81 FR 83917 - Self-Regulatory Organizations; NASDAQ PHLX LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Amend the Limit Order Protection
SECURITIES AND EXCHANGE COMMISSION Federal Register Volume 81, Issue 225 (November 22, 2016)
Federal Register Volume 81, Issue 225 (November 22, 2016)
| Page Range | 83917-83920 | |
| FR Document | 2016-28033 |
[Federal Register Volume 81, Number 225 (Tuesday, November 22, 2016)] [Notices] [Pages 83917-83920] From the Federal Register Online [www.thefederalregister.org] [FR Doc No: 2016-28033] ----------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION [Release No. 34-79326; File No. SR-Phlx-2016-113] Self-Regulatory Organizations; NASDAQ PHLX LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Amend the Limit Order Protection November 16, 2016. 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 15, 2016, NASDAQ PHLX LLC (``Phlx'' or ``Exchange'') filed with the Securities and Exchange Commission (``SEC'' or ``Commission'') the proposed rule change as described in Items I and II below, which Items have been prepared by the Exchange. The Commission is publishing this notice to solicit comments on the proposed rule change from interested persons. --------------------------------------------------------------------------- \1\ 15 U.S.C. 78s(b)(1). \2\ 17 CFR 240.19b-4. --------------------------------------------------------------------------- I. Self-Regulatory Organization's Statement of the Terms of Substance of the Proposed Rule Change The Exchange proposes to amend the Limit Order Protection or ``LOP'' for members accessing PSX and adding rule text related to a collar applicable to Primary Pegging and Market Pegging Orders. The text of the proposed rule change is available on the Exchange's Web site at http://nasdaqphlx.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 recently adopted a new mechanism to protect against erroneous Limit Orders which are entered into PSX at Rule 3307(f).\3\ This mechanism addresses risks to market participants of human error in entering Limit Orders at unintended prices. Specifically, LOP prevents certain Limit Orders from executing or being placed on the Order Book at prices outside pre-set standard limits. The System rejects those Limit Orders, rather than executing them automatically. LOP rejects Limit Orders back to the member when the order exceeds certain defined logic. Specifically, LOP prevents certain Limit Orders at prices outside of pre-set standard limits (``LOP Limit'') from being accepted by the System. --------------------------------------------------------------------------- \3\ See Securities Exchange Act Release No. 78246 [sic] (August 24, 2016), 81 FR 59672 (August 30, 2016) (SR-Phlx-2016-58). --------------------------------------------------------------------------- Modifications of Orders In its adoptive filing, the Exchange noted that LOP shall apply to all Quotes and Orders, including any modified Orders.\4\ At this time, the Exchange proposes to remove ``including any modified Orders'' from the rule text at rule 3307(f)(i). The Exchange proposes to amend this language because it is misleading and may cause confusion. The Exchange proposes to state that LOP shall apply to all Quotes and Orders, including Quotes and Orders that have been modified, where the modification results in a new timestamp and priority.\5\ Any Order that is modified within the System, but does not lose priority, for example an Order that was decremented, will not be subject to LOP after it was modified because the system does not cancel decremented orders from the Order Book. If an Order is cancelled either by the member or by the system and a new Order entered into the System, the new Order would be subject to LOP. For example, if the price of an Order is modified, the system will cancel the Order and the modified Order would receive a new timestamp and priority and this Order would be subject to LOP. --------------------------------------------------------------------------- \4\ If an Order is modified, LOP will review the order anew and, if LOP is triggered, such modification will not take effect and the original order will be rejected. \5\ See Rule 4756 (Entry and Display of Quotes and Orders) at (a)(3). --------------------------------------------------------------------------- Exceptions to LOP The Exchange also noted in its adoptive filing that LOP would not apply to Market Orders, Market Maker Peg Orders \6\ or Intermarket Sweep Orders (ISO).\7\ The Exchange proposes to modify this language to specifically state that LOP would not apply to Orders with Market and Primary Pegging.