80_FR_36117 80 FR 35997 - Self-Regulatory Organizations; NASDAQ OMX PHLX LLC; Notice of Filing of Proposed Rule Change to Rule 1080.07

80 FR 35997 - Self-Regulatory Organizations; NASDAQ OMX PHLX LLC; Notice of Filing of Proposed Rule Change to Rule 1080.07

SECURITIES AND EXCHANGE COMMISSION

Federal Register Volume 80, Issue 120 (June 23, 2015)

Page Range35997-36006
FR Document2015-15339

Federal Register, Volume 80 Issue 120 (Tuesday, June 23, 2015)
[Federal Register Volume 80, Number 120 (Tuesday, June 23, 2015)]
[Notices]
[Pages 35997-36006]
From the Federal Register Online  [www.thefederalregister.org]
[FR Doc No: 2015-15339]



[[Page 35997]]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-75189; File No. SR-Phlx-2015-49]


Self-Regulatory Organizations; NASDAQ OMX PHLX LLC; Notice of 
Filing of Proposed Rule Change to Rule 1080.07

June 17, 2015.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(the ``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given 
that on June 5, 2015, NASDAQ OMX PHLX LLC (``Phlx'' or ``Exchange'') 
filed with the Securities and Exchange Commission (``Commission'') the 
proposed rule change as described in Items I, II, and III below, which 
Items have been prepared by the Exchange. The Commission is publishing 
this notice to solicit comments on the proposed rule change from 
interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to amend and correct Rule 1080.07 in a number 
of ways, as described further below.
    The text of the proposed rule change is available on the Exchange's 
Web site at http://nasdaqomxphlx.cchwallstreet.com, 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 parts 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 proposal is to amend and correct certain rule 
text and provide additional clarity to Phlx Participants regarding the 
trading of Complex Orders on the Exchange. The Exchange's Complex Order 
System (``System''), which is governed by Rule 1080.07 includes an 
opening process called the Complex Order Opening Process or ``COOP,'' 
the Complex Order Live Auction (``COLA''), an automated auction for 
seeking additional liquidity and price improvement for Complex Orders, 
and a Complex Limit Order book, the CBOOK.
    Except for the time period referred to in Rule 1080.07(f)(i)(F) and 
the acceptance and treatment of all-or-none orders (both of which are 
discussed below), the Exchange proposes to correct several 
inconsistencies between the existing Complex Orders rule, Rule 1080.07, 
and the operation of the Complex Orders System today.
Opening Inconsistencies
    First, the Exchange proposes to amend the rule text applicable to 
its opening process. Specifically, Rule 1080.07(d) currently provides 
for performing a COOP Evaluation in order to identify a COLA-eligible 
order and then operating an auction respecting that order, similar to 
the way the COLA operates.\3\ The Exchange proposes to amend Rule 
1080.07(d) to reflect that the System operates the opening auction 
process for Complex Orders differently than the COLA.\4\ Specifically, 
the COOP identifies a price at which the maximum number of contracts 
can trade on the opening based on interest received in the Complex 
Order Strategy.\5\ Thus, the COOP operates like a traditional opening 
process for non-Complex Orders (meaning, single leg orders), 
considering buys and sells, taking all interest into account (without 
bias toward any participant) to determine which interest is executable 
and identifying any imbalance.\6\
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    \3\ The COLA is an auction intended to solicit interest in a 
particular Complex Order other than on the opening. See Rule 
1080.07(e).
    \4\ The rule provides that the System determines which Complex 
Order, if any, on the CBOOK will be the ``COLA-eligible order'' 
subject to a COLA. This is not correct.
    \5\ A Complex Order Strategy means a particular combination of 
components of a Complex Order and their ratios to one another. The 
Exchange will calculate both a bid price and an offer price for each 
Complex Order Strategy based on the current PBBO (as defined below) 
for each component of the Complex Order. Each Complex Order Strategy 
will be assigned a strategy identifier by the System. See Rule 
1080.07(a)(ii).
    \6\ An imbalance is the number of contracts that cannot be 
matched with other interest at a particular price. See e.g. NOM 
Chapter VI, Section 8(a)(1).
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    Despite the current rule text, a Complex Order on the opening would 
not have been designated as the COLA-eligible Order with priority over 
all other same-side orders. Instead, such order would have been 
considered for execution alongside other same-priced same-side orders 
received in the same Complex Order Strategy, both before and during the 
COOP, consistent with a normal opening process. Specifically, for each 
Complex Order Strategy, the System will take into consideration all 
Complex Orders, identify the price at which the maximum number of 
contracts can trade and calculate the imbalance, if any, as follows:
     Pursuant to existing Rule 1080.07(d)(i), the System will 
accept pre-opening Complex Orders, and will accept Complex Orders prior 
to re-opening following a halt in trading on the Exchange. Complex 
Orders received prior to the opening or during a trading halt will 
reside on the CBOOK (as defined above). There will be one such COOP per 
Complex Order Strategy. These provisions are not changing.
     Rule 1080.07(d)(ii) will be amended to add reference to a 
timer. Specifically, new rule text will provide that once trading in 
each option component of a Complex Order Strategy has opened (or re-
opened following a trading halt) for a certain configurable time not to 
exceed 60 seconds \7\ (and none of the conditions described in Rule 
1080.07(c)(ii) exist),\8\ the System will initiate the COOP, provided 
that a COOP will only be conducted for any Complex Order Strategy that 
has a Complex Order received before the opening \9\ of that Complex 
Order Strategy. The Exchange is proposing to add new rule text to 
provide that the Exchange will not conduct a COOP when a particular 
Complex Order Strategy is already open as a result of another 
electronic auction process, such as PIXL pursuant to Rule 1080(n) or 
the Exchange's Solicitation mechanism or if another electronic auction 
involving the same Complex

[[Page 35998]]

Order Strategy is in progress.\10\ If that Complex Order Strategy is 
already open, a COOP is not needed and will not occur.
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    \7\ This is known as the opening delay timer, which is intended 
to allow a brief period of time for the prices for the various 
series of an option to stabilize after the opening of those series.
    \8\ These include: the Complex Order is received prior to the 
opening on the Exchange of any options component of the Complex 
Order; during an opening rotation for any options component of the 
Complex Order; during a trading halt for any options component of 
the Complex Order; when the Exchange's Risk Monitor Mechanism is 
engaged for any options component of the Complex Order that 
represents all of the PBBO pursuant to Rule 1093; or when the 
Exchange's market for any options component of the Complex Order is 
disseminated pursuant to Rule 1082(a)(ii)(B).
    \9\ Currently, the Rule provides that the COOP is conducted if a 
Complex Order is pending at the opening or re-opening. However, such 
Complex Order may no longer be pending (perhaps it was canceled), 
such that a COOP is actually triggered by receipt of the order.
    \10\ See SR-Phlx-2014-66.
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     The Exchange is also proposing to add to Rule 
1080.07(d)(ii) that following a trading halt, a COOP will be conducted 
for any Complex Order Strategy where a Complex Order was received 
before or during a trading halt or that Complex Order Strategy had 
previously opened prior to the trading halt.
     The COOP will be conducted in two phases, the ``COOP 
Timer'' (as defined below) and the ``COOP Evaluation'' (also defined 
below). A COOP can be occurring at the same time in different Complex 
Order Strategies.
     To add specificity, the Exchange is proposing to add to 
Rule 1080.07(d)(ii)(A)(1) that the Exchange will send a broadcast 
message indicating that a COOP has been initiated. The broadcast 
message will identify the Complex Order Strategy,\11\ the opening price 
(based on the maximum number of contracts that can be executed at one 
particular price, except if there is no price at which any orders can 
be executed), and the imbalance side and volume, if any. This broadcast 
message is called the Complex Order Opening Auction Notification and is 
sent over an order feed, PHLX Orders, which contains Complex Order 
information, as well as over the Specialized Quote Feed (``SQF'').\12\
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    \11\ Each Complex Order Strategy has an identifier. See Rule 
1080.07(a)(ii).
    \12\ Securities Exchange Act Release Nos. 60877 (October 26, 
2009), 74 FR 56255 (October 30, 2009) (SR-Phlx-2009-92) and 66993 
(May 15, 2012), 77 FR 30043 (May 21, 2012) (SR-Phlx-2012-63) 
(addressing TOPO Plus Orders/PHLX Orders).
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     Pursuant to Rule 1080.07(d)(ii)(A)(1), the Complex Order 
Opening Auction Notification starts a COOP Timer, which will begin 
counting a number of seconds during which the Complex Order, if any, 
may not be traded. The COOP Timer is configurable to a period ranging 
from 0 to 600 seconds as determined by the Exchange and communicated to 
Exchange membership on the Exchange's Web site. The COOP Timer will be 
configured for the same number of seconds for all options trading on 
the Exchange. During the COOP Timer, Phlx XL Participants can submit 
responses to the Complex Order Opening Auction Notification pursuant to 
subparagraph (B).
    The Exchange is proposing to delete Rule 1080.07(d)(ii)(A)(2), 
which currently provides that the System will not engage the COOP Timer 
upon re-opening Complex Order trading when either: (a) The Exchange's 
automated execution system was disengaged and subsequently re-engaged, 
or (b) the Phlx XL Risk Monitor Mechanism was engaged and subsequently 
disengaged. It further provides that, instead, the System will 
immediately begin the COOP Evaluation and will not initiate the COOP 
Timer. This provision is incorrect and obsolete because the Exchange 
does not and cannot disengage its automatic execution system; automatic 
execution is a fundamental aspect of the System. With respect to the 
Risk Monitor Mechanism, its operation has no impact on the COOP Timer.
    The Exchange proposes to amend Rule 1080.07(d)(ii)(A)(4) to specify 
in more detail that Complex Orders received prior to the COOP Timer and 
Complex Orders received during the COOP Timer (other than COOP Sweeps 
and Complex Order Responses marked as a response) will be visible to 
Phlx XL participants upon receipt.
Opening--Immediate-or-Cancel Orders and DNA Orders
    Currently, Complex Orders marked as Immediate-or-Cancel (``IOC'') 
\13\ and Do Not Auction (``DNA'') \14\ can be submitted. The Exchange 
proposes to adopt into Rule 1080.07(d)(ii)(A)(5) how both IOC and DNA 
orders are handled on the opening. Complex Orders marked as IOC or DNA 
received before the COOP is initiated will be cancelled and will not 
participate in the COOP; however, a COOP will nevertheless occur in 
that Complex Order Strategy. The Exchange believes that it is 
appropriate for the COOP to occur even though the IOC or DNA order that 
triggered it is cancelled,\15\ because the opening process is intended 
to open key strategies in which participants are interested. From a 
system perspective and as a practical matter, not every Complex Order 
Strategy can be opened each day, as there are millions of possible 
permutations, based on the number of options and option series 
available for trading today. This way, the System can focus on the 
Complex Order Strategies that attract interest and prepare to open 
those, making them available for trading on a particular day.
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    \13\ See Rule 1080.07(b)(i)-(iii).
    \14\ See Rule 1080.07(a)(viii).
    \15\ A Complex Order Opening Auction Notification is sent with a 
price and size of zero, and a buy side.
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    The Exchange believes it is appropriate for the COOP to occur, 
because responsive interest on both sides of the market can 
nevertheless trade against other responding interest. In fact, today, 
if an order that is not an IOC order (like a Day order) initiates a 
COOP and then is cancelled by the entering participant before the end 
of the COOP, responsive interest can nevertheless trade.
    IOC and DNA orders are handled differently when received during a 
COOP. IOC Complex Orders received during a COOP will join the COOP and 
be treated like any other Complex Order, except such orders will be 
cancelled at the end of the COOP Timer if not executed. This is 
intended to try to execute the order, because the order may be 
responding to the Complex Order Opening Auction Notification. The 
Exchange notes that IOC Complex Orders are handled similarly in the 
Exchange's PIXL system for similar reasons; \16\ that is, an attempt is 
made to execute the IOC Complex PIXL order, and therefore there is a 
delay in executing the order, even though it is marked IOC. 
Accordingly, the Exchange does not believe that participants will be 
surprised about this handling.
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    \16\ See Phlx Rule 1080(n) governing PIXL; the Exchange notes 
that this provision does not expressly describe how IOC orders are 
handled.
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    The Exchange also notes that participants who want their order 
handled in a more immediate way during a COOP can submit a DNA order, 
which would not join a COOP that is in progress and instead be 
cancelled right away, because that would involve a delay. Consistent 
with the rule language that DNA Orders are cancelled if not immediately 
executed,\17\ DNA Orders do not participate in a COOP.
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    \17\ See Phlx Rule 1080.07(a)(viii)(B).
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Opening--Responses During COOP Timer
    Pursuant to proposed Rule 1080.07(d)(ii)(B), Phlx XL participants 
\18\ may bid and/or offer on either or both side(s) of the market 
during the COOP Timer by submitting one or more Complex Orders 
(``Complex Order Response''). In addition, Phlx XL market makers \19\ 
may also bid and/or offer on either or both side(s) of the market

[[Page 35999]]

during the COOP Timer by submitting one or more COOP Sweeps. The 
Exchange is proposing to codify COOP Sweeps in Rule 1080.07(d)(ii)(B). 
COOP Sweeps are one-sided and always have a limit price. Like COLA 
Sweeps, COOP Sweeps can only be entered by Phlx XL market makers, 
participants who quote electronically as market makers for their own 
account (SQTs, RSQTs and specialists). Because non-SQT ROTs do not 
quote electronically, they cannot enter COOP Sweeps or COLA Sweeps, 
which are electronic.\20\ Specifically, a COOP Sweep is a one-sided 
electronic quotation for execution against opening trading interest in 
a particular Complex Order Strategy; this definition is proposed to be 
added to the rule text.\21\
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    \18\ This term is currently defined in Rule 1080.07(a)(vii) as 
Streaming Quote Traders (``SQTs''), Remote Streaming Quote Traders 
(``RSQTs''), non-SQT Registered Options Traders (``non-SQT ROTs''), 
specialists and non-Phlx market makers on another exchange; non-
broker-dealer customers and non-market-maker off-floor broker-
dealers; and Floor Brokers using the Options Floor Broker Management 
System. Once amended to include Firms (as proposed herein), this 
term will cover all potential users of the Complex Orders system.
    \19\ This is a new term that the Exchange believes will help 
distinguish Phlx XL market makers (which include specialists, SQTs 
and RSQTs) from other types of Phlx participants. See proposed Rule 
1080.07(a)(vii).
    \20\ See Rule 1014(b)(ii)(C) and Rule 1080.07(e)(ix).
    \21\ This definition parallels the definition of an opening 
sweep in Rule 1017(l)(vii)(A).
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    The Exchange believes it is appropriate to permit Phlx XL market 
makers to submit COOP Sweeps, in addition to Complex Orders, for 
several reasons. Today, Phlx XL market makers are the only participants 
who can submit quotes, sweeps of non-Complex Orders, COLA Sweeps and 
COOP Sweeps (``Sweeps'').\22\ All of these, including COOP Sweeps, are 
submitted over the Specialized Quote Feed, SQF, which is a method of 
submitting quoting information and receiving information back about 
those quotes and Sweeps. Quotes and Sweeps can only be submitted over 
SQF, the quoting protocol, because this protocol is designed to handle 
quotes and Sweeps. Some Phlx XL market makers choose to submit their 
interest in the form of a Complex Order, which is submitted through a 
different interface than SQF and is geared toward the submission of 
orders (rather than quotes) to the Exchange. The Exchange developed 
Sweeps in order for Phlx XL market makers to be able to expeditiously 
submit one-sided responsive interest without having to enter an order, 
which involves an entirely different protocol and method of entry; this 
was intended to encourage Phlx XL market makers to submit responsive 
interest while managing risk, utilizing a single protocol, which should 
promote just and equitable principles of trade.
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    \22\ Although Rule 1080.07(e)(iv) states that Phlx XL 
participants can submit COLA Sweeps, this is not correct. Only Phlx 
XL market makers can submit COLA Sweeps. The Exchange proposes to 
correct this in Rule 1080.07(a)(vii) and (e)(iv).
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    There is no advantage to submitting a COOP Sweep versus a Complex 
Order; Phlx XL market maker interest is handled the same once it is 
submitted regardless of how it is submitted, including for priority 
purposes.\23\ Furthermore, there is no timing advantage of submitting a 
COOP Sweep versus a Complex Order (whether for a Phlx XL market maker 
or not), because none of the interest is processed until after the COOP 
Timer ends and all Phlx XL market maker interest is executed on a pro-
rata basis, not in time priority. Conversely, there is no disadvantage 
to non-Phlx XL market makers that they cannot submit a COOP Sweep, just 
like there is no such disadvantage that such participants cannot submit 
a quote. By definition, Phlx XL market makers submit, and are obligated 
to submit, quotes; this is the core distinction between market makers 
and other market participants.
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    \23\ See e.g., proposed Rule 1080.07(d)(ii)(C).
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    A Phlx XL market maker may submit multiple COOP Sweeps at different 
prices (but not multiple COOP Sweeps at the same price, except as 
provided in sub-paragraph (2)), in increments of $0.01 in response to a 
Complex Order Opening Auction Notification, regardless of the minimum 
trading increment applicable to the specific series.\24\
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    \24\ See proposed Rule 1080.07(d)(ii)(B)(1).
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    In addition, Phlx XL market makers may change the size of a 
previously submitted COOP Sweep during the COOP Timer. The System will 
use the Phlx XL market maker's most recently submitted COOP Sweep at 
each price level as that market maker's response at that price level, 
unless the COOP Sweep has a size of zero. A COOP Sweep with a size of 
zero will remove a Phlx XL market maker's COOP Sweep from that COOP at 
that price level.\25\ COOP Sweeps will not be visible to any 
participant and will not be disseminated by the Exchange.\26\ This is 
because COOP Sweeps are only available to trade during the COOP and 
will expire if unexecuted at the end of the COOP Timer once all 
executions are complete. Similarly, Complex Order Responses are not 
visible if marked as a response. A Complex Order Response will expire 
if unexecuted at the end of the COOP Timer once all executions are 
complete, but a Complex Order submitted during the COOP Timer which is 
not marked as a response will be available to be traded after the 
opening of a Complex Order Strategy unless it is marked IOC.
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    \25\ See Rule 1080.07(d)(ii)(B)(2).
    \26\ See Rule 1080.07(d)(ii)(B)(3).
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Opening--COOP Evaluation
    Upon expiration of the COOP Timer,\27\ the System will conduct a 
COOP Evaluation to determine, for a particular Complex Order Strategy, 
the price at which the maximum number of contracts can trade, taking 
into account Complex Orders marked all-or-none, unless the maximum 
number of contracts can only trade without including all-or-none 
orders.\28\ The Exchange will open at that price, executing marketable 
trading interest, in the following order: First, to non-broker-dealer 
customers in time priority; next to Phlx XL market makers on a pro-rata 
basis; and then to all other participants on a pro-rata basis.\29\ The 
imbalance of Complex Orders that are unexecutable at that price are 
placed on the CBOOK.
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    \27\ See Rule 1080.07(d)(ii)(C).
    \28\ The Exchange stopped accepting all-or-none Complex Orders 
on March 17, 2014 in order to align the System with the rule. The 
Exchange has incorporated a definition of all-or-none orders in 
Securities Exchange Act Release No. 72351 (June 9, 2014), 79 FR 
33977 (June 13, 2014) (SR-Phlx-2014-39). Now, the Exchange proposes 
to begin accepting them again and explain how they are handled, 
including how they are treated on the opening and that they do not 
leg. See Rule 1080.07(d)(ii)(C), (e)(vi)(A)(1) and (f)(iii)(A).
    \29\ This is consistent with the Exchange's normal priority 
allocation process. See e.g., Rule 1080.07(e)(vi)(B) and Rule 
1014(g)(vii).
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    The following examples illustrate the handling of an all-or-none 
order on the opening.

