Document ID: SEC-2014-0691-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: NASDAQ OMX PHLX, LLC
Posted Date: 2014-04-28T04:00Z

[Federal Register Volume 79, Number 81 (Monday, April 28, 2014)]
[Notices]
[Pages 23395-23397]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2014-09523]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-71985; File No. SR-Phlx-2014-22]

Self-Regulatory Organizations; NASDAQ OMX PHLX LLC; Notice of 
Filing and Immediate Effectiveness of Proposed Rule Change Regarding 
Quoting Obligations

April 22, 2014.
    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 April 11, 2014, 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 is filing with the Commission a proposal to amend Rule 
1014 (Obligations and Restrictions Applicable to Specialists and 
Registered Options Traders) to indicate that quoting obligations will 
apply collectively to all of a Market Maker's \3\ appointed issues, 
rather than on an issue-by-issue basis.
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    \3\ Market Makers are, as discussed below, Registered Options 
Traders that include Registered Options Traders, Streaming Quote 
Trades [sic], Remote Streaming Quote Traders, specialists, and 
Remote Specialists.
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    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 the 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The purpose of this proposed rule change is to amend Rule 1014 to 
indicate that quoting obligations will apply collectively to all of a 
Market Maker's appointed issues, rather than on an issue-by-issue 
basis.
    This proposal conforms the noted Rule 1014 quoting obligations to 
that of BATS Rule 22.6(d)(3).\4\
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    \4\ See Securities Exchange Act Release No. 71129 (December 18, 
2013) 78 FR 77736 (December 24, 2013) (SR-BATS-2013-062) (notice of 
filing and immediate effectiveness regarding quoting obligations 
applying to a Market Maker's appointed issues collectively). See 
also Exchange Act Release Nos. 69176 (March 19, 2013) 78 FR 17958 
(March 25, 2013) (SR-MIAX-2013-08) (notice of filing and immediate 
effectiveness regarding quoting obligations applying collectively); 
and 61829 (April 1, 2010) 75 FR 17981 (April 8, 2010) (SR-BX-2010-
023) (notice of filing and immediate effectiveness regarding quoting 
obligations applying collectively). Regarding quoting obligations 
applying collectively, see also NYSE MKT Rule 925.1NY, NYSE Arca 
Equity Rule 6.37B, and ISE Rule 804(e).
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    Market Makers on the Exchange include Registered Options Traders 
(``ROTs''),\5\ Streaming Quote Traders (``SQTs''),\6\ Remote Streaming 
Quote Traders (``RSQTs''),\7\ specialists,\8\ and Remote 
Specialists.\9\ As set forth in Rule 1014, Market Makers have an 
obligation to make two-sided markets in products listed on the 
Exchange. This rule change proposal does not negate, or attempt to

[[Page 23396]]