\8\ --------------------------------------------------------------------------- \6\ A ``Market Maker Peg Order'' is an Order Type designed to allow a Market Maker to maintain a continuous two-sided quotation at a displayed price that is compliant with the quotation requirements for Market Makers set forth in Rule 3213(a)(2). The displayed price of the Market Maker Peg Order is set with reference to a ``Reference Price'' in order to keep the displayed price of the Market Maker Peg Order within a bounded price range. A Market Maker Peg Order may be entered through RASH or FIX only. A Market Maker Peg Order must be entered with a limit price beyond which the Order may not be priced. The Reference Price for a Market Maker Peg Order to buy (sell) is the then-current National Best Bid (National Best Offer) (including PSX), or if no such National Best Bid or National Best Offer, the most recent reported last-sale eligible trade from the responsible single plan processor for that day, or if none, the previous closing price of the security as adjusted to reflect any corporate actions (e.g., dividends or stock splits) in the security. See PSX Rule 3301A(b)(5)(A). \7\ An Intermarket Sweep or ISO Order, which is an Order that is immediately executable within PSX against Orders against which they are marketable, is not subject to LOP. See PSX Rule 3401(g). \8\ Orders with Market and Primary Pegging available through RASH and FIX only. --------------------------------------------------------------------------- There are three types of Pegging Orders: Primary Pegging, Market Pegging and Midpoint Pegging. Pegging is an Order Attribute that allows an Order to have its price automatically set with reference to the NBBO; provided, however, that if PSX is the sole market center at the Best Bid or Best Offer (as applicable), then the price of any Displayed Order with Primary Pegging (as defined below) will be set with reference to the highest bid or lowest offer disseminated by a market center other than PSX. An Order with a Pegging Order Attribute may be referred to as a ``Pegged Order.''\9\ For purposes of this Rule 3301B, the price to which an Order is pegged will be referred to as the Inside Quotation, the Inside Bid, or the Inside Offer, as appropriate. There are three varieties of Pegging: --------------------------------------------------------------------------- \9\ PSX Rule 3301B(d).Primary Pegging means Pegging with reference to the Inside Quotation on the same side of the market. For example, if the Inside Bid was $11, an Order to buy with Primary Pegging would be priced at $11. Market Pegging means Pegging with reference to the Inside Quotation on the opposite side of the market. For example, if the Inside Offer was $11.06, an Order to buy with Market Pegging would be priced at $11.06. Midpoint Pegging means Pegging with reference to the midpoint between the Inside Bid and the Inside Offer (the ``Midpoint''). Thus, if the Inside Bid was $11 and the Inside Offer was $11.06, an Order with Midpoint Pegging would be priced at $11.03. [[Page 83918]] An Order with Midpoint Pegging is not displayed. An Order with Midpoint Pegging may be executed in sub-pennies if necessary to obtain a midpoint price. Midpoint Pegging will be the only Pegging Order subject to LOP, provided it has a limit price. An Order with Pegging may specify a limit price beyond which the Order may not be executed; provided, however, that if an Order has been assigned a Pegging Order Attribute and a Discretion Order \10\ Attribute, the Order may execute at any price within the discretionary price range, even if beyond the limit price specified with respect to the Pegging Order Attribute. A Midpoint Pegging Order may have a discretion attribute. A Midpoint Pegging Order with a discretion price would not be subject to LOP. The Exchange notes that a Midpoint Pegging Order, similar to a Primary or Market Pegging Order, as explained below, may result is [sic] an aggressive or passive price. As a result, the LOP may remove orders that were intended to be more aggressive or passive due to the discretionary attribute. For this reason, the Exchange will not subject a Midpoint Pegging Order with a discretion price to LOP. --------------------------------------------------------------------------- \10\ Discretion is an Order Attribute under which an Order has a non-displayed discretionary price range within which the entering Participant is willing to trade; such an Order may be referred to as a ``Discretionary Order.'' See PSX Rule 3301B(g). --------------------------------------------------------------------------- In addition, an Order with Primary Pegging or Market Pegging may specify an Offset Amount,\11\ such that the price of the Order will vary from the Inside Quotation by the selected Offset Amount. The Offset Amount may be either aggressive or passive. Thus, for example, if a Participant entered an Order to buy with Primary Pegging and a passive Offset Amount of $0.05 and the Inside Bid was $11, the Order would be priced at $10.95. If the Participant selected an aggressive Offset Amount of $0.02, however, the Order would be priced at $11.02. An Order with Primary Pegging and an Offset Amount will not be Displayed, unless the Order is Attributable. The Exchange notes that both