Document ID: SEC-2010-1242-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: NASDAQ OMX PHLX, Inc.
Posted Date: 2010-08-16T04:00Z

[Federal Register: August 16, 2010 (Volume 75, Number 157)]
[Notices]               
[Page 50021-50029]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr16au10-126]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-62678; File No. SR-Phlx-2010-108]

 
Self-Regulatory Organizations; Notice of Filing of Proposed Rule 
Change by NASDAQ OMX PHLX, Inc. Relating to a Proposed Price 
Improvement System, Price Improvement XL (PIXL\SM\)

August 10, 2010.
    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 July 30, 2010, NASDAQ OMX PHLX, Inc. (``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, pursuant to Section 19(b)(1) of the Act \3\ and Rule 
19b-4 thereunder,\4\ proposes to adopt new Rule 1080(n), Price 
Improvement XL (PIXL\SM\), to establish a price-improvement mechanism 
on the Exchange.
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    \3\ 15 U.S.C. 78s(b)(1).
    \4\ 17 CFR 240.19b-4.
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    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 purpose of the proposed rule change is to establish a price-
improvement mechanism, PIXL, on the Exchange, which includes auto-match 
functionality in which a member (an ``Initiating 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 it 
represents as agent (an ``Initiating Order'') provided it submits the 
PIXL Order for electronic execution into the PIXL Auction (``Auction'') 
pursuant to the proposed Rule.

Auction Eligibility Requirements

    All options traded on the Exchange are eligible for PIXL. Proposed 
Rule 1080(n)(i) describes the circumstances under which an Initiating 
Member may initiate an Auction.
    If the PIXL Order 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. The 
purpose of this provision is to ensure that public customer PIXL Orders 
for 50 contracts or more are guaranteed at least the NBBO but do not 
trade ahead of other limit orders already on the Exchange's limit order 
book at the existing limit order's limit price.
    For example, assume the Exchange's disseminated market (the 
``PBBO'') in the affected series is the NBBO and is 1.00 bid for 10 
contracts, 1.01 offered for 20 contracts and the existing disseminated 
1.00 bid is a public customer limit order. If an initiating Member 
submits a public customer PIXL Order to buy 100 contracts @ the market 
together with a contra-side Initiating Order to sell 100 contracts, the 
entire PIXL Order must be stopped at a price of 1.01 because the public 
customer limit order on the limit order book has time priority at 1.00 
over the public customer PIXL order.
    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 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. The purpose of 
this provision is to ensure that smaller PIXL Orders will be guaranteed 
price improvement by establishing a size under which a PIXL Order must 
be submitted at a price better than the PBBO. The Exchange believes 
this should especially benefit public customers.\5\ The provision 
concerning PIXL Orders for a size of less than 50 contracts will be 
effective for a pilot period scheduled to expire August 31, 2011.\6\
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    \5\ The Exchange notes that Chicago Board Options Exchange, Inc. 
(``CBOE'') Rule 6.74A(a)(3) provides that any AIM Agency Order (the 
equivalent of a PIXL Order) for less than 50 contracts that is 
entered into the CBOE's Automated Improvement Mechanism (``AIM'') is 
guaranteed an execution at the NBBO price improved by one minimum 
price improvement increment or at the AIM Agency Order's limit price 
(if the order is a limit order). See Securities Exchange Act Release 
No. 53222 (February 3, 2006), 71 FR 7089 (February 10, 2006) (SR-
CBOE-2005-60).
    \6\ The Exchange proposes the one-year pilot in order to 
ascertain the level of price improvement attained for such smaller-
sized orders during the pilot period.
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    For example, assume the PBBO in the affected series is 1.00 bid--
1.03 offer and the NBBO is 1.00--1.03. If an initiating Member submits 
a public customer PIXL Order to buy 25 contracts @ the market together 
with a contra-side Initiating Order to sell 25 contracts, the public 
customer PIXL Order must be stopped at least one minimum improvement 
increment better than the PBBO offer of 1.03 to guarantee price 
improvement. Therefore, in this example, the PIXL

[[Page 50022]]

