Document ID: SEC-2012-1156-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: NASDAQ OMX PHLX LLC
Posted Date: 2012-07-17T04:00Z

[Federal Register Volume 77, Number 137 (Tuesday, July 17, 2012)]
[Notices]
[Pages 42048-42050]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2012-17327]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-67399; File No. SR-Phlx-2012-94]

Self-Regulatory Organizations; NASDAQ OMX PHLX LLC; Notice of 
Filing and Immediate Effectiveness of Proposed Rule Change Relating to 
the Extension of a Pilot Program Regarding Price Improvement XL

July 11, 2012.
    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 July 9, 2012, NASDAQ OMX PHLX LLC (``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 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 Exchange Rule 1080(n), Price 
Improvement XL (``PIXL\SM\'') to extend, through July 18, 2013, a pilot 
program (the ``pilot'') concerning (i) the early conclusion of the PIXL 
Auction (as described below), and (ii) permitting orders of fewer than 
50 contracts into the PIXL Auction. The current pilot is scheduled to 
expire July 18, 2012.
    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 extend the pilot 
through July 18, 2013.
Background
    The Exchange adopted PIXL in October, 2010 as a price-improvement 
mechanism on the Exchange.\3\ PIXL is a component of the Exchange's 
fully automated options trading system, PHLX XL[supreg] that allows an 
Exchange member (an ``Initiating Member'') to electronically submit for 
execution an order it represents as agent on behalf of a public 
customer, broker dealer, or any other entity (``PIXL Order'') against 
principal interest or against any other order it represents as agent 
(an ``Initiating Order'') provided it submits the PIXL Order for 
electronic execution into the PIXL Auction (``Auction'') pursuant to 
the Rule.
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    \3\ See Securities Exchange Act Release No. 63027 (October 1, 
2010), 75 FR 62160 (October 7, 2010) (SR-Phlx-2010-108) (Order 
Granting Approval to a Proposed Rule Change Relating to a Proposed 
Price Improvement System, Price Improvement XL); Securities Exchange 
Act Release No. 65043 (August 5, 2011), 76 FR 49824 (August 11, 
2011) (SR-Phlx-2011-104) (Extending Pilot for Price Improvement 
System, Price Improvement XL).
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    An Initiating Member may initiate a PIXL Auction by submitting a 
PIXL Order in one of three ways:
     First, the Initiating Member could submit a PIXL Order 
specifying a single price at which it seeks to execute the PIXL Order 
(a ``stop price'').
     Second, an Initiating Member could submit a PIXL Order 
specifying that it is willing to automatically match as principal or as 
agent on behalf of an Initiating Order the price and size of all 
trading interest and responses to the PIXL Auction Notification 
(``PAN,'' as described below) (``auto-match''), in which case the PIXL 
Order will be stopped at the National Best Bid/Offer (''NBBO'') on the 
Initiating Order side of the market (if 50 contracts or greater) or, if 
less than 50 contracts, the better of: (i) the PHLX Best Bid/Offer 
(``PBBO'') price on the opposite side of the market from the PIXL Order 
improved by at least one minimum price improvement increment, or (ii) 
the PIXL Order's limit price (if the order is a limit order), provided 
in either case that such price is at or better than the NBBO and that 
such price is at least one increment better than the limit of an order 
on the book on the same side as the PIXL Order.
     Third, an Initiating Member could submit a PIXL Order 
specifying that it is willing to either: (i) stop the entire order at a 
single stop price and auto-match PAN responses, as described below, 
together with trading interest, at a price or prices that improve the 
stop price to a specified price above or below which the Initiating 
Member will not trade (a ``Not Worse Than'' or ``NWT'' price); (ii) 
stop the entire order at a single stop price and auto-match all PAN 
responses and trading interest at or better than the stop price; or 
(iii) stop the entire order at the NBBO on the Initiating Order side 
(if 50 contracts or greater) or the better of: (A) the PBBO price on 
the opposite side of the market from the PIXL Order improved by one 
minimum price improvement increment, or (B) the PIXL Order's limit 
price (if the order is a limit order) on the Initiating Order side 
provided in either case that such price is at or better than the NBBO 
(if for less than 50 contracts), and auto-match PAN responses and 
trading interest are at a price or prices that improve the stop price 
up to the NWT price. In all cases, if the PBBO on the same side of the 
market as the PIXL Order represents a limit order on the book, the stop 
price must be at least one minimum price improvement increment better 
than the booked limit order's limit price.
    After the PIXL Order is entered, a PAN is broadcast and a one-
second blind Auction ensues. Anyone may respond to the PAN by sending 
orders or quotes. At the conclusion of the Auction, the PIXL Order will 
be allocated at the best price(s).
    Once the Initiating Member has submitted a PIXL Order for 
processing, such PIXL Order may not be modified or cancelled. Under any 
of the above circumstances, the Initiating Member's stop price or NWT 
price may be improved to the benefit of the PIXL Order during the 
Auction, but may not be cancelled.
    After a PIXL Order has been submitted, a member organization 
submitting the order has no ability to control the timing of the 
execution. The execution is carried out by the Exchange's PHLX 
XL[supreg] automated options trading system and pricing is determined 
solely by the other orders