    Example 1: 
Complex Order #1: Buy 40 for $1.05 AON customer
Complex Order #2: Buy 30 for $1.05 customer
Complex Order #3: Buy 20 for $1.05 customer
Complex Order #4: Sell 50 at $1.04 AON customer

    The result is that Complex Order #4 will trade against the full 
size of Complex Order #1 (because it was first) and 10 contracts of 
Complex Order #2.

    Example 2: 
Complex Order #1: Buy 40 for $1.05 AON customer
Complex Order #2: Buy 30 for $1.05 customer
Complex Order #3: Buy 20 for $1.05 customer
Complex Order #4: Sell 20 at $1.04 AON customer

    The result is that Complex Order #4 will trade against 20 contracts 
of Complex Order #2 since the all-or-none contingency of Order #1 
cannot be satisfied.
    Opening--No trade possible. If at the end of the COOP Timer the 
System determines that no market or marketable limit Complex Orders or 
COOP Sweeps, Complex Orders or COOP Sweeps that are equal to or improve 
the cPBBO,\30\

[[Page 36000]]

and/or Complex Orders or COOP Sweeps that cross within the cPBBO exist 
in the System, all Complex Orders received during the COOP Timer will 
be placed on the CBOOK, as described in Rule 1080.07(f). This is 
because, without an opening execution possible based on the prices of 
orders and COOP Sweeps in a particular strategy, such Complex Orders 
shall rest on the CBOOK for potential execution later while COOP Sweeps 
expire.
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    \30\ The term ``cPBBO'' means the best net debit or credit price 
for a Complex Order Strategy based on the Phlx Best Bid and/or Offer 
(``PBBO'') for the individual options components of such Complex 
Order Strategy, and, where the underlying security is a component of 
the Complex Order, the National Best Bid and/or Offer for the 
underlying security. The cPBBO is a calculated number and does not 
include orders on the CBOOK or interest on other exchanges. See Rule 
1080.07(a)(iv).
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    Opening--Trade is possible. If at the end of the COOP Timer the 
System determines that there are market or marketable limit Complex 
Orders or COOP Sweeps, Complex Orders or COOP Sweeps that are equal to 
or improve the cPBBO, and/or Complex Orders or COOP Sweeps that cross 
within the cPBBO in the Phlx XL System, the System will do the 
following: If such interest crosses and does not match in size, the 
execution price is based on the highest (lowest) executable offer (bid) 
price when the larger sized interest is offering (bidding), provided, 
however, that if there is more than one price at which the interest may 
execute, the execution price when the larger sized interest is offering 
(bidding) is the midpoint of the highest (lowest) executable offer 
(bid) price and the next available executable offer (bid) price 
rounded, if necessary, down (up) to the closest minimum trading 
increment.\31\ If the crossing interest is equal in size, the execution 
price is the midpoint of lowest executable bid price and the highest 
executable offer price, rounded, if necessary, up to the closest 
minimum trading increment. This process maximizes the interest which is 
traded during the opening process and delivers a rational price for the 
available interest on the opening. The opening price logic maximizes 
the number of contracts executed during the opening process and ensures 
that residual contracts of partially executed orders or quotes are at a 
price equal to or inferior to the opening price, in other words, the 
logic ensures there is no remaining unexecuted interest available at a 
price which crosses the opening price. If multiple prices exist that 
ensure that there is no remaining unexecuted interest available through 
such price(s), the opening logic chooses the midpoint of such price 
points.
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    \31\ See Rule 1080.07(d)(ii)(C)(2).
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    In determining the execution price and which interest will trade, 
the System affords priority to customers on the opening as well. 
Executable bids/offers include any interest which could be executed 
without trading through residual interest or the cPBBO, or without 
trading at the cPBBO where there is non-broker-dealer customer 
interest. This is consistent with Rule 1080.07(c)(iii).
    To illustrate ``if such interest crosses and does not match in 
size, the execution price is based on the highest (lowest) executable 
offer (bid) price when the larger sized interest is offering 
(bidding)'' as referenced above, assume the following is present at the 
end the COOP Timer for a given Complex Order Strategy:

cPBBO = 3.50 (10)-3.90 (10)
Complex Order #1: Buy 30 for $3.79
Complex Order #2: Sell 20 at $3.56

    COOP Opening execution will be for 20 strategies at a price of 
$3.79 because there were more contracts to buy than there were to sell. 
In this example, while there are multiple price points at which the 
System can open the same number of contracts, there is only one price 
point, $3.79, at which there will be no residual contracts available 
after the opening process at a price which crosses the opening price. 
After the System executes 20 strategies at $3.79, there will remain 10 
unexecuted strategies to buy for $3.79.
    If the example were changed slightly such that Complex Order #1 was 
a market order instead of a limit order, the market order is limited by 
the cPBBO assuming no customer interest is present, and the COOP 
execution price for 20 strategies would be $3.90. The remaining 10 
strategies of Complex Order #1 will then leg to the simple market at 
$3.90.
    To illustrate ``if there is more than one price at which the 
interest may execute, the execution price when the larger sized 
interest is offering (bidding) is the midpoint of the highest (lowest) 
executable offer (bid) price and the next available executable offer 
(bid) price rounded, if necessary, down (up) to the closest minimum 
trading increment'' as referenced above, assume the following is 
present at the end the COOP Timer for a given Complex Order Strategy:

cPBBO = 3.50 (10)-3.90 (10)
Complex Order #1: Buy 20 for $3.79
Complex Order #2: Buy 20 for $3.77
Complex Order #3: Buy 20 at $3.74
Complex Order #4: Sell 20 at $3.60
Complex Order #5: Sell 20 at $3.62

    COOP Opening execution will be for 40 strategies at a price of 
$3.76. The execution price of $3.76 is derived from the midpoint of the 
lowest executable bid price of $3.74 and the next available executable 
bid price of $3.77, rounded up to the closest minimum trading 
increment. In this example, 40 strategies can be opened at multiple 
price points ranging from $3.74 up to $3.77. None of these potential 
opening prices will cause the unexecuted $3.74 buy order to be 
available at a price which crosses the opening price, therefore, the 
System opens at the midpoint of such prices, $3.76.
    If the example were changed slightly such that Complex Order #1 and 
Complex Order #2 were market orders instead of a limit orders, the COOP 
Opening execution price for the 40 strategies would be $3.82, which is 
the midpoint of the potential opening prices ranging from $3.74 to 
$3.90.
    To illustrate ``if the crossing interest is equal in size, the 
execution price is the midpoint of lowest executable bid price and the 
highest executable offer price, rounded, if necessary, up to the 
closest minimum trading increment'' as referenced above, assume the 
following is present at the end the COOP Timer for a given Complex 
Order Strategy:

cPBBO = 3.50 (10)-3.90 (10)
Complex Order #1: Buy 10 for $3.78
Complex Order #2: Buy 20 for $3.74
Complex Order #3: Buy 10 at $3.71
Complex Order #4: Sell 20 at $3.64
Complex Order #5: Sell 20 at $3.66

    COOP Opening execution will be for 40 strategies at a price of 
$3.69. The execution price of $3.69 is derived from the midpoint of the 
lowest executable bid price of $3.71 and the highest executable offer 
price of $3.66, rounded up to the closest minimum trading increment. If 
the example were changed slightly such that Complex Order #4 and 
Complex Order #5 were market orders rather than limit orders, the COOP 
Opening execution price for the 40 strategies would be $3.61, which is 
derived from the midpoint of the lowest executable bid price of $3.71 
and the highest executable offer of $3.50, rounded to the closest 
minimum trading increment.
    To illustrate the application of the Acceptable Complex Execution 
(ACE) parameter as defined in Rule 1080.07(i), assume the following is 
present at the end the COOP Timer for a given Complex Order Strategy:

ACE Parameter of $0.05
cPBBO = 3.50 (10)-4.00 (10)
cNBBO = 3.70 (10)-3.90 (10)
Complex Order #1: Buy 10 for $3.78
Complex Order #2: Buy 20 for $3.74
Complex Order #3: Buy 10 at $3.71
Complex Order #4: Sell 20 at market
Complex Order #5: Sell 20 at market

    The COOP Opening execution may not occur more than $0.05 outside of 
the

[[Page 36001]]

cNBBO, and thus cannot occur at a price of less than $3.65 or more than 
$3.95. In this case, Complex Order #4 and Complex Order #5 will both be 
considered in determining the COOP Opening execution price as orders to 
sell limited by the contra side cNBBO ACE limit of $3.65. Therefore, 
the COOP Opening execution price for the 40 strategies would be $3.68, 
which is derived from the midpoint of the lowest executable bid price 
of $3.71 and the highest executable offer of $3.65.
    If there is any remaining interest after complex interest has 
traded against other complex interest and there is no component that 
consists of the underlying security,\32\ such interest may ``leg'' 
whereby each options component may trade at the PBBO with existing 
quotes and/or limit orders on the limit order book for the individual 
components of the Complex Order; provided that remaining interest may 
execute against any eligible Complex Orders received before legging 
occurs.\33\ If the remaining interest has a component that consists of 
the underlying security or is an all-or-none Complex Order, such 
Complex Order will be placed on the CBOOK. Although the current rule 
text does not provide for legging on the opening, the System is 
currently programmed to consider whether legging is possible in order 
to maximize the number of executions. Accordingly, the Exchange 
proposes to add rule text regarding legging to Rule 
1080.07(d)(ii)(C)(2).
---------------------------------------------------------------------------

    \32\ Complex Orders that are not executable at the opening 
price, including those that could not leg because there is a 
component that consists of the underlying security, will be placed 
on the CBOOK. See proposed Rule 1080.07(d)(ii)(C).
    \33\ Remaining interest includes Complex Orders that did not 
execute at the opening price and are therefore on the CBOOK and 
available to be traded before legging occurs as well as any new 
interest that may have arrived during the legging process.
---------------------------------------------------------------------------

    The Exchange also proposes to add that the Complex Order Strategy 
will be open for trading after the COOP even if no executions occur. 
This is intended to attract additional interest to a Complex Order 
Strategy. If additional interest arrives, the Exchange does not believe 
another COOP is needed, because such interest will under the normal 
processes of the System either be subject to a COLA, be placed on the 
CBOOK (both of which are disseminated), or be cancelled.
Other Inconsistencies
    Second, Rule 1080.07(e)(vi)(C) currently provides that when 
executing against the COLA-eligible order after a COLA, a participating 
specialist shall be entitled to receive, respecting an option in which 
he is the specialist, the greater of: (1) The proportion of the 
aggregate size at the cPBBO associated with such specialist's COLA 
Sweep, SQT and RSQT COLA Sweeps, and non-SQT ROT Complex Orders on the 
CBOOK; \34\ (2) the Enhanced Specialist Participation as described in 
Rule 1014(g)(ii) \35\ (60/40/30%); or (3) 40% of the remainder of the 
order.\36\
---------------------------------------------------------------------------

    \34\ This is commonly known as size pro-rata allocation.
    \35\ Rule 1014(g)(ii) provides that when the registered 
specialist is on parity with a controlled account, in accordance 
with Exchange Rules 119 and 120 and the number of contracts to be 
bought or sold is greater than five, the specialist is entitled to 
receive an enhanced participation of 30% of the Remainder of the 
Order (``Enhanced Specialist Participation''), except in the 
following circumstances: (1) Where there is one controlled account 
on parity, the specialist is entitled to receive 60% of the 
Remainder of the Order; or (2) where there are two controlled 
accounts on parity, in which case, the specialist is entitled to 
receive 40% of the Remainder of the Order. See also ISE Rule 722.05.
    \36\ A specialist is not entitled to this enhanced allocation in 
options in which he is not registered as the specialist.
---------------------------------------------------------------------------

    The Exchange proposes to better define a COLA Sweep in Rule 
1080.07(e)(iv). Specifically, a COLA Sweep, similar but not identical 
to a COOP Sweep,\37\ is a one-sided electronic quotation submitted for 
execution against other trading interest in a particular Complex Order 
Strategy. Any COLA Sweeps which remain unexecuted at the end of the 
COLA Timer once all executions are complete will expire.
---------------------------------------------------------------------------

    \37\ See proposed Rule 1080.07(d)(ii)(B).
---------------------------------------------------------------------------

    The Exchange proposes to amend Rule 1080.07(e)(vi)(C) to eliminate 
the 40% component, because it does not currently operate.\38\ The 
Exchange believes that the 40% language being deleted may have been an 
error, because, given the ``greater of'' language in this provision, 
the 30% guarantee would never have operated. Accordingly, the Exchange 
proposes to amend this provision to reflect that the specialist would 
be entitled to receive the greater of: (1) The proportion of the 
aggregate size associated with such specialist's COLA Sweep, SQT and 
RSQT COLA Sweeps, and non-SQT ROT Complex Orders on the CBOOK; or (2) 
the 60/40/30% Enhanced Specialist Participation described in Rule 
1014(g)(ii). The Exchange believes that the specialist guarantee of 60/
40/30% is a sufficient incentive for participants to become specialists 
and make continuous markets in individual options. The Exchange notes 
that this is the same enhanced pro-rata specialist allocation that 
applies to non-Complex Orders.\39\
---------------------------------------------------------------------------

    \38\ Because the minimum 40% allocation did not operate, the 
specialist may have received less of an allocation than expected 
when executing against COLA-eligible interest in a limited number of 
situations.
    \39\ Unlike regular, single component options listed and traded 
on the Exchange, Complex Orders do not have a specialist or required 
market maker providing continuous markets. Complex Orders operate as 
an order-driven process, with the prices derived from the prices of 
the individual components.
---------------------------------------------------------------------------

    In addition, the Exchange proposes to amend Rule 1080.07(e)(vi)(C) 
to correct it by deleting the limitation of aggregating size only at 
the cPBBO; the size of the specialist's COLA Sweep, SQT and RSQT COLA 
Sweeps, and non-SQT ROT Complex Orders on the CBOOK are all aggregated 
at the execution price, regardless whether the price is at cPBBO or 
not. Today, the System looks at all of a specialist's COLA Sweeps at a 
particular price, not just at the cPBBO and compares it to all other 
Phlx XL market maker interest at that price, so the Exchange proposes 
to correct the rule.
    In short, the Specialist would be entitled to receive the greater 
of: (1) The proportion of the aggregate size associated with such 
specialist's COLA Sweep, SQT and RSQT COLA Sweeps, and non-SQT ROT 
Complex Orders on the CBOOK; or (2) the 60/40/30% Enhanced Specialist 
Participation described in Rule 1014(g)(ii). The Exchange believes that 
the specialist guarantee of 60/40/30% is a sufficient incentive for 
participants to become specialists and make continuous markets in 
individual options. The Exchange notes that this is the same enhanced 
pro-rata specialist allocation that applies to non-Complex Orders.\40\
---------------------------------------------------------------------------

    \40\ Rule 1014(g)(vii).
---------------------------------------------------------------------------

    Furthermore, pursuant to Rule 1080.07(e)(vi)(B), for allocation 
purposes, the rule states that the size of a COLA Sweep or responsive 
Complex Order received during the COLA Timer shall be limited to the 
size of the COLA-eligible order. In actuality, the Exchange will accept 
size in excess of the COLA-eligible order size and such size can be 
executed against remaining interest \41\ after the COLA-eligible order 
has been executed to the fullest extent possible.\42\ For example, 
where there is a COLA-eligible order bidding $2.00 for 20 contracts, 
and the other interest consists of a $2.10 bid for 10 contracts, a 
$2.10 offer for 10 contracts and a $2.00 offer

[[Page 36002]]

for 10 contracts, even though only 10 contracts of the COLA-eligible 
order are executable, the buy and sell orders at $2.10 can nevertheless 
execute against each other; thus, although the COLA-eligible order was 
not fully executed, it was executed to the fullest extent possible,\43\ 
which permitted additional executions of responsive interest at a 
different price, to the benefit of those orders.
---------------------------------------------------------------------------

    \41\ The remaining interest consists of any potential interest 
that has been received, including orders, quotes and COLA Sweeps, as 
well as the individual leg market.
    \42\ The Exchange notes that this reflects an internal 
inconsistency in this rule, because another sub-paragraph in the 
rule addresses the execution of remaining bids or offers from the 
incoming non-customer Complex Order(s). See Rule 
1080.07(e)(viii)(C)(2)(e).
    \43\ The Exchange is replacing the term ``in its entirety'' with 
``to the fullest extent possible'' respecting COLA-eligible orders, 
because COLA-eligible orders to [sic] not have to be fully executed 
in order for other interest to be executed; such interest might, for 
example, be at a different price than the price of the COLA-eligible 
order. See Rule 1080.07(e)(vii), (e)(viii)(B), (e)(viii)(C)(1), 
(e)(viii)(C)(1)(e), (e)(viii)(C)(2), (e)(viii)(C)(2)(e) and 
(e)(viii)(C)(3).
---------------------------------------------------------------------------