Order could be stopped at 1.00, 1.01 or 1.02, but not at 1.03. If, 
however, the 1.00 bid price on PHLX represents a limit order resting on 
the book, the PIXL Order must be stopped at a price that is at least 
one minimum price improvement increment better than any limit order on 
the limit order book on the same side of the market as the PIXL Order. 
Therefore, in this circumstance the PIXL Order could be stopped at 1.01 
or 1.02, but not at 1.00 and not at 1.03.
    If the PIXL Order is for the account of a broker dealer or any 
other person or entity that is not 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.
    If the PIXL Order is for the account of a broker dealer or any 
other person or entity that is not 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. The provision concerning PIXL Orders for a 
size of less than 50 contracts will be effective for a pilot period 
scheduled to expire August 31, 2011.
    Broker dealers generally do not have priority over market maker 
quotes or orders and the Exchange believes that they should not be 
afforded such priority in the PIXL mechanism. The Exchange proposes to 
adopt proposed Rule 1080(n)(i)(B)(2), concerning such orders that are 
submitted with a size of less than 50 contracts, on a pilot basis 
scheduled to expire August 31, 2011, in order to ascertain the level of 
price improvement attained for such smaller-sized orders during the 
pilot period.
    For example, if the PBBO and the NBBO are both .97-1.03 with no 
public customer orders on the book, the proposed rule would permit stop 
prices for a PIXL Order as follows:
    A public customer PIXL Order to buy 50 contracts or more may be 
stopped at prices equal to or within a range of .97-1.03. A public 
customer PIXL Order of less than 50 contracts may be stopped at prices 
equal to or within a range of .97-1.02.\7\ A PIXL order of 50 contracts 
or more for the account of a broker dealer may be stopped at prices 
equal to or within a range of .98-1.03. A PIXL order of less than 50 
contracts for the account of a broker dealer may be stopped equal to or 
within a price range of .98-1.02.\8\
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    \7\ This example assumes that there is no limit order on the 
book at a price of .97. If there were, the rule requires that the 
order must be stopped at a price of .98 or better (at least one 
minimum price improvement increment better than the PBBO).
    \8\ This is at least one minimum price improvement increment 
better than the PBBO.
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    PIXL Orders submitted at or before the opening of trading are not 
eligible to initiate an Auction and will be rejected. Because a PIXL 
Auction must last for one second, PIXL Orders submitted during the 
final second of the trading session in the affected series are not 
eligible to initiate an Auction and will be rejected.
    Finally, an Initiating Order may not be a solicited order for the 
account of any Exchange specialist, SQT, RSQT or non-streaming ROT 
assigned in the affected series. The Exchange believes that in order to 
maintain fair and orderly markets, a market maker assigned in an option 
should not be solicited for participation in an Auction by an 
Initiating Member. The Exchange believes that market makers interested 
in participating in transactions on the Exchange should do so by way of 
his/her quotations, and is able to respond to PIXL Auction 
Notifications, not create them by having an Initiating Member 
submitting Initiating Orders on his/her behalf.
Auction Process
    An Initiating Member may initiate a PIXL Auction by submitting a 
PIXL Order in one of three ways. First, the Initiating Member could 
submit a PIXL Order specifying a single price at which it seeks to 
execute the PIXL Order (a ``stop price'').
    Second, an Initiating Member could submit a PIXL Order specifying 
that it is willing to automatically match as principal or as agent on 
behalf of an Initiating Order the price and size of all trading 
interest \9\ and responses to the PIXL Auction Notification (``PAN,'' 
as described below) (``auto-match''), in which case the PIXL Order will 
be stopped at the NBBO on the Initiating Order side of the market (if 
50 contracts or greater) or, if less than 50 contracts, the better of: 
(i) the 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 increment better than the limit of an order on the 
book on the same side as the PIXL Order.
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    \9\ ``Trading interest'' refers to unrelated orders received 
during the Auction, booked orders, and quotes that are considered 
for execution and allocation against the PIXL Order following the 
Auction.
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    Third, an Initiating Member could submit a PIXL Order specifying 
that it is willing to either: (i) Stop the entire order at a single 
stop price and auto-match PAN responses, as described below, together 
with trading interest, at a price or prices that improve the stop price 
to a specified price above or below which the Initiating Member will 
not trade (a ``Not Worse Than'' or ``NWT'' price); (ii) stop the entire 
order at a single stop price and auto-match all PAN responses and 
trading interest at or better than the stop price; or (iii) stop the 
entire order at the NBBO on the Initiating Order side (if 50 contracts 
or greater) or the better of: (A) the PBBO price on the opposite side 
of the market from the PIXL Order improved by one minimum price 
improvement increment, or (B) the PIXL Order's limit price (if the 
order is a limit order) on the Initiating Order side (if for less than 
50 contracts), and auto-match PAN responses and trading interest at a 
price or prices that improve the stop price up to the NWT price. In all 
cases, if the PBBO on the same side of the market as the PIXL Order 
represents a limit order on the book, the stop price must be at least 
one minimum price improvement increment better than the booked limit 
order's limit price.
    For example, assume the PBBO and the NBBO are .97 bid-1.03 offer. 
An Initiating Member may submit a PIXL Order to buy 100 contracts for 
1.01 together with a contra-side Initiating Order to sell 100 contracts 
at 1.01 with a NWT price of .99. In this example the Initiating Member 
has stopped the PIXL Order at 1.01 (two increments better than the 
NBBO) and will auto-match responses and trading interest down to the 
NWT price of .99.
    Once the Initiating Member has submitted a PIXL Order for 
processing, such PIXL Order may not be modified or cancelled. Under any 
of these circumstances, the stop price or NWT price may be improved to 
the benefit of the PIXL Order during the Auction, but may not be 
cancelled. The purpose of this provision is to ensure that an 
Initiating Member guarantees the stop or NWT price or better (by way of 
improvement of the stop and/or NWT price to the PIXL Order's benefit 
during

[[Page 50023]]