Market and Primary Pegging may impact the market by effecting the bid or offer. --------------------------------------------------------------------------- \11\ An offset is not supported for a Midpoint Pegging Order. --------------------------------------------------------------------------- The Exchange is not applying LOP to orders with Market or Primary Pegging because it may result in removing orders that were intended to be more aggressive or to set the bid or offer on the market due to the order attributes noted above. These Pegging Orders are also subject to a collar, which is explained in this rule change. In contrast, an Order with Midpoint Pegging will only be at the midpoint and not have the same impact as the other two types of orders and therefore subjecting such an order to LOP does not impact the potential of the order since by definition it is set to the midpoint. An Order with Midpoint Pegging will not be displayed and is not subject to a collar. An Order with Market Pegging and no Offset behaves as a ``market order'' with respect to any liquidity on the PSX Book at the Inside Quotation on the opposite side of the market because it is immediately executable at that price. If, at the time of entry, there is no price to which a Pegged Order can be pegged, the Order will be rejected; provided, however, that a Displayed Order that has Market Pegging, or an Order with a Non-Display Attribute that has Primary Pegging or Market Pegging, will be accepted at its limit price. In the case of an Order with Midpoint Pegging, if the Inside Bid and Inside Offer are locked, the Order will be priced at the locking price, if the Inside Bid and Inside Offer are crossed, the Order will nevertheless be priced at the midpoint between the Inside Bid and Inside Offer, and if there is no Inside Bid and/or Inside Offer, the Order will be rejected. However, even if the Inside Bid and Inside Offer are locked or crossed, an Order with Midpoint Pegging that locked or crossed an Order on the PSX Book would execute (provided, however, that a Midpoint Peg Post- Only Order would execute or post as described in Rule 3301B(d). It is important to note that only to the extent that a Midpoint Pegging Order has a limit price that the Order would be subject to LOP, unless the Midpoint Pegging Order also has a discretion attribute. If no limit price is specified, the Midpoint Pegging Order would not be subject to LOP. LOP will be operational each trading day, except during trading halts and pauses. Members will continue to be subject to certain parameters when submitting Limit Orders into the Order Book. LOP will not apply in the event that there is no established LOP Reference Price.\12\ The LOP Reference Price shall be the current National Best Bid or Best Offer (NBBO), the bid for sell orders and the offer for buy orders.\13\ LOP is will be applicable on all protocols.\14\ The LOP feature will be mandatory for all PSX members. --------------------------------------------------------------------------- \12\ For example, if there is a one-sided quote or if the NBB, when used as the LOP Reference Price, is equal to or less than $0.50. \13\ The Exchange will not accept incoming Limit Orders that exceed the LOP Reference Threshold. Limit Orders will not be accepted if the price of the Limit Order is greater than the LOP Reference Threshold for a buy Limit Order. Limit Orders will not be accepted if the price of the Limit Order is less than the LOP Reference Threshold for a sell Limit Order. The LOP Reference Threshold for buy orders will be the LOP Reference Price (offer) plus the applicable percentage specified in the LOP Limit. The LOP Reference Threshold for sell orders will be the LOP Reference Price (bid) minus the applicable percentage specified in the LOP Limit. The LOP Limit will be the greater of 10% of the LOP Reference Price or $0.50 for all securities across all trading sessions. The LOP Reference Price will be the current National Best Bid or Best Offer (NBBO), the bid for sell orders and the offer for buy orders. \14\ PSX maintains several communications protocols for members to use in entering Orders and sending other messages to PSX, such as: OUCH, RASH, FLITE, and FIX. --------------------------------------------------------------------------- Implementation of LOP The Exchange indicated in its adoptive rule change that it would implement this rule within ninety (90) days of the approval of the proposed rule change.\15\ At this time, the Exchange proposes to delay this implementation an additional sixty (60) days from the original timeframe in order to implement the LOP with the changes proposed herein. The Exchange will issue an Equities Trader Alert in advance to inform market participants of such implementation date. --------------------------------------------------------------------------- \15\ See note 3 above. --------------------------------------------------------------------------- Pegging Order Collar In 2009, the Exchange adopted a collar for certain Unpriced Orders.