Document ID: SEC-2010-0923-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: NASDAQ OMX PHLX, Inc.
Posted Date: 2010-06-24T04:00Z

[Federal Register: June 24, 2010 (Volume 75, Number 121)]
[Notices]               
[Page 36132-36134]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr24jn10-86]                         

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

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-62320; File No. SR-Phlx-2010-83]

 
Self-Regulatory Organizations; NASDAQ OMX PHLX, Inc.; Notice of 
Filing and Immediate Effectiveness of Proposed Rule Change To Modify 
Its Rules Relating to Directed Orders and Eligible Orders

June 17, 2010.
    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 June 14, 2010, NASDAQ OMX PHLX, Inc. (``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 Exchange filed the proposed 
rule change pursuant to Section 19(b)(3)(A)(iii) 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.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \4\ 17 CFR 240.19b-4(f)(6).
---------------------------------------------------------------------------

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

    The Exchange proposes to clarify the definition of ``Directed 
Order'' in Rule 1080(l)(i)(A) by removing the limiting word 
``customer'' before the word ``order.'' A conforming change to the 
definition of ``Order Flow Provider'' is proposed to be made in Rule 
1080(l)(i)(B). Second, amendments to Rule 1080(b)(i)(C) are proposed 
which specify that orders for the account of an off-floor broker dealer 
may be entered into the Exchange's enhanced electronic trading platform 
for options, Phlx XL,\5\ by an agent of the off-floor broker dealer. 
Third, the Exchange is adding opening-only-market orders and limit on 
opening orders to the list of eligible orders in Rule 1080(b)(i), as 
order types eligible for entry into the trading system. The Exchange 
proposes to add a definition of limit on opening order to Rule 1066.
---------------------------------------------------------------------------

    \5\ See Securities Exchange Act Release No. 59995 (May 28, 
2009), 74 FR 26750 (June 3, 2009) (SR-Phlx-2009-32).
---------------------------------------------------------------------------

    The text of the proposed rule change is available on the Exchange's 
Internet Web site at http://www.nasdaqtrader.com/
micro.aspx?id=PHLXRulefilings, on the Commission's Internet Web site at 
http://www.sec.gov, 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 self-regulatory organization 
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 those 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 parts of such statements.

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

1. Purpose
    In May 2005 the Exchange adopted rules for Phlx XL that permit 
Exchange specialists, Streaming Quote Traders (``SQTs''),\6\ and Remote 
Streaming Quote Traders (``RSQTs'') \7\ to receive Directed Orders, and 
to provide a participation guarantee to specialists, SQTs and

[[Page 36133]]

RSQTs that receive Directed Orders.\8\ The proposed amendment to Rule 
1080(l)(i)(A) is intended to clarify that Rule 1080(1)(i)(A) does not 
limit Directed Orders to public customer orders. The Exchange notes 
that other exchanges' Directed Orders rules do not limit Directed 
Orders to public customer orders.\9\
---------------------------------------------------------------------------

    \6\ An SQT is an Exchange Registered Options Trader (``ROT'') 
who has received permission from the Exchange to generate and submit 
option quotations electronically through Phlx XL in eligible options 
to which such SQT is assigned. An SQT may only submit such 
quotations while such SQT is physically present on the floor of the 
Exchange. See Phlx Rule 1014(b)(ii)(A).
    \7\ An RSQT is an ROT that is a member or member organization 
with no physical trading floor presence who has received permission 
from the Exchange to generate and submit option quotations 
electronically through Phlx XL in eligible options to which such 
RSQT has been assigned. An RSQT may only submit such quotations 
electronically from off the floor of the Exchange. See Phlx Rule 
1014(b)(ii)(B).
    \8\ See Securities Exchange Act Release No. 51759 (May 27, 
2005), 70 FR 32860 (June 6, 2005). See also Phlx Rule 1014(g)(viii) 
(setting forth the automatic trade allocation algorithm for Directed 
Orders).
    \9\ See, e.g., NYSE Amex Rule 900.3NY(s), NYSE Arca Rule 6.62(z) 
and ISE Rule 811(a)(1).
---------------------------------------------------------------------------