the Auction), without ``backing away'' from that guarantee.\10\
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    \10\ The Exchange notes that Boston Options Exchange Group LLC 
(``BOX'') Rules prohibit a BOX ``Initiating Participant'' from 
cancelling or modifying the BOX ``Max Improvement Primary 
Improvement Order,'' the equivalent of the proposed NWT price, 
during the BOX PIP. See BOX Rules, Chapter V, Section 18(e)(ii). The 
Exchange believes that permitting the Initiating Member to improve 
the NWT price during the Auction adds another opportunity for price 
improvement for the PIXL Order, and that this proposed treatment of 
the NWT price simply expands upon the BOX's existing treatment of 
the Max Improvement Primary Improvement Order to the benefit of the 
PIXL Order. In this regard, the Exchange believes that there are no 
new regulatory concerns that are raised by its proposed treatment of 
the NWT price.
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PIXL Auction Notification (``PAN'')
    When the Exchange receives a PIXL Order for Auction processing, a 
PAN detailing the side, size and the stop price of the PIXL Order will 
be sent over the Exchange's TOPO Plus Orders data feed.\11\ An updated 
PAN will also be sent over the Exchange's TOPO Plus Orders data feed 
when the Initiating Member improves the stop price of the PIXL Order. 
The updated PAN will include the side, size, and improved stop price of 
the PIXL Order. This information would be used by PAN respondents 
wishing to participate at better price levels to improve their price 
when they are alerted that a stop price has been improved.
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    \11\ For a description of TOPO Plus Orders, see Securities 
Exchange Act Release No. 60877 (October 26, 2009), 74 FR 56255 
(October 30, 2009) (SR-Phlx-2009-92). See also, Securities Exchange 
Act Release No. 62194 (May 28, 2010), 75 FR 31830 (June 4, 2010) 
(SR-Phlx-2010-48) (Order Approving Market Data Fees for TOPO Plus 
Orders). Members who are ``Professional Subscribers'' to the TOPO 
Plus Orders data feed are subject to lower fees than the ``External 
Distributors'' from whom they receive TOPO Plus Orders.
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PIXL Auction
    The PIXL Auction will last for one second,\12\ unless it is 
concluded as the result of any of the circumstances described below. 
Any person or entity may submit PAN responses provided such response is 
properly marked specifying price, size and side of the market. The 
Exchange believes that permitting any person or entity to submit 
responses to the PAN should attract PAN responses from all sources, 
maximizing the potential for liquidity in the Auction and thus 
affording the PIXL Order the best opportunity for price 
improvement.\13\ PAN responses will not be visible to Auction 
participants, and will not be disseminated to the Options Price 
Reporting Authority (``OPRA'').\14\ The minimum price increment for PAN 
responses and for an Initiating Member's stop price and/or NWT price 
will be the minimum price improvement increment as set forth above.\15\ 
A PAN response size at any given price point may not exceed the size of 
the PIXL Order.\16\ A PAN response with a size greater than the size of 
the PIXL Order will be rejected. A PAN response must be equal to or 
better than the NBBO at the time of receipt of the PAN response. A PAN 
response with a price that is outside the NBBO will be rejected. This 
is because the Exchange does not want to encourage a large number of 
PAN responses that are outside of the NBBO that will be unexecuted (and 
subsequently cancelled) unless the NBBO moves to make them eligible. 
PAN responses may be modified or cancelled during the Auction.\17\ The 
Exchange believes that any PAN response on the same side of the market 
as the PIXL Order would be the result of an error, and therefore such a 
response will be rejected. Multiple PAN responses from the same member 
may be submitted during the Auction. Multiple orders at a particular 
price level submitted by a member in response to a PAN may not exceed, 
in the aggregate, the size of the PIXL Order.
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    \12\ The Exchange notes that the one-second Auction period is 
currently in place on other options exchanges. See CBOE Rule 
7.74A(b)(1)(C). See also, BOX Rules, Chapter V, Section 18(e)(i).
    \13\ While the CBOE permits members appointed in the affected 
series to respond (CBOE Rule 6.74A(b)(1)(D)) and also permits 
members representing limit orders at the top of the CBOE limit order 
book opposite the Agency Order to respond (CBOE Rule 
6.74A(b)(1)(E)), the instant proposal would permit PAN responses 
from any person or entity. The Exchange believes that this deviation 
from other exchanges' practices is not substantial, and does not 
raise any new regulatory concerns. In fact, it should afford greater 
opportunities for price improvement for the PIXL Order.
    \14\ This is consistent with CBOE Rule 6.74A(b)(1)(F).
    \15\ This is consistent with CBOE Rule 6.74A(b)(1)(G).
    \16\ This is consistent with CBOE Rule 6.74A(b)(1)(H).
    \17\ This is consistent with CBOE Rule 6.74A(b)(1)(I).
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    Conclusion of the PIXL Auction
    There are a number of circumstances that will cause the Auction to 
conclude. The Auction will conclude at the end of the one-second 
Auction period,\18\ except that it may conclude before the expiration 
of one second: (i) any time the PBBO crosses the PIXL Order stop price 
on the same side of the market as the PIXL Order (since further price 
improvement will be unlikely and any responses offering improvement are 
likely to be cancelled), or (ii) any time there is a trading halt on 
the Exchange in the affected series. The proposed rules concerning the 
early conclusion of the Auction will be effective for a pilot period 
scheduled to expire August 31, 2011.
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    \18\ This is consistent with CBOE Rule 6.74A(b)(2)(A).
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    If the Auction concludes before the expiration of one second as the 
result of the PBBO crossing the stop price, the entire PIXL Order will 
be executed at the best response price(s) or, if the stop price is the 
best price in the Auction, at the stop price, unless the best response 
price is equal to the price of a limit order resting on the PHLX book 
on the same side of the market as the PIXL Order, in which case the 
PIXL Order will be executed against that response, but at a price that 
is at least one minimum price improvement increment better than the 
price of such limit order at the time of the conclusion of the Auction.
    For example, assume the PBBO and NBBO are both .97-1.03, and the 
.97 bid represents an order on the limit order book. A PIXL Order to 
buy 100 contracts is submitted with a contra-side Initiating Order to 
stop the PIXL Order at 1.00. Assume a PAN response is submitted to sell 
10 contracts at .97 and another to sell 10 contracts at .99. Due to a 
change in the price of the underlying security, a PHLX specialist or 
market maker submits a bid price of 1.02, crossing the 1.00 stop price 
and concluding the Auction prior to the expiration of one second. 10 
contracts from the PIXL Order will be executed at .98 (representing the 
.97 response price re-priced to .98, which is one minimum price 
improvement increment better than the .97 bid represented by the limit 
order on the book). 10 contracts will be executed at .99 (the next best 
response price after the execution at .98) and the remaining 80 
contracts will be executed at 1.00 (the stop price) against the 
Initiating Order.
    If the Auction concludes before the expiration of one second as the 
result of a trading halt on the Exchange in the affected series, the 
entire PIXL Order will be executed at the stop price against the 
Initiating Order. Since the Initiating Member has guaranteed that an 
execution will occur at the stop price (or better) prior to the trading 
halt, and PAN responses offer no such guarantee, the stop price is the 
only valid price at which to execute the PIXL Order, and the Initiating 
Member is the appropriate contra-side.\19\
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    \19\ The Exchange notes that trading on the Exchange in any 
option contract will be halted whenever trading in the underlying 
security has been paused or halted by the primary listing market. 
See Exchange Rule 1047(e). See also, Securities Exchange Act Release 
No. 62269 (June 10, 2010), 75 FR 34491 (June 17, 2010) (SR-Phlx-
2010-82). Any executions that occur during any latency between the 
pause or halt in the underlying security and the processing of the 
halt on the Exchange will be nullified pursuant to Exchange Rule 
1092(c)(iv)(B).

