Document ID: SEC-2013-1553-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: NASDAQ OMX PHLX, LLC
Posted Date: 2013-09-04T04:00Z

[Federal Register Volume 78, Number 171 (Wednesday, September 4, 2013)]
[Notices]
[Pages 54504-54507]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2013-21411]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-70278; File No. SR-Phlx-2013-87]

Self-Regulatory Organizations; NASDAQ OMX PHLX LLC; Notice of 
Filing and Immediate Effectiveness of Proposed Rule Change To Amend the 
Commentary to Rule 1080 To Add a New PIXL ISO Order Type

August 28, 2013.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934

[[Page 54505]]

(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that 
on August 21, 2013, 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 the 
Substance of the Proposed Rule Change

    The Exchange proposes to amend the Commentary to Rule 1080 to add a 
new PIXL ISO order type.
    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 Exchange proposes to amend the Commentary to Rule 1080 to add a 
new PIXL ISO order type.
PIXL
    The price-improving electronic auction (``PIXL'') is a process 
whereby Exchange members electronically submit orders they represent as 
agent against principal interest or other interest that they represent 
as agent.\3\ The submitted orders are stopped at a price and are 
subsequently entered into an auction seeking price improvement.
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    \3\ Rule 1080(n).
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    An Exchange member (``Initiating Member'') may initiate a PIXL 
auction provided that it meets certain requirements depending on the 
size of the order, whether or not the order is for the account of a 
public customer and whether or not it is a Complex Order.\4\ These 
requirements are as follows.
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    \4\ For purposes of the electronic trading of Complex Orders 
pursuant to Rule 1080.08 only, a Complex Order is an order involving 
the simultaneous purchase and/or sale of two or more different 
options series in the same underlying security, priced as a net 
debit or credit based on the relative prices of the individual 
components, for the same account, for the purpose of executing a 
particular investment strategy. See Commentary .08(a)(i) to Rule 
1080.
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    1. If the PIXL Order \5\ is for the account of a public customer 
and is for a size of 50 contracts or more, the Initiating Member must 
stop the entire PIXL Order at a price that is equal to or better than 
the National Best Bid/Offer (``NBBO'') on the opposite side of the 
market from the PIXL Order, provided that such price must be at least 
one minimum price improvement increment (as determined by the Exchange 
but not smaller than one cent) better than any limit order on the limit 
order book on the same side of the market as the PIXL Order.\6\
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    \5\ A member may 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 (other than in the final two seconds of a 
trading session) it represents as agent provided it submits the PIXL 
Order for electronic execution into the PIXL auction. See Rule 
1080(n).
    \6\ Rule 1080(n)(i)(A)(1).
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    2. If the PIXL Order is for the account of a public customer and is 
for a size of less than 50 contracts, the Initiating Member must stop 
the entire PIXL Order at a price that is the better of: (i) the 
Exchange's Best Bid or 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 at least one minimum price improvement 
increment better than any limit order on the book on the same side of 
the market as the PIXL Order.\7\
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    \7\ Rule 1080(n)(i)(A)(2). This component of the PIXL system is 
effective for a pilot period scheduled to expire July 18, 2014.
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    3. If the PIXL Order is not for the account of a public customer 
and is for a size of 50 contracts or more, the Initiating Member must 
stop the entire PIXL Order at a price that is the better of: (i) the 
PBBO price improved by at least one minimum price improvement increment 
on the same side of the market as the PIXL Order, 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.\8\
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    \8\ Rule 1080(n)(i)(B)(1).
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    4. If the PIXL Order is not for the account of a public customer 
and is for a size of less than 50 contracts, the Initiating Member must 
stop the entire PIXL Order at a price that is the better of: (i) the 
PBBO price improved by at least one minimum price improvement increment 
on the same side of the market as the PIXL Order, 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 at least one 
minimum improvement increment better than the PBBO on the opposite side 
of the market from the PIXL Order.\9\
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    \9\ Rule 1080(n)(i)(B)(2). This component of the PIXL system is 
effective for a pilot period scheduled to expire July 18, 2014.
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    5. If the PIXL Order is a Complex Order and of a conforming 
ratio,\10\ the Initiating Member must stop the entire PIXL order at a 
price that is better than the best net price (debit or credit) (i) 
available on the Complex Order book regardless of the Complex Order 
book size; and (ii) achievable from the best Phlx bids and offers for 
the individual options, provided in either case that such price is 
equal to or better than the PIXL Order's limit price.\11\
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    \10\ The term ``conforming ratio'' is where the ratio between 
the sizes of the options components of a Complex Order is equal to 
or greater than one-to-three (.333) and less than or equal to three-
to-one (3.00). For example, a one-to-two (.5) ratio, a two-to-three 
(.667) ratio, or a two-to-one (2.00) ratio is a conforming ratio, 
whereas a one-to-four (.25) ratio or a four-to-one (4.0) ratio is 
not; where one component of the Complex Order is the underlying 
security, the ratio between any options component and the underlying 
security component must be less than or equal to eight contracts to 
100 shares of the underlying security. See Commentary .08(a)(ix) to 
Rule 1080.
    \11\ Rule 1080(n)(i)(C). Where applied to Complex Orders where 
the smallest leg is less than 50 contracts in size, this component 
of the PIXL system shall be effective for a pilot period scheduled 
to expire July 18, 2014.
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ISO
    An intermarket sweep order (``ISO'') is defined in Rule 1066(i) 
\12\ as a limit order that is designated as an ISO in the manner 
prescribed by the Exchange and is executed within the system by 
participants at multiple price levels without respect to Protected 
Quotations of other Eligible Exchanges as defined in

