Commission (``Commission'') the 
proposed rule change, which filing was amended and replaced in its 
entirety by Amendment No. 1 thereto on March 18, 2013, 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 modify certain aspects of the operation of 
NASDAQ OMX PSX (``PSX''). The text of the proposed rule change is 
available at http://nasdaqomxphlx.cchwallstreet.com/nasdaqomxphlx/phlx/
, 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 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
    In 2010, Phlx launched PSX as a new platform for trading NMS 
stocks,\3\ using a novel price/size pro rata model for allocating the 
execution of incoming orders against orders resting on the PSX book.\4\ 
Phlx anticipated that this market model would gain traction as an 
alternative to a national market structure in which the prevailing 
price/time model places an emphasis on the speed with which market 
participants can route and cancel orders as the means to optimize their 
executions. Unfortunately, the price/size execution model has been only 
marginally successful in garnering market share, primarily due to the 
risk of a large execution at a stale price that a market participant 
would face if unable to adjust the prices of its posted orders quickly. 
Accordingly, Phlx has decided to adopt a price/time model for PSX. In 
addition, Phlx is proposing to allow member organizations to register 
as market makers on PSX, provided they satisfy two-sided quoting and 
market quality requirements associated with that status. Finally, Phlx 
is proposing to introduce midpoint peg post-only orders, and price to 
comply post orders; to adjust the operation of minimum quantity orders 
and post-only orders; and to eliminate minimum life orders. In all 
material respects, the rules as adjusted by this proposed rule change 
will be identical to rules in effect at The NASDAQ Stock Market 
(``NASDAQ'') and/or NASDAQ OMX BX, Inc. (``BX''). Phlx proposes to 
implement the change as soon as practicable following Commission 
approval. This Amendment No. 1 to the original filing corrects several 
minor typographical errors in the original filing and provides 
additional explanation with respect to the purpose and effect of some 
of the proposed rule changes.
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    \3\ Defined in SEC Rule 600 under Regulation NMS, 17 CFR 
242.600, to mean any security or class of securities (other than an 
option) for which transaction reports are collected, processed, and 
made available pursuant to an effective transaction reporting plan.
    \4\ Securities Exchange Act Release No. 62877 (September 9, 
2010), 75 FR 56633 (September 16, 2010) (SR-Phlx-2010-79).
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Order Processing Algorithm
    The order processing algorithm currently in use at PSX allocates 
the execution of incoming orders against posted liquidity in following 
order:
    (1) Price. Better priced orders are executed first.
    (2) Pro-Rata Allocation to Size Among Displayed Orders with a Size 
of One Round Lot or More. As among equally priced Displayed Orders with 
a size of at least one round lot, PSX allocates the round lot portions 
of incoming executable orders pro rata based on the size of the 
Displayed Orders. Portions of an order that would be executed in a size 
other than a round lot if they were allocated pro rata are allocated on 
the basis of a random function that assigns probability of execution 
based on the size of displayed interest.
    (3) Displayed Odd-Lot Orders. As among equally priced Displayed 
Orders with a size of less than one round lot, PSX allocates incoming 
orders based on the size of the Displayed Orders, but not in pro rata 
fashion. If there are two or more such orders of equal size, PSX 
determines the order of execution on the basis of a random function 
that assigns each order an equal probability of execution.
    (4) Pro-Rata Allocation to Size Among Non-Displayed Interest with a 
Size of One Round Lot or More. As among equally priced Non-Displayed 
Orders and the reserve portion of Reserve Orders (collectively, ``Non-
Displayed Interest'') with a size of at least one round lot, PSX 
allocates round lot portions of incoming executable orders to Non-
Displayed Interest pro rata based on the size of the Non-Displayed 
Interest. Portions of an order that would be executed in a size other 
than a round lot if they were allocated pro rata are allocated on the 
basis of a random function that assigns probability of execution based 
on the size of Non-Displayed Interest.
    (5) Minimum Quantity Orders. As among equally priced Minimum 
Quantity Orders, PSX allocates incoming executable orders in the 
ascending order of the size of the minimum quantity conditions assigned 
to the orders. If there are two or more Minimum Quantity Orders with an 
equal minimum quantity condition, the System will determine the order 
of execution on the basis of a random function that assigns each order 
an equal probability of execution.
    (6) Non-Displayed Odd-Lot Orders. As among equally priced Non-
Displayed Interest with a size of less than one round lot, PSX 
allocates incoming orders based on the size of the Non-Displayed 
Interest, but not in pro rata fashion. If there are two or more such 
orders of equal size, PSX determines the order of execution on the 
basis of a random functions that assigns each order an equal 
probability of execution.
    Phlx is amending Rule 3307, and making conforming changes to Rule

[[Page 18387]]