[[Page 42049]]

and quotes that are present in the Auction.
The Pilot
    Three components of the PILX system were approved by the Commission 
on a pilot basis: (1) paragraphs (n)(i)(A)(2) \4\ and (n)(i)(B)(2) of 
Rule 1080, relating to auction eligibility requirements; (2) paragraphs 
(n)(ii)(B)(4) and (n)(ii)(D) of Rule 1080, relating to the early 
conclusion of the PIXL Auction; and (3) paragraph (n)(vii) of Rule 
1080, stating that there shall be no minimum size requirement of orders 
entered into PIXL. The pilots were approved for a pilot period expiring 
on July 18, 2012.\5\ The Exchange notes that during the pilot period it 
has been required to submit, and has been submitting, certain data 
periodically as required by the Commission, to provide supporting 
evidence that, among other things, there is meaningful competition for 
all size orders and that there is an active and liquid market 
functioning on the Exchange outside of the Auction mechanism.\6\ The 
Exchange will continue to provide such data. The Exchange believes 
that, because the pilot has been operating for a relatively short 
amount of time, the proposed extension should afford the Commission 
additional time to evaluate the pilot.
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    \4\ On March 9, 2012, the Exchange filed a proposed rule change 
to clarify Exchange Rule 1080(n)(i)(A)(2). See Securities Exchange 
Act Release No. 66583 (March 13, 2012), 77 FR 16108 (March 19, 2012) 
(SR-Phlx-2012-032) (Notice of Filing and Immediate Effectiveness of 
Proposed Rule Change Amending Price Improvement System, Price 
Improvement XL). The amendment reflected the correct price--at or 
better than the NBBO--at which an Initiating Member must guarantee 
the execution of a PIXL Order that the Initiating Member submits 
into a PIXL Auction.
    \5\ See supra note 3.
    \6\ See Exchange Rule 1080(n)(vii).
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    The Exchange proposes to extend the pilot through July 18, 2013.
2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with the provisions of Section 6 of the Act,\7\ in general and with 
Section 6(b)(5) of the Act,\8\ in that it is designed 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; and is not designed to 
permit unfair discrimination between customers, issuers, brokers, or 
dealers, or to regulate by virtue of any authority conferred by the Act 
matters not related to the purposes of the Act or the administration of 
the Exchange.
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    \7\ 15 U.S.C. 78f.
    \8\ 15 U.S.C. 78f(b)(5).
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    The Exchange believes that the proposed rule change is also 
consistent with Section 6(b)(8) of the Act \9\ in that it does not 
impose any burden on competition not necessary or appropriate in 
furtherance of the purposes of the Act.
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    \9\ 15 U.S.C. 78f(b)(8).
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    Specifically, the Exchange believes that PIXL, including the rules 
to which the pilot applies, result in increased liquidity available at 
improved prices, with competitive final pricing out of the Initiating 
Member's complete control. The Exchange believes that PIXL promotes and 
fosters competition and affords the opportunity for price improvement 
to more options contracts.

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 filed the proposed rule change pursuant to Section 
19(b)(3)(A)(iii) of the Act \10\ and Rule 19b-4(f)(6) thereunder.\11\ 
Because the 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) by its terms, become 
operative prior to 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, the proposed rule 
change has become effective upon filing with the Commission pursuant to 
Section 19(b)(3)(A) of the Act \12\ and Rule 19b-4(f)(6)(iii) 
thereunder.\13\
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    \10\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \11\ 17 CFR 240.19b-4(f)(6).
    \12\ 15 U.S.C. 78s(b)(3)(A).
    \13\ 17 CFR 240.19b-4(f)(6)(iii). In addition, Rule 19b-
4(f)(6)(iii) requires the Exchange to give the Commission written 
notice of the Exchange's 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 Commission deems this requirement to have been met.
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    The Exchange has requested that the Commission waive the 30-day 
operative delay period. The Commission believes that waiver of the 30-
day operative delay period is consistent with the protection of 
investors and the public interest because such waiver will allow the 
PIXL pilot programs to continue without interruption. Accordingly, the 
Commission designates the proposed rule change operative upon filing 
with the Commission.\14\
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    \14\ For purposes only of waiving the operative delay for this 
proposal, the Commission has considered the proposed rule's impact 
on efficiency, competition, and capital formation. See 15 U.S.C. 
78c(f).
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    At any time within 60 days of the filing of such 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. 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-2012-94 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-2012-94. 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

[[Page 42050]]

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 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-2012-94 and should be 
submitted on or before August 7, 2012.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\15\
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    \15\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2012-17327 Filed 7-16-12; 8:45 am]
BILLING CODE 8011-01-P