change, any of the existing daily market making obligations established 
in Rule 1014.\10\ This proposal only clarifies that Rule 1014 quoting 
obligations apply to a Market Maker's appointed issues 
collectively.\11\
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    \5\ An ROT is a regular member or a foreign currency options 
participant of the Exchange located on the trading floor who has 
received permission from the Exchange to trade in options for his 
own account. See Rule 1014(b)(i).
    \6\ An SQT is an ROT who has received permission from the 
Exchange to generate and submit option quotations electronically in 
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 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 in options to which such RSQT has been assigned. An 
RSQT may only submit such quotations electronically from off the 
floor of the Exchange. See Rule 1014(b)(ii)(B).
    Rule 1014 also discusses other market makers including Directed 
SQTs and Directed RSQTs, which receive Directed Orders as defined in 
Rule 1080(l)(i)(A). Specialists may likewise receive Directed 
Orders.
    \8\ A member may not act as an options specialist (to include a 
Remote Specialist as defined in Rule 1020(a)(ii)) in any option 
unless such member is registered as an options specialist in such 
option by the Exchange pursuant to Rule 501 and such registration 
may be revoked or suspended at any time by the Exchange. See Rule 
1020(a)(i).
    \9\ A Remote Specialist is an options specialist in one or more 
classes that does not have a physical presence on an Exchange floor 
and is approved by the Exchange pursuant to Rule 501. See Rule 
1020(a)(ii).
    \10\ For all market making obligations, see Rule 1014(b)(ii)(D).
    \11\ For recent quoting-related Exchange proposals, see 
Securities Exchange Act Release No. 67700 (August 21, 2012) 77 FR 
51835 (August 27, 2012) (SR-Phlx-2012-108) (notice of filing and 
immediate effectiveness regarding monthly compliance reviews 
regarding quoting obligations); and 70673 (October 11, 2013) 78 FR 
62780 (October 22, 2013) (SR-Phlx-2013-99) (notice of filing and 
immediate effectiveness regarding daily quoting obligations).
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    The daily market making obligations on the Exchange are set forth 
in Rule 1014.
    Current sub-section (b)(ii)(D)(1) of Rule 1014 states that to 
satisfy the applicable requirements of this subparagraph (D)(1) with 
respect to quoting a series, an SQT, RSQT, DSQT, or DRSQT must quote 
such series 90% of the trading day (as a percentage of the total number 
of minutes in such trading day) or such higher percentage as the 
Exchange may announce in advance. The Exchange proposes new language to 
state that these obligations will apply collectively to all appointed 
issues of an SQT, RSQT, DSQT, or DRSQT, rather than on an issue-by-
issue basis. Similarly, current subsection (b)(ii)(D)(2) states that to 
satisfy the requirement of this subparagraph (D)(2) with respect to 
quoting a series, the specialist must quote such series 90% of the 
trading day (as a percentage of the total number of minutes in such 
trading day) or such higher percentage as the Exchange may announce in 
advance. The Exchange proposes new language to state that these 
obligations will apply collectively to all appointed issues of the 
specialist, rather than on an issue-by-issue basis.\12\
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    \12\ Compliance with continuous quoting requirements will be 
determined on a monthly basis. This does not, however, relieve an 
SQT, RSQT, DSQT, DRSQT, or specialist (including the RSQT 
functioning as a Remote Specialist in particular options) of the 
obligation to provide continuous two-sided quotes on a daily basis, 
nor will it prohibit the Exchange from taking disciplinary action 
against an [sic] for failing to meet the continuous quoting 
obligation each trading day. Rule 1014 (b)(ii)(D)(1) and (2).
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    The Exchange believes that the amendments to sub-sections 
(b)(ii)(D)(1) and (b)(ii)(D)(2) of Rule 1014, which would allow 
applying the quoting requirements for Market Makers collectively across 
all options classes, is a fair and more efficient way for the Exchange 
and market participants to evaluate compliance with the continuous 
quoting requirements. Applying the continuous quoting requirement 
collectively across all option classes rather than on an issue-by-issue 
basis is beneficial to Market Makers by providing some flexibility to 
choose which series in their appointed classes they will continuously 
quote--increasing the continuous quoting obligation in the series of 
one class to allow for a decrease in the continuous quoting obligation 
in the series of another class. This flexibility does not, however, 
diminish the Market Maker's obligation to continuously quote a 
significant part of the trading day in a significant percentage of 
series. Flexibility is important for classes that have relatively few 
series and may prevent the Market Maker, in particular, from breaching 
the continuous quoting requirement when failing to meet the specified 
quote amount during the trading day (as proposed) in more than one 
series in an appointed class. However, this flexibility does not act to 
relieve the Market Maker of his continuing quoting obligations and does 
not, for example, relieve the Market Maker from providing liquidity in 
classes experiencing heightened volatility.\13\ The Exchange believes 
that the balance between the benefits provided to Market Makers and the 
obligations imposed upon Market Makers by the proposed rule change is 
appropriate.
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    \13\ Rule 1014 states, in relevant part, that although 
compliance with continuous quoting requirements will be determined 
on a monthly basis this does not relieve the Market Maker of the 
obligation to provide continuous two-sided quotes on a daily basis, 
nor will it prohibit the Exchange from taking disciplinary action 
against a Market Maker for failing to meet the continuous quoting 
obligation each trading day. Rule 1014 (b)(ii)(D)(1) and (D)(2).
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    The Exchange believes that the proposal will not diminish, and in 
fact may increase, market making activity on the Exchange, by 
establishing quoting compliance standards that are reasonable and are 
already in place on other options exchanges. By amending Rule 1014 to 
state that quoting obligations apply to a Market Maker's appointed 
issues collectively, this proposal conforms Rule 1014 to that of other 
options markets (e.g. BATS, MIAX, BX Options) and puts the Exchange on 
an equal competitive footing. Moreover, as discussed the Exchange 
believes that the proposal may increase market making activity on the 
Exchange by establishing quoting compliance standards that are 
reasonable and already in place on other options exchanges.
2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act \14\ in general, and furthers the objectives of Section 
6(b)(5) of the Act \15\ 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. The Exchange would do this though [sic] a proposed rule 
change amending Rule 1014 to state that quoting obligations apply to a 
Market Maker's appointed issues collectively, rather than on an issue-
by-issue basis.
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    \14\ 15 U.S.C. 78f(b).
    \15\ 15 U.S.C. 78f(b)(5).
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    The proposal supports the quality of the Exchange's market by 
helping to ensure that Market Makers will continue to be obligated to 
quote in series when necessary. Ultimately, the benefit the proposed 
rule change confers upon Market Makers is offset by the continued 
responsibilities to provide significant liquidity to the market to the 
benefit of market participants. While under the proposal there are 
quoting requirements changes, the Exchange does not believe that these 
changes reduce the overall obligations applicable to Market Makers.\16\ 
Moreover, the Exchange believes that the proposal may increase, market 
making activity on the Exchange and the quality of the Exchange's 
market by establishing quoting compliance standards that are reasonable 
and already in place on other options exchanges.\17\
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    \16\ In this respect, the Exchange notes that such Market Makers 
are subject to many obligations, including, for example, the 
obligation to continuously quote series 90% of the trading day (with 
additional flexibility in choosing the series to quote, as noted), 
the obligation to maintain a fair and orderly market in their 
appointed classes, and the obligation to conduct the opening and 
enter continuous quotations in all of the series of their appointed 
options classes within maximum spread requirements.
    \17\ See supra note 4. The Exchange believes that, as discussed, 
applying the quoting requirements for Market Makers collectively 
across all options classes is generally a fair and more efficient 
way for the Exchange and market participants to evaluate compliance 
with the continuous quoting requirements. Applying the continuous 
quoting requirement collectively across all option classes rather 
than on an issue-by-issue basis is beneficial to Market Makers by 
providing some flexibility to choose which series in their appointed 
classes they will continuously quote--increasing the continuous 
quoting obligation in the series of one class to allow for a 
decrease in the continuous quoting obligation in the series of 
another class. This flexibility does not, however, diminish the 
Market Maker's obligation to continuously quote a significant part 
of the trading day in a significant percentage of series, and does 
not diminish the Market Maker's obligation to provide liquidity in 
classes experiencing heightened volatility. This flexibility is 
especially important for classes that have relatively few series and 
may prevent the Market Maker, in particular, from breaching the 
continuous quoting requirement when failing to meet the specified 
quote amount during the trading day (as proposed) in more than one 
series in an appointed class.