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[[Page 50024]]

    An unrelated market or marketable limit order on the opposite side 
of the market from the PIXL Order received during the Auction will not 
cause the Auction to end early and will execute against interest 
outside of the Auction. If contracts remain from such unrelated order 
at the time the Auction ends, they will be considered for participation 
in the order allocation process described below. The Exchange believes 
that this should increase the number of contracts against which a PIXL 
Order could be executed, and should create more opportunities for the 
PIXL Order to be executed at each price level. This provision will be 
effective for a pilot period scheduled to expire on August 31, 2011.
    For example, assume the PBBO is .97 (size of 10)-1.03 (size of 50), 
and the NBBO is 97-1.03. If an Initiating Member submits a PIXL Order 
to buy 100 contracts @1.00 together with an Initiating Order to sell 
100 @1.00, the PIXL Order will be stopped @ 1.00. During the Auction, a 
PAN response arrives to sell 20 @.99 and the PBBO moves to .97 (size of 
10)--1.00 (size of 50-the offer is 2 market makers @1.00 with 25 each). 
While the Auction is taking place, an unrelated order to sell 50 
contracts @ .98 is submitted. The PBBO is now .97 (size of 10)-.98 
(size of 50) (the offer is the result of the unrelated order to sell 50 
contracts at .98). Once the Auction ends after one second, even though 
the unrelated order is not part of the Auction, 50 contracts from the 
PIXL Order will be executed at .98 against the unrelated order. 
Thereafter, 20 contracts from the PIXL Order will be executed at .99 
(PIXL order buys from PAN responder), and 30 contracts from the PIXL 
Order will be executed at 1.00 (the PIXL order buys 12 contracts from 
the Initiating Order (40% of the 30) and 18 from market makers quoting 
at 1.00). The Exchange believes that this functionality provides 
maximum price improvement to the PIXL order by including limit orders 
and quotes in the execution price of the PIXL Order that are priced 
better than PAN responses.

Order Allocation

    At the conclusion of the Auction, the PIXL Order will be allocated 
at the best price(s). As stated above, in order to maximize liquidity 
available to be executed against the PIXL Order, such best prices may 
include non-Auction quotes and orders that may be present at each price 
level. Public customer orders will have priority at each price level. 
After public customer interest at a particular price level has been 
satisfied, contracts will be allocated among all Exchange quotes, 
orders and PAN responses.

Single Price Submission Option

    If the Initiating Member selected the single stop price option of 
the PIXL Auction, PIXL executions will occur at prices that improve the 
stop price, and then at the stop price with up to 40% of the remaining 
contracts after public customer interest is satisfied being allocated 
to the Initiating Member at the stop price. However, if only one 
specialist, SQT or RSQT matches the stop price, then the Initiating 
Member may be allocated up to 50% of the contracts executed at such 
price. Remaining contracts will be allocated pursuant to the algorithm 
set forth in Exchange Rules 1014(g)(vii)(B)(1)(b) and (d) among 
remaining quotes, orders and PAN responses at the stop price.\20\ 
Thereafter, remaining contracts, if any, shall be allocated to the 
Initiating Member. The Exchange respectfully submits that this is 
identical to functionality currently in place on CBOE.
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    \20\ Under the proposed Rule, the specialist will not be 
entitled to receive orders for 5 contracts or fewer. If a price 
point has a size of 5 contracts or fewer and the specialist has 
submitted a quote, order or PAN response at that price point, 
contracts at that price point will nonetheless be allocated pursuant 
to Exchange Rules 1014(g)(vii)(B)(1)(b) and (d).
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Auto-Match Option

    If the Initiating Member selected the auto-match option of the PIXL 
Auction, the Initiating Member will be allocated an equal number of 
contracts as the aggregate size of all other quotes, orders and PAN 
responses at each price point until a price point is reached where the 
balance of the order can be fully executed, except that the Initiating 
Member shall be entitled to receive up to 40% of the contracts 
remaining at the final price point (including situations where the 
final price point is the stop price). If there are other quotes, orders 
and PAN responses at the final price point, the contracts will be 
allocated to such interest pursuant to the algorithm set forth in 
Exchange Rules 1014(g)(vii)(B)(1)(b) and (d). Any remaining contracts 
will be allocated to the Initiating Member.
    For example, if the PIXL Order is to buy 1,000 contracts and there 
are three price points to be allocated, and quotes, orders and PAN 
responses with an aggregate size at each price point as follows:

--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                  Total size                              Total
                                                                  of quotes,                            contracts   Total contracts quotes,     Total
                Price                          Responses         orders, and     Initiating member      initiating   orders, and responses    contracts
                                                                   auction          entitlement         member is          allocated           trading
                                                                  responses                             allocated
--------------------------------------------------------------------------------------------------------------------------------------------------------
1.01.................................  MM 1 = 100..............          100  Auto-match size........          100  100....................          200
1.02.................................  MM 1 = 100..............          150  Auto-match size........          150  150....................          300
                                       MM 2 = 50...............
1.03.................................  Customer = 100..........          400  40% after customer               160  Customer = 100.........          500
                                       MM 1 = 150..............                filled + residual                    MM 1 = 120.............
                                       MM 2 = 150..............                after all participants               MM 2 = 120.............
                                                                               are satisfied.
--------------------------------------------------------------------------------------------------------------------------------------------------------

    In this example, the Initiating Member is entitled to receive 100 
contracts at 1.01 (matching the 100 contracts that are allocated among 
quotes, orders and PAN responses at 1.01), and the Initiating Member is 
entitled to receive 150 contracts at 1.02 (matching the 150 contracts 
allocated among quotes, orders and PAN responses at 1.02). Because 1.03 
is the final price point, the customer is allocated 100 contracts and 
the Initiating Member is entitled to receive 160 contracts at 1.03 (40% 
of the remaining 400 contracts), with the remaining 240 contracts 
allocated among quotes, orders and PAN responses at 1.03. The residual 
PAN responses at 1.03 are cancelled.