    As a result, participants would have had a greater opportunity for 
execution and may have received executions in excess of the COLA-
eligible order volume, up to the full size of their order. If the 
System operated as stated in the current rule text, fewer contracts 
would have been executed, because fewer contracts would have been 
available for execution against the COLA-eligible order and other 
responsive interest. It is likely that some of the interest in that 
Complex Order Strategy would not have traded but for the ability for 
COLA Sweeps and Complex Orders to be submitted for any size.
    The Exchange is proposing to amend the rule to reflect the current 
practice and permit the full size of responding interest to trade 
against non-COLA-eligible interest. This change is intended to have as 
many contracts trade as possible. The Exchange does not believe that 
the current size limitation in the rule is useful.\44\ The Exchange 
notes that the size of a COLA Sweep or responsive Complex Order is only 
relevant where the resulting allocation of a trade is conducted on a 
pro-rata basis, but not respecting non-broker-dealer customer 
allocations, which are based on time priority. The Exchange believes 
that permitting interest in excess of the COLA-eligible volume benefits 
market participants, because it helps ensure that as many contracts as 
possible are executed. The Exchange does not believe that there is any 
negative effect from permitting responsive interest of any size. 
Although in a pro-rata allocation, a greater allocation might result, 
this is not harmful, but rather enhances the liquidity in the 
marketplace. It should also be noted that the Exchange considers non-
responsive interest present in the system when executing and allocating 
in a COLA and such non-responsive interest is also not restricted to 
the size of the COLA-eligible volume.
---------------------------------------------------------------------------

    \44\ The Exchange notes that this is similar to NYSEArca Rule 
6.91(c)(7), which permits executions above such size.
---------------------------------------------------------------------------

    Fourth, Rule 1080.07(e)(viii) determines the price at which orders 
are executed while Rule 1080.07(e)(vi) determines the execution 
priority of such orders; the Exchange seeks to make the interaction of 
these two provisions clearer by adding descriptive language to that 
effect in Rule 1080.07(e)(viii). Rule 1080.07(e)(viii)(C)(1)(d) 
currently provides that if multiple customer Complex Orders are 
received on the opposite side of the market from the COLA-eligible 
order, customer orders will be executed in the order in which they were 
received. This provision operates to determine the price at which the 
COLA-eligible order is executed against customer Complex Orders and 
defines the allocation algorithm utilized for each type of customer. In 
the context of determining the execution price of such interest, the 
Exchange uses the term ``customer'' to include both non-broker-dealer 
customer orders as well as non-market maker off-floor broker-dealer 
orders, because in this context non-market maker off-floor broker-
dealer orders seek liquidity and are therefore more like customer 
orders versus other participants, which generally provide liquidity.
    With respect to Rule 1080.07(e)(vi) regarding the allocation within 
a participant category, the System executes non-broker-dealer customer 
orders in the order in which they were received and non-market maker 
off-floor broker-dealer orders on a pro-rata basis at each price level. 
Thus, non-market maker off-floor broker-dealer orders may have received 
a higher or lower allocation at a particular price than they would have 
received in time priority allocation, which is required under the 
current rule, depending on their particular time and size.
    The Exchange proposes to change Rule 1080.07(e)(viii)(C)(1)(d) to 
reflect that off-floor broker- dealer orders at the same price are 
executed on a pro-rata basis, consistent with the priority rules 
applicable in other aspects of the execution of Complex Orders \45\ and 
simple orders.\46\
---------------------------------------------------------------------------

    \45\ See e.g., Rule 1080.07(e)(vi)(B).
    \46\ See Rule 1014(g)(vii).
---------------------------------------------------------------------------

    Fifth, pursuant to Rule 1080.07(e)(viii)(C)(2)(d), if multiple non-
customer \47\ Complex Orders are received on the opposite side of the 
market from the COLA-eligible order, such orders will be executed in 
the order in which they were received. Instead, the System executes 
non-customer orders on a pro-rata basis among Phlx market maker 
interest and then, again on a pro-rata basis, among remaining Phlx XL 
participants at each price level, as described in Rule 
1080.07(e)(vi)(B). Non-customer orders may have received a higher or 
lower allocation at a particular price than they would have received in 
time priority allocation, depending on their particular time and size.
---------------------------------------------------------------------------

    \47\ In the context of executing these orders, the Exchange uses 
the term ``non-customer'' to include all interest other than non-
broker-dealer customer interest and non-market-maker off-floor 
broker-dealer interest.
---------------------------------------------------------------------------

    The Exchange proposes to amend the rule to reflect that non-
customer orders are executed on a pro-rata basis, consistent with the 
priority rules applicable in other aspects of the execution of Complex 
Orders and simple orders.\48\
---------------------------------------------------------------------------

    \48\ See supra note 29.
---------------------------------------------------------------------------

    Sixth, the System recently operated such that when a Complex Order 
was received during the final 3 seconds of the trading session, it was 
placed onto the CBOOK.\49\ Pursuant to Rule 1080.07(f)(i)(F), a Complex 
Order an order should go on the CBOOK when is received during the final 
10 seconds of the trading session, rather than 3 seconds. Accordingly, 
more Complex Orders may have started a COLA than the rule provides for 
and were perhaps executed rather than resting on the CBOOK, which the 
Exchange believes may have been considered a benefit for those orders.
---------------------------------------------------------------------------

    \49\ In order to comply with the current rule, the System was 
changed on March 7, 2014 to 10 seconds to align with the rule.
---------------------------------------------------------------------------

    At this time, the Exchange proposes to change the rule to reflect a 
configurable time period (for all options) to determine how many 
seconds before the end of the trading session that an order is placed 
on the CBOOK. The Exchange believes that this should maximize 
executions rather than applying a fixed time period of 10 seconds. The 
Exchange will notify participants on its Web site in advance when the 
number of seconds will change. The Exchange believes that this is a 
useful change, because the Exchange believes that 10 seconds may be too 
long and may prevent executions from occurring; a COLA can be triggered 
and completed in less than 3 seconds so the Exchange believes a smaller 
number than 10 seconds is appropriate to maximize executions.
    In addition, the Exchange is adding to this provision a reference 
to any marketable portion of the Complex Order being executed, because 
the System seeks to execute any portion that

[[Page 36003]]

can be traded before placing a Complex Order on the CBOOK.
    Seventh, after the COLA-eligible order has been executed in its 
entirety, Rule 1080.07(e)(viii)(C)(3) provides that the execution price 
of crossing interest is based on the price of the smaller sized 
interest. Crossing interest refers to any buy or sell interest that 
crosses in price such that a buyer order is at a higher price than the 
best sell price, for example. If such interest crosses and does not 
match in size, the execution price of the remaining interest is based 
on the highest (lowest) executable offer (bid) price when the larger 
sized interest is offering (bidding), provided, however, that if there 
is more than one price at which the interest may execute, the execution 
price when the larger sized interest is offering (bidding) is the 
midpoint of the highest (lowest) executable offer (bid) price and the 
next available executable offer (bid) price rounded, if necessary, down 
(up) to the closest minimum trading increment. If the crossing interest 
is equal in size, the execution price is the midpoint of lowest 
executable bid price and the highest executable offer price, rounded, 
if necessary, up to the closest minimum trading increment.
    In determining the execution price and which interest will trade, 
the System affords priority to non-broker-dealer customers. Executable 
bids/offers include any interest which could be executed without 
trading through residual interest or the cPBBO, or without trading at 
the cPBBO where there is non-broker-dealer customer interest. This is 
consistent with Rule 1080.07(c)(iii).
    While participants are ``blind'' to the determination of the 
execution price because they do not know the size of all eligible 
interest, the participants that were part of the smaller sized interest 
would likely have received a better execution price than the rule 
states.
    The Exchange proposes to amend Rule 1080.07(e)(viii)(C)(3) to 
reflect the use of larger sized interest, because it is indicative of 
the price of remaining unexecuted interest. The Exchange believes that 
this correction and level of detail should help participants understand 
how their execution prices are determined, and this method is fair and 
orderly, based on both size and midpoint, which reflect the totality of 
the remaining interest. This is the same process used in the COOP as 
proposed in Rule 1080.07(d)(ii)(C)(2).
    This provision is also proposed to state that if there is any 
remaining interest, which means any interest present in the System in 
that Complex Order Strategy at that time provided that it is not an 
all-or-none order and there is no component that consists of the 
underlying security,\50\ such interest may ``leg'' whereby each options 
component may trade at the PBBO with existing quotes and/or limit 
orders on the limit order book for the individual components of the 
Complex Order; provided that remaining interest may execute against any 
eligible Complex Orders received before legging occurs. This is 
intended to maximize the number of contracts that execute.
---------------------------------------------------------------------------

    \50\ Complex Orders that are not executable, including those 
that could not leg because there is a component that consists of the 
underlying security, will be placed on the CBOOK. See proposed Rule 
1080.07(d)(ii)(C).
---------------------------------------------------------------------------

    Eighth, Rule 1080.07(b)(i) governs the types of Complex Orders that 
different participants may submit to the Exchange. The rule does not 
currently specify a category of participant known as Firms. Because the 
current rule does not define a Firm, under the current language Firms 
are broker-dealers that fit the definition of non-market maker off-
floor broker-dealer.
    At this time, the Exchange is proposing to adopt a definition of 
Firm in Rule 1080.07(a)(x), based on the current definition in the Phlx 
fee schedule.\51\ Specifically, the Exchange is proposing to define the 
term ``Firm'' to mean a broker-dealer trading for its own (proprietary) 
account that is: (i) A member of The Options Clearing Corporation 
(``OCC''); or (ii) maintains a Joint Back Office (``JBO'') \52\ 
arrangement with an OCC member. Firms are distinct from non-market 
maker off-floor broker-dealers because of their OCC membership, which 
implies that Firms, and thus the JBO participants with whom they have 
established JBO arrangements are large, well-capitalized entities.
---------------------------------------------------------------------------

    \51\ See Securities Exchange Act Release No. 62140 (May 20, 
2010), 75 FR 29788 (May 27, 2010) (SR-Phlx-2010-69).
    \52\ A member organization can establish and maintain a JBO 
arrangement with a clearing broker-dealer subject to the 
requirements of Regulation T Section 220.7 of the Federal Reserve 
System if each JBO participant is registered as a broker-dealer, 
maintains a minimum account equity requirement of $1,000,000, and 
comply with certain ownership standards. See Rule 703(a)(vi).
---------------------------------------------------------------------------

    The pricing schedule currently provides that Firm means a non-
customer broker-dealer for which orders are identified by a member or 
member organization as clearing in the firm range at OCC.\53\ The term 
``clearing in the firm range at OCC'' refers to what type of an account 
is held at OCC and is commonly used by exchanges.\54\ The participants 
that clear in the firm range at OCC are Firms, including both broker-
dealers trading for their own (proprietary) account who are OCC members 
as well as JBO participants. In contrast, broker-dealers trading for 
their own (proprietary) account who are not OCC members (and do not 
have a JBO arrangement) must have their trades cleared via an OCC 
member and do not clear in the firm range.\55\ Accordingly, the 
proposed definition of Firm comports with the definition used in the 
pricing schedule, with respect to which dozens of proposed rule changes 
have taken effect based on such pricing differentiation being 
consistent with the Act, including not being unfairly 
discriminatory.\56\
---------------------------------------------------------------------------

    \53\ See preface to Phlx Pricing Schedule.
    \54\ See e.g., http://www.cboe.com/publish/RegCir/RG13-038.pdf.
    \55\ These broker-dealer orders are ultimately cleared as 
customer orders at OCC.
    \56\ See e.g., Securities Exchange Act Release Nos. 68880 
(February 8, 2013), 78 FR 10664 (February 14, 2013) (SR-Phlx-2013-
10); and 67189 (June 12, 2012), 77 FR 36310 (June 18, 2012) (SR-
Phlx-2012-77).
---------------------------------------------------------------------------

    In addition, the Exchange proposes to specify the two ways in which 
Firm orders are handled like Phlx XL market maker orders rather than 
non-market maker off-floor broker-dealer orders. Specifically, the 
Exchange proposes to amend Rule 1080.07(e)(i)(B)(1) to provide that 
Firm orders, like Phlx market maker orders, are not COLA-eligible 
orders and therefore cannot start a COLA; \57\ non-market-maker off-
floor broker-dealer orders can start a COLA. In addition, for purposes 
of Rule 1080.07(e)(viii)(C)(2), Firms orders are proposed to be treated 
as ``non-customer'' orders. Specifically, when the System determines 
how Complex Orders on the opposite side of the market from a COLA-
eligible order are executed, the System executes Firm orders on a pro-
rata basis along with non-Phlx market maker orders. Non-market-maker 
off-floor broker-dealer orders are executed along with non-broker-
dealer customer orders. In these two ways, Firm orders are proposed to 
be treated the same way as non-Phlx market makers, rather than the same 
way as off-floor broker-dealers, because the Exchange believes that the 
trading style and needs of Firms are more like market makers. Firms are 
large, well-capitalized broker-dealers trading for their own account, 
generally submitting large orders, including orders that facilitate 
their clients' orders or offset often large positions taken to

[[Page 36004]]

accommodate their customers; \58\ in order to do so, Firms must have 
the financial wherewithal that this role necessitates, which by OCC 
rule applicable to OCC clearing members, generally requires a certain 
amount of net capital, risk management procedures addressing certain 
risks and margin requirements, among other things.\59\ Thus, in 
general, Firms are commonly viewed as providers of liquidity, much like 
market makers.
---------------------------------------------------------------------------

    \57\ See Rule 1080.07(e)(i)(B)(1) which defines a COLA-eligible 
order. The Exchange is deleting from this provision the requirement 
that such order improve the cPBBO, because that requirement is 
already stated in Rule 1080.07(e)(i)(A).
    \58\ Of course, the clients/customers of a Firm could be other 
broker-dealers.
    \59\ See OCC Rules 301, 311 and 601.
---------------------------------------------------------------------------

    Ninth, the Exchange proposes to accept all-or-none orders \60\ and 
specify how they are handled. The handling of all-or-none orders on the 
opening is explained above.\61\ Specifically, Rule 1080.07(e)(vi)(A)(1) 
will provide that all-or-none Complex Orders will not leg into the 
prices of the individual components of such Complex Order. In addition, 
Rule 1080.07(f)(iii)(A) will similarly provide that all-or-none Complex 
Orders on the CBOOK will not leg.
---------------------------------------------------------------------------

    \60\ The Exchange stopped accepting all-or-none Complex Orders 
on March 17, 2014 in order to align the System with the rule. The 
Exchange has incorporated a definition of all-or-none orders in 
Securities Exchange Act Release No. 72351 (June 9, 2014), 79 FR 
33977 (June 13, 2014) (SR-Phlx-2014-39).
    \61\ See proposed Rule 1080.07(d)(ii)(C).
---------------------------------------------------------------------------

    Tenth, the Exchange proposes to amend 1080.07(b)(iii) to specify in 
more detail that only IOC Complex Orders can be accepted by Floor 
Brokers from SQTs, RSQTs, non-SQT ROTs, specialists, non-Phlx market 
makers on another exchange and Firms. Currently, this provision refers 
to broker-dealers or affiliates of broker-dealers; these terms are not 
used elsewhere in the rule and is thus confusing.
2. Statutory Basis
    The Exchange believes the proposed rule change is consistent with 
the provisions of Section 6 of the Act,\62\ in general, and with 
Section 6(b)(5) of the Act,\63\ in particular, which requires, among 
other things, that the rules of an exchange be designed to promote just 
and equitable principles of trade as well as protect investors and the 
public interest. Specifically, the Exchange is proposing various 
changes that should promote just and equitable principles of trade, 
because Complex Orders will be handled in a fair and orderly manner by 
the System, as described above. The Exchange believes that the proposed 
changes are consistent with how participants could reasonably expect 
that their complex interest should be treated. The various corrections 
are, together, intended to improve the rule overall. The Exchange 
believes that this should promote just and equitable principles of 
trade as well as protect investors and the public interest by making 
more clear how specifically Complex Orders are handled on the Exchange.
---------------------------------------------------------------------------

    \62\ 15 U.S.C. 78f.
    \63\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

    More specifically, the opening changes are intended to promote just 
and equitable principles of trade by seeking to execute as much 
interest as possible at the best possible price(s). The opening process 
maximizes price discovery and liquidity while employing price priority, 
which the Exchange believes is a fairer process on the opening when 
dealing with potentially different sources of interest, versus a single 
Complex Order triggering a COLA during the day's trading. Although the 
COOP operates differently than the COLA, the Exchange notes that the 
COOP operates like a traditional opening process, seeking to execute as 
much interest as possible, which is consistent with just and equitable 
principles of trade.
    The opening delay timer promotes just and equitable principles of 
trade by allowing options prices to stabilize after the options 
opening, before permitting Complex Orders to become available for 
trading. If a particular Complex Order Strategy is already open, the 
COOP does not occur, which is consistent with just and equitable 
principles of trade, because there is no need for an opening process. 
The Complex Order Opening Auction Notification is intended to attract 
interest to the opening process and encourage the opening of a Complex 
Order Strategy, like the COLA message is intended to attract interest 
to the COLA. Accordingly, the Complex Order Opening Auction 
Notification, which contains the opening price, imbalance, if any, and 
volume, promotes just and equitable principles of trade.
    The change to Rule 1080.07(d)(ii)(B)(3) enumerating that COOP 
responses are not visible promotes just and equitable principles of 
trade by making this clear to participants and because the temporary, 
quick nature of the COOP would not render this information useful. The 
Complex Order Opening Auction Notification is sufficient notification 
of the forthcoming opening of a particular Complex Order Strategy.
    The Exchange noted above that Complex Orders marked IOC do not 
participate in an auction that such order may trigger if that order 
would be the first order in that Complex Order Strategy, thereby 
opening that Strategy for the day. The Exchange does not believe that 
this raises regulatory issues, such as the potential for manipulation 
or abuse relating to the opening auction. The Exchange similarly treats 
non-Complex Orders marked IOC, in that such orders, if received prior 
to the opening in an option, are cancelled upon receipt. Thus, the fact 
that Complex Orders marked IOC do not participate in the opening 
auction does not raise new concerns for manipulation; today, if a 
participant enters a DAY or GTC order and then immediately cancels it, 
an auction will ensue without that order. Accordingly, the Exchange 
believes that its proposed handling of IOC orders should promote just 
and equitable principles of trade. Similarly, the proposal addresses 
how DNA orders are handled, which also promotes just and equitable 
principles of trade by providing an order type that involves immediate 
handling.
    The Exchange believes that COOP Sweeps, as described above, promote 
just and equitable principles of trade by providing an opportunity for 
a single sided quote to be entered by Phlx XL market makers responding 
to a COOP, much like opening sweeps in Rule 1017 and regular sweeps in 
Rule 1080. The Exchange does not believe it is unfairly discriminatory 
for COOP Sweeps to be available only to Phlx XL market makers, because 
the ability to enter two-sided quotes is also available only to Phlx XL 
market makers, who use a particular protocol to submit quotes and 
sweeps to the Exchange. Other Phlx XL participants can submit orders 
over the protocol specific to orders, specifically IOC orders, which 
behave in the same manner as a sweep. Accordingly, such other 
participants are not disadvantaged by the inability to submit sweeps, 
much like they are not disadvantaged by the inability to submit quotes 
or sweeps respecting non-Complex Orders.
    With respect to the provision in Rule 1080.07(d)(ii)(C)(3) that 
provides that a Complex Order Strategy will be open after a COOP even 
if no executions occur, the Exchange believes that this proposed 
language should promote just and equitable principles of trade by 
opening a Complex Order Strategy based on the fact that interest was 
received, regardless of whether the responsive interest resulted in an 
execution. In addition, it promotes just and equitable principles of 
trade for the rule to reflect this.
    With respect to any priority provisions addressed herein, the 
proposed treatment is similar to the Exchange's priority rule 
respecting orders other than Complex Orders, as well as the comparable 
rules of other

