Document ID: SEC-2011-1806-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: NASDAQ OMX PHLX LLC
Posted Date: 2011-11-23T05:00Z

[Federal Register Volume 76, Number 226 (Wednesday, November 23, 2011)]
[Notices]
[Pages 72467-72469]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2011-30178]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-65779; File No. SR-Phlx-2011-152]

Self-Regulatory Organizations; NASDAQ OMX PHLX LLC; Notice of 
Filing and Immediate Effectiveness of Proposed Rule Change To Perform a 
Test of Routing Functionality

November 17, 2011.
    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 November 10, 2011, NASDAQ OMX PHLX LLC (the ``Exchange'' or 
``PHLX'') 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

    PHLX is filing this proposed rule change to allow a limited use of 
its broker-dealer affiliate, Nasdaq Execution Services LLC (``NES''), 
to perform a test of routing functionality to be introduced by NASDAQ 
OMX PSX (``PSX''). PHLX proposes to implement the rule change prior to 
November 14, 2011. The text of the proposed rule change is available at 
http://nasdaqomxphlx.cchwallstreet.com/nasdaqomxphlx/phlx, at PHLX's 
principal office, 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

[[Page 72468]]

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
    As provided in Rule 3315, PSX recently adopted rules that will 
allow it to route orders to other trading venues for execution.\3\ 
Routing will be performed by NES, a registered broker-dealer that is an 
affiliate of the Exchange. In order to ensure that the routing 
functionality is operating properly prior to making it available to 
members, the Exchange proposes to use NES to perform test trades in an 
actual security, so as to track the performance of the systems to be 
used by the Exchange from order entry to clearance and settlement.
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    \3\ Securities Exchange Act Release No. 65469 (October 3, 2011), 
76 FR 62486 (October 7, 2011) (SR-Phlx-2011-108).
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    The test will be performed through two buy orders for 100 shares in 
a highly liquid security, such as the Power Shares QQQ Trust. Upon the 
execution of each buy order, NES will enter an offsetting sell order in 
the same security for the same quantity, in order to close out the test 
position and minimize financial impact on the Exchange. For the buy 
orders, NES will submit a routable marketable limit order with a time-
in-force of Immediate or Cancel to the Exchange, with instructions to 
route to a directed away market. The Exchange will then deliver the 
order to NES, as the routing broker, which will route to the designated 
away market and receive an execution back. The first offsetting sell 
order will be handled in a similar manner. The second offsetting sell 
order will be executed at the Exchange itself, to ensure that the 
Exchange's systems are correctly distinguishing between routed and non-
routed trades. To the extent that the offsetting trades require the 
Exchange to pay out funds, the funds will be provided out of the cash 
accounts of the Exchange; to the extent that the trades result in a 
profit, the funds will be deposited in the cash accounts of the 
Exchange.
2. Statutory Basis
    PHLX believes that the proposed rule change is consistent with the 
provisions of Section 6 of the Act,\4\ in general, and with Section 
6(b)(5) of the Act,\5\ in particular, in that the proposal is designed 
to prevent fraudulent and manipulative acts and practices, 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. Specifically, PHLX believes 
that the change will allow it to perform adequate testing of its 
systems for routing member orders before such systems become 
operational. The Exchange believes that adequate testing of market 
functionality is an important component of the operation of the 
national market system.
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    \4\ 15 U.S.C. 78f.
    \5\ 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.

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

    Written comments were neither solicited nor received.

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

    Because the foregoing proposed rule change does not significantly 
affect the protection of investors or the public interest, does not 
impose any significant burden on competition, and, by its terms, does 
not 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) of the Act \6\ and Rule 19b-
4(f)(6) thereunder.\7\
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    \6\ 15 U.S.C. 78s(b)(3)(A).
    \7\ 17 CFR 240.19b-4(f)(6). 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 
Exchange has satisfied this requirement.
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    The Exchange has requested that the Commission waive the 30-day 
operative delay. The Exchange believes that waiver of the 30-day 
operative delay is consistent with the protection of investors and the 
public interest because it would allow the Exchange to conduct a 
limited test to assess the performance of its routing functionality and 
related systems prior to implementation and use by its members. The 
Exchange believes that a limited test prior to the launch of its 
routing functionality will assist the Exchange in uncovering and fixing 
any potential ``bugs'' so as to increase the likelihood of a successful 
implementation. The Commission believes that waiver of the operative 
delay is consistent with the protection of investors and the public 
interest because such waiver would allow the Exchange to conduct a 
limited test without undue delay to ensure that its routing 
functionality and related systems are operating properly prior to 
implementation. Therefore, the Commission designates the proposal 
operative upon filing.\8\
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    \8\ For purposes only of waiving the 30-day operative delay, 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 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 email to rule-comments@sec.gov. Please include 
File Number SR-Phlx-2011-152 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-2011-152. 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/

[[Page 72469]]

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 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-2011-152 and should be submitted on or before December 14, 2011.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\9\
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    \9\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2011-30178 Filed 11-22-11; 8:45 am]
BILLING CODE 8011-01-P