[[Page 50025]]

Stop and NWT Option

    If the Initiating Member selected the ``stop and NWT'' option of 
the PIXL Auction, after public customer interest is satisfied, 
contracts will be allocated first to quotes, orders and PAN responses 
at prices better than the NWT price (if any), beginning with the best 
price, pursuant to the algorithm set forth in Exchange Rules 
1014(g)(vii)(B)(1)(b) and (d) at each price point.
    Next, contracts will be allocated among quotes, orders and PAN 
responses at prices equal to the Initiating Member's NWT price and 
better than the Initiating Member's stop price, beginning with the NWT 
price. The Initiating Member shall be allocated an equal number of 
contracts as the aggregate size of all other quotes, orders and PAN 
responses at each price point, except that the Initiating Member will 
be entitled to receive up to 40% of the contracts remaining at the 
final price point (including situations where the final price point is 
the stop price). In the case of an Initiating Order with a NWT price at 
the market, the Initiating Member shall be allocated an equal number of 
contracts as the aggregate size of all other quotes, orders and PAN 
responses at all price points, except that the Initiating Member shall 
be entitled to receive up to 40% of the contracts remaining at the 
final price point (including situations where the final price is the 
stop price).
    If there are other quotes, orders and PAN responses at the final 
price point the contracts will be allocated to such interest pursuant 
to the algorithm set forth in Exchange Rules 1014(g)(vii)(B)(1)(b) and 
(d). Any remaining contracts shall be allocated to the Initiating 
Member.
    Assume, for example, that the PIXL Order is to buy 1,000 contracts. 
The Initiating Member submits a stop price of 1.03, and a NWT price of 
1.02. There are quotes, orders and PAN responses with an aggregate size 
at each price point as follows:

--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                  Total size                              Total
                                                                  of quotes,                            contracts   Total contracts quotes,     Total
                Price                          Responses         orders, and     Initiating member      initiating   orders, and responses    contracts
                                                                   auction          entitlement         member is          allocated           trading
                                                                  responses                             allocated
--------------------------------------------------------------------------------------------------------------------------------------------------------
1.01.................................  MM 1 = 100..............          100  Zero--Price is below               0  100....................          100
                                                                               NWT level.
1.02.................................  MM 1 = 100..............          150  Auto-match size........          150  150....................          300
                                       MM 2 = 50...............
1.03.................................  Customer = 100..........          400  40% after customer               200  Customer = 100.........          600
                                       MM 1 = 150..............                filled + residual                    MM 1 = 150.............
                                       MM 2 = 150..............                after all participants               MM 2 = 150.............
                                                                               are satisfied.
--------------------------------------------------------------------------------------------------------------------------------------------------------

    In this example, the Initiating Member is not entitled to receive 
any contracts at 1.01. All 100 contracts at 1.01 will be allocated 
among quotes, orders and PAN responses at 1.01 in accordance with Rule 
1014(g)(vii)(B)(1 )(b) and (d). The Initiating Member will receive 150 
contracts at 1.02, with 150 contracts allocated among quotes, orders 
and PAN responses at 1.02. Because 1.03, the stop price, is the final 
price point, the customer interest will be allocated 100 contracts with 
the Initiating Member entitled to receive 200 contracts at 1.03 (40% of 
500), with the remaining 300 contracts allocated among quotes, orders 
and PAN responses at 1.03.
    A ``stop and NWT'' submission with a NWT price at the market will 
be treated in the same manner as a submission under the ``auto-match'' 
option except that the order may be stopped at any price level provided 
such level meets the criterion set forth above for a single stop price.

Professionals

    In March, 2010, the Exchange amended its priority rules to give 
certain non-broker-dealer orders the same priority as broker-dealer 
orders.\21\ In so doing, the Exchange adopted a new term for certain 
persons or entities, the ``professional.'' A professional is defined in 
Rule 1000(b)14 as a 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). A professional account is treated in the same manner as an 
off-floor broker-dealer for purposes of Phlx Rule 1014(g), to which the 
trade allocation algorithms described in proposed Rule 1080(n)(ii)(E) 
refer.
---------------------------------------------------------------------------

    \21\ See Securities Exchange Act Release No. 61802 (March 30, 
2010), 75 FR 17193 (April 5, 2010) (SR-Phlx-2010-05).
---------------------------------------------------------------------------

    Additionally, Rule 1000(b)14 states that all-or-none orders will be 
treated like customer orders. PIXL Orders are inherently all-or-none 
orders because the Initiating Member guarantees that the PIXL Order 
will be filled in its entirety. If a PIXL Order happens to be submitted 
for the beneficial account of a professional with the redundant 
designation of all-or-none, such PIXL Order will not be rejected, but 
will be treated as any other PIXL Order, including for trade allocation 
purposes, under proposed Rule 1080(n)(ii)(E).
    Accordingly, the Exchange proposes to amend Rule 1000(b)14 by: (i) 
clarifying that orders submitted pursuant to Rule 1080(n) for the 
beneficial accounts of professionals with an all-or-none designation 
will be treated in the same manner as off-floor broker-dealer orders, 
and (ii) adding proposed Rule 1080(n) to the list of rules to which the 
term ``professional'' applies. The effect of this is that professionals 
will not receive the same priority that is afforded to public 
customers, and instead will be treated as broker-dealers in this 
regard.

Miscellaneous Provisions

    Proposed Rules 1080(n)(ii)(F) through (H) address the handling of 
the PIXL Order and other orders, quotes and PAN responses when certain 
conditions are present.
    Specifically, if there are PAN responses that cross the then-
existing NBBO (provided such NBBO is not crossed) at the time of the 
conclusion of the Auction, such PAN responses will be executed, if 
possible, at their limit price(s).
    If the final PIXL Auction price is the same as an order on the 
limit order book on the same side of the market as the PIXL Order, the 
PIXL Order may only be executed at a price that is at least one minimum 
price improvement increment better than the resting order's limit price 
or, if such resting order's limit price crosses the stop price, then 
the entire PIXL Order will trade at the stop price with all better 
priced interest being considered for execution at the stop price.