[[Page 36005]]

options exchanges.\64\ This includes allocating to the specialist based 
on all of his interest at a particular price pursuant to proposed Rule 
1080.07(e)(vi)(C), off-floor broker-dealer customer orders on a pro-
rata basis pursuant to proposed Rule 1080.07(e)(viii)(C)(1)(d), and to 
Phlx XL market makers and other non-customers each on a pro-rata basis 
pursuant to proposed Rule 1080.07(e)(viii)(C)(2)(d). The deletion of 
the 40% allocation promotes just and equitable principles of trade both 
by correcting the rule text as well as by rendering meaning to the 
reference to Rule 1014(g)(ii), which is otherwise pointless.
---------------------------------------------------------------------------

    \64\ See Phlx Rule 1014(g)(vii)(B)(1)(b). See also CBOE Rule 
6.53C(d)(v).
---------------------------------------------------------------------------

    The deletion of aggregating size only at the cPBBO in Rule 
1080.07(e)(vi)(C)(1) for purposes of determining the pro rata 
allocation promotes just and equitable principles of trade by taking 
into account all expressed interest (the specialist's COLA Sweep, SQT 
and RSQT COLA Sweeps and non-SQT ROT Complex Orders on the CBOOK) at 
each price instead of only at one price, the cPBBO. This should 
maximize the number of contracts executed, to the benefit of those 
participating in that Complex Order Strategy.
    The change to Rule 1080.07(e)(vi)(B) permitting responses for a 
size greater than the size of the COLA-eligible orders is consistent 
with just and equitable principles of trade, because it enables as many 
contracts as possible to trade, which is also consistent with 
protecting investors and the public interest. Restricting responses to 
the size of the COLA-eligible order serves no regulatory purpose and, 
instead, merely limits the number of contracts that can trade. 
Restricting responses to the size of the COLA-eligible order could also 
provide interest that has been submitted coincidentally, without 
intentionally responding to an auction, to have an unfair advantage 
since this interest would not be restricted to the size of the COLA-
eligible order.
    The Exchange believes a configurable end of day timer as proposed 
in Rule 1080.07(f)(i)(F) is consistent with just and equitable 
principles of trade, because it can be tailored to maximize the number 
of executions but is still limited to 600 seconds, as originally 
approved.
    The Exchange also believes that the proposed execution process in 
proposed Rule 1080.07(d)(ii)(C)(2) and (e)(viii)(C)(3) for crossing 
interest is consistent with just and equitable principles of trade, 
because it is based on the price of the larger sized interest, which 
affects more options contracts and is likely to result in more 
executions than the current rule provides, because the current rule is 
based on the mid-point, regardless of size.
    The reference to legging remaining interest in these same 
subparagraphs promotes just and equitable principles of trade by 
providing an opportunity for additional Complex Orders to trade. The 
additional executions would be expected by users who expressed an 
interest to trade by submitting their interest; their expression of 
interest is not limited to the COLA-eligible order but rather to the 
Complex Order Strategy as a whole.
    In addition, this proposal is not unfairly discriminatory, 
including to the new category of Firm orders, because it proposes to 
deal with Complex Orders and responsive interest in a reasonable way. 
As explained above, it is not uncommon to have certain order types and 
time-in-force conditions available only to certain participant types, 
both on the Exchange \65\ as well as other exchanges.\66\ Indeed, the 
Exchange's pricing schedule has long distinguished Firms from other 
broker-dealers.\67\ The Exchange believes that certain order types and 
time-in-force conditions, if made available, would likely not be used 
by certain market participants, because of the particular trading style 
of those participants. For example, Phlx XL market makers are not 
permitted to send in GTC orders; the Exchange does not believe that 
Phlx XL market makers would be interested in submitting GTC orders, as 
they generally participate in the marketplace using electronic 
quotations, which are updated and replaced frequently, unlike GTC 
orders.
---------------------------------------------------------------------------

    \65\ See Phlx Rule 1080(b).
    \66\ See CBOE Rule 6.53C(d)(iii).
    \67\ See supra note 53.
---------------------------------------------------------------------------

    Similarly, the Exchange believes that Firms do not expect or need 
their Complex Orders to trigger a COLA nor to submit GTC orders, 
because these are features commonly associated with customers rather 
than liquidity providers who function to accommodate trading interest. 
Both of these features involve a temporal component; both a delay and 
long-lasting interest are inconsistent with the sort of accommodation 
that Firms provide. Firms are interested in trading in a manner that 
offers liquidity to their customers. Accordingly, the Exchange believes 
that by tailoring its offerings to the needs and trading style of 
Firms, Firms are more likely to send orders to the Exchange, which 
should increase order interaction with other market participants, 
consistent with promoting just and equitable principles of trade.
    The Exchange believes that its proposal to accept all-or-none 
Complex Orders should promote just and equitable principles of trade by 
offering this order type, commonly available for non-Complex Orders as 
well as complex orders on other options exchanges, to market 
participants, who may want a certain minimum size. This contingency is 
particularly appropriate respecting Complex Orders, because of the 
complexity of the strategies employed by users; the size of the order 
may be relevant to such strategy. The Exchange believes that its 
proposal to not leg all-or-none Complex Orders promotes just and 
equitable principles of trade, because the all-or-none contingency 
complicates the execution of such orders expeditiously against the 
individual components of such orders; the Exchange does not believe 
that users would expect such orders to leg, as all-or-none orders are 
often treated differently than other orders because of the nature of 
that contingency.\68\
---------------------------------------------------------------------------

    \68\ See e.g., Options Floor Advice A-9.
---------------------------------------------------------------------------

    The Exchange believes that its proposal to amend 1080.07(b)(iii) to 
specify in more detail that Floor Brokers can only accept IOC Complex 
Orders from SQTs, RSQTs, non-SQT ROTs, specialists, non-Phlx market 
makers on another exchange and Firms is merely replacing vague terms 
(broker-dealers or affiliates of broker-dealers) to more precise ones 
that are linked to definitions within the rule. Using defined terms 
should promote just and equitable principles of trade.
    The Exchange believes that deleting reference in Rule 
1080.07(d)(ii)(A)(2) to disengaging the automated execution system and 
the Phlx XL Risk Monitor Mechanism clarifies that the COOP Timer 
nevertheless occurs in these situations. The COOP Timer facilitates 
price discovery and opening interest in a Complex Order Strategy, which 
should, in turn, promote just and equitable principles of trade.
    The Exchange believes that specifying in more detail that Complex 
Orders received prior to the COOP Timer and Complex Orders received 
during the COOP Timer (other than COOP Sweeps and Complex Order 
Responses marked as a response) are visible to Phlx XL participants 
upon receipt should promote just and equitable principles of trade by 
further attracting additional interest in a particular Complex Order 
Strategy.

[[Page 36006]]

(B) Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange 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. 
Specifically, the proposal does not impose an intra-market burden on 
competition, because these changes make the rule clearer and more 
complete for all participants. Nor will the proposal impose a burden on 
competition among the options exchanges, because of the vigorous 
competition for order flow among the options exchanges. To the extent 
that market participants disagree with the particular approach taken by 
the Exchange herein, market participants can easily and readily direct 
complex order flow to competing venues.

(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 up to 90 days of such date if it finds such longer period to 
be appropriate and publishes its reasons for so finding or (ii) as to 
which the Exchange consents, the Commission will: (a) By order approve 
or disapprove such 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/sro.shtml); or
     Send an email to [email protected]. Please include 
File Number SR-Phlx-2015-49 on the subject line.

Paper Comments

     Send paper comments in triplicate to Brent J. Fields, 
Secretary, Securities and Exchange Commission, 100 F Street NE., 
Washington, DC 20549-1090.

All submissions should refer to File Number SR-Phlx-2015-49. 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 the filing will also 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-2015-49 and should be 
submitted on or before July 14, 2015.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\69\
---------------------------------------------------------------------------

    \69\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Brent J. Fields,
Secretary.
[FR Doc. 2015-15339 Filed 6-22-15; 8:45 am]
BILLING CODE 8011-01-P



                                                                                    Federal Register / Vol. 80, No. 120 / Tuesday, June 23, 2015 / Notices                                                        35997

                                                  SECURITIES AND EXCHANGE                                    Complex Orders on the Exchange. The                      other same-side orders. Instead, such
                                                  COMMISSION                                                 Exchange’s Complex Order System                          order would have been considered for
                                                                                                             (‘‘System’’), which is governed by Rule                  execution alongside other same-priced
                                                  [Release No. 34–75189; File No. SR–Phlx–
                                                  2015–49]
                                                                                                             1080.07 includes an opening process                      same-side orders received in the same
                                                                                                             called the Complex Order Opening                         Complex Order Strategy, both before
                                                  Self-Regulatory Organizations;                             Process or ‘‘COOP,’’ the Complex Order                   and during the COOP, consistent with a
                                                  NASDAQ OMX PHLX LLC; Notice of                             Live Auction (‘‘COLA’’), an automated                    normal opening process. Specifically,
                                                  Filing of Proposed Rule Change to                          auction for seeking additional liquidity                 for each Complex Order Strategy, the
                                                  Rule 1080.07                                               and price improvement for Complex                        System will take into consideration all
                                                                                                             Orders, and a Complex Limit Order                        Complex Orders, identify the price at
                                                  June 17, 2015.                                             book, the CBOOK.                                         which the maximum number of
                                                     Pursuant to Section 19(b)(1) of the                        Except for the time period referred to                contracts can trade and calculate the
                                                  Securities Exchange Act of 1934 (the                       in Rule 1080.07(f)(i)(F) and the                         imbalance, if any, as follows:
                                                  ‘‘Act’’),1 and Rule 19b–4 thereunder,2                     acceptance and treatment of all-or-none
                                                  notice is hereby given that on June 5,                                                                                 • Pursuant to existing Rule
                                                                                                             orders (both of which are discussed
                                                  2015, NASDAQ OMX PHLX LLC                                                                                           1080.07(d)(i), the System will accept
                                                                                                             below), the Exchange proposes to
                                                  (‘‘Phlx’’ or ‘‘Exchange’’) filed with the                                                                           pre-opening Complex Orders, and will
                                                                                                             correct several inconsistencies between
                                                  Securities and Exchange Commission                                                                                  accept Complex Orders prior to re-
                                                                                                             the existing Complex Orders rule, Rule
                                                  (‘‘Commission’’) the proposed rule                                                                                  opening following a halt in trading on
                                                                                                             1080.07, and the operation of the
                                                  change as described in Items I, II, and                    Complex Orders System today.                             the Exchange. Complex Orders received
                                                  III below, which Items have been                                                                                    prior to the opening or during a trading
                                                  prepared by the Exchange. The                              Opening Inconsistencies                                  halt will reside on the CBOOK (as
                                                  Commission is publishing this notice to                       First, the Exchange proposes to                       defined above). There will be one such
                                                  solicit comments on the proposed rule                      amend the rule text applicable to its                    COOP per Complex Order Strategy.
                                                  change from interested persons.                            opening process. Specifically, Rule                      These provisions are not changing.
                                                  I. Self-Regulatory Organization’s                          1080.07(d) currently provides for                           • Rule 1080.07(d)(ii) will be amended
                                                  Statement of the Terms of Substance of                     performing a COOP Evaluation in order                    to add reference to a timer. Specifically,
                                                  the Proposed Rule Change                                   to identify a COLA-eligible order and                    new rule text will provide that once
                                                                                                             then operating an auction respecting                     trading in each option component of a
                                                     The Exchange proposes to amend and                      that order, similar to the way the COLA                  Complex Order Strategy has opened (or
                                                  correct Rule 1080.07 in a number of                        operates.3 The Exchange proposes to                      re-opened following a trading halt) for a
                                                  ways, as described further below.                          amend Rule 1080.07(d) to reflect that
                                                     The text of the proposed rule change                                                                             certain configurable time not to exceed
                                                                                                             the System operates the opening auction                  60 seconds 7 (and none of the conditions
                                                  is available on the Exchange’s Web site
                                                                                                             process for Complex Orders differently                   described in Rule 1080.07(c)(ii) exist),8
                                                  at http://
                                                                                                             than the COLA.4 Specifically, the COOP                   the System will initiate the COOP,
                                                  nasdaqomxphlx.cchwallstreet.com, at
                                                                                                             identifies a price at which the maximum                  provided that a COOP will only be
                                                  the principal office of the Exchange, and
                                                                                                             number of contracts can trade on the                     conducted for any Complex Order
                                                  at the Commission’s Public Reference
                                                                                                             opening based on interest received in                    Strategy that has a Complex Order
                                                  Room.
                                                                                                             the Complex Order Strategy.5 Thus, the                   received before the opening 9 of that
                                                  II. Self-Regulatory Organization’s                         COOP operates like a traditional                         Complex Order Strategy. The Exchange
                                                  Statement of the Purpose of, and                           opening process for non-Complex                          is proposing to add new rule text to
                                                  Statutory Basis for, the Proposed Rule                     Orders (meaning, single leg orders),                     provide that the Exchange will not
                                                  Change                                                     considering buys and sells, taking all                   conduct a COOP when a particular
                                                     In its filing with the Commission, the                  interest into account (without bias                      Complex Order Strategy is already open
                                                  Exchange included statements                               toward any participant) to determine                     as a result of another electronic auction
                                                  concerning the purpose of and basis for                    which interest is executable and                         process, such as PIXL pursuant to Rule
                                                  the proposed rule change and discussed                     identifying any imbalance.6                              1080(n) or the Exchange’s Solicitation
                                                  any comments it received on the                               Despite the current rule text, a                      mechanism or if another electronic
                                                  proposed rule change. The text of these                    Complex Order on the opening would                       auction involving the same Complex
                                                  statements may be examined at the                          not have been designated as the COLA-
                                                  places specified in Item IV below. The                     eligible Order with priority over all                       7 This is known as the opening delay timer, which

                                                  Exchange has prepared summaries, set                         3 The COLA is an auction intended to solicit
                                                                                                                                                                      is intended to allow a brief period of time for the
                                                  forth in Sections A, B, and C below, of                                                                             prices for the various series of an option to stabilize
                                                                                                             interest in a particular Complex Order other than        after the opening of those series.
                                                  the most significant parts of such                         on the opening. See Rule 1080.07(e).                        8 These include: the Complex Order is received
                                                  statements.                                                  4 The rule provides that the System determines
                                                                                                                                                                      prior to the opening on the Exchange of any options
                                                                                                             which Complex Order, if any, on the CBOOK will           component of the Complex Order; during an
                                                  (A) Self-Regulatory Organization’s                         be the ‘‘COLA-eligible order’’ subject to a COLA.        opening rotation for any options component of the
                                                  Statement of the Purpose of, and                           This is not correct.                                     Complex Order; during a trading halt for any
                                                  Statutory Basis for, the Proposed Rule                       5 A Complex Order Strategy means a particular          options component of the Complex Order; when the
                                                  Change                                                     combination of components of a Complex Order             Exchange’s Risk Monitor Mechanism is engaged for
                                                                                                             and their ratios to one another. The Exchange will       any options component of the Complex Order that
                                                  1. Purpose                                                 calculate both a bid price and an offer price for each   represents all of the PBBO pursuant to Rule 1093;
mstockstill on DSK4VPTVN1PROD with NOTICES




                                                                                                             Complex Order Strategy based on the current PBBO         or when the Exchange’s market for any options
                                                     The purpose of the proposal is to                       (as defined below) for each component of the             component of the Complex Order is disseminated
                                                  amend and correct certain rule text and                    Complex Order. Each Complex Order Strategy will          pursuant to Rule 1082(a)(ii)(B).
                                                  provide additional clarity to Phlx                         be assigned a strategy identifier by the System. See        9 Currently, the Rule provides that the COOP is
                                                                                                             Rule 1080.07(a)(ii).                                     conducted if a Complex Order is pending at the
                                                  Participants regarding the trading of                        6 An imbalance is the number of contracts that         opening or re-opening. However, such Complex
                                                                                                             cannot be matched with other interest at a               Order may no longer be pending (perhaps it was
                                                    1 15   U.S.C. 78s(b)(1).                                 particular price. See e.g. NOM Chapter VI, Section       canceled), such that a COOP is actually triggered by
                                                    2 17   CFR 240.19b–4.                                    8(a)(1).                                                 receipt of the order.



