Document ID: SEC-2016-0158-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: NASDAQ OMX PHLX, LLC
Posted Date: 2016-01-27T05:00Z

[Federal Register Volume 81, Number 17 (Wednesday, January 27, 2016)]
[Notices]
[Pages 4724-4726]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-01665]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-76966; File No. SR-Phlx-2016-06]

Self-Regulatory Organizations; NASDAQ OMX PHLX LLC; Notice of 
Filing and Immediate Effectiveness of Proposed Rule Change To Amend a 
Quote Spread Parameter Provision

January 22, 2016.
    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 January 14, 2016, 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 amend Rule 1014(c)(i)(A)(1)(b) respecting 
U.S. dollar-settled foreign currency options (``FCO'') quote spread 
parameters, also known as bid/ask differentials, as described further 
below.
    The text of the proposed rule change is below; proposed new 
language is italicized.
* * * * *

NASDAQ OMX PHLX Rules

* * * * *

Rule 1014. Obligations and Restrictions Applicable to Specialists and 
Registered Options Traders

    (a)-(b) No change.
    (c) In Classes of Option Contracts to Which Assigned--Affirmative 
Obligations. With respect to classes of option contracts to which his 
assignment extends, a Specialist and an ROT, whenever the ROT (except 
an RSQT) enters the trading crowd in other than a floor brokerage 
capacity or is called upon by an Options Exchange Official or a Floor 
Broker, to make a market, are expected to engage, to a reasonable 
degree under the existing circumstances, in dealing for his own account 
when there exists, or it is reasonably anticipated that there will 
exist, a lack of price continuity, a temporary disparity between the 
supply of and demand for a particular option contract, or a temporary 
distortion of the price relationships between option contracts of the 
same class. Without limiting the foregoing, a Specialist and an ROT is 
expected to perform the following activities in the course of 
maintaining a fair and orderly market:
    (i) Options on Equities (including Exchange-Traded Fund Shares), 
Index Options, and U.S. dollar-settled Foreign Currency Options.
    (A)(1) Quote Spread Parameters (Bid/Ask Differentials)--
    (a) Options on equities and index options bidding and/or offering 
so as to create differences of no more than $.25 between the bid and 
the offer for each option contract for which the prevailing bid is less 
than $2; no more than $.40 where the prevailing bid is $2 or more but 
less than $5; no more than $.50 where the prevailing bid is $5 or more 
but less than $10; no more than $.80 where the prevailing bid is $10 or 
more but less than $20; and no more than $1 where the prevailing bid is 
$20 or more, provided that, in the case of equity options, the bid/ask 
differentials stated above shall not apply to in-the-money series where 
the market for the underlying security is wider than the differentials 
set forth above. For such series, the bid/ask differentials may be as 
wide as the quotation for the underlying security on the primary 
market, or its decimal equivalent rounded up to the nearest minimum 
increment. The Exchange may establish differences other than the above 
for one or more series or classes of options.
    (b) Options on U.S. dollar-settled FCO. With respect to all U.S. 
dollar-settled FCO bidding and/or offering so as to create differences 
of no more than $.25 between the bid and the offer for each option 
contract for which the

[[Page 4725]]

prevailing bid is less than $2.00; no more than $.40 where the 
prevailing bid is $2.00 or more but less than $5.00; no more than $.50 
where the prevailing bid is $5.00 or more but less than $10.00; no more 
than $.80 where the prevailing bid is $10.00 or more but less than 
$20.00; and no more than $1.00 where the prevailing bid is $20.00 or 
more. The Exchange may establish differences other than the above for 
one or more series or classes of options.
    (2) No change.
    (d)-(g) No change.
* * *Commentary: ------------
    .01-.19 No change.
* * * * *

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 proposal is to update and clarify the quote 
spread parameters applicable to FCOs. Quote spread parameters establish 
the maximum permissible width between the bid and the offer in a 
particular option series. Quote spreads apply to quotes, not orders, 
and are thus only applicable to the quoting participants who are 
required to submit two-sided quotes. This includes specialists and the 
various types of Registered Options Traders (``ROTs'') enumerated in 
Rule 1014(b).
    Specifically, the Exchange proposes to amend Rule 
1014(c)(i)(A)(1)(b) respecting FCOs to parallel the following language 
in Rule 1014(c)(i)(A)(1)(a) respecting equity and index options: the 
Exchange may establish differences other than the above for one or more 
series or classes of options. The Exchange inadvertently did not add 
this language respecting FCOs, even though the ability to establish 
different quote spread parameters is contemplated in Options Floor 
Procedure Advice (``Advice'') F-6,\3\ Option Quote Parameters. Advice 
F-6 provides that relief from the established bid/ask differentials may 
be granted upon the receipt of an approval of an Options Exchange 
Official.\4\ This relief is clearly available for FCOs under Advice F-6 
based on the placement of the language. The Exchange believes that, 
although the relief language in Advice F-6 implies (but does not 
expressly require) that a request must be made to the Exchange, the 
result of any such relief would be to establish a different quote 
spread parameter.\5\ If relief is granted, such relief applies to all 
market participants, regardless of whether a request was specifically 
made or whether it was made by one particular market participant. The 
Exchange certainly would not require that such relief be doled out 
participant-by-participant. The Exchange commonly announces such relief 
by issuing an Options Regulatory Alert.
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    \3\ Options floor procedures advices generally correspond to 
Exchange rules and comprise the Exchange's minor rule violation plan 
establishing preset fines for certain violations pursuant to Rule 
19d-1(c) under the Act. 17 CFR 240.19d-1(c).
    \4\ An Options Exchange Official is an Exchange staff member or 
contract employee designated as such by the Chief Regulatory 
Officer. See Rule 1(w).
    \5\ Some of the circumstances that may result in wider quote 
spread parameters include volatility in the underlying, recent news 
affecting the underlying and heavy volume in the underlying or the 
overlying option.
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    Accordingly, the Exchange believes that adopting the proposed 
language to expressly permit different bid/ask differentials is clearer 
and parallels the language applicable to other options products, all of 
which trade on the same trading floor and through the same trading 
system. There is no reason why different quote spread parameters should 
be available to equity and index options and not FCOs, much like the 
relief provision in Advice F-6 applies to all options, including FCOs.
2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act \6\ in general, and furthers the objectives of Section 
6(b)(5) of the Act \7\ in particular, in that it is designed to promote 
just and equitable principles of trade and protect investors and the 
public interest by making it clear that respecting FCOs, just like all 
other options, different quote spread parameters can be established by 
the Exchange to address specific requests as well as general market 
events. This should promote just and equitable principles of trade and 
protect investors by having quote spread parameters reflect potential 
volatility and activity in the underlying currency, and thereby 
encourage robust market making in FCOs that reflects current market 
conditions.
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    \6\ 15 U.S.C. 78f(b).
    \7\ 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. With respect to intra-market 
competition, the proposed language will apply to all quoting market 
participants equally. With respect to inter-market competition, market 
participants who disagree with the quote spread parameters that the 
Exchange establishes may choose to trade FCOs on another exchange.

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)(iii) 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)(iii).
    \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.

[[Page 4726]]

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-2016-06 on the subject line.

Paper Comments

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

All submissions should refer to File Number SR-Phlx-2016-06. 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-2016-06 and should be 
submitted on or before February 17, 2016.

    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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Brent J. Fields,
Secretary.
[FR Doc. 2016-01665 Filed 1-26-16; 8:45 am]
 BILLING CODE 8011-01-P