Document ID: SEC-2012-1114-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: NASDAQ OMX PHLX LLC
Posted Date: 2012-07-11T04:00Z

[Federal Register Volume 77, Number 133 (Wednesday, July 11, 2012)]
[Notices]
[Pages 40922-40924]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2012-16875]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-67351; File No. SR-Phlx-2012-84]

Self-Regulatory Organizations; NASDAQ OMX PHLX LLC; Notice of 
Filing and Immediate Effectiveness of Proposed Rule Change To Clarify 
the Functioning of the Post-Only Order in NASDAQ OMX PSX

July 5, 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 June 22, 2012, 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.
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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 clarify the functioning of the Post-Only 
Order in NASDAQ OMX PSX (``PSX''). If the

[[Page 40923]]

Commission waives the pre-operative delay provided for in Rule 19b-
4(f)(6),\3\ Phlx proposes to implement the proposed rule change 
immediately. 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.
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    \3\ 17 CFR 240.19b-4(f)(6).
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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
    Phlx proposes to clarify the functionality associated with its 
existing Post-Only Order on PSX. Last year, Phlx submitted a proposed 
rule change that changed the functionality of this order type.\4\ In 
the course of describing and clarifying the order's then-existing 
functionality, however, SR-Phlx-2011-70 erroneously characterized one 
aspect of the functioning of the order and, as a result, introduced 
erroneous language into the rule text describing the rule.
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    \4\ Securities Exchange Act Release No. 64563 (May 27, 2011), 76 
FR 32255 (June 3, 2011) (SR-Phlx-2011-70).
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    If a Post-Only Order would lock an order on PSX at the time of 
entry, the order is re-priced and displayed by the System to one 
minimum price increment (i.e., $0.01 or $0.0001) below the current low 
offer (for bids) or above the current best bid (for offers). Thus, if 
the best bid and best offer on the PSX book were $10.00 x $10.05, and a 
market participant entered a Post-Only Order to buy at $10.05, the 
order would be re-priced and displayed at $10.04. However, SR-Phlx-
2011-70 erroneously stated that if a Post-Only Order would cross an 
order on the System, the order would be repriced as described above 
unless the value of price improvement associated with executing against 
a resting order equals or exceeds the sum of fees charged for such 
execution and the value of any rebate that would be provided if the 
order posted to the book and subsequently provided liquidity, in which 
case the order will execute. In fact, in a case where the order crosses 
an order on the System, the order will be repriced, and will not 
execute. Accordingly, Phlx is deleting language from the rule that 
states otherwise.\5\
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    \5\ Phlx is also correcting a typographical error in the rule 
text.
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    The error occurred because the functionality to consider pricing 
was described in the original filing to establish a Post-Only Order on 
The NASDAQ Stock Market LLC (``NASDAQ'') and was implemented on that 
market, but was not fully reflected in the text of NASDAQ Rule 4751.\6\ 
Subsequently, Phlx adopted identical rule text when it established PSX 
as its new facility for trading cash equity securities, but did not 
implement the price consideration functionality due to its 
inconsistency with model of allocating executions of incoming orders 
among posted orders pro rata based on their size.\7\ In May 2011, 
NASDAQ filed a proposed rule change to modify the repricing behavior of 
its Post-Only Order, and added rule language to clarify the existing 
price-consideration functionality of its order.\8\ When Phlx opted to 
make a corresponding change to the repricing behavior of its Post-Only 
Order, it was assumed that a corresponding change to describe price 
consideration behavior was also required. In fact, no such change was 
needed since the behavior of the PSX order is not identical to that of 
the NASDAQ order.
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    \6\ See Securities Exchange Act Release No. 59392 (February 11, 
2009), 74 FR 7943 (February 20, 2009) (SR-NASDAQ-2009-006).
    \7\ Securities Exchange Act Release No. 62877 (September 9, 
2010), 75 FR 56633 (September 16, 2010) (SR-Phlx-2010-79).
    \8\ Securities Exchange Act Release No. 64552 (May 26, 2011), 76 
FR 31998 (June 2, 2011) (SR-NASDAQ-2011-070).
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2. Statutory Basis
    Phlx believes that the proposed rule change is consistent with the 
provisions of Section 6 of the Act,\9\ in general, and with Section 
6(b)(5) of the Act,\10\ 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. Phlx believes that the 
change is necessary to reflect accurately the functioning of PSX's 
Post-Only Order.
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    \9\ 15 U.S.C. 78f.
    \10\ 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

    The Exchange has filed the proposed rule change pursuant to Section 
19(b)(3)(A)(iii) of the Act \11\ and Rule 19b-4(f)(6) thereunder.\12\ 
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 \13\ and Rule 19b-
4(f)(6)(iii) thereunder.\14\
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    \11\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \12\ 17 CFR 240.19b-4(f)(6).
    \13\ 15 U.S.C. 78s(b)(3)(A).
    \14\ 17 CFR 240.19b-4(f)(6)(iii).
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    A proposed rule change filed under Rule 19b-4(f)(6) normally does 
not become operative prior to 30 days after the date of the filing.\15\ 
However, pursuant to Rule 19b-4(f)(6)(iii),\16\ the Commission may 
designate a shorter time if such action is consistent with the 
protection of investors and the public interest. The Exchange has asked 
the Commission to waive the 30-day operative delay so that the proposal 
may become operative immediately upon

[[Page 40924]]

filing. The Commission believes that waiving the 30-day operative delay 
is consistent with the protection of investors and the public interest 
because doing so will allow the rule text describing the Post-Only 
Order to describe its functionality accurately without delay. 
Accordingly, the Commission designates the proposed rule change as 
operative upon filing with the Commission.\17\
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    \15\ 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 the 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 pre-filing requirement.
    \16\ 17 CFR 240.19b-4(f)(6)(iii).
    \17\ 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 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-2012-84 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-2012-84. 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 
a.m. and 3 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-2012-84 and should be 
submitted on or before August 1, 2012.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\18\
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    \18\ 17 CFR 200.30-3(a)(12).
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Elizabeth M. Murphy,
Secretary.
[FR Doc. 2012-16875 Filed 7-10-12; 8:45 am]
BILLING CODE 8011-01-P