80 FR 72773 - Self-Regulatory Organizations; NASDAQ OMX PHLX LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Amend Rule 1014, “Obligations and Restrictions Applicable to Specialists and Registered Options Traders”

SECURITIES AND EXCHANGE COMMISSION

Federal Register Volume 80, Issue 224 (November 20, 2015)

[Federal Register Volume 80, Number 224 (Friday, November 20, 2015)]
[Notices]
[Pages 72773-72775]
From the Federal Register Online  [www.thefederalregister.org]
[FR Doc No: 2015-29597]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-76441; File No. SR-Phlx-2015-91]


Self-Regulatory Organizations; NASDAQ OMX PHLX LLC; Notice of 
Filing and Immediate Effectiveness of Proposed Rule Change To Amend 
Rule 1014, ``Obligations and Restrictions Applicable to Specialists and 
Registered Options Traders''

November 16, 2015.
    Pursuant to section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that 
on November 2, 2015, NASDAQ OMX PHLX LLC (``Phlx'' or ``Exchange'') 
filed with the Securities and Exchange Commission (``SEC'' or 
``Commission'') the proposed rule change as described in Items I, 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 the 
Substance of the Proposed Rule Change

    The Exchange proposes to amend Phlx Rule 1014 entitled 
``Obligations and Restrictions Applicable to Specialists and Registered 
Options Traders'' to remove the maximum option price change from the 
Rule.
    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 aspects of such 
statements.

A. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The Exchange proposes to amend Phlx Rule 1014, entitled 
``Obligations and Restrictions Applicable to Specialists and Registered 
Options Traders,'' to eliminate the provision providing for bids 
(offers) to be no more than $1 lower (higher) than the last preceding 
transaction price for the particular option.
    Today, Phlx Rule 1014 specifies, ``Bidding no more than $1 lower 
and/or offering no more than $1 higher than the last preceding 
transaction price for the particular option contract. However,

[[Page 72774]]

this standard shall not ordinarily apply if the price per share of the 
underlying stock or Exchange-Traded Fund Share has changed by more than 
$1 since the last preceding transaction for the particular option 
contract. Further, this standard shall not apply to U.S. dollar-settled 
foreign currency options. Phlx Rule 1014 is applicable to specialists 
\3\ and Registered Options Traders \4\ (collectively ``Market 
Makers''). Pursuant to Phlx Rule 1014(c)(i)(B), Market Makers are 
required not to bid more than $1 lower or offer more than $1 higher 
than the last preceding transaction price for the particular option 
contract (the ``one point rule'').
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    \3\ A specialist is an Exchange member who is registered as an 
options specialist pursuant to Rule 1020(a).
    \4\ A Registered Options Trader (``ROT'') includes a Streaming 
Quote Trader (``SQT''), a Remote Streaming Quote Trader (``RSQT'') 
and a Non-Streaming Quote Trader, which by definition is neither a 
SQT nor a RSQT. A Registered Option Trader is defined in Exchange 
Rule 1014(b) as a regular member of the Exchange located on the 
trading floor who has received permission from the Exchange to trade 
in options for his own account. See Exchange Rule 1014 (b)(i) and 
(ii).
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    The Exchange proposes to eliminate the one point rule which sets 
maximum bid and/or ask differentials that may be quoted by Market 
Makers because market changes have rendered the rule obsolete and 
unnecessary. The one point rule applies to options on equities 
(including Exchange-Traded Fund Shares), Index options and U.S. dollar-
settled Foreign Currency Options, to the extent applicable within the 
rule.\5\ The Exchange initially adopted this standard as a guideline 
for Market Makers; however, today, this restriction is no longer 
necessary. For example, today Market-Makers may stream electronic 
quotes and are subject to various electronic quotation requirements, 
including bid/ask quote width requirements contained elsewhere in Rule 
1014.\6\ In addition, the Exchange has rules in place regarding trade-
through and locked/crossed market requirements.\7\ The Exchange also 
has an obvious error rule that contains provisions on erroneous pricing 
errors and has in place certain price check parameters that will not 
permit the automatic execution of certain orders if the execution would 
take place outside an acceptable price range.\8\
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    \5\ The one point rule does not ordinarily apply if the price 
per share of the underlying stock or Exchange-Traded Fund Share has 
changed by more than $1 since the last preceding transaction for the 
particular option contract. Further, this standard does not apply to 
U.S. dollar-settled foreign currency options. See Phlx Rule 
1014(c)(i)(B).
    \6\ See Phlx Rule 1014(c)(A)(1).
    \7\ See Phlx Rules 1083 and 1086.
    \8\ See Phlx Rule 1092.
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    At this time, the Exchange believes that the one point rule is not 
necessary and should be eliminated so as not to unreasonably constrain 
Market Makers when submitting quotes to the Exchange.
2. Statutory Basis
    The Exchange believes that its proposal is consistent with section 
6(b) of the Act \9\ in general, and furthers the objectives of section 
6(b)(5) of the Act \10\ in particular, in that it is designed to 
promote just and equitable principles of trade, to remove impediments 
to and perfect the mechanism of a free and open market and a national 
market system, and, in general to protect investors and the public 
interest, by eliminating this outdated rule which unnecessarily 
restricts bids and offers that may be entered by Market Makers. The 
Exchange has other price protections in place today, such as bid/ask 
quote requirements, locked and crossed market rules and obvious error 
rules which protect against certain price movements and constrain 
quoting.\11\ Also, the Chicago Board Options Exchange Incorporated 
(``CBOE'') had a similar rule in place, which was eliminated in 
2009.\12\
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    \9\ 15 U.S.C. 78f(b).
    \10\ 15 U.S.C. 78f(b)(5).
    \11\ See Rule 1014 and supra notes 6 and 7.
    \12\ See Securities Exchange Act Release No. 60295 (July 13, 
2009), 74 FR 35215 (July 20, 2009) (SR-CBOE-2009-049).
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    The Exchange believes that this constraint on Market Makers may in 
fact prove harmful. In a volatile market, Market Makers may find it 
necessary to move their quotes beyond the one point rule restriction of 
$1 and would be unnecessarily constrained from moving quotes, while 
market makers on other options exchanges would not be subject to the 
same restriction on quoting. The Exchange believes that the one point 
rule does not serve a reasonable purpose in today's market and should 
therefore be eliminated in order to remove impediments to and perfect 
the mechanism of a free and open market and a national market system.