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                                                  35998                          Federal Register / Vol. 80, No. 120 / Tuesday, June 23, 2015 / Notices

                                                  Order Strategy is in progress.10 If that                opening Complex Order trading when                     trade against other responding interest.
                                                  Complex Order Strategy is already open,                 either: (a) The Exchange’s automated                   In fact, today, if an order that is not an
                                                  a COOP is not needed and will not                       execution system was disengaged and                    IOC order (like a Day order) initiates a
                                                  occur.                                                  subsequently re-engaged, or (b) the Phlx               COOP and then is cancelled by the
                                                     • The Exchange is also proposing to                  XL Risk Monitor Mechanism was                          entering participant before the end of
                                                  add to Rule 1080.07(d)(ii) that following               engaged and subsequently disengaged. It                the COOP, responsive interest can
                                                  a trading halt, a COOP will be                          further provides that, instead, the                    nevertheless trade.
                                                  conducted for any Complex Order                         System will immediately begin the                         IOC and DNA orders are handled
                                                  Strategy where a Complex Order was                      COOP Evaluation and will not initiate                  differently when received during a
                                                  received before or during a trading halt                the COOP Timer. This provision is                      COOP. IOC Complex Orders received
                                                  or that Complex Order Strategy had                      incorrect and obsolete because the                     during a COOP will join the COOP and
                                                  previously opened prior to the trading                  Exchange does not and cannot                           be treated like any other Complex
                                                  halt.                                                   disengage its automatic execution                      Order, except such orders will be
                                                     • The COOP will be conducted in two                  system; automatic execution is a                       cancelled at the end of the COOP Timer
                                                  phases, the ‘‘COOP Timer’’ (as defined                  fundamental aspect of the System. With                 if not executed. This is intended to try
                                                  below) and the ‘‘COOP Evaluation’’                      respect to the Risk Monitor Mechanism,                 to execute the order, because the order
                                                  (also defined below). A COOP can be                     its operation has no impact on the                     may be responding to the Complex
                                                  occurring at the same time in different                 COOP Timer.                                            Order Opening Auction Notification.
                                                  Complex Order Strategies.                                  The Exchange proposes to amend                      The Exchange notes that IOC Complex
                                                     • To add specificity, the Exchange is                Rule 1080.07(d)(ii)(A)(4) to specify in                Orders are handled similarly in the
                                                  proposing to add to Rule                                more detail that Complex Orders                        Exchange’s PIXL system for similar
                                                  1080.07(d)(ii)(A)(1) that the Exchange                  received prior to the COOP Timer and                   reasons; 16 that is, an attempt is made to
                                                  will send a broadcast message                           Complex Orders received during the                     execute the IOC Complex PIXL order,
                                                  indicating that a COOP has been                         COOP Timer (other than COOP Sweeps                     and therefore there is a delay in
                                                  initiated. The broadcast message will                   and Complex Order Responses marked                     executing the order, even though it is
                                                  identify the Complex Order Strategy,11                  as a response) will be visible to Phlx XL              marked IOC. Accordingly, the Exchange
                                                  the opening price (based on the                         participants upon receipt.                             does not believe that participants will
                                                  maximum number of contracts that can                                                                           be surprised about this handling.
                                                  be executed at one particular price,                    Opening—Immediate-or-Cancel Orders                        The Exchange also notes that
                                                  except if there is no price at which any                and DNA Orders                                         participants who want their order
                                                  orders can be executed), and the                           Currently, Complex Orders marked as                 handled in a more immediate way
                                                  imbalance side and volume, if any. This                 Immediate-or-Cancel (‘‘IOC’’) 13 and Do                during a COOP can submit a DNA order,
                                                  broadcast message is called the Complex                 Not Auction (‘‘DNA’’) 14 can be                        which would not join a COOP that is in
                                                  Order Opening Auction Notification and                  submitted. The Exchange proposes to                    progress and instead be cancelled right
                                                  is sent over an order feed, PHLX Orders,                adopt into Rule 1080.07(d)(ii)(A)(5) how               away, because that would involve a
                                                  which contains Complex Order                            both IOC and DNA orders are handled                    delay. Consistent with the rule language
                                                  information, as well as over the                        on the opening. Complex Orders marked                  that DNA Orders are cancelled if not
                                                  Specialized Quote Feed (‘‘SQF’’).12                     as IOC or DNA received before the                      immediately executed,17 DNA Orders
                                                     • Pursuant to Rule                                   COOP is initiated will be cancelled and                do not participate in a COOP.
                                                  1080.07(d)(ii)(A)(1), the Complex Order                 will not participate in the COOP;                      Opening—Responses During COOP
                                                  Opening Auction Notification starts a                   however, a COOP will nevertheless                      Timer
                                                  COOP Timer, which will begin counting                   occur in that Complex Order Strategy.
                                                  a number of seconds during which the                                                                              Pursuant to proposed Rule
                                                                                                          The Exchange believes that it is                       1080.07(d)(ii)(B), Phlx XL participants 18
                                                  Complex Order, if any, may not be                       appropriate for the COOP to occur even
                                                  traded. The COOP Timer is configurable                                                                         may bid and/or offer on either or both
                                                                                                          though the IOC or DNA order that                       side(s) of the market during the COOP
                                                  to a period ranging from 0 to 600                       triggered it is cancelled,15 because the
                                                  seconds as determined by the Exchange                                                                          Timer by submitting one or more
                                                                                                          opening process is intended to open key                Complex Orders (‘‘Complex Order
                                                  and communicated to Exchange                            strategies in which participants are
                                                  membership on the Exchange’s Web                                                                               Response’’). In addition, Phlx XL market
                                                                                                          interested. From a system perspective                  makers 19 may also bid and/or offer on
                                                  site. The COOP Timer will be                            and as a practical matter, not every
                                                  configured for the same number of                                                                              either or both side(s) of the market
                                                                                                          Complex Order Strategy can be opened
                                                  seconds for all options trading on the                  each day, as there are millions of                        16 See Phlx Rule 1080(n) governing PIXL; the
                                                  Exchange. During the COOP Timer, Phlx                   possible permutations, based on the                    Exchange notes that this provision does not
                                                  XL Participants can submit responses to                 number of options and option series                    expressly describe how IOC orders are handled.
                                                  the Complex Order Opening Auction                       available for trading today. This way,
                                                                                                                                                                    17 See Phlx Rule 1080.07(a)(viii)(B).

                                                  Notification pursuant to subparagraph                   the System can focus on the Complex
                                                                                                                                                                    18 This term is currently defined in Rule

                                                  (B).                                                                                                           1080.07(a)(vii) as Streaming Quote Traders
                                                                                                          Order Strategies that attract interest and             (‘‘SQTs’’), Remote Streaming Quote Traders
                                                     The Exchange is proposing to delete
                                                                                                          prepare to open those, making them                     (‘‘RSQTs’’), non-SQT Registered Options Traders
                                                  Rule 1080.07(d)(ii)(A)(2), which                                                                               (‘‘non-SQT ROTs’’), specialists and non-Phlx
                                                                                                          available for trading on a particular day.
                                                  currently provides that the System will                                                                        market makers on another exchange; non-broker-
                                                                                                             The Exchange believes it is                         dealer customers and non-market-maker off-floor
                                                  not engage the COOP Timer upon re-
                                                                                                          appropriate for the COOP to occur,                     broker-dealers; and Floor Brokers using the Options
mstockstill on DSK4VPTVN1PROD with NOTICES




                                                    10 See
                                                                                                          because responsive interest on both                    Floor Broker Management System. Once amended
                                                          SR–Phlx–2014–66.                                                                                       to include Firms (as proposed herein), this term
                                                    11 Each Complex Order Strategy has an identifier.
                                                                                                          sides of the market can nevertheless
                                                                                                                                                                 will cover all potential users of the Complex Orders
                                                  See Rule 1080.07(a)(ii).                                                                                       system.
                                                    12 Securities Exchange Act Release Nos. 60877           13 See Rule 1080.07(b)(i)–(iii).                        19 This is a new term that the Exchange believes
                                                                                                            14 See Rule 1080.07(a)(viii).
                                                  (October 26, 2009), 74 FR 56255 (October 30, 2009)                                                             will help distinguish Phlx XL market makers
                                                  (SR–Phlx–2009–92) and 66993 (May 15, 2012), 77            15 A Complex Order Opening Auction                   (which include specialists, SQTs and RSQTs) from
                                                  FR 30043 (May 21, 2012) (SR–Phlx–2012–63)               Notification is sent with a price and size of zero,    other types of Phlx participants. See proposed Rule
                                                  (addressing TOPO Plus Orders/PHLX Orders).              and a buy side.                                        1080.07(a)(vii).



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                                                                                 Federal Register / Vol. 80, No. 120 / Tuesday, June 23, 2015 / Notices                                                    35999

                                                  during the COOP Timer by submitting                     including for priority purposes.23                     particular Complex Order Strategy, the
                                                  one or more COOP Sweeps. The                            Furthermore, there is no timing                        price at which the maximum number of
                                                  Exchange is proposing to codify COOP                    advantage of submitting a COOP Sweep                   contracts can trade, taking into account
                                                  Sweeps in Rule 1080.07(d)(ii)(B). COOP                  versus a Complex Order (whether for a                  Complex Orders marked all-or-none,
                                                  Sweeps are one-sided and always have                    Phlx XL market maker or not), because                  unless the maximum number of
                                                  a limit price. Like COLA Sweeps, COOP                   none of the interest is processed until                contracts can only trade without
                                                  Sweeps can only be entered by Phlx XL                   after the COOP Timer ends and all Phlx                 including all-or-none orders.28 The
                                                  market makers, participants who quote                   XL market maker interest is executed on                Exchange will open at that price,
                                                  electronically as market makers for their               a pro-rata basis, not in time priority.                executing marketable trading interest, in
                                                  own account (SQTs, RSQTs and                            Conversely, there is no disadvantage to                the following order: First, to non-broker-
                                                  specialists). Because non-SQT ROTs do                   non-Phlx XL market makers that they                    dealer customers in time priority; next
                                                  not quote electronically, they cannot                   cannot submit a COOP Sweep, just like                  to Phlx XL market makers on a pro-rata
                                                  enter COOP Sweeps or COLA Sweeps,                       there is no such disadvantage that such                basis; and then to all other participants
                                                  which are electronic.20 Specifically, a                 participants cannot submit a quote. By                 on a pro-rata basis.29 The imbalance of
                                                  COOP Sweep is a one-sided electronic                    definition, Phlx XL market makers                      Complex Orders that are unexecutable
                                                  quotation for execution against opening                 submit, and are obligated to submit,                   at that price are placed on the CBOOK.
                                                  trading interest in a particular Complex                quotes; this is the core distinction                      The following examples illustrate the
                                                  Order Strategy; this definition is                      between market makers and other                        handling of an all-or-none order on the
                                                  proposed to be added to the rule text.21                market participants.                                   opening.
                                                     The Exchange believes it is                             A Phlx XL market maker may submit                     Example 1:
                                                  appropriate to permit Phlx XL market                    multiple COOP Sweeps at different                      Complex Order #1: Buy 40 for $1.05 AON
                                                  makers to submit COOP Sweeps, in                        prices (but not multiple COOP Sweeps                     customer
                                                  addition to Complex Orders, for several                 at the same price, except as provided in               Complex Order #2: Buy 30 for $1.05
                                                  reasons. Today, Phlx XL market makers                   sub-paragraph (2)), in increments of                     customer
                                                  are the only participants who can                       $0.01 in response to a Complex Order                   Complex Order #3: Buy 20 for $1.05
                                                                                                          Opening Auction Notification,                            customer
                                                  submit quotes, sweeps of non-Complex                                                                           Complex Order #4: Sell 50 at $1.04 AON
                                                  Orders, COLA Sweeps and COOP                            regardless of the minimum trading
                                                                                                                                                                   customer
                                                  Sweeps (‘‘Sweeps’’).22 All of these,                    increment applicable to the specific
                                                  including COOP Sweeps, are submitted                    series.24                                                The result is that Complex Order #4
                                                  over the Specialized Quote Feed, SQF,                      In addition, Phlx XL market makers                  will trade against the full size of
                                                  which is a method of submitting quoting                 may change the size of a previously                    Complex Order #1 (because it was first)
                                                  information and receiving information                   submitted COOP Sweep during the                        and 10 contracts of Complex Order #2.
                                                  back about those quotes and Sweeps.                     COOP Timer. The System will use the                      Example 2:
                                                  Quotes and Sweeps can only be                           Phlx XL market maker’s most recently                   Complex Order #1: Buy 40 for $1.05 AON
                                                  submitted over SQF, the quoting                         submitted COOP Sweep at each price                       customer
                                                  protocol, because this protocol is                      level as that market maker’s response at               Complex Order #2: Buy 30 for $1.05
                                                                                                          that price level, unless the COOP Sweep                  customer
                                                  designed to handle quotes and Sweeps.
                                                                                                          has a size of zero. A COOP Sweep with                  Complex Order #3: Buy 20 for $1.05
                                                  Some Phlx XL market makers choose to                                                                             customer
                                                  submit their interest in the form of a                  a size of zero will remove a Phlx XL
                                                                                                          market maker’s COOP Sweep from that                    Complex Order #4: Sell 20 at $1.04 AON
                                                  Complex Order, which is submitted                                                                                customer
                                                  through a different interface than SQF                  COOP at that price level.25 COOP
                                                  and is geared toward the submission of                  Sweeps will not be visible to any                        The result is that Complex Order #4
                                                  orders (rather than quotes) to the                      participant and will not be disseminated               will trade against 20 contracts of
                                                  Exchange. The Exchange developed                        by the Exchange.26 This is because                     Complex Order #2 since the all-or-none
                                                  Sweeps in order for Phlx XL market                      COOP Sweeps are only available to                      contingency of Order #1 cannot be
                                                  makers to be able to expeditiously                      trade during the COOP and will expire                  satisfied.
                                                  submit one-sided responsive interest                    if unexecuted at the end of the COOP                     Opening—No trade possible. If at the
                                                  without having to enter an order, which                 Timer once all executions are complete.                end of the COOP Timer the System
                                                  involves an entirely different protocol                 Similarly, Complex Order Responses are                 determines that no market or marketable
                                                  and method of entry; this was intended                  not visible if marked as a response. A                 limit Complex Orders or COOP Sweeps,
                                                  to encourage Phlx XL market makers to                   Complex Order Response will expire if                  Complex Orders or COOP Sweeps that
                                                  submit responsive interest while                        unexecuted at the end of the COOP                      are equal to or improve the cPBBO,30
                                                  managing risk, utilizing a single                       Timer once all executions are complete,
                                                                                                                                                                    28 The Exchange stopped accepting all-or-none
                                                  protocol, which should promote just                     but a Complex Order submitted during
                                                                                                                                                                 Complex Orders on March 17, 2014 in order to align
                                                  and equitable principles of trade.                      the COOP Timer which is not marked as                  the System with the rule. The Exchange has
                                                                                                          a response will be available to be traded              incorporated a definition of all-or-none orders in
                                                     There is no advantage to submitting a
                                                                                                          after the opening of a Complex Order                   Securities Exchange Act Release No. 72351 (June 9,
                                                  COOP Sweep versus a Complex Order;                                                                             2014), 79 FR 33977 (June 13, 2014) (SR–Phlx–2014–
                                                                                                          Strategy unless it is marked IOC.
                                                  Phlx XL market maker interest is                                                                               39). Now, the Exchange proposes to begin accepting
                                                  handled the same once it is submitted                   Opening—COOP Evaluation                                them again and explain how they are handled,
                                                  regardless of how it is submitted,                                                                             including how they are treated on the opening and
                                                                                                            Upon expiration of the COOP                          that they do not leg. See Rule 1080.07(d)(ii)(C),
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                                                                                                          Timer,27 the System will conduct a                     (e)(vi)(A)(1) and (f)(iii)(A).
                                                    20 See Rule 1014(b)(ii)(C) and Rule 1080.07(e)(ix).                                                             29 This is consistent with the Exchange’s normal
                                                                                                          COOP Evaluation to determine, for a
                                                    21 This definition parallels the definition of an                                                            priority allocation process. See e.g., Rule
                                                  opening sweep in Rule 1017(l)(vii)(A).                    23 See
                                                                                                                                                                 1080.07(e)(vi)(B) and Rule 1014(g)(vii).
                                                    22 Although Rule 1080.07(e)(iv) states that Phlx               e.g., proposed Rule 1080.07(d)(ii)(C).           30 The term ‘‘cPBBO’’ means the best net debit or
                                                                                                            24 See proposed Rule 1080.07(d)(ii)(B)(1).
                                                  XL participants can submit COLA Sweeps, this is                                                                credit price for a Complex Order Strategy based on
                                                                                                            25 See Rule 1080.07(d)(ii)(B)(2).
                                                  not correct. Only Phlx XL market makers can                                                                    the Phlx Best Bid and/or Offer (‘‘PBBO’’) for the
                                                                                                            26 See Rule 1080.07(d)(ii)(B)(3).
                                                  submit COLA Sweeps. The Exchange proposes to                                                                   individual options components of such Complex
                                                  correct this in Rule 1080.07(a)(vii) and (e)(iv).         27 See Rule 1080.07(d)(ii)(C).                                                                  Continued




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                                                  36000                          Federal Register / Vol. 80, No. 120 / Tuesday, June 23, 2015 / Notices