\16\ At that time, the Exchange defined an Unpriced Order as any order type permitted by the System to buy or sell shares of a security at the national best bid (best offer) (``NBBO'') at the time when the order reaches the System. Any portion of an Unpriced Order that would execute on PSX at a price more than $0.25 or 5 percent worse than the NBBO at the time when the order reaches the System, whichever is greater, will be cancelled. --------------------------------------------------------------------------- \16\ See Securities Exchange Act Release No. 63051 (October 6, 2010), 75 FR 63240 (October 14, 2010) (SR-Phlx-2010-135). An ``Unpriced Order'' was defined in this rule change as any order type permitted by the System to buy or sell shares of a security at the national best bid (best offer) (``NBBO'') at the time when the order reaches the System. --------------------------------------------------------------------------- This rule related to the collar was inadvertently removed from the Exchange's rules.\17\ At this time, the Exchange proposes to amend the PSX rules to add the collar into the rules once again. --------------------------------------------------------------------------- \17\ See Securities Exchange Act Commission [sic] Release No. 75293 (June 24, 2015), 80 FR 37327 (June 30, 2015) (SR-Phlx-2015- 29). --------------------------------------------------------------------------- The purpose of the collar is to protect market participants by reducing the risk that Primary and Market Pegging Orders will execute at prices that are significantly worse than the national [[Page 83919]] best bid and offer (``NBBO'') at the time the Exchange receives the order. The Exchange believes that most market participants expect that their order will be executed at its full size at a price reasonably related to the prevailing market. However, market participants may not be aware that there is insufficient liquidity at or near the NBBO to fill the entire order, particularly for more thinly-traded securities. The Exchange proposes to memorialize this collar, which currently exists in its trading and routing systems functionality, and define it specifically as applicable to Primary and Market Pegging Orders. The Exchange seeks to memorialize the rule within Rule 3301B, entitled ``Order Attributes.'' The new rule text would state, ``Primary Pegging Orders and Market Pegging Orders are subject to a collar. Any portion of a Primary Pegging Order or Market Pegging Order that would execute, either on the Exchange or when routed to another market center, at a price of more than $0.25 or 5 percent worse than the NBBO at the time when the order reaches the System, whichever is greater, will be cancelled.'' The following example illustrates how the collar works. A market participant submits a routable order to buy 500 shares. The NBBO is $6.00 bid by $6.05 offer, with 100 shares available on each side. Both sides of the NBBO are set by another market center (``Away Market''), but PSX has 100 shares available at the $6.05 to sell at the offer price and also has reserve orders to sell 100 shares at $6.32 and 400 shares at $6.40. No other market center is publishing offers to sell the security in between $6.05 and $6.40. In this example, the order would be executed in the following manner: 100 shares would be executed by PSX at the $6.05; 400 shares would be routed to the Away Market as an immediate or cancel order with a price of $6.05; 100 shares executed by the Away Market;\18\ --------------------------------------------------------------------------- \18\ This assumes that the Away Market's offer was still available and that the Away Market had no additional non-displayed orders at this price. --------------------------------------------------------------------------- 300 shares returned to PSX; 100 shares executed by PSX at $6.32 (more than $0.25 but less than 5 percent worse than the NBBO); and 200 shares, representing the remainder of the order, would be cancelled because the remaining liquidity available at $6.40 is more than 5 percent worse than the NBBO. Implementation of Pegging Order Collar The Exchange intends to implement the Pegging Order Collar as soon as practicable pursuant to this proposal. The Exchange requests a waiver of the operative delay to implement the Pegging Order Collar. 