3306, to replace this algorithm with a straightforward price/display/
time priority algorithm that is substantively identical to 
corresponding rules in effect at NASDAQ and BX. The modified algorithm 
is as follows:
    (1) Price. Better priced orders are executed first.
    (2) Displayed Orders. As among equally priced Displayed Orders, the 
first to arrive on the book is executed first.
    (3) Non-Displayed Orders and the Reserve Portion of Quotes \5\ and 
Reserve Orders. As among equally priced Non-Displayed Orders and the 
reserve portion of Quotes and Reserve Orders, the first to arrive on 
the books is executed first.
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    \5\ As discussed below, PSX will introduce quoting functionality 
in support of the introduction of market makers.
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    PSX rules currently provide for an anti-internalization exception 
to the algorithm, designed to allow a PSX Participant to prevent its 
own orders from interacting with each other. Phlx is modifying this 
exception so that it conforms to a similar exception in effect at 
NASDAQ and BX. Specifically, the rules of all three exchanges currently 
provide that a market participant may direct that orders not execute 
against orders entered under the same market participant identifier 
(``MPID''), or under the same MPID and with a unique group 
identification modifier (for example, by grouping all orders entered 
through a particular order entry port). In other words, the market 
participant may limit interaction among all orders under the MPID, or 
only an identified subset of orders. Under current PSX rules, if two 
orders that are not permitted to interact with each other are matched 
through the order execution algorithm, the orders are decremented by 
share amounts equal to the size of the portion of the incoming order 
that is designated to interact with a posted order. Thus, if 100 shares 
of an incoming order to buy 200 shares are designated to execute 
against a posted order to sell 1,000 shares, and the two orders have 
been marked not to execute against each other, the incoming order and 
the posted order will each by decremented by 100 shares. The orders are 
decremented to reflect that the Participant, having adopted anti-
internalization protection, does not intend to buy shares that it is 
simultaneously selling. The revisions to the rule retain this logic, 
but give the Participant additional choice as to how the conflict 
should be resolved. First, the Participant may opt for the same 
treatment as currently provided by PSX, although the revised rule text 
reflects the change in order execution algorithm by providing that if 
the two orders are the same size, they will both be cancelled, while if 
one is larger, the smaller of the two is cancelled and the larger is 
decremented and retained. This changed language reflects the fact that 
in a price/time algorithm, an incoming order will be executed to the 
maximum extent possible against orders on the book in price/time 
sequence, whereas under the current algorithm, an incoming order may be 
allocated across multiple resting orders based on their size. 
Alternatively, a Participant may opt to have the oldest of the two 
orders cancelled in full, regardless of the respective sizes of the 
orders. The Participant may make this election across an entire MPID, 
or may differentiate among order entry ports associated with the MPID.
Market Making
    Phlx is proposing to adopt rules that are already in effect at 
NASDAQ and/or BX to allow member organizations that are PSX 
Participants to register and act as market makers. Following the 
effectiveness of the proposed changes, Phlx plans to introduce programs 
designed to encourage PSX Participants to register as market makers, 
with the goal of enhancing the liquidity and market quality of trading 
on PSX.
    Proposed Rule 3212 provides that quotations and quotation sizes may 
be entered into PSX only by a member organization registered as a PSX 
Market Maker or other entity approved by the Exchange to function in a 
market-making capacity. A PSX Market Maker may become registered in an 
issue by entering a registration request via an Exchange approved 
electronic interface with PSX's systems or by contacting PSX Market 
Operations. Registration shall become effective on the day the 
registration request is entered. A PSX Market Maker's registration in 
an issue shall be terminated by the Exchange if the market maker fails 
to enter quotations in the issue within five (5) business days after 
the market maker's registration in the issue becomes effective. The 
rule is intended to provide a flexible means by which member 
organizations may register as market makers, while ensuring that they 
make prompt use of such registration.
    Proposed amendments to Rule 3217 provide that all PSX Market Makers 
must be open during regular market hours (9:30 a.m. through 4:00 
p.m.).\6\ PSX Market Makers are also permitted to operate during pre-
market (8:00 a.m. through 9:30 a.m.) and post-market (4:00 p.m. to 5:00 
p.m.) hours. PSX Market Makers must comply with rules governing 
quotations at all times that their quotes are open, unless a rule is 
inapplicable to pre-market or post-market hours.
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    \6\ All times are Eastern Time.
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    Proposed amendments to Rule 3213 impose quoting obligations on PSX 
Market Makers identical to those in effect at NASDAQ and BX. Under the 
amended rule, a member organization registered as a Market Maker is 
required to engage in a course of dealings for its own account to 
assist in the maintenance, insofar as reasonably practicable, of fair 
and orderly markets in accordance with this Rule. In accordance with 
the requirement, the rule specifically requires a member organization 
registered as a Market Maker in a particular security to be willing to 
buy and sell such security for its own account on a continuous basis 
during regular market hours and to enter and maintain a two-sided 
trading interest (``Two-Sided Obligation'') that is identified to the 
Exchange as the interest meeting the obligation and is displayed in 
PSX's quotation montage at all times. Interest eligible to be 
considered as part of a Market Maker's Two-Sided Obligation must have a 
displayed quotation size of at least one normal unit of trading \7\ (or 
a larger multiple thereof); provided, however, that a Market Maker may 
augment its Two-Sided Obligation size to display limit orders priced at 
the same price as the Two-Sided Obligation. After an execution against 
its Two-Sided Obligation, a Market Maker must ensure that additional 
trading interest exists in PSX to satisfy its Two-Sided Obligation 
either by immediately entering new interest to comply with this 
obligation to maintain continuous two-sided quotations or by 
identifying existing interest on the PSX book that will satisfy this 
obligation.
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    \7\ Unless otherwise designated, 100 shares.
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    For NMS stocks a Market Maker shall adhere to certain pricing 
obligations established by the rule, which are premised on entering 
quotation prices that are not more than a ``Designated Percentage'' \8\ 
away from the National

[[Page 18388]]