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[[Page 23397]]

    The proposed rule change also protects investors and the public 
interest by creating more uniformity and consistency among the 
Exchange's rules related to Market Maker quoting obligations. Providing 
Market Makers with flexibility by providing the continuous quoting 
obligation collectively across all option classes will not diminish the 
Market Makers' obligation to continuously quote a significant part of 
the trading day in a significant percentage of series. Additionally, 
with respect to compliance standards, the Exchange believes that 
adopting the proposed standards will enhance compliance efforts by 
Market Makers and the Exchange, and are consistent with requirements 
currently in place on other exchanges (e.g. BATS Rule 22.6(d)(3)). The 
proposal ensures that compliance standards for continuous quoting, in 
particular regarding quoting obligations applying to all of a Market 
Maker's appointed issues collectively, will be the same on the Exchange 
as on other options exchanges. The Exchange believes that the proposal 
will not diminish and in fact may increase, market making activity on 
the Exchange by establishing quoting compliance standards that are 
reasonable and already in place on other options exchanges.

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. To the contrary, the Exchange 
believes that because this proposal establishes quoting compliance 
standards that are reasonable and already in place on other options 
exchanges, the proposal will not diminish, and in fact may increase, 
market making activity on the Exchange and thereby enhance intermarket 
competition. Moreover, the proposed rule change will not impose any 
burden on intramarket competition because it will affect all Market 
Makers the same.

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) of the Act \18\ and Rule 19b-4(f)(6) thereunder.\19\ 
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) 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 pursuant to Section 19(b)(3)(A) of the Act \20\ and Rule 19b-
4(f)(6) thereunder.\21\
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    \18\ 15 U.S.C. 78s(b)(3)(A).
    \19\ 17 CFR 240.19b-4(f)(6).
    \20\ 15 U.S.C. 78s(b)(3)(A).
    \21\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6) 
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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    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-2014-22 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-2014-22. 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-2014-22, and should be 
submitted on or before May 19, 2014.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\22\
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    \22\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2014-09523 Filed 4-25-14; 8:45 am]
BILLING CODE 8011-01-P