                                                  and/or Complex Orders or COOP                           System affords priority to customers on                executable bid price of $3.77, rounded
                                                  Sweeps that cross within the cPBBO                      the opening as well. Executable bids/                  up to the closest minimum trading
                                                  exist in the System, all Complex Orders                 offers include any interest which could                increment. In this example, 40 strategies
                                                  received during the COOP Timer will be                  be executed without trading through                    can be opened at multiple price points
                                                  placed on the CBOOK, as described in                    residual interest or the cPBBO, or                     ranging from $3.74 up to $3.77. None of
                                                  Rule 1080.07(f). This is because,                       without trading at the cPBBO where                     these potential opening prices will
                                                  without an opening execution possible                   there is non-broker-dealer customer                    cause the unexecuted $3.74 buy order to
                                                  based on the prices of orders and COOP                  interest. This is consistent with Rule                 be available at a price which crosses the
                                                  Sweeps in a particular strategy, such                   1080.07(c)(iii).                                       opening price, therefore, the System
                                                  Complex Orders shall rest on the                           To illustrate ‘‘if such interest crosses            opens at the midpoint of such prices,
                                                  CBOOK for potential execution later                     and does not match in size, the                        $3.76.
                                                  while COOP Sweeps expire.                               execution price is based on the highest                   If the example were changed slightly
                                                     Opening—Trade is possible. If at the                 (lowest) executable offer (bid) price                  such that Complex Order #1 and
                                                  end of the COOP Timer the System                        when the larger sized interest is offering             Complex Order #2 were market orders
                                                  determines that there are market or                     (bidding)’’ as referenced above, assume                instead of a limit orders, the COOP
                                                  marketable limit Complex Orders or                      the following is present at the end the                Opening execution price for the 40
                                                  COOP Sweeps, Complex Orders or                          COOP Timer for a given Complex Order                   strategies would be $3.82, which is the
                                                  COOP Sweeps that are equal to or                        Strategy:                                              midpoint of the potential opening prices
                                                  improve the cPBBO, and/or Complex                       cPBBO = 3.50 (10)–3.90 (10)                            ranging from $3.74 to $3.90.
                                                  Orders or COOP Sweeps that cross                        Complex Order #1: Buy 30 for $3.79                        To illustrate ‘‘if the crossing interest is
                                                  within the cPBBO in the Phlx XL                         Complex Order #2: Sell 20 at $3.56                     equal in size, the execution price is the
                                                  System, the System will do the                             COOP Opening execution will be for                  midpoint of lowest executable bid price
                                                  following: If such interest crosses and                 20 strategies at a price of $3.79 because              and the highest executable offer price,
                                                  does not match in size, the execution                                                                          rounded, if necessary, up to the closest
                                                                                                          there were more contracts to buy than
                                                  price is based on the highest (lowest)                                                                         minimum trading increment’’ as
                                                                                                          there were to sell. In this example,
                                                  executable offer (bid) price when the                                                                          referenced above, assume the following
                                                                                                          while there are multiple price points at
                                                  larger sized interest is offering (bidding),                                                                   is present at the end the COOP Timer
                                                                                                          which the System can open the same
                                                  provided, however, that if there is more                                                                       for a given Complex Order Strategy:
                                                                                                          number of contracts, there is only one
                                                  than one price at which the interest may                                                                       cPBBO = 3.50 (10)–3.90 (10)
                                                                                                          price point, $3.79, at which there will
                                                  execute, the execution price when the                                                                          Complex Order #1: Buy 10 for $3.78
                                                                                                          be no residual contracts available after
                                                  larger sized interest is offering (bidding)                                                                    Complex Order #2: Buy 20 for $3.74
                                                                                                          the opening process at a price which
                                                  is the midpoint of the highest (lowest)                                                                        Complex Order #3: Buy 10 at $3.71
                                                                                                          crosses the opening price. After the
                                                  executable offer (bid) price and the next                                                                      Complex Order #4: Sell 20 at $3.64
                                                  available executable offer (bid) price                  System executes 20 strategies at $3.79,
                                                                                                          there will remain 10 unexecuted                        Complex Order #5: Sell 20 at $3.66
                                                  rounded, if necessary, down (up) to the
                                                                                                          strategies to buy for $3.79.                              COOP Opening execution will be for
                                                  closest minimum trading increment.31 If
                                                                                                             If the example were changed slightly                40 strategies at a price of $3.69. The
                                                  the crossing interest is equal in size, the
                                                                                                          such that Complex Order #1 was a                       execution price of $3.69 is derived from
                                                  execution price is the midpoint of
                                                                                                          market order instead of a limit order, the             the midpoint of the lowest executable
                                                  lowest executable bid price and the
                                                  highest executable offer price, rounded,                market order is limited by the cPBBO                   bid price of $3.71 and the highest
                                                  if necessary, up to the closest minimum                 assuming no customer interest is                       executable offer price of $3.66, rounded
                                                  trading increment. This process                         present, and the COOP execution price                  up to the closest minimum trading
                                                  maximizes the interest which is traded                  for 20 strategies would be $3.90. The                  increment. If the example were changed
                                                  during the opening process and delivers                 remaining 10 strategies of Complex                     slightly such that Complex Order #4 and
                                                  a rational price for the available interest             Order #1 will then leg to the simple                   Complex Order #5 were market orders
                                                  on the opening. The opening price logic                 market at $3.90.                                       rather than limit orders, the COOP
                                                  maximizes the number of contracts                          To illustrate ‘‘if there is more than one           Opening execution price for the 40
                                                  executed during the opening process                     price at which the interest may execute,               strategies would be $3.61, which is
                                                  and ensures that residual contracts of                  the execution price when the larger                    derived from the midpoint of the lowest
                                                  partially executed orders or quotes are                 sized interest is offering (bidding) is the            executable bid price of $3.71 and the
                                                  at a price equal to or inferior to the                  midpoint of the highest (lowest)                       highest executable offer of $3.50,
                                                  opening price, in other words, the logic                executable offer (bid) price and the next              rounded to the closest minimum trading
                                                  ensures there is no remaining                           available executable offer (bid) price                 increment.
                                                  unexecuted interest available at a price                rounded, if necessary, down (up) to the                   To illustrate the application of the
                                                  which crosses the opening price. If                     closest minimum trading increment’’ as                 Acceptable Complex Execution (ACE)
                                                  multiple prices exist that ensure that                  referenced above, assume the following                 parameter as defined in Rule 1080.07(i),
                                                  there is no remaining unexecuted                        is present at the end the COOP Timer                   assume the following is present at the
                                                  interest available through such price(s),               for a given Complex Order Strategy:                    end the COOP Timer for a given
                                                  the opening logic chooses the midpoint                  cPBBO = 3.50 (10)–3.90 (10)                            Complex Order Strategy:
                                                  of such price points.                                   Complex Order #1: Buy 20 for $3.79                     ACE Parameter of $0.05
                                                     In determining the execution price                   Complex Order #2: Buy 20 for $3.77                     cPBBO = 3.50 (10)–4.00 (10)
                                                                                                          Complex Order #3: Buy 20 at $3.74
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                                                  and which interest will trade, the                                                                             cNBBO = 3.70 (10)–3.90 (10)
                                                                                                          Complex Order #4: Sell 20 at $3.60                     Complex Order #1: Buy 10 for $3.78
                                                  Order Strategy, and, where the underlying security      Complex Order #5: Sell 20 at $3.62                     Complex Order #2: Buy 20 for $3.74
                                                  is a component of the Complex Order, the National          COOP Opening execution will be for                  Complex Order #3: Buy 10 at $3.71
                                                  Best Bid and/or Offer for the underlying security.      40 strategies at a price of $3.76. The                 Complex Order #4: Sell 20 at market
                                                  The cPBBO is a calculated number and does not                                                                  Complex Order #5: Sell 20 at market
                                                  include orders on the CBOOK or interest on other        execution price of $3.76 is derived from
                                                  exchanges. See Rule 1080.07(a)(iv).                     the midpoint of the lowest executable                     The COOP Opening execution may
                                                     31 See Rule 1080.07(d)(ii)(C)(2).                    bid price of $3.74 and the next available              not occur more than $0.05 outside of the


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                                                                                 Federal Register / Vol. 80, No. 120 / Tuesday, June 23, 2015 / Notices                                                         36001

                                                  cNBBO, and thus cannot occur at a price                 of: (1) The proportion of the aggregate                    the same enhanced pro-rata specialist
                                                  of less than $3.65 or more than $3.95.                  size at the cPBBO associated with such                     allocation that applies to non-Complex
                                                  In this case, Complex Order #4 and                      specialist’s COLA Sweep, SQT and                           Orders.39
                                                  Complex Order #5 will both be                           RSQT COLA Sweeps, and non-SQT                                 In addition, the Exchange proposes to
                                                  considered in determining the COOP                      ROT Complex Orders on the CBOOK; 34                        amend Rule 1080.07(e)(vi)(C) to correct
                                                  Opening execution price as orders to                    (2) the Enhanced Specialist                                it by deleting the limitation of
                                                  sell limited by the contra side cNBBO                   Participation as described in Rule                         aggregating size only at the cPBBO; the
                                                  ACE limit of $3.65. Therefore, the COOP                 1014(g)(ii) 35 (60/40/30%); or (3) 40% of                  size of the specialist’s COLA Sweep,
                                                  Opening execution price for the 40                      the remainder of the order.36                              SQT and RSQT COLA Sweeps, and non-
                                                  strategies would be $3.68, which is                        The Exchange proposes to better                         SQT ROT Complex Orders on the
                                                  derived from the midpoint of the lowest                 define a COLA Sweep in Rule                                CBOOK are all aggregated at the
                                                  executable bid price of $3.71 and the                   1080.07(e)(iv). Specifically, a COLA                       execution price, regardless whether the
                                                  highest executable offer of $3.65.                      Sweep, similar but not identical to a                      price is at cPBBO or not. Today, the
                                                     If there is any remaining interest after             COOP Sweep,37 is a one-sided                               System looks at all of a specialist’s
                                                  complex interest has traded against                     electronic quotation submitted for                         COLA Sweeps at a particular price, not
                                                  other complex interest and there is no                  execution against other trading interest                   just at the cPBBO and compares it to all
                                                  component that consists of the                          in a particular Complex Order Strategy.                    other Phlx XL market maker interest at
                                                  underlying security,32 such interest may                Any COLA Sweeps which remain                               that price, so the Exchange proposes to
                                                  ‘‘leg’’ whereby each options component                  unexecuted at the end of the COLA                          correct the rule.
                                                  may trade at the PBBO with existing                     Timer once all executions are complete                        In short, the Specialist would be
                                                  quotes and/or limit orders on the limit                 will expire.                                               entitled to receive the greater of: (1) The
                                                  order book for the individual                              The Exchange proposes to amend                          proportion of the aggregate size
                                                  components of the Complex Order;                        Rule 1080.07(e)(vi)(C) to eliminate the                    associated with such specialist’s COLA
                                                  provided that remaining interest may                    40% component, because it does not                         Sweep, SQT and RSQT COLA Sweeps,
                                                  execute against any eligible Complex                    currently operate.38 The Exchange                          and non-SQT ROT Complex Orders on
                                                  Orders received before legging occurs.33                believes that the 40% language being                       the CBOOK; or (2) the 60/40/30%
                                                  If the remaining interest has a                         deleted may have been an error,                            Enhanced Specialist Participation
                                                  component that consists of the                          because, given the ‘‘greater of’’ language                 described in Rule 1014(g)(ii). The
                                                  underlying security or is an all-or-none                in this provision, the 30% guarantee                       Exchange believes that the specialist
                                                  Complex Order, such Complex Order                       would never have operated.                                 guarantee of 60/40/30% is a sufficient
                                                  will be placed on the CBOOK. Although                   Accordingly, the Exchange proposes to                      incentive for participants to become
                                                  the current rule text does not provide                  amend this provision to reflect that the                   specialists and make continuous
                                                  for legging on the opening, the System                  specialist would be entitled to receive                    markets in individual options. The
                                                  is currently programmed to consider                     the greater of: (1) The proportion of the                  Exchange notes that this is the same
                                                  whether legging is possible in order to                 aggregate size associated with such                        enhanced pro-rata specialist allocation
                                                  maximize the number of executions.                      specialist’s COLA Sweep, SQT and                           that applies to non-Complex Orders.40
                                                  Accordingly, the Exchange proposes to                   RSQT COLA Sweeps, and non-SQT                                 Furthermore, pursuant to Rule
                                                  add rule text regarding legging to Rule                 ROT Complex Orders on the CBOOK; or                        1080.07(e)(vi)(B), for allocation
                                                  1080.07(d)(ii)(C)(2).                                   (2) the 60/40/30% Enhanced Specialist                      purposes, the rule states that the size of
                                                     The Exchange also proposes to add                    Participation described in Rule                            a COLA Sweep or responsive Complex
                                                  that the Complex Order Strategy will be                                                                            Order received during the COLA Timer
                                                                                                          1014(g)(ii). The Exchange believes that
                                                  open for trading after the COOP even if                                                                            shall be limited to the size of the COLA-
                                                                                                          the specialist guarantee of 60/40/30% is
                                                  no executions occur. This is intended to                                                                           eligible order. In actuality, the Exchange
                                                                                                          a sufficient incentive for participants to
                                                  attract additional interest to a Complex                                                                           will accept size in excess of the COLA-
                                                                                                          become specialists and make
                                                  Order Strategy. If additional interest                                                                             eligible order size and such size can be
                                                                                                          continuous markets in individual
                                                  arrives, the Exchange does not believe                                                                             executed against remaining interest 41
                                                                                                          options. The Exchange notes that this is
                                                  another COOP is needed, because such                                                                               after the COLA-eligible order has been
                                                  interest will under the normal processes                   34 This is commonly known as size pro-rata
                                                                                                                                                                     executed to the fullest extent possible.42
                                                  of the System either be subject to a                    allocation.                                                For example, where there is a COLA-
                                                  COLA, be placed on the CBOOK (both                         35 Rule 1014(g)(ii) provides that when the              eligible order bidding $2.00 for 20
                                                  of which are disseminated), or be                       registered specialist is on parity with a controlled       contracts, and the other interest consists
                                                  cancelled.                                              account, in accordance with Exchange Rules 119             of a $2.10 bid for 10 contracts, a $2.10
                                                                                                          and 120 and the number of contracts to be bought
                                                                                                                                                                     offer for 10 contracts and a $2.00 offer
                                                  Other Inconsistencies                                   or sold is greater than five, the specialist is entitled
                                                                                                          to receive an enhanced participation of 30% of the
                                                    Second, Rule 1080.07(e)(vi)(C)                        Remainder of the Order (‘‘Enhanced Specialist                39 Unlike regular, single component options listed

                                                  currently provides that when executing                  Participation’’), except in the following                  and traded on the Exchange, Complex Orders do
                                                  against the COLA-eligible order after a                 circumstances: (1) Where there is one controlled           not have a specialist or required market maker
                                                                                                          account on parity, the specialist is entitled to           providing continuous markets. Complex Orders
                                                  COLA, a participating specialist shall be               receive 60% of the Remainder of the Order; or (2)          operate as an order-driven process, with the prices
                                                  entitled to receive, respecting an option               where there are two controlled accounts on parity,         derived from the prices of the individual
                                                  in which he is the specialist, the greater              in which case, the specialist is entitled to receive       components.
                                                                                                          40% of the Remainder of the Order. See also ISE              40 Rule 1014(g)(vii).
                                                                                                          Rule 722.05.                                                 41 The remaining interest consists of any potential
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                                                    32 Complex Orders that are not executable at the
                                                                                                             36 A specialist is not entitled to this enhanced
                                                  opening price, including those that could not leg                                                                  interest that has been received, including orders,
                                                  because there is a component that consists of the       allocation in options in which he is not registered        quotes and COLA Sweeps, as well as the individual
                                                  underlying security, will be placed on the CBOOK.       as the specialist.                                         leg market.
                                                                                                             37 See proposed Rule 1080.07(d)(ii)(B).
                                                  See proposed Rule 1080.07(d)(ii)(C).                                                                                 42 The Exchange notes that this reflects an
                                                    33 Remaining interest includes Complex Orders            38 Because the minimum 40% allocation did not           internal inconsistency in this rule, because another
                                                  that did not execute at the opening price and are       operate, the specialist may have received less of an       sub-paragraph in the rule addresses the execution
                                                  therefore on the CBOOK and available to be traded       allocation than expected when executing against            of remaining bids or offers from the incoming non-
                                                  before legging occurs as well as any new interest       COLA-eligible interest in a limited number of              customer Complex Order(s). See Rule
                                                  that may have arrived during the legging process.       situations.                                                1080.07(e)(viii)(C)(2)(e).