[[Page 50026]]

    For example, assume the PBBO is .97-1.03, and the Exchange receives 
a PIXL Order to buy with a stop price of 1.00. During the Auction a PAN 
response to sell @ .98 is received, and an unrelated order to buy 10 
contracts @ .99 is received, crossing the PAN response price. In this 
situation, the PAN response to sell @.98 will be considered for 
execution at a price that is .01 better than the order on the PHLX book 
to buy at .99 so that it does not trade through the unrelated order to 
buy @.99. Therefore in this case the PAN response to sell at .98 will 
be executed and included for allocation at 1.00.
    Finally, any unexecuted PAN responses will be cancelled.

Regulatory Issues

    The proposed rule change contains several paragraphs that describe 
prohibited practices when participants use PIXL. Proposed Rule 
1080(n)(iii) states that the PIXL Auction may be used only where there 
is a genuine intention to execute a bona fide transaction. It will be 
considered a violation of Rule 1080(n) and will be deemed conduct 
inconsistent with just and equitable principles of trade and a 
violation of Exchange Rule 707 if an Initiating Member submits a PIXL 
Order (initiating an Auction) and also submits its own PAN response in 
the same Auction. The purpose of this provision is to prevent 
Initiating Members from submitting an inaccurate or misleading stop 
price or trying to improve their allocation entitlement by 
participating with multiple expressions of interest.
    Proposed Rule 1080(n)(iv) states that a pattern or practice of 
submitting multiple orders in response to a PAN at a particular price 
point that exceed, in the aggregate, the size of the PIXL Order, will 
be deemed conduct inconsistent with just and equitable principles of 
trade and a violation of Rule 707. This is to prevent a member 
submitting orders in response to a PAN from artificially inflating its 
response size in order to gain a higher allocation than the percentage 
the member would have otherwise received.
    Proposed Rule 1080(n)(v) states that a pattern or practice of 
submitting unrelated orders or quotes that cross the stop price, 
causing a PIXL Auction to conclude before the end of the PIXL Auction 
period will be deemed conduct inconsistent with just and equitable 
principles of trade and a violation of Rule 707. It will also be deemed 
conduct inconsistent with just and equitable principles of trade and a 
violation of Rule 707 to engage in a pattern of conduct where the 
Initiating Member breaks up a PIXL Order into separate orders for the 
purpose of gaining a higher allocation percentage than the Initiating 
Member would have otherwise received in accordance with the allocation 
procedures described above.

Crossing Public Customer Orders On PIXL

    Proposed Rule 1080(n)(v) addresses the situation where an 
Initiating Member holds public customer orders on both sides of the 
market in the same option series. Instead of initiating a PIXL Auction, 
an Initiating Member may enter a PIXL Order for the account of a public 
customer paired with an order for the account of a public customer and 
such paired orders will be automatically executed without a PIXL 
Auction. The execution price must be expressed in the minimum quoting 
increment applicable to the affected series. Such an execution may not 
trade through the NBBO or at the same price as any resting customer 
order. The Exchange believes that permitting such executions will 
benefit public customers on both sides of the crossing transaction by 
providing speedy and efficient executions to public customer orders in 
this circumstance.
    Rule 1080(c)(ii)(C) prevents an Order Entry Firm from executing 
agency orders to increase its economic gain from trading against the 
order without first giving other trading interests on the Exchange an 
opportunity to either trade with the agency order or to trade at the 
execution price when the member was already bidding or offering on the 
book. However, the Exchange recognizes that it may be possible for a 
firm to establish a relationship with a customer or other person to 
deny agency orders the opportunity to interact on the Exchange and to 
realize similar economic benefits as it would achieve by executing 
agency orders as principal. It would be a violation of Rule 
1080(c)(ii)(C) for a firm to circumvent Rule 1080(c)(ii)(C) by 
providing an opportunity for (i) a customer affiliated with the firm, 
or (ii) a customer with whom the firm has an arrangement that allows 
the firm to realize similar economic benefits from the transaction as 
the firm would achieve by executing agency orders as principal, to 
regularly execute against agency orders handled by the firm immediately 
upon their entry as PIXL customer-to-customer immediate crosses.

Pilot Program Information to the Commission

    The Exchange represents that, in support of its proposed pilot 
programs concerning (i) the early conclusion of the Auction, and (ii) 
permitting orders of fewer than 50 contracts into the Auction, it will 
provide the following information each month during the pilot period: 
\22\
---------------------------------------------------------------------------

    \22\ The Exchange will provide the information for a particular 
month not later than the last business day of the subsequent month. 
For example, information for the month of September would be 
provided to the Commission no later than the last business day of 
October. Information for the month of October would be provided no 
later than the last business day of November, etc.
---------------------------------------------------------------------------

    Regarding the early conclusion of the Auction due to the PBBO 
crossing the PIXL Order stop price on the same side of the market as 
the PIXL order, or due to a trading halt, the Exchange will provide the 
following monthly information:
    (1) The number of times that the PBBO crossed the PIXL Order stop 
price on the same side of the market as the PIXL Order and prematurely 
ended the PIXL Auction, and at what time the PIXL Auction ended;
    (2) The number of times that a trading halt prematurely ended the 
PIXL auction and at what time the trading halt ended the PIXL Auction;
    (3) Of the Auctions terminated early due to the PBBO crossing the 
PIXL order stop price, the number that resulted in price improvement 
over the PIXL Order stop price, and the average amount of price 
improvement provided to the PIXL Order;
    (4) In the Auctions terminated early due to the PBBO crossing the 
PIXL order stop price, the percentage of contracts that received price 
improvement over the PIXL order stop price;
    (5) Of the Auctions terminated early due to a trading halt, the 
number that resulted in price improvement over the PIXL Order stop 
price, and the average amount of price improvement provided to the PIXL 
Order;
    (6) In the auctions terminated early due to a trading halt, the 
percentage of contracts that received price improvement over the PIXL 
order stop price; and
    (7) The average amount of price improvement provided to the PIXL 
Order when the PIXL Auction is not terminated early (i.e., runs the 
full one second).
    (8) The number of times an unrelated market or marketable limit 
order (against the PBBO) on the opposite side of the PIXL Order is 
received during the Auction Period;
    (9) The price(s) at which an unrelated market or marketable limit 
order (against the PBBO) on the opposite side of the PIXL Order that is 
received during the Auction Period is executed, compared to the 
execution price of the PIXL Order.

