Document ID: SEC-2010-1562-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: NASDAQ OMX PHLX LLC
Posted Date: 2010-10-14T04:00Z

[Federal Register: October 14, 2010 (Volume 75, Number 198)]
[Notices]               
[Page 63240-63242]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr14oc10-133]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-63051; File No. SR-Phlx-2010-135]

 
Self-Regulatory Organizations; NASDAQ OMX PHLX LLC; Notice of 
Filing and Immediate Effectiveness of Proposed Rule Change Regarding 
Collars for Unpriced Orders

October 6, 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 September 29, 2010, NASDAQ OMX PHLX LLC (``Phlx'' or the 
``Exchange'') filed with the Securities and Exchange Commission 
(``Commission'') the proposed rule change as described in Items I and 
II below, which Items have been prepared by the Exchange. The 
Commission is publishing this notice to solicit comments on the 
proposed rule change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to amend Phlx Rule 4751 to include system 
functionality that will cancel any portion of an unpriced order 
submitted to NASDAQ OMX PSX (``PSX'') that would execute at a price 
that is more than $0.25 or 5 percent worse than the national best bid 
and offer at the time the order initially reaches the Exchange, 
whichever is greater. The text of the proposed rule change is available 
from the Exchange's Web site at http://nasdaqomxphlx.cchwallstreet.com, 
at the Exchange's principal office, 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. The 
text of these statements may be examined at the places specified in 
Item IV below, and is set forth in Sections A, B, and C below.

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 protect market 
participants by reducing the risk that unpriced orders, also known as 
market orders, will execute at prices that are significantly worse than 
the national best bid and offer (``NBBO'') at the time the Exchange 
receives the order.\3\ The Exchange believes that most market 
participants expect that their order will be executed at its full size 
at a price reasonably related to the prevailing market. However, 
participants may not be aware that there is insufficient liquidity at 
or near the NBBO to fill the entire order, particularly for more 
thinly-traded securities.
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    \3\ It should be noted that the circumstances under which it is 
possible to enter a market order in PSX are limited to market peg 
orders that are entered when PSX has some liquidity at the NBBO on 
the side of the market to which the order pegs.
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    Prior to the launch of trading on PSX, the Exchange is proposing to 
implement functionality in its trading systems that would cancel any 
portion of unpriced orders that would execute on PSX at a price that is 
the greater of $0.25 or 5 percent worse than the NBBO at the time the 
Exchange receives the order. Unpriced orders that would be subject to 
this calculation and potential cancellation are defined in Phlx Rule 
3301(f)(9) as ``Unpriced Orders.''
    The following example illustrates how the Unpriced Order process 
would work. A market participant submits a Market Peg order to buy 500 
shares. The NBBO is $6.00 bid by $6.05 offer, with 100 shares available 
on each side. PSX has 100 shares available at the $6.05 to sell at the 
offer price and also has reserve orders to sell 100 shares at $6.32 and 
400 shares at $6.40. No other market center is publishing offers to 
sell the security at prices in the range of $6.05 to $6.40.
    In this example, the Unpriced Order would be executed in the 
following manner:
     100 shares would be executed by PSX at the $6.05;
     100 shares would be executed by PSX at $6.32 (more than 
$0.25 but less than 5 percent worse than the NBBO); and
     200 shares, representing the remainder of the Unpriced 
Order, would be cancelled because the remaining

[[Page 63241]]

liquidity available at $6.40 is more than 5 percent worse than the 
NBBO.
    The Exchange believes that market participants who wish to trade at 
prices further away from the NBBO than the Unpriced Order thresholds 
would permit, may still accomplish their strategy by submitting a 
marketable limit order to the Exchange. In the example above, a market 
participant with such a strategy could have input a limit order with a 
price of $7.00, which would have executed up to its full size provided 
liquidity is available.
    The Exchange's rule change implements a rule similar to rules 
already in place at The NASDAQ Stock Market LLC, BATS Exchange, Inc., 
and NYSE Arca, Inc.\4\
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    \4\ See NASDAQ Rule 4751(f)(13); BATS Rule 11.9; NYSE Arca 
Equities Rule 7.31(a).
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2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act in general,\5\ and furthers the objectives of Section 
6(b)(5) of the Act in particular,\6\ in that it is designed to promote 
just and equitable principles of trade, to remove impediments to and 
perfect the mechanism of a free and open market and a national market 
system, and, in general to protect investors and the public interest, 
by avoiding execution of unpriced orders on the Exchange at prices that 
are significantly worse than the NBBO at the time the order is 
initially received by the Exchange. The Exchange believes that the NBBO 
provides reasonable guidance of the current value of a given security 
and therefore that market participants should have confidence that 
their unpriced orders will not be executed at a significantly worse 
price than the NBBO.
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    \5\ 15 U.S.C. 78f(b).
    \6\ 15 U.S.C. 78(b)(5).
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B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange does not believe that the proposed rule change will 
impose any burden on competition that is 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

    Written comments were neither solicited nor received.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    Because the foregoing proposed rule change does not: (1) 
Significantly affect the protection of investors or the public 
interest; (2) impose any significant burden on competition; and (3) 
become operative for 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, it has become 
effective pursuant to Section 19(b)(3)(A) of the Act \7\ and Rule 19b-
4(f)(6) thereunder.\8\
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    \7\ 15 U.S.C. 78s(b)(3)(A).
    \8\ 17 CFR 240.19b-4(f)(6). In addition, Phlx has given the 
Commission written notice of its intent to file the proposed rule 
change, along with a brief description and text of the proposed rule 
change, at least five business days prior to the date on which the 
Exchange filed the proposed rule change.
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    A proposed rule change filed under Rule 19b-4(f)(6) normally may 
not become operative prior to 30 days after the date of filing.\9\ 
However, Rule 19b-4(f)(6) \10\ permits the Commission to designate a 
shorter time if such action is consistent with the protection of 
investors and the public interest. The Exchange has requested that the 
Commission waive the 30-day operative delay so that the proposal may 
become operative upon filing. The Commission notes (i) the proposal is 
similar to existing thresholds on market orders adopted by The NASDAQ 
Stock Market LLC, BATS Exchange, Inc., and NYSE Arca, Inc; (ii) it 
presents no novel issues; and (iii) the functionality is voluntary, and 
it may provide a benefit to market participants. For these reasons, the 
Commission believes it is consistent with the protection of investors 
and the public interest to waive the 30-day operative delay, and hereby 
grants such waiver.\11\
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    \9\ 17 CFR 240.19b-4(f)(6)(iii).
    \10\ Id.
    \11\ For the purposes only of waiving the operative date of 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 such proposed rule 
change, the Commission summarily may temporarily suspend such rule 
change if it appears to the Commission that such action is necessary or 
appropriate in the public interest, for the protection of investors, or 
otherwise in furtherance of the purposes of the Act.

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 e-mail to rule-comments@sec.gov. Please include 
File Number SR-Phlx-2010-135 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-2010-135. 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 website (http://www.sec.gov/rules/sro.shtml). 
Copies of the submission,\12\ 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 website 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-2010-135 and should be submitted on 
or before November 4, 2010.
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    \12\ The text of the proposed rule change is available on 
Exchange's website at http://nasdaqtrader.com/
micro.aspx?id=PHLXfilings, on the Commission's website at http://
www.sec.gov, at Phlx, and at the Commission's Public Reference Room.

[[Page 63242]]

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    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\13\
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    \13\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
[FR Doc. 2010-25809 Filed 10-13-10; 8:45 am]
BILLING CODE 8011-01-P