Document ID: SEC-2015-0789-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: NASDAQ OMX PHLX LLC
Posted Date: 2015-05-11T04:00Z

[Federal Register Volume 80, Number 90 (Monday, May 11, 2015)]
[Notices]
[Pages 26960-26962]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2015-11273]

=======================================================================
-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-74874; File No. SR-Phlx-2015-37]

Self-Regulatory Organizations; NASDAQ OMX PHLX LLC; Notice of 
Filing and Immediate Effectiveness of Proposed Rule Change To Amend 
Exchange Rules To Describe How All-or-None Orders Are Handled by Its 
New Options Floor Broker Management System

May 5, 2015.
    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 April 22, 2015, 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 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.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------

I. Self-Regulatory Organization's Statement of the Terms of the 
Substance of the Proposed Rule Change

    The Exchange proposes to amend Exchange rules to describe how All-
or-None (``AON'') orders are handled by its new Options Floor Broker 
Management System (``FBMS'').
    The text of the proposed rule change is below; proposed new 
language is italicized; proposed deletions are in brackets.
* * * * *

A-9 All-or-None Option Orders

    An all-or-none option order is a limit order which is to be 
executed in its entirety, or not at all. Unlike a fill-or-kill 
order, an all-or-none order is not cancelled if it is not executed 
as soon as it is represented in the trading crowd. An all-or-none 
order has no standing respecting executions in the crowd except with 
respect to other all-or-none orders.
    When represented in the crowd, [A]all-or-none orders are not 
included as part of the bid or offer. [However, an all-or-none order 
entrusted to a Specialist should be disclosed to the trading crowd 
if such order falls within or upon the bid or offer for the 
particular option series.
    For example, if the market in XYZ Oct 30 calls is 4-4.25, 10x15, 
and there is an all-or-none order on the Specialist's book to sell 
10 XYZ Oct 30 calls at 4.25 all-or-none, the Specialist, in response 
to a request for the market in XYZ Oct 30 calls, should respond:
    ``The market is 4-4.25, 10x15, 10 (to sell) at 4.25 all-or-
none.''
    Accordingly, under this policy, all-or-none option orders should 
be announced to the trading crowd as part of the quoted market, but 
not as part of the bid or offer.]
    When entered electronically pursuant to Rule 1080 or into 
Options Floor Broker Management System pursuant to Rule 1063, an 
all-or-none order has standing and is eligible for execution in time 
priority with all other customer orders and all-or-none professional 
orders (as specified in Rule 1000(b)(14)) at that price if the all-
or-none contingency can be met.

FINE SCHEDULE

    Fine not applicable
* * * * *

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
Background
    Today, the Exchange is operating two versions of FBMS as part of an 
implementation period for the new FBMS. The old FBMS enabled Floor 
Brokers and/or their employees to enter, route, and report transactions 
stemming from options orders executed manually (verbally) in open 
outcry on the Exchange. It also established an electronic audit trail 
for options orders represented by Floor Brokers on the Exchange. Floor 
Brokers can use old FBMS to submit orders to the PHLX XL II System 
(``System'') pursuant to Rule 1063, rather than executing the orders in 
the trading crowd.
    With the new FBMS, all options transactions on the Exchange 
involving at least one Floor Broker can continue to be represented in 
open outcry in the trading crowd but are now required to be executed by 
and through the new FBMS. In connection with order execution, the 
Exchange allows FBMS to execute two-sided orders entered by Floor 
Brokers, including multi-leg orders up to 15 legs, after the Floor 
Broker has represented the orders in the trading crowd. FBMS also 
provides Floor Brokers with an enhanced functionality called the 
complex calculator that calculates and displays a suggested price of 
each individual component of a multi-leg order, up to 15 legs, 
submitted on a net debit or credit basis. The Exchange deployed the new 
FBMS in March 2014. Despite the initial intent to phase out the old 
FBMS after an implementation period involving the old and new FBMS 
operating concurrently, the Exchange has determined to operate the old 
FBMS until November 3, 2015 and is planning to implement a new, third 
FBMS, the details of which will be filed as a proposed rule change.\3\ 
In the event that the Floor Broker is utilizing the new FBMS and the 
new FBMS malfunctions or is otherwise not available after a Floor 
Broker has entered an order, the Floor Broker can re-enter that order 
into the old FBMS.
---------------------------------------------------------------------------