B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange does not believe that the proposed rule change will 
impose any burden on competition not necessary or appropriate in 
furtherance of the purposes of the Act. The Exchange believes that 
eliminating the one point rule does not impose an undue burden on 
inter-market competition because this constraint on quoting does not 
exist on other options exchanges,\13\ where market participants may 
quote without such restriction. Further, the Exchange believes that 
this constraint on Market Makers may in fact prove harmful. In a 
volatile market, Market Makers may find it necessary to move their 
quotes beyond the one point rule restriction of $1 and would be 
unnecessarily constrained from moving quotes while market makers on 
other options exchanges would not be subject to the same restriction on 
quoting. The Exchange does not believe that this rule change imposes an 
undue burden on intra-market competition because there are other price 
protections in place today, such as bid/ask quote requirements, locked 
and crossed market rules and obvious error rules which protect against 
certain price movements and constrain quoting.\14\
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    \13\ For example, CBOE, The NASDAQ Stock Market LLC, and NASDAQ 
OMX BX, Inc. do not have such constraints.
    \14\ See Rule 1014 and supra notes 6 and 7.
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C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants, or Others

    No written comments were either solicited or received.

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

    Because the foregoing proposed rule change does not: (i) 
Significantly affect the protection of investors or the public 
interest; (ii) impose any significant burden on competition; and (iii) 
become operative for 30 days from the date on which it was filed, or 
such shorter time as the Commission may designate, it has become 
effective pursuant to section 19(b)(3)(A)(iii) of the Act \15\ and 
subparagraph (f)(6) of Rule 19b-4 thereunder.\16\
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    \15\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \16\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6) 
requires a self-regulatory organization to give the Commission 
written notice of its intent to file the proposed rule change at 
least five business days prior to the date of filing of the proposed 
rule change, or such shorter time as designated by the Commission. 
The Exchange has satisfied this requirement.
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    At any time within 60 days of the filing of the proposed rule 
change, the Commission summarily may temporarily suspend such rule 
change if it appears to the Commission that such action is: (i) 
Necessary or appropriate in the public interest; (ii) for the 
protection of investors; or (iii) otherwise in furtherance of the 
purposes of the Act. If the Commission takes such action, the 
Commission shall institute proceedings to determine whether the 
proposed rule should be approved or disapproved.

[[Page 72775]]

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-2015-91 on the subject line.

Paper Comments

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

All submissions should refer to File Number SR-Phlx-2015-91. This file 
number should be included on the subject line if email is used. To help 
the Commission process and review your comments more efficiently, 
please use only one method. The Commission will post all comments on 
the Commission's Internet Web site (http://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, all 
written statements with respect to the proposed rule change that are 
filed with the Commission, and all written communications relating to 
the proposed rule change between the Commission and any person, other 
than those that may be withheld from the public in accordance with the 
provisions of 5 U.S.C. 552, will be available for Web site viewing and 
printing in the Commission's Public Reference Room, 100 F Street NE., 
Washington, DC 20549 on official business days between the hours of 
10:00 a.m. and 3:00 p.m. Copies of such filing also will be available 
for inspection and copying at the principal offices of the Exchange. 
All comments received will be posted without change; the Commission 
does not edit personal identifying information from submissions. You 
should submit only information that you wish to make available 
publicly. All submissions should refer to File Number SR-Phlx-2015-91, 
and should be submitted on or before December 11, 2015.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\17\
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    \17\ 17 CFR 200.30-3(a)(12).
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Robert W. Errett,
Deputy Secretary.
[FR Doc. 2015-29597 Filed 11-19-15; 8:45 am]
BILLING CODE 8011-01-P