2. Statutory Basis The Exchange believes that its proposal is consistent with Section 6(b) of the Act,\19\ in general, and furthers the objectives of Section 6(b)(5) of the Act,\20\ 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 mitigating risks to market participants of human error in entering Limit Orders at clearly unintended prices. The proposal will allow for protections for Limit Orders which should encourage price continuity and, in turn, protect investors and the public interest by reducing executions occurring at dislocated prices. --------------------------------------------------------------------------- \19\ 15 U.S.C. 78f(b). \20\ 15 U.S.C. 78f(b)(5). --------------------------------------------------------------------------- The Exchange's proposal to amend the language concerning the modification of Orders is consistent with the Act because only new Orders would be subject to LOP. The proposed new language specifies that Orders that are modified for size and remain in the Order Book with the same priority, because only size was modified to reduce the size, will not be subject to LOP. Other modifications to Orders that amend the timestamp or priority will subject the modified orders to LOP because these Orders will be submitted into the System as new Orders. The LOP functionality protects market participants by reducing the risk that Midpoint Pegging Orders will execute at prices that are significantly worse than the national best bid and offer (``NBBO'') at the time the Exchange receives the order. The LOP feature assists with the maintenance of fair and orderly markets by mitigating the risks associated with errors resulting in executions at prices that are away from the Best Bid or Offer and potentially erroneous. Further it protects investors from potentially receiving executions away from the prevailing prices at any given time. The Exchange adopted LOP to avoid a series of improperly priced aggressive orders transacting in the Order Book. The Exchange believes that excluding Primary Pegging and Market Pegging Orders is consistent with the Act because including such orders may result in removing orders that were intended to be more aggressive or to set the bid or offer on the market due to the order attributes noted in the Purpose section of this rule change. Market and Primary Pegging Orders are also currently subject to a collar. Market and Primary Pegging Orders that would execute, either on the Exchange or when routed to another market center, at a price of more than $0.25 or 5 percent worse than the NBBO at the time when the order reaches the System, whichever is greater, will be cancelled.\21\ Further, the Market Pegging Order has its own process for rejecting those orders where no price exists to which a Pegged Order can be pegged. --------------------------------------------------------------------------- \21\ The Exchange inadvertently removed the rule from the Phlx Rulebook. The Exchange proposes to adopt the rule herein. --------------------------------------------------------------------------- This feature should create a level of protection that prevents the Limit Orders from entering the Order Book outside of an acceptable range for the Limit Order to execute. The LOP should reduce the negative impacts of sudden, unanticipated volatility, and serve to preserve an orderly market in a transparent and uniform manner, increase overall market confidence, and promote fair and orderly markets and the protection of investors. Pegging Order Collar The Exchange believes that the collar proposal is consistent with the Act because it is designed to promote just and equitable principles of trade, to remove impediments to and perfect the mechanism of a free and open market and a national market system, and, in general to protect investors and the public interest, by avoiding execution of Primary and Market Pegging Orders (either on PSX or on other market centers as a result of orders routed by PSX) at prices that are significantly worse than the NBBO at the time the order is initially received. The NBBO provides reasonable guidance of the current value of a given security and therefore market participants should have confidence that their Market and Primary Pegging Orders will not be executed at a significantly worse price than the NBBO. 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 LOP feature should provide market participants with additional price [[Page 83920]] protection from anomalous executions. This feature is not optional and is applicable to all members submitting Limit Orders. Thus, the Exchange does not believe the proposal creates any significant impact on competition. In addition, the proposed collar in Rule 3301B would be applicable to all Market and Primary Pegging Orders entered into the PSX System. Similarly, all Midpoint Pegging Order will be subject to LOP, unless they have a discretion attribute. 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) of the Act and Rule 19b- 4(f)(6) thereunder.