    Currently, the term ``Directed Order'' is defined in Rule 
1080(l)(i)(A) as ``any customer order (other than a stop or stop-limit 
order as defined in Rule 1066) to buy or sell which has been directed 
to a particular specialist, RSQT, or SQT by an Order Flow Provider * * 
*'' The Exchange proposes to remove the word ``customer'' from this 
definition to avoid any suggestion that Directed Orders are limited to 
orders of ``public'' customers. Directed Orders can be broker-dealer 
orders as well as public customer orders.
    Rule 1080(b)(i)(A) provides in relevant part that ``[f]or purposes 
of Exchange options trading, an agency order is any order entered on 
behalf of a public customer, and does not include any order entered for 
the account of a broker-dealer, or any account in which a broker-dealer 
or an associated person of a broker-dealer has any direct or indirect 
interest.'' In adopting the Directed Order program, the Exchange did 
not limit Directed Orders to agency orders as defined in Rule 
1080(b)(i)(A). The Exchange believes, however, that use of the word 
``customer'' in the definition of Directed Order is potentially 
confusing and unnecessary and is therefore deleting it. For the same 
reason, the modifier ``customer'' is deleted before the word ``order'' 
in the definition of Order Flow Provider in Rule 1080(l)(i)(B). 
Accordingly, this change clarifies that Directed Orders can be sent not 
only on behalf of public customers but also on behalf of broker 
dealers. Directed Orders are limited to orders sent on an agency basis 
by Order Flow Providers and not on behalf of the sender's proprietary 
account.
    Currently, Rule 1080(b)(i)(C) provides that certain ``off-floor 
broker-dealer'' limit orders may be entered into Phlx XL. The rule 
currently defines ``off-floor broker-dealer'' as a broker-dealer that 
delivers orders from off the floor of the Exchange for the proprietary 
account(s) of such broker-dealer. Rule 1080(b)(i)(C) is being revised 
to specify that orders for an off-floor broker-dealer's proprietary 
account may be entered into Phlx XL by an agent, on behalf of the off-
floor broker-dealer as well as by the off-floor broker-dealer itself. 
This situation occurs, for example, where the off-floor broker-dealer 
is not itself a Phlx member and uses a Phlx member for execution of its 
proprietary orders on Phlx.
    Rule 1080(b)(i) lists the types of orders that are eligible for 
entry into the Phlx XL trading system by various categories of market 
participants. The Exchange is proposing to add opening-only-market 
orders to the list of agency orders eligible for entry into the system 
in Rule 1080(b)(i)(A).\10\ It also proposes to add limit-on-opening 
orders to each of the lists of eligible orders that market participants 
are permitted to enter in Rules 1080(b)(i)(A), (B) and(C). ``Limit-on-
Opening Order'' would be defined in new Section 9 of Rule 1066(c) as 
meaning a limit order which is to be executed in whole or in part 
during the opening rotation of an options series or not at all. Phlx 
notes that at least one other options exchange already accepts opening 
only limit and market orders.\11\
---------------------------------------------------------------------------

    \10\ Rule 1066(c)(5) provides that ``[a]n opening-only-market 
order is a market order which is to be executed in whole or in part 
during the opening rotation of an options series or not at all.''
    \11\ See NYSE Arca Rule 6.62(r) which defines an ``Opening Only 
Order'' as ``a market order or limit order which is to be executed 
in whole or in part during the opening auction of an options series 
or not at all. Any portion not so executed is to be treated as 
cancelled.''
---------------------------------------------------------------------------

2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act \12\ in general, and furthers the objectives of Section 
6(b)(5) of the Act \13\ 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 permitting the Exchange to modify its rules relating to 
Directed Orders and eligible orders for the benefit of investors.
---------------------------------------------------------------------------

    \12\ 15 U.S.C. 78f(b).
    \13\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

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

    Because the foregoing rule 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, the proposed rule change has become effective 
pursuant to Section 19(b)(3)(A) of the Act \14\ and Rule 19b-4(f)(6) 
thereunder.\15\
---------------------------------------------------------------------------

    \14\ 15 U.S.C. 78s(b)(3)(A).
    \15\ 17 CFR 240.19b-4(f)(6). Rule 19b-4(f)(6)(iii) requires a 
self-regulatory organization to give 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 of filing of the proposed rule 
change, or such shorter time as designated by the Commission. The 
Exchange has satisfied this requirement.
---------------------------------------------------------------------------

    At any time within 60 days of the filing of such proposed rule 
change, the Commission may summarily abrogate 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-2010-83 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-2010-83. This file 
number should be included on the

[[Page 36134]]

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 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-2010-83 and should be 
submitted on or before July 15, 2010.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\16\
---------------------------------------------------------------------------

    \16\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Florence E. Harmon,
Deputy Secretary.
[FR Doc. 2010-15267 Filed 6-23-10; 8:45 am]
BILLING CODE 8010-01-P