[[Page 50027]]

    Regarding PIXL Orders of fewer than 50 contracts, the Exchange will 
provide the following monthly information:
    (1) The number of orders of fewer than 50 contracts entered into 
the PIXL Auction;
    (2) The percentage of all orders of fewer than 50 contracts sent to 
Phlx that are entered into the PIXL Auction;
    (3) The percentage of all Phlx trades represented by orders of 
fewer than 50 contracts;
    (4) The percentage of all Phlx trades effected through the PIXL 
Auction represented by orders of fewer than 50 contracts;
    (5) The percentage of all contracts traded on Phlx represented by 
orders of fewer than 50 contracts;
    (6) The percentage of all contracts effected through the PIXL 
Auction represented by orders of fewer than 50 contracts;
    (7) The spread in the option, at the time an order of fewer than 50 
contracts is submitted to the PIXL Auction;
    (8) The number of orders of 50 contracts or greater entered into 
the PIXL Auction;
    (9) The percentage of all orders of 50 contracts or greater sent to 
PHLX that are entered into the PIXL Auction;
    (10) The spread in the option, at the time an order of 50 contracts 
or greater is submitted to the PIXL Auction;
    (11) Of PIXL trades where the PIXL Order is for the account of a 
public customer, and is for a size of fewer than 50 contracts, the 
percentage done at the NBBO plus $.01, plus $.02, plus $.03, etc.;
    (12) Of PIXL trades where the PIXL Order is for the account of a 
public customer, and is for a size of 50 contracts or greater, the 
percentage done at the NBBO plus $.01, plus $.02, plus $.03, etc.; and
    (13) Of PIXL trades where the PIXL Order is for the account of a 
broker dealer or any other person or entity that is not a public 
customer, and is for a size of fewer than 50 contracts, the percentage 
done at the NBBO plus $.01, plus $.02, plus $.03, etc.
    (14) Of PIXL trades where the PIXL Order is for the account of a 
broker dealer or any other person or entity that is not a public 
customer, and is for a size of 50 contracts or greater, the percentage 
done at the NBBO plus $.01, plus $.02, plus $.03, etc.;
    (15) The number of orders submitted by Initiating Members when the 
spread was $.05, $.10, $.15, etc. For each spread, specify the 
percentage of contracts in orders of fewer than 50 contracts submitted 
to the PIXL Auction that were traded by: (a) The Initiating Member that 
submitted the order to the PIXL; (b) PHLX Market Makers assigned to the 
class; (c) other PHLX members; (d) Public Customer Orders; and (e) 
unrelated orders (orders in standard increments entered during the PIXL 
Auction). For each spread, also specify the percentage of contracts in 
orders of 50 contracts or greater submitted to the PIXL Auction that 
were traded by: (a) the Initiating Member that submitted the order to 
the PIXL Auction; (b) PHLX market makers assigned to the class; (c) 
other PHLX members; (d) Public Customer Orders; and (e) unrelated 
orders (orders in standard increments entered during the PIXL Auction);
    Regarding PIXL auto-match, the Exchange will provide the following 
monthly information:
    (1) The percentage of all PHLX trades effected through the PIXL 
Auction in which the Initiating Member has chosen the auto-match 
feature, and the average amount of price improvement provided to the 
PIXL Order when the Initiating Member has chosen the auto-match feature 
vs. the average amount of price improvement provided to the PIXL Order 
when the Initiating Member has chosen a stop price submission.
    Regarding competition, the Exchange will provide the following 
monthly information:
    (1) For the first Wednesday of each month: (a) The total number of 
PIXL auctions on that date; (b) the number of PIXL auctions where the 
order submitted to the PIXL was fewer than 50 contracts; (c) the number 
of PIXL auctions where the order submitted to the PIXL was 50 contracts 
or greater; (d) the number of PIXL auctions (for orders of fewer than 
50 contracts) with 0 participants (excluding the initiating 
participant), 1 participant (excluding the initiating participant), 2 
participants (excluding the initiating participant), 3 participants 
(excluding the initiating participant), 4 participants (excluding the 
initiating participant), etc., and (e) the number of PIXL auctions (for 
orders of 50 contracts or greater) with 0 participants (excluding the 
initiating participant), 1 participant (excluding the initiating 
participant), 2 participants (excluding the initiating participant), 3 
participants (excluding the initiating participant), 4 participants 
(excluding the initiating participant), etc.; and
    (2) For the third Wednesday of each month: (a) The total number of 
PIXL auctions on that date; (b) the number of PIXL auctions where the 
order submitted to the PIXL was fewer than 50 contracts; (c) the number 
of PIXL auctions where the order submitted to the PIXL was 50 contracts 
or greater; (d) the number of PIXL auctions (for orders of fewer than 
50 contracts) with 0 participants (excluding the initiating 
participant), 1 participant (excluding the initiating participant), 2 
participants (excluding the initiating participant), 3 participants 
(excluding the initiating participant), 4 participants (excluding the 
initiating participant), etc., and (e) the number of PIXL auctions (for 
orders of 50 contracts or greater) with 0 participants (excluding the 
initiating participant), 1 participant (excluding the initiating 
participant), 2 participants (excluding the initiating participant), 3 
participants (excluding the initiating participant), 4 participants 
(excluding the initiating participant), etc.