\22\ --------------------------------------------------------------------------- \22\ 17 CFR 240.19b-4(f)(6). As required under Rule 19b- 4(f)(6)(iii), the Exchange provided the Commission with written notice of its intent to file the proposed rule change, along with a brief description and the text of the proposed rule change, at least five business days prior to the date of filing of the proposed rule change, or such shorter time as designated by the Commission. --------------------------------------------------------------------------- A proposed rule change filed pursuant to Rule 19b-4(f)(6) under the Act \23\ normally does not become operative for 30 days after the date of its filing. However, Rule 19b-4(f)(6)(iii) \24\ permits the Commission to designate a shorter time if such action is consistent with the protection of investors and the public interest. The Exchange has asked the Commission to waive the 30-day operative delay so that the proposal may become operative immediately upon filing. When the Exchange first proposed the LOP, the Exchange represented that it would implement the LOP within 90 days of obtaining Commission approval (i.e., by November 22, 2016).\25\ The Exchange now proposes to extend the LOP implementation date by 60 days in order to include the modifications in this proposed rule change with the implementation of the LOP. Waiver of the 30-day operative delay would allow the Exchange to immediately extend the LOP implementation date. The waiver would also permit the Exchange to immediately clarify the application of the LOP to modified orders. Moreover, the waiver would allow the Exchange to immediately exclude from the LOP Market Pegging Orders, Primary Pegging Orders, and Midpoint Pegging Orders that have a discretion price. As noted above, the Exchange proposes to exclude these Orders because these Orders may be intended to be aggressive or to set the bid or offer on the market. Moreover, as noted above, Market and Primary Pegging Orders are currently subject to collars. Lastly, the waiver would allow the Exchange's rules to immediately and accurately reflect the current collars for Market and Primary Pegging Orders, which were removed inadvertently. Accordingly, the Commission finds that waiving the 30-day operative delay is consistent with the protection of investors and the public interest and designates the proposal operative upon filing.\26\ --------------------------------------------------------------------------- \23\ 17 CFR 240.19b-4(f)(6). \24\ 17 CFR 240.19b-4(f)(6)(iii). \25\ See Securities Exchange Act Release Nos. 78245 (July 7, 2016), 81 FR 45337 (July 13, 2016) (noticing SR-Phlx-2016-58) and 78667 (August 24, 2016), 81 FR 59672 (August 30, 2016) (approving SR-Phlx-2016-58). \26\ For purposes only of waiving the 30-day operative delay, the Commission has considered the proposed rule's impact on efficiency, competition, and capital formation. 15 U.S.C. 78c(f). --------------------------------------------------------------------------- At any time within 60 days of the filing of such proposed rule change, the Commission summarily may temporarily suspend such rule change if it appears to the Commission that such action is necessary or appropriate in the public interest, for the protection of investors, or otherwise in furtherance of the purposes of the Act. If the Commission takes such action, the Commission shall institute proceedings to determine whether the proposed rule change should be approved or 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-2016-113 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-2016-113. 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 also will be available for inspection and copying at the principal office of the Exchange. All comments received will be posted without change; the Commission does not edit personal identifying information from submissions. You should submit only information that you wish to make available publicly. All submissions should refer to File Number SR-Phlx-2016-113 and should be submitted on or before December 13, 2016. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.\27\ Brent J. Fields, Secretary. --------------------------------------------------------------------------- \27\ 17 CFR 200.30-3(a)(12). --------------------------------------------------------------------------- [FR Doc. 2016-28033 Filed 11-21-16; 8:45 am] BILLING CODE 8011-01-P
![Federal Register / Vol. 81, No. 225 / Tuesday, November 22, 2016 / Notices 83917
Dated: November 16, 2016. A. Self-Regulatory Organization’s apply to Market Orders, Market Maker
Brent J. Fields, Statement of the Purpose of, and Peg Orders 6 or Intermarket Sweep
Secretary. Statutory Basis for, the Proposed Rule Orders (ISO).7 The Exchange proposes
[FR Doc. 2016–28027 Filed 11–21–16; 8:45 am] Change to modify this language to specifically
BILLING CODE 8011–01–P 1. Purpose state that LOP would not apply to
Orders with Market and Primary
The Exchange recently adopted a new Pegging.8
SECURITIES AND EXCHANGE mechanism to protect against erroneous There are three types of Pegging
COMMISSION Limit Orders which are entered into Orders: Primary Pegging, Market
PSX at Rule 3307(f).3 This mechanism Pegging and Midpoint Pegging. Pegging
[Release No. 34–79326; File No. SR–Phlx– addresses risks to market participants of is an Order Attribute that allows an
2016–113] human error in entering Limit Orders at Order to have its price automatically set