Best Bid or Best Offer \9\ (as applicable), and that must be refreshed 
if a change in the National Best Bid or Best Offer causes the quotation 
price to be more than a ``Defined Limit'' \10\ away from the National 
Best Bid or Best Offer.\11\ As described below, the applicable 
Designated Percentage and Defined Limit depends [sic] on the specific 
security traded and the time of day. For bid quotations, at the time of 
entry of bid interest satisfying the Two-Sided Obligation, the price of 
the bid interest may not be more than the applicable Designated 
Percentage away from the then current National Best Bid, or if no 
National Best Bid, not more than the Designated Percentage away from 
the last reported sale from the responsible single plan securities 
information processor. In the event that the National Best Bid (or if 
no National Best Bid, the last reported sale) increases to a level that 
would cause the bid interest of the Two-Sided Obligation to be more 
than the Defined Limit away from the National Best Bid (or if no 
National Best Bid, the last reported sale), or if the bid is executed 
or cancelled, the Market Maker shall enter new bid interest at a price 
not more than the Designated Percentage away from the then current 
National Best Bid (or if no National Best Bid, the last reported sale), 
or identify to the Exchange current resting interest that satisfies the 
Two-Sided Obligation. Similarly, for offer quotations, at the time of 
entry of offer interest satisfying the Two-Sided Obligation, the price 
of the offer interest may not be more than the Designated Percentage 
away from the then current National Best Offer, or if no National Best 
Offer, not more than the Designated Percentage away from the last 
reported sale received from the responsible single plan securities 
information processor. In the event that the National Best Offer (or if 
no National Best Offer, the last reported sale) decreases to a level 
that would cause the offer interest of the Two-Sided Obligation to be 
more than the Defined Limit away from the National Best Offer (or if no 
National Best Offer, the last reported sale), or if the offer is 
executed or cancelled, the Market Maker shall enter new offer interest 
at a price not more than the Designated Percentage away from the then 
current National Best Offer (or if no National Best Offer, the last 
reported sale), or identify to the Exchange current resting interest 
that satisfies the Two-Sided Obligation.
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    \8\ The ``Designated Percentage'' is: (i) 8% for securities 
included in the S&P 500[supreg] Index, Russell 1000[supreg] Index, 
and a pilot list of Exchange Traded Products (``Tier 1 
Securities''); (ii) 28% for all NMS stocks that are not Tier 1 
Securities with a price equal to or greater than $1 (``Tier 2 
Securities''); (iii) 30% for all NMS stocks that are not Tier 1 
Securities with a price less than $1 (``Tier 3 Securities''), except 
that between 9:30 a.m. and 9:45 a.m. and between 3:35 p.m. and the 
close of trading, the Designated Percentage is 20% for Tier 1 
Securities, 28% for Tier 2 Securities, and 30% for Tier 3 
Securities. The Designated Percentage for rights and warrants is 
30%. The pilot list of Exchange Traded Products for Tier 1 
Securities is attached as Exhibit 3 to this filing.
    \9\ Determined by the Exchange in accordance with its procedures 
for determining Protected Quotations under SEC Rule 600 under 
Regulation NMS.
    \10\ The ``Defined Limit'' is 9.5% for Tier 1 Securities, 29.5% 
for Tier 2 Securities, and 31.5% for Tier 3 Securities, except that 
between 9:30 a.m. and 9:45 a.m. and between 3:35 p.m. and the close 
of trading, the Defined Limit is 21.5% for Tier 1 Securities, 29.5% 
for Tier 2 Securities, and 31.5% for Tier 3 Securities.
    \11\ Nothing in the rule precludes a PSX Market Maker from 
quoting at price levels that are closer to the National Best Bid and 
Offer than the levels required by the rule.
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    The pricing obligations established by the Rule apply during 
regular trading hours (i.e., 9:30 a.m. to 4:00 p.m.); but do not 
commence during any trading day until after the first regular way 
transaction on the primary listing market in the security. Moreover, 
the obligations are suspended during a trading halt, suspension, or 
pause, and do not re-commence until after the first regular way 
transaction on the primary listing market in the security following 
such halt, suspension, or pause, as reported by the responsible single 
plan processor.
    The individual MPID assigned to a member organization to meet its 
Two-Sided Obligation pursuant to the Rule, or Rule 3223,\12\ is 
referred to as the member organization's ``Primary MPID.'' Market 
Makers and ECNs may request the use of additional MPIDs that shall be 
referred to as ``Supplemental MPIDs.'' A Market Maker may request the 
use of Supplemental MPIDs for displaying Attributable Quotes/Orders 
\13\ in the PSX Quotation Montage for any security in which it is 
registered and meets the obligations set forth in subparagraph (1) of 
this rule. An ECN may request the use of Supplemental MPIDs for 
displaying Attributable Quotes/Orders in the PSX Quotation Montage for 
any security in which it meets the obligations set forth in Rule 3223. 
A Market Maker or ECN that ceases to meet the obligations appurtenant 
to its Primary MPID in any security shall not be permitted to use a 
Supplemental MPID for any purpose in that security.\14\
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    \12\ An existing rule governing the use of PSX by electronic 
communications networks (``ECNs'') and other forms of alternative 
trading systems to display orders.
    \13\ A Quote/Order whose price and size is displayed next to the 
Market Maker's MPID in the publicly disseminated quotation montage.
    \14\ Market Makers and ECNs that are permitted the use of 
Supplemental MPIDs for displaying Attributable Quotes/Orders are 
subject to the same rules applicable to their first quotation, with 
two exceptions: (a) The continuous two-sided quote requirement and 
excused withdrawal procedures do not apply to Market Makers' 
Supplemental MPIDs; and (b) Supplemental MPIDs may not be used by 
Market Makers to enter stabilizing bids pursuant to Rule 3214.
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    As provided in new Rule 3213(c), if a PSX Market Maker's ability to 
enter or update quotations is impaired, the market maker must 
immediately contact PSX Market Operations to request a withdrawal of 
its quotations. If the market maker elects to remain in PSX when its 
ability to update quotations is impaired, it must nevertheless execute 
orders presented for execution against its disseminated quotations.
    The procedures for withdrawal of quotations are governed by 
proposed new Rule 3219. In general, a market maker that wishes to 
withdraw quotations in a security must contact the Exchange's 
MarketWatch Department to obtain excused withdrawal status prior to 
withdrawing its quotations. Withdrawals of quotations shall be granted 
by MarketWatch only upon satisfying one of the conditions specified in 
this Rule. An exception to the requirement for prior approval will 
exist for withdrawal based on a PSX Market Maker's systemic equipment 
problems, such as defects in software or hardware systems or 
connectivity problems associated with the circuits connecting PSX 
systems with the PSX Market Maker's systems. In that case, the market 
maker must promptly contact Exchange Market Operations and may receive 
excused withdrawal status for up to five (5) business days (unless 
extended by Exchange Market Operations).
    For other circumstances beyond the market maker's control, a PSX 
Market Maker that wishes to withdraw quotations must contact the 
Exchange's MarketWatch Department to obtain excused withdrawal status 
prior to withdrawing its quotations.\15\ Excused withdrawal status 
based on illness, vacations or physical circumstances beyond the PSX 
Market Maker's control may be granted for up to five (5) business days, 
unless extended by MarketWatch. Excused withdrawal status based on 
investment activity or advice of legal counsel, accompanied by a 
representation that the condition necessitating the withdrawal of 
quotations is not permanent in nature, may, upon written request, be 
granted for not more than sixty (60) days. The withdrawal of quotations 
because of pending news, a sudden influx of orders or price changes, or 
to effect transactions with competitors shall not normally constitute 
acceptable reasons for granting excused withdrawal status, unless the 
Exchange has initiated a

