Document ID: SEC-2014-0302-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: NASDAQ OMX PHLX, LLC
Posted Date: 2014-02-19T05:00Z

[Federal Register Volume 79, Number 33 (Wednesday, February 19, 2014)]
[Notices]
[Pages 9522-9523]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2014-03565]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-71535; File No. SR-Phlx-2014-011]

Self-Regulatory Organizations; NASDAQ OMX PHLX LLC; Notice of 
Filing and Immediate Effectiveness of Proposed Rule Change To Modify 
NASDAQ OMX PSX's Optional Anti-Internalization Functionality

February 12, 2014.
    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 February 4, 2014, 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, 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 the optional anti-internalization 
functionality of NASDAQ OMX PSX (``PSX'').
    The text of the proposed rule change is available on the Exchange's 
Web site at http://nasdaqomxphlx.cchwallstreet.com/, 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
    Phlx is proposing to modify PSX's voluntary anti-internalization 
functionality to provide an additional option under that functionality. 
In addition, the proposed rule change contains certain clarifications 
to the text of the rule. 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 broker-dealers managing accounts governed by 
ERISA from trading as principal with orders generated for those 
accounts. The functionality can also assist market participants in 
avoiding execution fees that may result from the interaction of 
executable buy and sell trading interest from the same firm. Phlx 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) 
they would have originally obtained if execution of the order was not 
inhibited by the functionality.
    Currently, market participants may apply anti-internalization logic 
to all quotes/orders entered through a particular MPID, or to all 
orders entered through a particular order entry port, to which a unique 
group identification modifier is then appended. In other words, the 
logic may be applied on an MPID-by-MPID, or on a port-by-port basis.\3\ 
Currently, two forms of anti-internalization logic may be applied: (i) 
If quotes/orders are equivalent in size, both quotes/orders will be 
cancelled, or if they are not equivalent in size, the smaller will be 
cancelled and the size of the larger will be reduced by the size of the 
smaller; or (ii) regardless of the size of the quotes/orders, the 
oldest quote/order will be cancelled in full. The applicable logic may 
be applied to an entire MPID, or alternatively, different logic may be 
applied to different order entry ports under a particular MPID.\4\
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    \3\ In the proposed rule change that introduced the ability to 
assign a group identification modifier with respect to anti-
internalization processing, Phlx stated that the modifier may be 
assigned ``at the port level.'' Securities Exchange Act Release No. 
65869 (December 2, 2011), 76 FR 76793 (December 8, 2011) (SR-Phlx-
2011-080). However, this level of specificity was not included in 
the text of Rule 3307. In addition, although the rule indicates that 
designation of functionality at the port level is an option 
available to the market participant, the rule does not make it clear 
that in order to make use of these options, market participants must 
use PSX's OUCH order entry protocol. Thus, the proposed rule change 
also adds additional specificity to the rule text with respect to 
these aspects of the anti-internalization functionality.
    \4\ With respect to this functionality also, participants 
wishing to make designations on the order port level must use the 
OUCH order entry protocol.
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    In response to member input, the proposed rule change will add an 
additional form of anti-internalization logic that a market participant 
could choose to apply, under which the most recent quote/order would be 
cancelled. As with the two existing forms of anti-internalization 
logic, the logic could be applied to an entire MPID, or to selected 
order entry ports under a particular MPID.\5\ Phlx believes that the 
change will provide members with an additional tool for managing the 
book of orders that they submit to PSX and the associated execution 
costs.
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    \5\ Id.
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2. Statutory Basis
    Phlx believes that the proposed rule change is consistent with the 
provisions of Section 6 of the Act,\6\ in general, and with Section 
6(b)(5) of the Act \7\ in particular, in that the proposal is designed 
to prevent fraudulent and manipulative acts and practices, to promote 
just and equitable principles of

[[Page 9523]]

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. Specifically, Phlx believes that the change, which is 
responsive to member input, will facilitate transactions in securities 
and perfect the mechanism of a free and open market by providing 
members with additional optional functionality that may assist them 
with managing the book of orders that they submit to PSX and the 
associated execution costs.
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    \6\ 15 U.S.C. 78f.
    \7\ 15 U.S.C. 78f(b)(5).
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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, by 
offering market participants additional options with regard to 
preventing inadvertent internalization of orders submitted to PSX, the 
change has the potential to enhance PSX's competitiveness with respect 
to other trading venues, thereby promoting greater competition. 
Moreover, the change does not burden competition in that its use is 
optional and provided at no additional cost to members.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants, or Others

    No written comments were either solicited or received.

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

    Because the foregoing proposed rule change 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, it has become 
effective pursuant to Section 19(b)(3)(A)(ii) of the Act \8\ and 
subparagraph (f)(6) of Rule 19b-4 thereunder.\9\
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    \8\ 15 U.S.C. 78s(b)(3)(a)(ii).
    \9\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6) 
requires a self-regulatory organization to give the Commission 
written notice of its intent to file 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.
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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: (i) 
necessary or appropriate in the public interest; (ii) for the 
protection of investors; or (iii) otherwise in furtherance of the 
purposes of the Act. If the Commission takes such action, the 
Commission shall institute proceedings to determine whether the 
proposed rule should be approved or 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-2014-011 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-2014-011. 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-2014-011 and 
should be submitted on or before March 12, 2014.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\10\
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    \10\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2014-03565 Filed 2-18-14; 8:45 am]
BILLING CODE 8011-01-P