Document ID: SEC-2011-0565-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: NASDAQ OMX PHLX LLC
Posted Date: 2011-04-18T04:00Z

[Federal Register Volume 76, Number 74 (Monday, April 18, 2011)]
[Notices]
[Pages 21784-21785]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2011-9315]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-64294; File No. SR-Phlx-2011-53]

Self-Regulatory Organizations; Notice of Filing and Immediate 
Effectiveness of Proposed Rule Change by NASDAQ OMX PHLX LLC Relating 
to Amending the Option Floor Procedures Advice F-14 Regarding Executing 
Hedge and Synthetic Options Orders Containing Stock Components

April 13, 2011.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ and Rule 19b-4 \2\ thereunder, notice is hereby given 
that on April 8, 2011, NASDAQ OMX PHLX LLC (``Phlx'' or ``Exchange'') 
filed with the Securities and Exchange Commission (``SEC'' or 
``Commission'') the proposed rule change as described in Items I and II 
below, which Items have been prepared by the Exchange. The Exchange 
filed the proposal pursuant to Section 19(b)(3)(A) of the Act \3\ and 
Rule 19b-4(f)(6) thereunder.\4\ 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.
    \3\ 15 U.S.C. 78s(b)(3)(A).
    \4\ 17 CFR 240.19b-4(f)(6).
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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 the Option Floor Procedures Advice 
F-14 regarding executing hedge and synthetic options orders containing 
stock components.
    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 amend the Exchange's 
Option Floor Procedures Advice F-14 (the ``OFPA F-14'') regarding 
executing hedge and synthetic options orders containing stock 
components. Specifically, the Exchange proposes to modify the 
requirement that once the credit or debit execution price to a hedge or 
synthetic options order is agreed upon, the stock portion of the order 
must be effected prior to the execution of the option portion.\5\ 
Instead, the Exchange proposes to require that the stock portion of the 
order, if any, must be executed at or near the same time as the options 
portion.
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    \5\ See Options Floor Procedures Advice F-14(d).
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    The qualified contingent trade exemption (``QCT Exemption'') \6\ 
exempts the component orders of a qualified contingent trade (``QCT'') 
from the trade [sic] provisions of Rule 611 of

[[Page 21785]]

Regulation NMS.\7\ As provided in the QCT Exempt [sic] Order, a QCT is 
a transaction that consists of two or more component orders that 
satisfy the requirements of a QCT in the QCT Exemption Order. In the 
QCT Exemption Order, the definition of a QCT requires that the 
execution of one component is contingent upon the execution of all 
components at or near the same time.
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    \6\ See Securities Exchange Act Release No. 54389 (August 31), 
71 FR 52829 (September 7, 2006), amended by Securities Exchange Act 
Release No. 57620 (April 4, 2008), 73 FR 19271 (September 7, 
2006)(``QCT Exemption Order'').
    \7\ 17 CFR 242.611.
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    Currently, OFPA F-14 provides that the stock portion of the hedge 
or synthetic options order must be executed prior to the options 
portion of the order. The Exchange proposes to amend OFPA F-14 to more 
closely align OFPA F-14 with the language of the QCT Exemption by 
stating the stock portion of a hedge or synthetic options order must 
trade at or near the same time as the options order. The Exchange notes 
that compliance with OFPA F-14, by itself, is not sufficient to qualify 
for the QCT Exemption. A transaction must satisfy all the requirements 
of the QCT Exemption Order to qualify for the QCT Exemption. The 
Exchange notes that the proposed amendment to OFPA F-14 does not modify 
the terms of Exchange Rule 1064, Commentary .04 in that the members 
must continue to comply with all procedures concerning tied hedge 
orders.\8\
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    \8\ A tied hedge order is an options order that is tied to a 
hedge transaction as defined in Commentary .04 to rule 1064, 
following the receipt of an options order in a class determined by 
the Exchange as eligible for ``tied hedge'' transactions. See 
Exchange Rule 1066(f)(4). Commentary .04 to Rule 1064 further states 
that Rule 1064(d) does not prohibit a member or member organization 
from buying or selling a stock, security futures or futures position 
following receipt of an option order, including a complex order, but 
prior to announcing such order to the trading crowd, provided that, 
among other things, all tied hedge transactions (regardless of 
whether the option order is a simple or complex order) are treated 
the same as complex orders for purposes of the Exchange's open 
outcry allocation and reporting procedures. Tied hedge transactions 
are subject to the existing NBBO trade-through requirements for 
options and stock, as applicable, and may qualify for various 
exceptions; however, when the option order is a simple order the 
execution of the option leg of a tied hedge transaction does not 
qualify it for any NBBO trade-through exception for a Complex Trade.
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2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act \9\ in general, and furthers the objectives of Section 
6(b)(5) of the Act \10\ in particular, in that it is designed to 
promote just and equitable principles of trade, to remove impediments 
to and perfect the mechanism of a free and open market and a national 
market system, and, in general to protect investors and the public 
interest by deleting obsolete language that is relied upon to execute 
orders that are outside the PHLX market. Modifying OFPA F-14 as 
proposed will promote efficiency, eliminate confusion and prevent 
potential trade-through violations within the marketplace.
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    \9\ 15 U.S.C. 78f(b).
    \10\ 15 U.S.C. 78f(b)(5).
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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 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

    No written comments were either solicited or received.

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

    The Exchange has designated the proposed rule change as one that 
does not: (i) Significantly affect the protection of investors or the 
public interest; (ii) impose any significant burden on competition; and 
(iii) become operative for 30 days from the date on which it was filed, 
or such shorter time as the Commission may designate, if consistent 
with the protection of investors and the public interest. Therefore, 
the proposed rule change has become effective pursuant to Section 
19(b)(3)(A) of the Act \11\ and Rule 19b-4(f)(6) thereunder.\12\
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    \11\ 15 U.S.C. 78s(b)(3)(A).
    \12\ 17 CFR 240.19b-4(f)(6). Rule 19b-4(f)(6)(iii) also requires 
the 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 satisfied this requirement.
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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 e-mail to rule-comments@sec.gov. Please include 
File Number SR-Phlx-2011-53 on the subject line.

Paper Comments

     Send paper comments in triplicate to Elizabeth M. Murphy, 
Secretary, Securities and Exchange Commission, 100 F Street, NE., 
Washington, DC 20549-1090.

All submissions should refer to File Number SR-Phlx-2011-53. This file 
number should be included on the subject line if e-mail is used. To 
help the Commission process and review your comments more efficiently, 
please use only one method. The Commission will post all comments on 
the Commission's Internet Web site (http://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, all 
written statements with respect to the proposed rule change that are 
filed with the Commission, and all written communications relating to 
the proposed rule change between the Commission and any person, other 
than those that may be withheld from the public in accordance with the 
provisions of 5 U.S.C. 552, will be available for Web site viewing and 
printing in the Commission's Public Reference Room on official business 
days between the hours of 10 a.m. and 3 p.m. Copies of such filing also 
will be available for inspection and copying at the principal office of 
the Exchange. All comments received will be posted without change; the 
Commission does not edit personal identifying information from 
submissions. You should submit only information that you wish to make 
available publicly. All submissions should refer to File Number SR-
Phlx-2011-53 and should be submitted on or before May 9, 2011.

    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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Cathy H. Ahn,
Deputy Secretary.
[FR Doc. 2011-9315 Filed 4-15-11; 8:45 am]
BILLING CODE 8011-01-P