[[Page 18389]]

trading halt for market makers in the security, pursuant to Rule 3100.
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    \15\ It should be noted that because PSX does not currently, and 
does not at this time propose to list securities, the applicable 
rule does not establish different standards for excused withdrawals 
depending the listing venue of the security in question. Cf. NASDAQ 
Stock Market Rule 4619 (imposing different standards for excused 
withdrawal of quotations in NASDAQ-listed securities and securities 
listed on other exchanges).
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    Excused withdrawal status may also be granted to a PSX Market Maker 
that fails to maintain a clearing arrangement with a registered 
clearing agency or with a member of such an agency and is withdrawn 
from participation in the trade reporting service of PSX, thereby 
terminating its registration as a PSX Market Maker; provided, however, 
that if the Exchange finds that the market maker's failure to maintain 
a clearing arrangement is voluntary, the withdrawal of quotations will 
be considered voluntary and unexcused. PSX Market Makers that fail to 
maintain a clearing relationship will have their PSX system status set 
to ``suspend'' and be thereby prevented from entering, or executing 
against, any quotes/orders in the system.
    Proposed Rule 3220 will govern voluntary termination of a PSX 
Market Maker's registration. A market maker may voluntarily terminate 
its registration in a security by withdrawing its two-sided quotation 
from PSX. A PSX Market Maker that voluntarily terminates its 
registration in a security may not re-register as a market maker for 
one (1) business day.\16\
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    \16\ By contrast, under the NASDAQ Stock Market's corresponding 
rule (NASDAQ Rule 4620), a market maker withdrawing from a NASDAQ-
listed security may not re-register in that security for a period of 
20 days, but is subject to a one-day exclusion for securities not 
listed on NASDAQ. Because PSX does not currently, and does not at 
this time propose to list securities, the proposed one-day exclusion 
period is comparable to the rule in effect at NASDAQ for securities 
traded on an unlisted trading privileges basis.
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    Notwithstanding the above, a PSX Market Maker that accidentally 
withdraws as a PSX Market Maker may be reinstated immediately if:
     The PSX Market Maker notified the Exchange's MarketWatch 
Department of the accidental withdrawal as soon as practicable under 
the circumstances, but within at least one hour of such withdrawal, and 
immediately thereafter provided written notification of the withdrawal 
and reinstatement request;
     It is clear that the withdrawal was inadvertent and the 
market maker was not attempting to avoid its market making obligations; 
and
     The PSX Market Maker's firm would not exceed the following 
reinstatement limitations: (i) For firms that simultaneously made 
markets in less than 250 stocks during the previous calendar year, the 
firm can receive no more than two (2) reinstatements per year; (ii) for 
firms that simultaneously made markets in 250 or more but less than 500 
stocks during the previous calendar year, the firm can receive no more 
than three (3) reinstatements per year; and (iii) for firms that 
simultaneously made markets in 500 or more stocks during the previous 
calendar year, the firm can receive no more than six (6) reinstatements 
per year.

Factors that the Exchange will consider in granting a reinstatement 
under the rule include, but are not limited to: The number of 
accidental withdrawals by the PSX Market Maker in the past, as compared 
with PSX Market Makers making markets in a comparable number of stocks; 
the similarity between the symbol of the stock that the PSX Market 
Maker intended to withdraw from and the symbol of the stock that the 
PSX Market Maker actually withdrew from; market conditions at the time 
of the withdrawal; whether, given the market conditions at the time of 
the withdrawal, the withdrawal served to reduce the exposure of the 
market maker's position in the security at the time of the withdrawal 
to market risk; and the timeliness with which the PSX Market Maker 
notified MarketWatch of the error.
    A market maker will not be deemed to have voluntarily terminated 
its registration in a security by voluntarily withdrawing its two-sided 
quotation from PSX if the PSX Market Maker's two-sided quotation in the 
subject security is withdrawn by the Exchange's systems due to issuer 
corporate action related to a dividend, payment or distribution, or due 
to a trading halt, and one of the following conditions is satisfied: 
The PSX Market Maker enters a new two-sided quotation prior to the 
close of the regular market session on the same day when the Exchange's 
systems withdrew such a quotation; the PSX Market Maker enters a new 
two-sided quotation on the day when trading resumes following a trading 
halt, or, if the resumption of trading occurs when the market is not in 
regular session, the PSX Market Maker enters a new two-sided quotation 
prior to the opening of the next regular market session; or upon 
request from the market maker, MarketWatch authorizes the market maker 
to enter a new two-sided quotation, provided that MarketWatch receives 
the market maker's request prior to the close of the regular market 
session on the next regular trading day after the day on which the 
market maker became eligible to re-enter a quotation and determines 
that the market maker was not attempting to avoid its market making 
obligations by failing to re-enter such a quotation earlier.
    Under Rule [sic] 3219 and 3220, the Market Operations Review 
Committee will have jurisdiction over proceedings brought by market 
makers seeking review of the denial of an excused withdrawal, the 
conditions imposed upon a market maker's re-entry, and the denial of a 
reinstatement following an unexcused withdrawal.
    With respect to securities that are the subject of offerings 
governed by SEC Regulation M,\17\ the Exchange is also proposing to 
adopt several rules. Proposed Rule 3214 governs the entry of 
stabilizing bids, providing that a PSX Market Maker that intends to 
stabilize the price of a security that is a subject or reference 
security under SEC Rule 101 under Regulation M \18\ must submit a 
request to the Exchange's MarketWatch Department for entry of a one-
sided bid identified as a stabilizing bid. Proposed Rule 3219(e) 
governs excused withdrawals based on status as a distribution 
participant or affiliated purchaser within the meaning of Regulation M. 
The rule provides that a PSX Market Maker may be excused from two-sided 
quoting obligations in circumstances where a withdrawal of its 
quotations is necessary to comply with Regulation M by providing 
appropriate notice to the Exchange's MarketWatch Department. Proposed 
Rule 3224 governs imposition of penalty bids or engaging in syndicate 
covering transactions, providing that a PSX Market Maker acting as a 
manager (or in a similar capacity) of a distribution of a security that 
is a subject or reference security under SEC Rule 101 under Regulation 
M \19\ must provide appropriate notice to the Corporate Financing 
Department of the Financial Industry Regulatory Authority (``FINRA'') 
of its transactions pursuant to SEC Rule 104 under Regulation M \20\ 
prior to imposing the penalty bid or engaging in the first covering 
transaction. Proposed Rule 3203 adopts associated definitions of terms 
used in, or in reference to, Regulation M. Although the Exchange 
expects these rules to be used rarely, if at all, given the fact that 
the Exchange does not intend to list securities, the rules may have 
applicability in limited circumstances where an Exchange member 
organization is acting in support of an offering on another exchange or 
is affiliated with a member of another exchange that is participating 
in an offering. Accordingly, the Exchange is adopting rules on these 
topics that are materially identical to