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                                                  36002                              Federal Register / Vol. 80, No. 120 / Tuesday, June 23, 2015 / Notices

                                                  for 10 contracts, even though only 10                         executing and allocating in a COLA and                market from the COLA-eligible order,
                                                  contracts of the COLA-eligible order are                      such non-responsive interest is also not              such orders will be executed in the
                                                  executable, the buy and sell orders at                        restricted to the size of the COLA-                   order in which they were received.
                                                  $2.10 can nevertheless execute against                        eligible volume.                                      Instead, the System executes non-
                                                  each other; thus, although the COLA-                             Fourth, Rule 1080.07(e)(viii)                      customer orders on a pro-rata basis
                                                  eligible order was not fully executed, it                     determines the price at which orders are              among Phlx market maker interest and
                                                  was executed to the fullest extent                            executed while Rule 1080.07(e)(vi)                    then, again on a pro-rata basis, among
                                                  possible,43 which permitted additional                        determines the execution priority of                  remaining Phlx XL participants at each
                                                  executions of responsive interest at a                        such orders; the Exchange seeks to make               price level, as described in Rule
                                                  different price, to the benefit of those                      the interaction of these two provisions               1080.07(e)(vi)(B). Non-customer orders
                                                  orders.                                                       clearer by adding descriptive language                may have received a higher or lower
                                                     As a result, participants would have                       to that effect in Rule 1080.07(e)(viii).              allocation at a particular price than they
                                                  had a greater opportunity for execution                       Rule 1080.07(e)(viii)(C)(1)(d) currently              would have received in time priority
                                                  and may have received executions in                           provides that if multiple customer                    allocation, depending on their particular
                                                  excess of the COLA-eligible order                             Complex Orders are received on the                    time and size.
                                                  volume, up to the full size of their order.                   opposite side of the market from the                     The Exchange proposes to amend the
                                                  If the System operated as stated in the                       COLA-eligible order, customer orders                  rule to reflect that non-customer orders
                                                  current rule text, fewer contracts would                      will be executed in the order in which                are executed on a pro-rata basis,
                                                  have been executed, because fewer                             they were received. This provision                    consistent with the priority rules
                                                  contracts would have been available for                       operates to determine the price at which              applicable in other aspects of the
                                                  execution against the COLA-eligible                           the COLA-eligible order is executed                   execution of Complex Orders and
                                                  order and other responsive interest. It is                    against customer Complex Orders and                   simple orders.48
                                                  likely that some of the interest in that                      defines the allocation algorithm utilized                Sixth, the System recently operated
                                                  Complex Order Strategy would not have                         for each type of customer. In the context             such that when a Complex Order was
                                                  traded but for the ability for COLA                           of determining the execution price of                 received during the final 3 seconds of
                                                  Sweeps and Complex Orders to be                               such interest, the Exchange uses the                  the trading session, it was placed onto
                                                  submitted for any size.                                       term ‘‘customer’’ to include both non-                the CBOOK.49 Pursuant to Rule
                                                     The Exchange is proposing to amend                         broker-dealer customer orders as well as              1080.07(f)(i)(F), a Complex Order an
                                                  the rule to reflect the current practice                      non-market maker off-floor broker-                    order should go on the CBOOK when is
                                                  and permit the full size of responding                        dealer orders, because in this context                received during the final 10 seconds of
                                                  interest to trade against non-COLA-                           non-market maker off-floor broker-                    the trading session, rather than 3
                                                  eligible interest. This change is intended                    dealer orders seek liquidity and are                  seconds. Accordingly, more Complex
                                                  to have as many contracts trade as                            therefore more like customer orders                   Orders may have started a COLA than
                                                  possible. The Exchange does not believe                       versus other participants, which                      the rule provides for and were perhaps
                                                  that the current size limitation in the                       generally provide liquidity.                          executed rather than resting on the
                                                  rule is useful.44 The Exchange notes that                        With respect to Rule 1080.07(e)(vi)                CBOOK, which the Exchange believes
                                                  the size of a COLA Sweep or responsive                        regarding the allocation within a                     may have been considered a benefit for
                                                  Complex Order is only relevant where                          participant category, the System                      those orders.
                                                  the resulting allocation of a trade is                        executes non-broker-dealer customer                      At this time, the Exchange proposes to
                                                  conducted on a pro-rata basis, but not                        orders in the order in which they were                change the rule to reflect a configurable
                                                  respecting non-broker-dealer customer                         received and non-market maker off-floor               time period (for all options) to
                                                  allocations, which are based on time                          broker-dealer orders on a pro-rata basis              determine how many seconds before the
                                                  priority. The Exchange believes that                          at each price level. Thus, non-market                 end of the trading session that an order
                                                  permitting interest in excess of the                          maker off-floor broker-dealer orders may              is placed on the CBOOK. The Exchange
                                                  COLA-eligible volume benefits market                          have received a higher or lower                       believes that this should maximize
                                                  participants, because it helps ensure                         allocation at a particular price than they            executions rather than applying a fixed
                                                  that as many contracts as possible are                        would have received in time priority                  time period of 10 seconds. The
                                                  executed. The Exchange does not                               allocation, which is required under the               Exchange will notify participants on its
                                                  believe that there is any negative effect                     current rule, depending on their                      Web site in advance when the number
                                                  from permitting responsive interest of                        particular time and size.                             of seconds will change. The Exchange
                                                  any size. Although in a pro-rata                                 The Exchange proposes to change
                                                                                                                                                                      believes that this is a useful change,
                                                  allocation, a greater allocation might                        Rule 1080.07(e)(viii)(C)(1)(d) to reflect
                                                                                                                                                                      because the Exchange believes that 10
                                                  result, this is not harmful, but rather                       that off-floor broker- dealer orders at the
                                                                                                                                                                      seconds may be too long and may
                                                  enhances the liquidity in the                                 same price are executed on a pro-rata
                                                                                                                                                                      prevent executions from occurring; a
                                                  marketplace. It should also be noted that                     basis, consistent with the priority rules
                                                                                                                                                                      COLA can be triggered and completed
                                                  the Exchange considers non-responsive                         applicable in other aspects of the
                                                                                                                                                                      in less than 3 seconds so the Exchange
                                                  interest present in the system when                           execution of Complex Orders 45 and
                                                                                                                                                                      believes a smaller number than 10
                                                                                                                simple orders.46
                                                                                                                   Fifth, pursuant to Rule                            seconds is appropriate to maximize
                                                     43 The Exchange is replacing the term ‘‘in its

                                                                                                                1080.07(e)(viii)(C)(2)(d), if multiple non-           executions.
                                                  entirety’’ with ‘‘to the fullest extent possible’’
                                                  respecting COLA-eligible orders, because COLA-                                                                         In addition, the Exchange is adding to
                                                                                                                customer 47 Complex Orders are
                                                  eligible orders to [sic] not have to be fully executed                                                              this provision a reference to any
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                                                                                                                received on the opposite side of the
                                                  in order for other interest to be executed; such                                                                    marketable portion of the Complex
                                                  interest might, for example, be at a different price                                                                Order being executed, because the
                                                                                                                  45 See   e.g., Rule 1080.07(e)(vi)(B).
                                                  than the price of the COLA-eligible order. See Rule
                                                  1080.07(e)(vii), (e)(viii)(B), (e)(viii)(C)(1),                 46 See   Rule 1014(g)(vii).                         System seeks to execute any portion that
                                                  (e)(viii)(C)(1)(e), (e)(viii)(C)(2), (e)(viii)(C)(2)(e) and      47 In the context of executing these orders, the
                                                  (e)(viii)(C)(3).                                              Exchange uses the term ‘‘non-customer’’ to include      48 Seesupra note 29.
                                                     44 The Exchange notes that this is similar to              all interest other than non-broker-dealer customer      49 In
                                                                                                                                                                            order to comply with the current rule, the
                                                  NYSEArca Rule 6.91(c)(7), which permits                       interest and non-market-maker off-floor broker-       System was changed on March 7, 2014 to 10
                                                  executions above such size.                                   dealer interest.                                      seconds to align with the rule.



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                                                                                 Federal Register / Vol. 80, No. 120 / Tuesday, June 23, 2015 / Notices                                                   36003

                                                  can be traded before placing a Complex                  it is not an all-or-none order and there               at OCC are Firms, including both
                                                  Order on the CBOOK.                                     is no component that consists of the                   broker-dealers trading for their own
                                                     Seventh, after the COLA-eligible order               underlying security,50 such interest may               (proprietary) account who are OCC
                                                  has been executed in its entirety, Rule                 ‘‘leg’’ whereby each options component                 members as well as JBO participants. In
                                                  1080.07(e)(viii)(C)(3) provides that the                may trade at the PBBO with existing                    contrast, broker-dealers trading for their
                                                  execution price of crossing interest is                 quotes and/or limit orders on the limit                own (proprietary) account who are not
                                                  based on the price of the smaller sized                 order book for the individual                          OCC members (and do not have a JBO
                                                  interest. Crossing interest refers to any               components of the Complex Order;                       arrangement) must have their trades
                                                  buy or sell interest that crosses in price              provided that remaining interest may                   cleared via an OCC member and do not
                                                  such that a buyer order is at a higher                  execute against any eligible Complex                   clear in the firm range.55 Accordingly,
                                                  price than the best sell price, for                     Orders received before legging occurs.
                                                  example. If such interest crosses and                                                                          the proposed definition of Firm
                                                                                                          This is intended to maximize the
                                                  does not match in size, the execution                   number of contracts that execute.                      comports with the definition used in the
                                                  price of the remaining interest is based                   Eighth, Rule 1080.07(b)(i) governs the              pricing schedule, with respect to which
                                                  on the highest (lowest) executable offer                types of Complex Orders that different                 dozens of proposed rule changes have
                                                  (bid) price when the larger sized interest              participants may submit to the                         taken effect based on such pricing
                                                  is offering (bidding), provided, however,               Exchange. The rule does not currently                  differentiation being consistent with the
                                                  that if there is more than one price at                 specify a category of participant known                Act, including not being unfairly
                                                  which the interest may execute, the                     as Firms. Because the current rule does                discriminatory.56
                                                  execution price when the larger sized                   not define a Firm, under the current                      In addition, the Exchange proposes to
                                                  interest is offering (bidding) is the                   language Firms are broker-dealers that                 specify the two ways in which Firm
                                                  midpoint of the highest (lowest)                        fit the definition of non-market maker                 orders are handled like Phlx XL market
                                                  executable offer (bid) price and the next               off-floor broker-dealer.                               maker orders rather than non-market
                                                  available executable offer (bid) price                     At this time, the Exchange is
                                                                                                                                                                 maker off-floor broker-dealer orders.
                                                  rounded, if necessary, down (up) to the                 proposing to adopt a definition of Firm
                                                                                                          in Rule 1080.07(a)(x), based on the                    Specifically, the Exchange proposes to
                                                  closest minimum trading increment. If
                                                                                                          current definition in the Phlx fee                     amend Rule 1080.07(e)(i)(B)(1) to
                                                  the crossing interest is equal in size, the
                                                  execution price is the midpoint of                      schedule.51 Specifically, the Exchange                 provide that Firm orders, like Phlx
                                                  lowest executable bid price and the                     is proposing to define the term ‘‘Firm’’               market maker orders, are not COLA-
                                                  highest executable offer price, rounded,                to mean a broker-dealer trading for its                eligible orders and therefore cannot start
                                                  if necessary, up to the closest minimum                 own (proprietary) account that is: (i) A               a COLA; 57 non-market-maker off-floor
                                                  trading increment.                                      member of The Options Clearing                         broker-dealer orders can start a COLA.
                                                     In determining the execution price                   Corporation (‘‘OCC’’); or (ii) maintains a             In addition, for purposes of Rule
                                                  and which interest will trade, the                      Joint Back Office (‘‘JBO’’) 52 arrangement             1080.07(e)(viii)(C)(2), Firms orders are
                                                  System affords priority to non-broker-                  with an OCC member. Firms are distinct                 proposed to be treated as ‘‘non-
                                                  dealer customers. Executable bids/offers                from non-market maker off-floor broker-                customer’’ orders. Specifically, when
                                                  include any interest which could be                     dealers because of their OCC                           the System determines how Complex
                                                  executed without trading through                        membership, which implies that Firms,                  Orders on the opposite side of the
                                                  residual interest or the cPBBO, or                      and thus the JBO participants with                     market from a COLA-eligible order are
                                                  without trading at the cPBBO where                      whom they have established JBO                         executed, the System executes Firm
                                                  there is non-broker-dealer customer                     arrangements are large, well-capitalized               orders on a pro-rata basis along with
                                                  interest. This is consistent with Rule                  entities.                                              non-Phlx market maker orders. Non-
                                                  1080.07(c)(iii).                                           The pricing schedule currently                      market-maker off-floor broker-dealer
                                                     While participants are ‘‘blind’’ to the              provides that Firm means a non-                        orders are executed along with non-
                                                  determination of the execution price                    customer broker-dealer for which orders                broker-dealer customer orders. In these
                                                  because they do not know the size of all                are identified by a member or member                   two ways, Firm orders are proposed to
                                                  eligible interest, the participants that                organization as clearing in the firm                   be treated the same way as non-Phlx
                                                  were part of the smaller sized interest                 range at OCC.53 The term ‘‘clearing in                 market makers, rather than the same
                                                  would likely have received a better                     the firm range at OCC’’ refers to what                 way as off-floor broker-dealers, because
                                                  execution price than the rule states.                   type of an account is held at OCC and
                                                     The Exchange proposes to amend                                                                              the Exchange believes that the trading
                                                                                                          is commonly used by exchanges.54 The
                                                  Rule 1080.07(e)(viii)(C)(3) to reflect the                                                                     style and needs of Firms are more like
                                                                                                          participants that clear in the firm range
                                                  use of larger sized interest, because it is                                                                    market makers. Firms are large, well-
                                                  indicative of the price of remaining                      50 Complex Orders that are not executable,
                                                                                                                                                                 capitalized broker-dealers trading for
                                                  unexecuted interest. The Exchange                       including those that could not leg because there is    their own account, generally submitting
                                                  believes that this correction and level of              a component that consists of the underlying            large orders, including orders that
                                                                                                          security, will be placed on the CBOOK. See             facilitate their clients’ orders or offset
                                                  detail should help participants                         proposed Rule 1080.07(d)(ii)(C).
                                                  understand how their execution prices                     51 See Securities Exchange Act Release No. 62140     often large positions taken to
                                                  are determined, and this method is fair                 (May 20, 2010), 75 FR 29788 (May 27, 2010) (SR–
                                                  and orderly, based on both size and                     Phlx–2010–69).                                           55 These broker-dealer orders are ultimately
                                                                                                            52 A member organization can establish and           cleared as customer orders at OCC.
                                                  midpoint, which reflect the totality of
                                                                                                          maintain a JBO arrangement with a clearing broker-       56 See e.g., Securities Exchange Act Release Nos.
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                                                  the remaining interest. This is the same                dealer subject to the requirements of Regulation T     68880 (February 8, 2013), 78 FR 10664 (February
                                                  process used in the COOP as proposed                    Section 220.7 of the Federal Reserve System if each    14, 2013) (SR–Phlx–2013–10); and 67189 (June 12,
                                                  in Rule 1080.07(d)(ii)(C)(2).                           JBO participant is registered as a broker-dealer,      2012), 77 FR 36310 (June 18, 2012) (SR–Phlx–2012–
                                                     This provision is also proposed to                   maintains a minimum account equity requirement         77).
                                                                                                          of $1,000,000, and comply with certain ownership         57 See Rule 1080.07(e)(i)(B)(1) which defines a
                                                  state that if there is any remaining                    standards. See Rule 703(a)(vi).                        COLA-eligible order. The Exchange is deleting from
                                                  interest, which means any interest                        53 See preface to Phlx Pricing Schedule.
                                                                                                                                                                 this provision the requirement that such order
                                                  present in the System in that Complex                     54 See e.g., http://www.cboe.com/publish/RegCir/     improve the cPBBO, because that requirement is
                                                  Order Strategy at that time provided that               RG13-038.pdf.                                          already stated in Rule 1080.07(e)(i)(A).



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                                                  36004                          Federal Register / Vol. 80, No. 120 / Tuesday, June 23, 2015 / Notices

                                                  accommodate their customers; 58 in                      treated. The various corrections are,                  for the day. The Exchange does not
                                                  order to do so, Firms must have the                     together, intended to improve the rule                 believe that this raises regulatory issues,
                                                  financial wherewithal that this role                    overall. The Exchange believes that this               such as the potential for manipulation
                                                  necessitates, which by OCC rule                         should promote just and equitable                      or abuse relating to the opening auction.
                                                  applicable to OCC clearing members,                     principles of trade as well as protect                 The Exchange similarly treats non-
                                                  generally requires a certain amount of                  investors and the public interest by                   Complex Orders marked IOC, in that
                                                  net capital, risk management procedures                 making more clear how specifically                     such orders, if received prior to the
                                                  addressing certain risks and margin                     Complex Orders are handled on the                      opening in an option, are cancelled
                                                  requirements, among other things.59                     Exchange.                                              upon receipt. Thus, the fact that
                                                  Thus, in general, Firms are commonly                       More specifically, the opening                      Complex Orders marked IOC do not
                                                  viewed as providers of liquidity, much                  changes are intended to promote just                   participate in the opening auction does
                                                  like market makers.                                     and equitable principles of trade by                   not raise new concerns for
                                                     Ninth, the Exchange proposes to                      seeking to execute as much interest as                 manipulation; today, if a participant
                                                  accept all-or-none orders 60 and specify                possible at the best possible price(s).                enters a DAY or GTC order and then
                                                  how they are handled. The handling of                   The opening process maximizes price                    immediately cancels it, an auction will
                                                  all-or-none orders on the opening is                    discovery and liquidity while                          ensue without that order. Accordingly,
                                                  explained above.61 Specifically, Rule                   employing price priority, which the                    the Exchange believes that its proposed
                                                  1080.07(e)(vi)(A)(1) will provide that                  Exchange believes is a fairer process on               handling of IOC orders should promote
                                                  all-or-none Complex Orders will not leg                 the opening when dealing with                          just and equitable principles of trade.
                                                  into the prices of the individual                       potentially different sources of interest,             Similarly, the proposal addresses how
                                                  components of such Complex Order. In                    versus a single Complex Order                          DNA orders are handled, which also
                                                  addition, Rule 1080.07(f)(iii)(A) will                  triggering a COLA during the day’s                     promotes just and equitable principles
                                                  similarly provide that all-or-none                      trading. Although the COOP operates                    of trade by providing an order type that
                                                  Complex Orders on the CBOOK will not                    differently than the COLA, the Exchange                involves immediate handling.
                                                  leg.                                                    notes that the COOP operates like a                       The Exchange believes that COOP
                                                     Tenth, the Exchange proposes to                      traditional opening process, seeking to                Sweeps, as described above, promote
                                                  amend 1080.07(b)(iii) to specify in more                execute as much interest as possible,                  just and equitable principles of trade by
                                                  detail that only IOC Complex Orders                     which is consistent with just and                      providing an opportunity for a single
                                                  can be accepted by Floor Brokers from                   equitable principles of trade.                         sided quote to be entered by Phlx XL
                                                  SQTs, RSQTs, non-SQT ROTs,                                 The opening delay timer promotes                    market makers responding to a COOP,
                                                  specialists, non-Phlx market makers on                  just and equitable principles of trade by              much like opening sweeps in Rule 1017
                                                  another exchange and Firms. Currently,                  allowing options prices to stabilize after             and regular sweeps in Rule 1080. The
                                                  this provision refers to broker-dealers or              the options opening, before permitting                 Exchange does not believe it is unfairly
                                                  affiliates of broker-dealers; these terms               Complex Orders to become available for                 discriminatory for COOP Sweeps to be
                                                  are not used elsewhere in the rule and                  trading. If a particular Complex Order                 available only to Phlx XL market
                                                  is thus confusing.                                      Strategy is already open, the COOP does                makers, because the ability to enter two-
                                                                                                          not occur, which is consistent with just               sided quotes is also available only to
                                                  2. Statutory Basis
                                                                                                          and equitable principles of trade,                     Phlx XL market makers, who use a
                                                     The Exchange believes the proposed                   because there is no need for an opening                particular protocol to submit quotes and
                                                  rule change is consistent with the                      process. The Complex Order Opening                     sweeps to the Exchange. Other Phlx XL
                                                  provisions of Section 6 of the Act,62 in                Auction Notification is intended to                    participants can submit orders over the
                                                  general, and with Section 6(b)(5) of the                attract interest to the opening process                protocol specific to orders, specifically
                                                  Act,63 in particular, which requires,                   and encourage the opening of a                         IOC orders, which behave in the same
                                                  among other things, that the rules of an                Complex Order Strategy, like the COLA                  manner as a sweep. Accordingly, such
                                                  exchange be designed to promote just                    message is intended to attract interest to             other participants are not disadvantaged
                                                  and equitable principles of trade as well               the COLA. Accordingly, the Complex                     by the inability to submit sweeps, much
                                                  as protect investors and the public                     Order Opening Auction Notification,                    like they are not disadvantaged by the
                                                  interest. Specifically, the Exchange is                 which contains the opening price,                      inability to submit quotes or sweeps
                                                  proposing various changes that should                   imbalance, if any, and volume,                         respecting non-Complex Orders.
                                                  promote just and equitable principles of                promotes just and equitable principles                    With respect to the provision in Rule
                                                  trade, because Complex Orders will be                   of trade.                                              1080.07(d)(ii)(C)(3) that provides that a
                                                  handled in a fair and orderly manner by                    The change to Rule                                  Complex Order Strategy will be open
                                                  the System, as described above. The                     1080.07(d)(ii)(B)(3) enumerating that                  after a COOP even if no executions
                                                  Exchange believes that the proposed                     COOP responses are not visible                         occur, the Exchange believes that this
                                                  changes are consistent with how                         promotes just and equitable principles                 proposed language should promote just
                                                  participants could reasonably expect                    of trade by making this clear to                       and equitable principles of trade by
                                                  that their complex interest should be                   participants and because the temporary,                opening a Complex Order Strategy
                                                                                                          quick nature of the COOP would not                     based on the fact that interest was
                                                    58 Of course, the clients/customers of a Firm
                                                                                                          render this information useful. The                    received, regardless of whether the
                                                  could be other broker-dealers.
                                                    59 See OCC Rules 301, 311 and 601.
                                                                                                          Complex Order Opening Auction                          responsive interest resulted in an
                                                    60 The Exchange stopped accepting all-or-none
                                                                                                          Notification is sufficient notification of             execution. In addition, it promotes just
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                                                  Complex Orders on March 17, 2014 in order to align      the forthcoming opening of a particular                and equitable principles of trade for the
                                                  the System with the rule. The Exchange has              Complex Order Strategy.                                rule to reflect this.
                                                  incorporated a definition of all-or-none orders in         The Exchange noted above that                          With respect to any priority
                                                  Securities Exchange Act Release No. 72351 (June 9,      Complex Orders marked IOC do not                       provisions addressed herein, the
                                                  2014), 79 FR 33977 (June 13, 2014) (SR–Phlx–2014–
                                                  39).                                                    participate in an auction that such order              proposed treatment is similar to the
                                                    61 See proposed Rule 1080.07(d)(ii)(C).               may trigger if that order would be the                 Exchange’s priority rule respecting
                                                    62 15 U.S.C. 78f.                                     first order in that Complex Order                      orders other than Complex Orders, as
                                                    63 15 U.S.C. 78f(b)(5).                               Strategy, thereby opening that Strategy                well as the comparable rules of other