[[Page 54506]]

Rule 1083.\13\ ISOs are immediately executable within the Exchange's 
options trading system or cancelled, and shall not be eligible for 
routing as set out in Rule 1080. Simultaneously with the routing of an 
ISO to the Exchange's options trading system, one or more additional 
limit orders, as necessary, are routed by the entering party to execute 
against the full displayed size of any Protected Bid or Protected Offer 
in the case of a limit order to sell or buy with a price that is 
superior to the limit price of the limit order identified as an ISO. 
These additional routed orders must be identified as ISOs.
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    \12\ In September 2013, the Exchange plans to begin 
implementation of enhancements to the Options Floor Broker 
Management System, with a trial period of two to four weeks, to be 
determined by the Exchange. As part of these enhancements, the 
definition of ISO will be moved to the Commentary to Rule 1080. See 
Securities Exchange Act Release No. 69471 (April 29, 2013), 78 FR 
26096 (May 3, 2013) (SR-Phlx-2013-09).
    \13\ Under Rule 1083, a ``Protected Quotation'' includes a 
Protected Bid or Protected Offer. A ``Protected Bid'' or ``Protected 
Offer'' means a Bid or Offer in an options series, respectively, 
that: (i) is disseminated pursuant to the OPRA Plan; and (ii) is the 
Best Bid or Best Offer, respectively, displayed by an Eligible 
Exchange. ``Bid'' or ``Offer'' means the bid price or the offer 
price communicated by a member of an Eligible Exchange to any broker 
or dealer, or to any customer, at which it is willing to buy or 
sell, as either principal or agent, but shall not include 
indications of interest. The ``OPRA Plan'' means the plan filed with 
the SEC pursuant to Section 11Aa(1)(C)(iii) of the Act, approved by 
the SEC and declared effective as of January 22, 1976, as from time 
to time amended. ``Best Bid'' and ``Best Offer'' mean the highest 
priced Bid and the lowest priced Offer. Finally, ``Eligible 
Exchange'' means a national securities exchange registered with the 
SEC in accordance with Section 6(a) of the Act that: (i) Is a 
Participant Exchange in The Options Clearing Corporation (``OCC'') 
(as that term is defined in Section VII of the OCC by-laws); (ii) is 
a party to the OPRA Plan; and (iii) if the national securities 
exchange is not a party to the OPRA Plan, is a participant in 
another plan approved by the Commission providing for comparable 
trade-through and locked and crossed market protection.
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PIXL ISO Order Type
    The Exchange proposes to implement a new PIXL ISO order type 
(``PIXL ISO'') that will allow the submission of an ISO into PIXL. 
Specifically, a PIXL ISO is the transmission of two orders for crossing 
pursuant to Rule 1080(n) without regard for better priced Protected 
Bids or Protected Offers because the participant transmitting the PIXL 
ISO to the Exchange has, simultaneously with the routing of the PIXL 
ISO, routed one or more ISOs, as necessary, to execute against the full 
displayed size of any Protected Bid or Protected Offer that is superior 
to the starting PIXL auction price and has swept all interest in the 
Exchange's book priced better than the proposed auction starting price. 
Any execution(s) resulting from such sweeps shall accrue to the PIXL 
Order, meaning that any execution(s) obtained from the away side will 
be given to the agency side of the order.
    The Exchange will accept a PIXL ISO provided the order adheres to 
the current PIXL Order acceptance requirements, which are outlined 
above, but without regard to the NBBO. The Exchange will execute the 
PIXL ISO in the same manner that it currently executes PIXL Orders, 
except that it will not protect prices away. Instead, order flow 
providers will bear the responsibility to clear all better priced 
interest away simultaneously with submitting the PIXL ISO order. There 
is no other impact to PIXL functionality. Specifically, liquidity 
present at the end of the PIXL auction will continue to be included in 
the PIXL auction as it is with PIXL Orders not marked as ISOs.
    The Exchange will announce the implementation of this order type by 
Options Trader Alert.
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 proposal promotes just and equitable principles of trade 
and removes impediments to a free and open market in that it promotes 
competition, as described further below. Specifically, the proposal 
allows the Exchange to offer its members an order type that is already 
offered by another exchange.\16\ In addition, the proposal benefits 
traders and investors because it adds a new order type for seeking 
price improvement through the PIXL mechanism. Finally, the proposal 
does not unfairly discriminate among members because all members are 
eligible to submit a PIXL ISO order.
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    \14\ 15 U.S.C. 78f(b).
    \15\ 15 U.S.C. 78f(b)(5).
    \16\ See CBOE Rule 6.53(q).
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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. Instead, the proposal is pro-
competitive. First, it will enable the Exchange to provide market 
participants with an additional method of seeking price improvement 
through PIXL. Second, the proposal will allow the Exchange to compete 
against other markets that already allow an ISO order type in their 
price improvement mechanisms.\17\
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    \17\ Id.
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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) [sic] of the Act \18\ and 
subparagraph (f)(6) of Rule 19b-4 thereunder.\19\
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    \18\ 15 U.S.C. 78s(b)(3)(A)(ii) [sic].
    \19\ 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-2013-87 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.

[[Page 54507]]

All submissions should refer to File Number SR-Phlx-2013-87. 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 such filing also will be available 
for inspection and copying at the principal offices 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-2013-87, 
and should be submitted on or before September 25, 2013.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\20\
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    \20\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2013-21411 Filed 9-3-13; 8:45 am]
BILLING CODE 8011-01-P