[[Page 18390]]

corresponding rules on NASDAQ and BX, with the exception of rules 
pertaining to compliance with SEC Rule 103 under Regulation M,\21\ 
which, by its terms, applies exclusively to the NASDAQ Stock Market.
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    \17\ SEC Rules 100-105 under Regulation M, 17 CFR 242.100-
242.105.
    \18\ 17 CFR 242.101.
    \19\ Id.
    \20\ 17 CFR 242.104.
    \21\ 17 CFR 242.103.
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    Phlx is also amending Rule 3230, which governs trading in 
Commodity-Related Securities,\22\ to adopt provisions governing the 
activities of marker [sic] makers in Commodity-Related Securities. The 
rule is designed to ensure that trading in a Commodity-Related Security 
by a market maker is not improperly influenced by information about 
trading in the underlying commodity from within the market maker's 
firm. Under the rule, which is identical to rules in effect [sic] 
NASDAQ and BX, a member organization acting as a registered market 
maker in a Commodity-Related Security must establish adequate 
information barriers when such market maker engages in inter-
departmental communications.\23\ For purposes of a Commodity-Related 
Security only, ``inter-departmental communications'' include 
communications to other departments within the same firm or the firm's 
affiliates that involve trading in commodities, futures contracts, 
options on futures contracts, forward contracts, commodity swaps, or 
other related derivatives underlying such Commodity-Related Security.
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    \22\ A ``Commodity-Related Security'' is a security that is 
issued by a trust, partnership, commodity pool or similar entity 
that invests, directly or through another entity, in an combination 
of commodities, futures contracts, options on futures contracts, 
forward contracts, commodity swaps, or other related derivatives, or 
the value of which is determined by the value of commodities, 
futures contracts, options on futures contracts, forward contracts, 
commodity swaps, or other related derivatives.
    \23\ Member organizations should refer to NASD/NYSE Joint Memo 
on Chinese Wall Policies and Procedures (NASD Notice to Members 91-
45) for guidance on the `` `minimum elements' of adequate Chinese 
Wall policy and procedures.''
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    A member organization acting as a registered market maker in a 
Commodity-Related Security must file with the Exchange's Regulation 
Department in a manner prescribed by such Department and keep current a 
list identifying all accounts for trading in commodities, futures 
contracts, options on futures contracts, forward contracts, commodity 
swaps, or other related derivatives underlying such Commodity-Related 
Security, in which the market maker holds an interest, over which it 
may exercise investment discretion, or in which it shares in the 
profits and losses. Moreover, a member organization acting as a 
registered market maker in a Commodity-Related Security may not act or 
register as a market maker in any commodities, futures contracts, 
options on futures contracts, forward contracts, commodity swaps, or 
other related derivatives underlying such Commodity-Related Security.
    A member organization acting as a registered market maker in a 
Commodity-Related Security must make available to the Exchange's 
Regulation Department such books, records or other information 
pertaining to transactions by such entity or registered or non-
registered employees affiliated with such entity for its or their own 
accounts for trading commodities, futures contracts, options on futures 
contracts, forward contracts, commodity swaps, or other related 
derivatives underlying such Commodity-Related Security, as may be 
requested by the Regulation Department. Finally, in connection with 
trading a Commodity-Related Security or commodities, futures contracts, 
options on futures contracts, forward contracts, commodity swaps, or 
other related derivatives underlying a Commodity-Related Security, the 
member organization acting as a market maker in a Commodity-Related 
Security may not use any material nonpublic information received from 
any person associated with the member organization or employee of such 
person regarding trading by such person or employee in the commodities, 
futures contracts, options on futures contracts, forward contracts, 
commodity swaps, or other related derivatives underlying such 
Commodity-Related Security.
    In furtherance of allowing market making on PSX, Phlx is also 
amending Rule 3301 to provide for attributable quotes and orders (i.e., 
trading interest displayed with price and size next to a market maker's 
MPID); to specify that quotations may include a non-displayed reserve 
size in order to replenish the displayed portion of a quotation when it 
is reduced to a size of less than one round lot; \24\ to add 
definitions of ``PSX Market Maker'' and ``Quote''; and to provide that 
attributable trading interest will be displayed via PSX data feeds, 
with attribution to the Participant's MPID, along with non-attributable 
interest. As provided in proposed new Rule 3306(b), PSX Market Makers 
and Equities ECNs will be permitted to enter Quotes from 8:00 a.m. to 5 
p.m. When open, Quotes will be processed as System Hours Day Orders 
(i.e., orders that remain open while the PSX System is open, but do not 
remain on the book overnight). Phlx is also making conforming changes 
to the following existing rules by adding references to quotations, 
quotes/orders, market makers, and/or certain activities or market 
makers, as appropriate to reflect the scope of PSX's rules to embrace 
market making and quoting activity in addition to order entry: Rule 
3100 (Trading Halts on PSX); Rule 3201 (Scope); Rule 3213(b) (Firm 
Orders and Quotations); Rule 3221 (Suspension and Termination of 
Quotations and Order Entry); Rule 3225 (Obligation to Provide 
Information); Rule 3226 (Limitation of Liability); Rule 3301(g) (Order 
Size); Rule 3306 (Entry and Display of Quotes and Orders); and Rule 
3310 (Anonymity).
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    \24\ A new timestamp is applied when the order is replenished 
from reserve size.
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Minimum Quantity Orders
    Phlx is proposing minor modifications to the operation of PSX's 
Minimum Quantity Order, such that it will be fully consistent with the 
comparable orders of NASDAQ and BX. ``Minimum Quantity Orders'' are 
orders that will not execute unless a specified minimum quantity of 
shares can be obtained. A Minimum Quantity Order provides a means by 
which a market participant may avoid partial executions of orders at 
sizes that it considers inadequate to achieve its purposes. For 
example, a market participant seeking to sell a large position in a 
trading session with high volatility may use the order type to avoid 
selling only a small portion of the order at the price it considers 
acceptable. A Minimum Quantity Order that posts to [sic] PSX book will 
be a Non-Displayed Order, and upon entry must have a size and a minimum 
quantity condition of at least one round lot. In the event that the 
shares remaining in the size of the order following a partial execution 
thereof are less than the minimum quantity specified by the market 
participant entering the order, the minimum quantity value of the order 
will be reduced to the number of shares remaining.
    Thus, for example, if a market participant entered a Minimum 
Quantity Order with a size of 1,000 and a minimum quantity of 500, and 
the order was marketable against a 600 share order on the book, the 
remaining 400 shares of the Minimum Quantity Order would post to the 
book with a minimum quantity restriction of 400 shares. Under current 
PSX rules, if the size of a Minimum Quantity Order is reduced to less 
than one round lot due to a partial execution, the minimum quantity 
condition on the order will be removed. PSX proposes to delete this 
condition, which was formerly necessary to ensure that the order would