Deployment

    The Exchange anticipates that it will deploy PIXL floor-wide at or 
before the end of August 2010. Members will be notified of the 
deployment date by way of an Options Trader Alert posted on the 
Exchange's Web site.
2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with the provisions of Section 6 of the Act,\23\ in general and with 
Section 6(b)(5) of the Act,\24\ in that it is designed 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; and is not designed to 
permit unfair discrimination between customers, issuers, brokers, or 
dealers, or to regulate by virtue of any authority conferred by the Act 
matters not related to the purposes of the Act or the administration of 
the Exchange.
---------------------------------------------------------------------------

    \23\ 15 U.S.C. 78f.
    \24\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

    The Exchange believes that the proposed rule change is also 
consistent with Section 6(b)(8) of the Act \25\ in that it does not 
impose any burden on competition not necessary or appropriate in 
furtherance of the purposes of the Act.
---------------------------------------------------------------------------

    \25\ 15 U.S.C. 78f(b)(8).
---------------------------------------------------------------------------

    Specifically, the Exchange believes that the proposal will result 
in increased liquidity available at improved prices, with competitive 
final pricing out of the Initiating Member's complete control. PIXL 
should promote and foster competition and provide more options 
contracts with the opportunity for price improvement. As a result of 
the increased opportunities for price

[[Page 50028]]

improvement, the Exchange believes that participants will use PIXL to 
increase the number of customer orders that are provided with the 
opportunity to receive price improvement over the NBBO.
    The Exchange further believes that the proposal is consistent with 
the requirements of Section 11(a) of the Act \26\ and Rule 11a2-2(T) 
\27\ thereunder.
---------------------------------------------------------------------------

    \26\ 15 U.S.C. 78k(a).
    \27\ 17 CFR 240.11a2-2(T).
---------------------------------------------------------------------------

    Section 11(a) prohibits a member of a national securities exchange 
from effecting transactions on the exchange for its own account, the 
account of an associated person, or an account in which it or an 
associated person exercises investment discretion, unless an exception 
applies. In enacting this provision, Congress was concerned about 
members benefiting in their principal transactions from special ``time 
and place'' advantages associated with floor trading--such as the 
ability to ``execute decisions faster than public investors.'' The 
Commission, however, has adopted a number of exceptions to the general 
statutory prohibition for situations in which the principal 
transactions contribute to the fairness and orderliness of exchange 
markets or do not reflect any time and place trading advantages.\28\
---------------------------------------------------------------------------

    \28\ See Securities Exchange Act Release No. 14563 (March 14, 
1978), 43 FR 11542 (March 17, 1978); Securities Exchange Act Release 
No. 14713 (April 28, 1978), 43 FR 18557 (May 1, 1978); Securities 
Exchange Act Release No. 15533 (January 29, 1979), 44 FR 6093 (Jan. 
31, 1979). The 1978 and 1979 Releases cite the House Report at 54-
57.
---------------------------------------------------------------------------

    One such exception is Rule 11a2-2(T) under the Act, known as the 
``Effect Versus Execute Rule.'' Rule 11a2-2(T) permits an exchange 
member, subject to certain conditions, to effect a transaction for such 
accounts, utilizing an unaffiliated member to execute transactions on 
an exchange floor. The Rule requires that: (1) The order must be 
transmitted from off the exchange floor; (2) once the order has been 
transmitted, the exchange member that transmitted the order may not 
participate in the execution; (3) the transmitting member may not be 
affiliated with the executing member; and (4) neither the member or the 
associated person may retain any compensation in connection with 
effecting such a transaction respecting accounts over which either has 
investment discretion without the express written consent of the person 
authorized to transact business in the account.
    The Exchange believes that the instant proposal is consistent with 
Rule 11a2-2(T), and that therefore the exception should apply in this 
case.
    First, there is no mechanism or system that would enable an 
Exchange member to transmit a PIXL Order from on the floor of the 
Exchange. All PIXL Orders will be transmitted from off the floor of the 
Exchange.
    Second, once the PIXL Order has been transmitted, the Exchange 
Initiating Member that transmitted the order will not participate in 
the execution of the PIXL Order. Initiating Members submitting PIXL 
Orders will relinquish control of their PIXL Orders upon transmission 
to the Exchange's automated options trading platform, PHLX XL,\29\ and 
will not be able to influence or guide the execution of their PIXL 
Orders.
---------------------------------------------------------------------------

    \29\ See Securities Exchange Act Release No. 59995 (May 28, 
2009), 74 FR 26750 (June 3, 2009) (SR-Phlx-2009-32). For branding 
purposes, references to ``PHLX XL'' are synonymous with references 
to ``Phlx XL II'' in other filings.
---------------------------------------------------------------------------

    Third, although Rule 11a2-2T contemplates having an order executed 
by an exchange member who is unaffiliated with the member initiating 
the order, the Commission has recognized that the requirement is not 
applicable when automated exchange facilities are used. Because the 
design of these systems (such as PHLX XL) ensures that members do not 
possess any special or unique trading advantages in handling orders 
after transmitting them to exchange floors, the commission has stated 
that executions obtained through these systems satisfy the independent 
execution requirement of Rule 11a2-2T.\30\ The Exchange believes that 
the design of PHLX XL ensures that members do not possess any special 
or unique trading advantages in the handling of their orders.
---------------------------------------------------------------------------

    \30\ See, e.g., Securities Exchange Act Release No. 15533 
(January 29, 1979), 44 FR 6084 (January 31, 1979).
---------------------------------------------------------------------------

    Finally, respecting non-retention of compensation for discretionary 
accounts, the Exchange represents that members who intend to rely on 
Rule 11a2-2(T) in connection with transactions in PIXL Orders must 
comply with the requirements of Section (a)(2)(iv) of the rule.

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.

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

    Within 45 days of the date of publication of this notice in the 
Federal Register or within such longer period (i) as the Commission may 
designate if it finds such longer period to be appropriate and 
publishes its reasons for so finding or (ii) as to which the self-
regulatory organization consents, the Commission will:
    (A) By order approve or disapprove the proposed rule change, or
    (B) Institute proceedings to determine whether the proposed rule 
change should be 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/wro.shtml); or
     Send an e-mail to rule-comments@sec.gov. Please include 
File Number SR-Phlx-2010-108 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-2010-108. This file 
number should be included on the subject line if e-mail 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

[[Page 50029]]

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 20549-1090 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-2010-108 and should be submitted on or before 
September 7, 2010.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\31\
---------------------------------------------------------------------------

    \31\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Florence E. Harmon,
Deputy Secretary.
[FR Doc. 2010-20100 Filed 8-13-10; 8:45 am]
BILLING CODE 8011-01-P