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                                                                                 Federal Register / Vol. 80, No. 120 / Tuesday, June 23, 2015 / Notices                                                      36005

                                                  options exchanges.64 This includes                      on the price of the larger sized interest,             order interaction with other market
                                                  allocating to the specialist based on all               which affects more options contracts                   participants, consistent with promoting
                                                  of his interest at a particular price                   and is likely to result in more                        just and equitable principles of trade.
                                                  pursuant to proposed Rule                               executions than the current rule                          The Exchange believes that its
                                                  1080.07(e)(vi)(C), off-floor broker-dealer              provides, because the current rule is                  proposal to accept all-or-none Complex
                                                  customer orders on a pro-rata basis                     based on the mid-point, regardless of                  Orders should promote just and
                                                  pursuant to proposed Rule                               size.                                                  equitable principles of trade by offering
                                                  1080.07(e)(viii)(C)(1)(d), and to Phlx XL                  The reference to legging remaining                  this order type, commonly available for
                                                  market makers and other non-customers                   interest in these same subparagraphs                   non-Complex Orders as well as complex
                                                  each on a pro-rata basis pursuant to                    promotes just and equitable principles                 orders on other options exchanges, to
                                                  proposed Rule 1080.07(e)(viii)(C)(2)(d).                of trade by providing an opportunity for
                                                                                                                                                                 market participants, who may want a
                                                  The deletion of the 40% allocation                      additional Complex Orders to trade. The
                                                                                                                                                                 certain minimum size. This contingency
                                                  promotes just and equitable principles                  additional executions would be
                                                                                                                                                                 is particularly appropriate respecting
                                                  of trade both by correcting the rule text               expected by users who expressed an
                                                                                                                                                                 Complex Orders, because of the
                                                  as well as by rendering meaning to the                  interest to trade by submitting their
                                                                                                                                                                 complexity of the strategies employed
                                                  reference to Rule 1014(g)(ii), which is                 interest; their expression of interest is
                                                                                                                                                                 by users; the size of the order may be
                                                  otherwise pointless.                                    not limited to the COLA-eligible order
                                                                                                                                                                 relevant to such strategy. The Exchange
                                                     The deletion of aggregating size only                but rather to the Complex Order
                                                                                                                                                                 believes that its proposal to not leg all-
                                                  at the cPBBO in Rule                                    Strategy as a whole.
                                                                                                             In addition, this proposal is not                   or-none Complex Orders promotes just
                                                  1080.07(e)(vi)(C)(1) for purposes of
                                                                                                          unfairly discriminatory, including to the              and equitable principles of trade,
                                                  determining the pro rata allocation
                                                  promotes just and equitable principles                  new category of Firm orders, because it                because the all-or-none contingency
                                                  of trade by taking into account all                     proposes to deal with Complex Orders                   complicates the execution of such
                                                  expressed interest (the specialist’s                    and responsive interest in a reasonable                orders expeditiously against the
                                                  COLA Sweep, SQT and RSQT COLA                           way. As explained above, it is not                     individual components of such orders;
                                                  Sweeps and non-SQT ROT Complex                          uncommon to have certain order types                   the Exchange does not believe that users
                                                  Orders on the CBOOK) at each price                      and time-in-force conditions available                 would expect such orders to leg, as all-
                                                  instead of only at one price, the cPBBO.                only to certain participant types, both                or-none orders are often treated
                                                  This should maximize the number of                      on the Exchange 65 as well as other                    differently than other orders because of
                                                  contracts executed, to the benefit of                   exchanges.66 Indeed, the Exchange’s                    the nature of that contingency.68
                                                  those participating in that Complex                     pricing schedule has long distinguished                   The Exchange believes that its
                                                  Order Strategy.                                         Firms from other broker-dealers.67 The                 proposal to amend 1080.07(b)(iii) to
                                                     The change to Rule 1080.07(e)(vi)(B)                 Exchange believes that certain order                   specify in more detail that Floor Brokers
                                                  permitting responses for a size greater                 types and time-in-force conditions, if                 can only accept IOC Complex Orders
                                                  than the size of the COLA-eligible                      made available, would likely not be                    from SQTs, RSQTs, non-SQT ROTs,
                                                  orders is consistent with just and                      used by certain market participants,                   specialists, non-Phlx market makers on
                                                  equitable principles of trade, because it               because of the particular trading style of             another exchange and Firms is merely
                                                  enables as many contracts as possible to                those participants. For example, Phlx                  replacing vague terms (broker-dealers or
                                                  trade, which is also consistent with                    XL market makers are not permitted to                  affiliates of broker-dealers) to more
                                                  protecting investors and the public                     send in GTC orders; the Exchange does                  precise ones that are linked to
                                                  interest. Restricting responses to the size             not believe that Phlx XL market makers                 definitions within the rule. Using
                                                  of the COLA-eligible order serves no                    would be interested in submitting GTC                  defined terms should promote just and
                                                  regulatory purpose and, instead, merely                 orders, as they generally participate in               equitable principles of trade.
                                                  limits the number of contracts that can                 the marketplace using electronic                          The Exchange believes that deleting
                                                  trade. Restricting responses to the size                quotations, which are updated and                      reference in Rule 1080.07(d)(ii)(A)(2) to
                                                  of the COLA-eligible order could also                   replaced frequently, unlike GTC orders.                disengaging the automated execution
                                                  provide interest that has been submitted                   Similarly, the Exchange believes that               system and the Phlx XL Risk Monitor
                                                  coincidentally, without intentionally                   Firms do not expect or need their                      Mechanism clarifies that the COOP
                                                  responding to an auction, to have an                    Complex Orders to trigger a COLA nor                   Timer nevertheless occurs in these
                                                  unfair advantage since this interest                    to submit GTC orders, because these are                situations. The COOP Timer facilitates
                                                  would not be restricted to the size of the              features commonly associated with                      price discovery and opening interest in
                                                  COLA-eligible order.                                    customers rather than liquidity                        a Complex Order Strategy, which
                                                     The Exchange believes a configurable                 providers who function to accommodate                  should, in turn, promote just and
                                                  end of day timer as proposed in Rule                    trading interest. Both of these features               equitable principles of trade.
                                                  1080.07(f)(i)(F) is consistent with just                involve a temporal component; both a
                                                  and equitable principles of trade,                      delay and long-lasting interest are                       The Exchange believes that specifying
                                                  because it can be tailored to maximize                  inconsistent with the sort of                          in more detail that Complex Orders
                                                  the number of executions but is still                   accommodation that Firms provide.                      received prior to the COOP Timer and
                                                  limited to 600 seconds, as originally                   Firms are interested in trading in a                   Complex Orders received during the
                                                  approved.                                               manner that offers liquidity to their                  COOP Timer (other than COOP Sweeps
                                                     The Exchange also believes that the                  customers. Accordingly, the Exchange                   and Complex Order Responses marked
                                                                                                                                                                 as a response) are visible to Phlx XL
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                                                  proposed execution process in proposed                  believes that by tailoring its offerings to
                                                  Rule 1080.07(d)(ii)(C)(2) and                           the needs and trading style of Firms,                  participants upon receipt should
                                                  (e)(viii)(C)(3) for crossing interest is                Firms are more likely to send orders to                promote just and equitable principles of
                                                  consistent with just and equitable                      the Exchange, which should increase                    trade by further attracting additional
                                                  principles of trade, because it is based                                                                       interest in a particular Complex Order
                                                                                                            65 See Phlx Rule 1080(b).                            Strategy.
                                                    64 See                                                  66 See CBOE Rule 6.53C(d)(iii).
                                                        Phlx Rule 1014(g)(vii)(B)(1)(b). See also
                                                  CBOE Rule 6.53C(d)(v).                                    67 See supra note 53.                                 68 See   e.g., Options Floor Advice A–9.



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                                                  36006                          Federal Register / Vol. 80, No. 120 / Tuesday, June 23, 2015 / Notices

                                                  (B) Self-Regulatory Organization’s                      All submissions should refer to File                    SECURITIES AND EXCHANGE
                                                  Statement on Burden on Competition                      Number SR–Phlx–2015–49. This file                       COMMISSION
                                                    The Exchange does not believe that                    number should be included on the
                                                                                                                                                                  [Release No. 34–75193; File No. 4–668]
                                                  the proposed rule change will result in                 subject line if email is used. To help the
                                                  any burden on competition that is not                   Commission process and review your                      Joint Industry Plan; Notice of Filing of
                                                  necessary or appropriate in furtherance                 comments more efficiently, please use                   Amendment No. 2 to the National
                                                  of the purposes of the Act, as amended.                 only one method. The Commission will                    Market System Plan Governing the
                                                  Specifically, the proposal does not                     post all comments on the Commission’s                   Process of Selecting a Plan Processor
                                                  impose an intra-market burden on                        Internet Web site (http://www.sec.gov/                  and Developing a Plan for the
                                                  competition, because these changes                      rules/sro.shtml). Copies of the                         Consolidated Audit Trail by BATS
                                                  make the rule clearer and more                          submission, all subsequent                              Exchange, Inc., BATS–Y Exchange,
                                                  complete for all participants. Nor will                 amendments, all written statements                      Inc., BOX Options Exchange LLC, C2
                                                  the proposal impose a burden on                         with respect to the proposed rule                       Options Exchange, Incorporated,
                                                  competition among the options                           change that are filed with the                          Chicago Board Options Exchange,
                                                  exchanges, because of the vigorous                      Commission, and all written                             Incorporated, Chicago Stock
                                                  competition for order flow among the                    communications relating to the                          Exchange, Inc., EDGA Exchange, Inc.,
                                                  options exchanges. To the extent that                   proposed rule change between the                        EDGX Exchange, Inc., Financial
                                                  market participants disagree with the                   Commission and any person, other than                   Industry Regulatory Authority, Inc.,
                                                  particular approach taken by the                        those that may be withheld from the                     International Securities Exchange,
                                                  Exchange herein, market participants                                                                            LLC, ISE Gemini, LLC, Miami
                                                                                                          public in accordance with the
                                                  can easily and readily direct complex                                                                           International Securities Exchange LLC,
                                                                                                          provisions of 5 U.S.C. 552, will be
                                                  order flow to competing venues.                                                                                 NASDAQ OMX BX, Inc., NASDAQ OMX
                                                                                                          available for Web site viewing and
                                                  (C) Self-Regulatory Organization’s                      printing in the Commission’s Public                     PHLX LLC, The NASDAQ Stock Market
                                                  Statement on Comments on the                            Reference Room, 100 F Street NE.,                       LLC, National Stock Exchange, Inc.,
                                                  Proposed Rule Change Received from                                                                              New York Stock Exchange LLC, NYSE
                                                                                                          Washington, DC 20549, on official
                                                  Members, Participants or Others                                                                                 MKT LLC, and NYSE Arca, Inc.
                                                                                                          business days between the hours of
                                                    No written comments were either                       10:00 a.m. and 3:00 p.m. Copies of the                  June 17, 2015.
                                                  solicited or received.                                  filing will also be available for
                                                                                                                                                                  I. Introduction
                                                  III. Date of Effectiveness of the                       inspection and copying at the principal
                                                                                                          office of the Exchange. All comments                       Pursuant to Section 11A of the
                                                  Proposed Rule Change and Timing for                                                                             Securities Exchange Act of 1934
                                                  Commission Action                                       received will be posted without change;
                                                                                                          the Commission does not edit personal                   (‘‘Act’’) 1 and Rule 608 Thereunder,2
                                                     Within 45 days of the date of                        identifying information from                            notice is hereby given that, on March 6,
                                                  publication of this notice in the Federal               submissions. You should submit only                     2015, BATS Exchange, Inc., BATS–Y
                                                  Register or within such longer period (i)                                                                       Exchange, Inc., BOX Options Exchange
                                                                                                          information that you wish to make
                                                  as the Commission may designate up to                                                                           LLC, C2 Options Exchange,
                                                                                                          available publicly. All submissions
                                                  90 days of such date if it finds such                                                                           Incorporated, Chicago Board Options
                                                  longer period to be appropriate and                     should refer to File Number SR–Phlx–
                                                                                                                                                                  Exchange, Incorporated, Chicago Stock
                                                  publishes its reasons for so finding or                 2015–49 and should be submitted on or
                                                                                                                                                                  Exchange, Inc., EDGA Exchange, Inc.,
                                                  (ii) as to which the Exchange consents,                 before July 14, 2015.
                                                                                                                                                                  EDGX Exchange, Inc., Financial
                                                  the Commission will: (a) By order                         For the Commission, by the Division of                Industry Regulatory Authority, Inc.,
                                                  approve or disapprove such proposed                     Trading and Markets, pursuant to delegated              International Securities Exchange, LLC,
                                                  rule change, or (b) institute proceedings               authority.69                                            ISE Gemini, LLC, Miami International
                                                  to determine whether the proposed rule                  Brent J. Fields,                                        Securities Exchange LLC, NASDAQ
                                                  change should be disapproved.                           Secretary.                                              OMX BX, Inc., NASDAQ OMX PHLX
                                                  IV. Solicitation of Comments                            [FR Doc. 2015–15339 Filed 6–22–15; 8:45 am]             LLC, The NASDAQ Stock Market LLC,
                                                                                                                                                                  National Stock Exchange, Inc., New
                                                    Interested persons are invited to                     BILLING CODE 8011–01–P
                                                                                                                                                                  York Stock Exchange LLC, NYSE MKT
                                                  submit written data, views, and                                                                                 LLC, and NYSE Arca, Inc. (collectively,
                                                  arguments concerning the foregoing,                                                                             ‘‘SROs’’ or ‘‘Participants’’), filed with
                                                  including whether the proposed rule                                                                             the Securities and Exchange
                                                  change is consistent with the Act.                                                                              Commission (the ‘‘Commission’’) a
                                                  Comments may be submitted by any of                                                                             proposal to amend the Plan Governing
                                                  the following methods:                                                                                          the Process of Selecting a Plan Processor
                                                  Electronic Comments                                                                                             and Developing a Plan for the
                                                                                                                                                                  Consolidated Audit Trail (the ‘‘Selection
                                                    • Use the Commission’s Internet
                                                                                                                                                                  Plan’’).
                                                  comment form (http://www.sec.gov/
                                                  rules/sro.shtml); or                                                                                            II. Background
                                                    • Send an email to rule-comments@
                                                                                                                                                                    On September 3, 2013, the SROs filed
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                                                  sec.gov. Please include File Number SR–
                                                                                                                                                                  for approval the Selection Plan 3 to
                                                  Phlx–2015–49 on the subject line.
                                                                                                                                                                  govern how the SROs would proceed
                                                  Paper Comments
                                                                                                                                                                    1 15 U.S.C. 78k–1.
                                                    • Send paper comments in triplicate                                                                             2 17 CFR 242.608.
                                                  to Brent J. Fields, Secretary, Securities                                                                         3 See Securities Exchange Act Release No. 70892
                                                  and Exchange Commission, 100 F Street                                                                           (Nov. 15, 2013), 78 FR 69910 (Nov. 21, 2013)
                                                  NE., Washington, DC 20549–1090.                           69 17   CFR 200.30–3(a)(12).                          (Notice of Selection Plan).



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Document Created: 2018-02-22 11:15:25
Document Modified: 2018-02-22 11:15:25
CategoryRegulatory Information
CollectionFederal Register
sudoc ClassAE 2.7:
GS 4.107:
AE 2.106:
PublisherOffice of the Federal Register, National Archives and Records Administration
SectionNotices
FR Citation80 FR 35997 

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