[[Page 18391]]

not have a higher execution priority under PSX's execution algorithm 
than other non-displayed odd-lot orders solely by virtue of its minimum 
quantity condition. In all other respects, the operation of the order 
will remain unchanged.
Midpoint Peg Post-Only Order
    Phlx is adopting as a new order type the Midpoint Peg Post-Only 
Order.\25\ Like a regular Midpoint Peg Order, a Midpoint Peg Post-Only 
Order is a non-displayed order that is priced at the midpoint between 
the national best bid and best offer (``NBBO'') (as determined using 
the consolidated tape). However, like a Post-Only Order, the Midpoint 
Peg Post-Only Order does not remove liquidity from PSX upon entry if it 
would lock a non-displayed order on PSX. Rather, the Midpoint Peg Post-
Only Order will post and lock the pre-existing order, but will remain 
undisplayed.\26\ For example, if the NBBO is $1.10 bid and $1.11 offer, 
and there is a non-displayed Midpoint Peg Order to buy on the book at 
$1.105, an incoming Midpoint Peg Post-Only Order to sell will also post 
to the book at $1.105 and will not execute. By contrast, a regular 
Midpoint Peg Order would execute against the posted order at $1.105. If 
the Midpoint Peg Post-Only Order would cross a pre-existing order, 
however, the crossing orders will execute.
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    \25\ The order on PSX will be identical to the comparable order 
on NASDAQ. See Securities Exchange Act Release No. 64430 (May 6, 
2011), 76 FR 27699 (May 12, 2011) (SR-NASDAQ-2011-059); Securities 
Exchange Act Release No. 68015 (October 9, 2012), 77 FR 63368 
(October 16, 2012) (SR-NASDAQ-2012-111).
    \26\ SEC Rule 610(d) under Regulation NMS, 17 CFR 242.610(d), 
restricts displayed quotations that lock protected quotations in NMS 
Stocks, but does not apply to non-displayed trading interest.
---------------------------------------------------------------------------

    Midpoint Peg Post-Only Orders that post to the book and lock a pre-
existing non-displayed order will execute against an incoming order 
only if the price of the incoming buy (sell) order is higher (lower) 
than the price of the pre-existing order. This restriction ensures that 
the non-displayed Midpoint Peg Post-Only Order will not execute before 
an order already on the book unless the incoming order against which it 
executes has price priority over the already posted order. For example, 
if the NBBO is $1.10 bid and $1.11 offer, and there is a non-displayed 
Midpoint Peg Order to buy on the book at $1.105, an incoming Midpoint 
Peg Post-Only Order to sell will also post to the book at $1.105 and 
will not execute. If another Midpoint Peg Order to buy is entered, it 
would also post to the book, rather than executing against the Midpoint 
Peg Post-Only Order. On the other hand, an order to buy at $1.11 would 
execute against the Midpoint Peg Post-Only Order, receiving $0.005 
price improvement. Thus, the order provides a means by which a market 
participant may offer price improvement in exchange for receiving 
greater certainty with respect to its trading costs.
    If a Midpoint Peg Order and a Midpoint Peg Post-Only Order are 
locked, and a Midpoint Peg Order is entered on the same side of the 
market as the Midpoint Peg Post-Only Order, the new order will execute 
against the original Midpoint Peg Order. Thus, in the above example, if 
a Midpoint Peg Order to buy at $1.105 is locked by a Midpoint Peg Post-
Only Order to sell at $1.105, a subsequent Midpoint Peg Order to sell 
at $1.105 would execute against the original buy order. This is the 
case because the market participant entering the Midpoint Peg Post-Only 
Order has expressed its intention not to execute against posted 
liquidity, and therefore cedes execution priority to the new order.
    A Midpoint Peg Post-Only Order will only be posted to the book at a 
price of more than $1. Accordingly, if the midpoint between the NBBO 
for a particular stock is $1 or less, all Midpoint Peg Post-Only Orders 
for that stock will be rejected or cancelled, as applicable. This 
limitation reflects the fact that the difference between the inside 
market and the midpoint for stocks at this price level is likely to be 
extremely small, and therefore the price improvement opportunities 
associated with the order in such stocks are unlikely to justify making 
the order available.\27\
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    \27\ NASDAQ's corresponding rule includes language stipulating 
the treatment of posted Midpoint Peg Post-Only Orders for purposes 
of calculating the best bid and offer within NASDAQ under rules 
governing the opening cross (NASDAQ Rule 4752), halt and imbalance 
cross (NASDAQ Rule 4753), and closing cross (NASDAQ Rule 4754). 
Because PSX does not have comparable rules, this language is omitted 
from the proposed rule.
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    Phlx believes that the Midpoint Peg Post-Only Order will serve a 
valid purpose in the current market environment. Although SEC Rule 610 
\28\ limits access fees, market participants remain focused on their 
trading costs, and in a pricing environment characterized by fees on 
one side of a trade being used to fund rebates on the other side,\29\ 
it is entirely understandable that some market participants may wish to 
structure their trading activity in a manner that is more likely to 
avoid a fee and earn a rebate. In this respect, the order is 
conceptually similar to a limit order: just as a limit order allows 
market participants to control the price that they will pay or receive 
for a stock, the proposed new order will allow market participants to 
exercise greater control over the fees associated with order execution. 
Moreover, the order type will operate in a manner calculated to require 
Participants posting the order generally to provide price improvement 
in order to justify the ability to earn a rebate. Thus, as long as a 
Midpoint Peg Post-Only Order is locking a pre-existing Midpoint Order, 
the order can execute only if it offers price improvement. By means of 
price improvement, the market participant effectively shares a portion 
of its rebate with the counterparty with whom it is matched, thereby 
reducing its trading costs as well.
---------------------------------------------------------------------------