    \3\ Securities Exchange Act Release No. 73586 (November 13, 
2014), 79 FR 68931 (November 19, 2014) (SR-Phlx-2014-71).
---------------------------------------------------------------------------

Proposal
    The purpose of the proposal is to address the way AON orders on the 
book are handled electronically by the new FBMS.\4\ In its filing for 
approval of the new FBMS, the Exchange addressed AON orders merely by 
referring to Advice A-9, which provides, in pertinent part, that an AON 
option order is a limit order which is to be executed in its entirety, 
or not at all.\5\ Advice A-9 further provides that an AON order has no 
standing in the crowd except with respect to other AON orders. 
Accordingly, when a Floor Broker using

[[Page 26961]]

the old FBMS executes an order in the trading crowd today where there 
is an AON order executable against the Floor Broker's order on the 
contra-side, the Floor Broker can skip that AON order and trade with 
another quote or order at that price, because the AON order has no 
standing. This would continue to be the case for verbal executions, 
which occur when the old FBMS is used, when the new FBMS malfunctions 
\6\ and where there is no Floor Broker involved.\7\ The Exchange is not 
proposing to change this, other than to make a slight language change 
to clarify that the execution is occurring in the trading crowd.
---------------------------------------------------------------------------

    \4\ Only customers and professionals can submit AON orders. See 
Rules 1000(b)(14) and Rule 1080(b).
    \5\ See also Rule 1066(c)(4).
    \6\ Rule 1063(e)(ii).
    \7\ Rule 1000(f)(ii).
---------------------------------------------------------------------------

    Although this is how AON orders are treated on the trading floor 
today when executed manually in the trading crowd, AON orders are 
treated differently when the new FBMS is used because the System 
performs the execution. Specifically, in the new FBMS, AON orders that 
can trade against any eligible interest, not just other AON orders, and 
they are not skipped. When a Floor Broker seeks to execute an order 
using the new FBMS where there is an AON order at a price equal to or 
better than the Floor Broker's order on the contra-side, the Floor 
Broker must enter his order into the new FBMS and execute against the 
full size of the AON order electronically. If the Floor Broker does not 
fulfill the full size of the AON order, the Floor Broker's order will 
be returned with no execution occurring.
    This is the same way that AON orders are treated by the System; 
they are subject to the normal price and time priority principles of 
Rule 1014, except that the AON contingency must be met for the AON 
order to trade. An AON order with time priority will trade in time 
priority before another customer order if its size contingency can be 
met. If the size contingency order cannot be met, the AON order will be 
skipped and a customer order behind it in time priority may execute. 
Because the new FBMS executes orders electronically and generally 
provides more electronic functionality, the Exchange believes it is 
appropriate to address AON orders executed against orders submitted 
through the new FBMS in the same way.
    Accordingly, Advice A-9 is proposed to be amended to expressly 
state that how AON orders are handled when executed manually (verbally) 
as well as when executed electronically. With respect to electronic AON 
orders, the Exchange proposes to expressly state that an AON order has 
standing and is eligible for execution in time priority with all other 
customer orders and AON professional orders (as specified in Rule 
1000(b)(14)) at that price if the AON contingency can be met. The 
Exchange is not changing what types of orders a professional can submit 
nor the priority of those orders. Rule 1000(b)(14) will continue to 
state that the term ``professional'' means any person or entity that 
(i) is not a broker or dealer in securities, and (ii) places more than 
390 orders in listed options per day on average during a calendar month 
for its own beneficial account(s). It will also continue to state that 
a professional will be treated in the same manner as an off-floor 
broker-dealer for purposes of Rules 1014(g)(except with respect to AON 
orders, which will be treated like customer orders, except that orders 
submitted pursuant to Rule 1080(n) for the beneficial account(s) of 
professionals with an AON designation will be treated in the same 
manner as off-floor broker-dealer orders), 1033(e), 1064.02 (except 
professional orders will be considered customer orders subject to 
facilitation), 1080(n) and 1080.08 as well as Options Floor Procedure 
Advices B-6, B-11 and F-5.
    The Exchange also proposes to delete the example at the end of 
Advice A-9. It is obsolete for several reasons; it refers to the 
``Specialist's book,'' which is now generally considered the Exchange's 
book, the limit order book or just the book; and announcing AON orders 
on the book to the crowd does not occur where there is a remote 
specialist. For similar reasons, the Exchange proposes to delete 
reference to an AON order being ``entrusted to a Specialist.'' This 
process is no longer performed.
2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act \8\ in general, and furthers the objectives of Section 
6(b)(5) of the Act \9\ in particular, in that it is designed to promote 
just and equitable principles of trade and to protect investors and the 
public interest, by specifically providing how an AON order executes 
against orders submitted through the new FBMS and by improving the 
treatment of such AON orders as opposed to AON orders handled manually. 
Specifically, the proposal results in improving the treatment of 
electronic AON orders by increasing their interaction with other orders 
on the Exchange, because AON orders are electronically executed against 
contra-side orders entered into the new FBMS. More specifically, such 
orders have standing and time priority, as explained above. The 
Exchange is not changing the priority of afforded to electronic AON 
orders, but rather is codifying such treatment in its rules.
---------------------------------------------------------------------------