    \28\ 17 CFR 242.610.
    \29\ It should be noted that some markets, such as NASDAQ OMX 
BX, the BATS-Y Exchange, the EDGA Exchange, and CBSX, feature fees 
for liquidity providers and rebates for liquidity takers, while all 
other cash equities markets now have a taker fee/maker rebate 
structure.
---------------------------------------------------------------------------

Post-Only Orders
    Phlx proposes to modify the functionality associated with its 
existing Post-Only Order on PSX.\30\ Currently, if a Post-Only Order 
would lock or cross an order on PSX at the time of entry, the order is 
re-priced and displayed by the System to one minimum price increment 
(i.e., $0.01 or $0.0001) below the current low offer (for bids) or 
above the current best bid (for offers). Thus, if the best bid and best 
offer on the PSX book were $10.00 x $10.05, and a market participant 
entered a Post-Only Order to buy at $10.05, the order would be re-
priced and displayed at $10.04. This aspect of the functionality of the 
order is not changing.\31\ Under the

[[Page 18392]]

proposed change, if a Post-Only Order would cross an order on the 
System, the order will be repriced as described above unless the value 
of price improvement associated with executing against a resting order 
equals or exceeds the sum of fees charged for such execution and the 
value of any rebate that would be provided if the order posted to the 
book and subsequently provided liquidity, in which case the order will 
execute.
---------------------------------------------------------------------------

    \30\ An identical change was mistakenly filed by Phlx 
(Securities Exchange Act Release No. 64563 (May 27, 2011), 76 FR 
32255 (June 3, 2011) (SR-Phlx-2011-70)) at the same time as the 
change was made by NASDAQ (Securities Exchange Act Release No. 64552 
(May 26, 2011), 76 FR 31998 (June 2, 2011) (SR-NASDAQ-2011-070)), 
with the error being corrected through a subsequent filing 
(Securities Exchange Act Release No. 67351 (July 5, 2012), 77 FR 
40922 (July 11, 2012) (SR-Phlx-2012-84)). The prior filing to make 
this change was mistaken because the proposed change was 
incompatible with PSX's price/size/pro rata algorithm. With PSX's 
move to a price/time algorithm, the change to the functioning of the 
Post-Only Order is now possible.
    \31\ In addition, if the order would lock or cross a protected 
quotation of another market center, the order will be accepted at 
the locking price (i.e., the current low offer (for bids) or to 
[sic] the current best bid (for offers)) and displayed by the System 
to one minimum price increment (i.e., $0.01 or $0.0001) below the 
current low offer (for bids) or above the current best bid (for 
offers). Thus, if the national best bid and offer, as displayed on 
another market center, was $10 x $10.05, an order to buy at $10.05 
or higher would be accepted at the locking price of $10.05, but 
would be displayed at $10.04. Subsequently, an incoming order to 
sell at $10.05 or lower would be matched against the Post-Only buy 
order. In this case, the incoming sell order would receive price 
improvement.
---------------------------------------------------------------------------

    As provided by Rule 3307, in such an instance the price improvement 
accrues to the party entering the order that takes liquidity. Thus, if 
a sell order is on the book at $10 and a Post-Only Order to buy at 
$10.01 is entered, the Post-Only Order will execute at $10.
    The modified Post-Only Order will serve to allow the market 
participant entering the order to post its order at its desired price, 
unless the amount of price improvement makes execution of the order 
economically advantageous to the entering participant. Thus, the 
revised order type is designed to provide market participants with 
better control over their execution costs and to provide them with a 
means to offer price improvement opportunities to other market 
participants.
Minimum Life Order
    Phlx is proposing to eliminate PSX's Minimum Life Order. The 
Minimum Life Order is a Displayed Order that may not be cancelled for a 
period of 100 milliseconds following its receipt. The order type was 
not used by the vast majority of PSX's market participants, and is not 
currently offered by any other national securities exchange. 
Accordingly, PSX believes that its elimination will not have any 
material effect on market participants or on the cash equities markets 
in general.
Price To Comply Post Order
    Phlx is proposing to introduce the Price To Comply Post Order on 
PSX, with terms and conditions identical to those found on NASDAQ and 
BX. The Price To Comply Post Order provides a straightforward means by 
which market makers and others may post liquidity at or near the inside 
market in compliance with the restrictions on locked and crossed 
markets and trade-throughs under Rules 610(d) and 611 under Regulation 
NMS.\32\ If, at the time of its entry, a Price To Comply Post Order 
would lock or cross the Protected Quotation of another trading center 
or would execute at a price inferior to the Protected Quotation of 
another trading center, the order will be re-priced and displayed to 
one minimum price increment (i.e., $0.01 or $0.0001, depending on the 
price of the security being traded) below the current low offer (for 
bids) or to one penny above the current best bid (for offers). Price to 
Comply Post Orders are not routable.\33\
---------------------------------------------------------------------------

    \32\ 17 CFR 242.610(d), 611.
    \33\ With respect to the foregoing changes to the availability 
of order types, Phlx is amending Rule 3305 to reflect the changes in 
a list of available order types.
---------------------------------------------------------------------------

2. Statutory Basis
    Phlx believes that the proposed rule change is consistent with the 
provisions of Section 6 of the Act,\34\ in general, and with Section 
6(b)(5) of the Act \35\ 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.
---------------------------------------------------------------------------

    \34\ 15 U.S.C. 78f.
    \35\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

    The proposed adoption of [sic] price/time execution algorithm will 
allow PSX to operate in a manner consistent with every other national 
securities exchange that trades cash equities securities, a market 
model that the Commission has repeatedly determined to be consistent 
with the Act.\36\ Thus, the change with regard to the execution 
algorithm will remove impediments to and perfect the mechanism of a 
free and open market and a national market system by making PSX's 
functionality more consistent with that of other exchanges. Similarly, 
the proposed rules regarding maker [sic] making, including the 
obligations of market makers to adhere to specific quoting and pricing 
obligations, have previously been determined by the Commission to be 
consistent with the Act.\37\ Specifically, in approving rules governing 
market maker quoting and pricing obligations such as those proposed by 
Phlx, the Commission found that ``the proposed rule should assure that 
quotations submitted by market makers to an exchange or FINRA's ADF, 
and displayed to market participants, bear some relationship to the 
prevailing market price, and thus should promote fair and orderly 
markets and the protection of investors.'' \38\
---------------------------------------------------------------------------