    \8\ 15 U.S.C. 78f(b).
    \9\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

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. This treatment of AON orders 
should help the Exchange compete with other floor-based exchanges for 
AON orders. More importantly, the proposal should result in more 
interaction between AON orders and all other orders, as explained 
above, thereby promoting a more competitive marketplace.

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) of the Act \10\ and 
subparagraph (f)(6) of Rule 19b-4 thereunder.\11\
---------------------------------------------------------------------------

    \10\ 15 U.S.C. 78s(b)(3)(A).
    \11\ 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.
---------------------------------------------------------------------------

    A proposed rule change filed under Rule 19b-4(f)(6) normally does 
not become operative for 30 days after the date of filing.\12\ However, 
Rule 19b-4(f)(6)(iii) permits the Commission to designate a shorter 
time if such action is consistent with the protection of investors and 
the public interest.\13\ The Exchange has asked the Commission to waive 
the 30-day operative delay so that the proposed rule change may become 
operative immediately upon filing. The Commission notes that the 
proposal is designed to provide Exchange members with more specificity 
regarding how the Exchange handles AON orders in the

[[Page 26962]]

new FBMS system. The Commission also notes that the Exchange represents 
that the proposal does not affect the priority of electronic AON 
orders. Accordingly, the Commission hereby waives the 30-day operative 
delay and designates the proposal operative upon filing.\14\
---------------------------------------------------------------------------

    \12\ 17 CFR 240.19b-4(f)(6)(iii).
    \13\ Id.
    \14\ 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).
---------------------------------------------------------------------------

    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.\15\ If the Commission takes such action, the 
Commission shall institute proceedings to determine whether the 
proposed rule change should be approved or disapproved.\16\
---------------------------------------------------------------------------

    \15\ 15 U.S.C. 78s(b)(3)(C).
    \16\ Id.
---------------------------------------------------------------------------

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-2015-37 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-2015-37. 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-2015-37, 
and should be submitted on or before June 1, 2015.
---------------------------------------------------------------------------

    \17\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\17\
Jill M. Peterson,
Assistant Secretary.
[FR Doc. 2015-11273 Filed 5-8-15; 8:45 am]
 BILLING CODE 8011-01-P