    \36\ See, e.g., Securities Exchange Act Release No. 54155 (July 
14, 2006), 71 FR 41291 (July 20, 2006) (SR-NASDAQ-2006-001); 
Securities Exchange Act Release No. 59154 (December 23, 2008), 73 FR 
80468 (December 31, 2008) (SR-BSE-2008-48).
    \37\ See, e.g., Securities Exchange Act Release No. 53128 
(January 13, 2006), 71 FR 3550 (January 23, 2006) (File No. 10-131) 
(approving NASDAQ market maker rules as part of its registration as 
a national securities exchange); Securities Exchange Act Release No. 
59154 (December 23, 2008), 73 FR 80468 (December 31, 2008) (SR-BSE-
2008-48); Securities Exchange Act Release No. 63255 (November 5, 
2010), 75 FR 69484, 69485 (November 12, 2010) (SR-BATS-2010-025, SR-
BX-2010-66, SR-CBOE-2010-087, SR-CHX-2010-22, SR-FINRA-2010-049, SR-
NASDAQ-2010-115, SR-NSX-2010-12, SR-NYSE-2010-69, SR-NYSEAmex-2010-
96, SR-NYSEArca-2010-83) (approving corresponding marketwide rules 
with respect to market maker quoting and pricing obligations) 
(``2010 Order'').
    \38\ 2010 Order, 75 FR at 69485.
---------------------------------------------------------------------------

    The proposed changes to order type functionality will remove 
impediments to and perfect the mechanism of a free and open market and 
the national market system because they will conform PSX's rules to 
functionality that is already in use and accepted by market 
participants at other exchanges. Specifically, with regard to the 
change to the Minimum Quantity Order, the proposed change will allow 
the operation of the order to better reflect the intention of the 
market participants entering the order, since it will allow a minimum 
quantity condition to continue to attach to an order at a size below 
one round lot. The change will also make the operation of the order 
conform to functionality that was implemented on an immediately 
effective basis on NASDAQ and BX.\39\
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    \39\ Securities Exchange Act Release No. 65536 (October 12, 
2011), 76 FR 64411 (October 18, 2011) (SR-NASDAQ-2011-140); 
Securities Exchange Act Release No. 65535 (October 12, 2011), 76 FR 
64416 (October 18, 2011) (SR-BX-2011-069).
---------------------------------------------------------------------------

    Similarly, the proposed Midpoint Peg Post-Only Order is identical 
to the order that is operative on NASDAQ, and which was introduced and 
modified through immediately effective filings.\40\ As described in the 
original NASDAQ filing with respect to the order, the Midpoint Peg 
Post-Only Order is designed to provide market participants with better 
control over their execution costs and to provide a means to offer 
price improvement opportunities.
---------------------------------------------------------------------------

    \40\ See Securities Exchange Act Release No. 64430 (May 6, 
2011), 76 FR 27699 (May 12, 2011) (SR-NASDAQ-2011-059); Securities 
Exchange Act Release No. 68015 (October 9, 2012), 77 FR 63368 
(October 16, 2012) (SR-NASDAQ-2012-111).
---------------------------------------------------------------------------

    The modified Post Only Order, which adopts changes filed by NASDAQ 
and BX on an immediately effective basis,\41\

[[Page 18393]]

is similarly designed to provide market participants with better 
control over their execution costs. Specifically, the changes will 
ensure that a Post Only Order will post to the PSX book only in 
circumstances where an immediate execution of the order would not be 
more economically advantageous to the market participant that entered 
it.
---------------------------------------------------------------------------

    \41\ Securities Exchange Act Release No. 64552 (May 26, 2011), 
76 FR 31998 (June 2, 2011) (SR-NASDAQ-2011-070); Securities Exchange 
Act Release No. 64615 (June 7, 2011), 76 FR 34284 (June 13, 2011) 
(SR-BX-2011-033).
---------------------------------------------------------------------------

    The proposed Price to Comply Post Order is consistent with the Act 
because it provides market makers and other market participants with a 
straightforward mechanism to enter an order that reprices to ensure 
that it does not lock or cross or trade through the Protected Quotation 
of another market center. The rule has previously been approved for use 
at NASDAQ and BX.\42\
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    \42\ Securities Exchange Act Release No. 54155 (July 14, 2006), 
71 FR 41291 (July 20, 2006) (SR-NASDAQ-2006-001); Securities 
Exchange Act Release No. 59154 (December 23, 2008), 73 FR 80468 
(December 31, 2008) (SR-BSE-2008-48).
---------------------------------------------------------------------------

    Finally, Phlx believes that the proposed elimination of the Minimum 
Life Order is consistent with the Act because the order has not been 
widely used and has not been adopted at any other exchange. 
Accordingly, Phlx believes that offering an order of this nature is not 
a required aspect of the operation of a national securities exchange.

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, since 
its introduction with a price/size execution algorithm, PSX has not 
been a significant competitor in the market for execution of cash 
equities orders, with a market share generally below 1 percent of total 
consolidated volume. By means of the changes proposed in this rule 
filing, Phlx hopes to enhance PSX's competitiveness by offering 
functionality that is more consistent with that offered by other 
national securities exchanges. In light of the highly competitive 
nature of these markets, however, PSX will be successful in attracting 
additional order flow only if its overall offering of functionality and 
pricing is successful in convincing market participants to direct order 
flow to it, rather than the larger number of exchanges and alternative 
trading systems that compete with it. Accordingly, Phlx does not 
believe that the changes proposed herein will impose any burden on 
competition, because they do not provide any means through which PSX 
may diminish the free choice with regard to order routing decisions 
that exists in the market. To the extent, however, that the changes 
make PSX a more attractive trading venue, they have the potential to 
enhance competition by providing market participants with additional 
choices when making such decisions.

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

    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 email to rule-comments@sec.gov. Please include 
File Number SR-Phlx-2013-24 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-2013-24. 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-2013-24 and should be 
submitted on or before April 16, 2013.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\43\
---------------------------------------------------------------------------

    \43\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2013-06880 Filed 3-25-13; 8:45 am]
BILLING CODE 8011-01-P