unintended prices. Specifically, LOP with reference to the NBBO; provided,
Self-Regulatory Organizations;
prevents certain Limit Orders from however, that if PSX is the sole market
NASDAQ PHLX LLC; Notice of Filing
executing or being placed on the Order center at the Best Bid or Best Offer (as
and Immediate Effectiveness of
Book at prices outside pre-set standard applicable), then the price of any
Proposed Rule Change To Amend the
limits. The System rejects those Limit Displayed Order with Primary Pegging
Limit Order Protection
Orders, rather than executing them (as defined below) will be set with
November 16, 2016. automatically. LOP rejects Limit Orders reference to the highest bid or lowest
Pursuant to Section 19(b)(1) of the back to the member when the order offer disseminated by a market center
Securities Exchange Act of 1934 exceeds certain defined logic. other than PSX. An Order with a
(‘‘Act’’),1 and Rule 19b–4 thereunder,2 Specifically, LOP prevents certain Limit Pegging Order Attribute may be referred
notice is hereby given that on November Orders at prices outside of pre-set to as a ‘‘Pegged Order.’’9 For purposes
15, 2016, NASDAQ PHLX LLC (‘‘Phlx’’ standard limits (‘‘LOP Limit’’) from of this Rule 3301B, the price to which
or ‘‘Exchange’’) filed with the Securities being accepted by the System. an Order is pegged will be referred to as
and Exchange Commission (‘‘SEC’’ or Modifications of Orders the Inside Quotation, the Inside Bid, or
‘‘Commission’’) the proposed rule the Inside Offer, as appropriate. There
change as described in Items I and II In its adoptive filing, the Exchange
are three varieties of Pegging:
below, which Items have been prepared noted that LOP shall apply to all Quotes
and Orders, including any modified • Primary Pegging means Pegging with
by the Exchange. The Commission is reference to the Inside Quotation on the same
publishing this notice to solicit Orders.4 At this time, the Exchange
proposes to remove ‘‘including any side of the market. For example, if the Inside
comments on the proposed rule change Bid was $11, an Order to buy with Primary
modified Orders’’ from the rule text at
from interested persons. Pegging would be priced at $11.
rule 3307(f)(i). The Exchange proposes • Market Pegging means Pegging with
I. Self-Regulatory Organization’s to amend this language because it is reference to the Inside Quotation on the
Statement of the Terms of Substance of misleading and may cause confusion. opposite side of the market. For example, if
the Proposed Rule Change The Exchange proposes to state that the Inside Offer was $11.06, an Order to buy
The Exchange proposes to amend the LOP shall apply to all Quotes and with Market Pegging would be priced at
Orders, including Quotes and Orders $11.06.
Limit Order Protection or ‘‘LOP’’ for • Midpoint Pegging means Pegging with
members accessing PSX and adding rule that have been modified, where the
modification results in a new timestamp reference to the midpoint between the Inside
text related to a collar applicable to Bid and the Inside Offer (the ‘‘Midpoint’’).
Primary Pegging and Market Pegging and priority.5 Any Order that is
Thus, if the Inside Bid was $11 and the
Orders. modified within the System, but does Inside Offer was $11.06, an Order with
The text of the proposed rule change not lose priority, for example an Order Midpoint Pegging would be priced at $11.03.
is available on the Exchange’s Web site that was decremented, will not be
at http://nasdaqphlx.cchwallstreet.com/ subject to LOP after it was modified 6 A ‘‘Market Maker Peg Order’’ is an Order Type
, at the principal office of the Exchange, because the system does not cancel designed to allow a Market Maker to maintain a
and at the Commission’s Public decremented orders from the Order continuous two-sided quotation at a displayed price
Book. If an Order is cancelled either by that is compliant with the quotation requirements
Reference Room. for Market Makers set forth in Rule 3213(a)(2). The
the member or by the system and a new displayed price of the Market Maker Peg Order is
II. Self-Regulatory Organization’s Order entered into the System, the new set with reference to a ‘‘Reference Price’’ in order
Statement of the Purpose of, and Order would be subject to LOP. For to keep the displayed price of the Market Maker Peg
Statutory Basis for, the Proposed Rule example, if the price of an Order is Order within a bounded price range. A Market
Change Maker Peg Order may be entered through RASH or
modified, the system will cancel the FIX only. A Market Maker Peg Order must be
In its filing with the Commission, the Order and the modified Order would entered with a limit price beyond which the Order
Exchange included statements receive a new timestamp and priority may not be priced. The Reference Price for a Market
and this Order would be subject to LOP. Maker Peg Order to buy (sell) is the then-current
concerning the purpose of and basis for National Best Bid (National Best Offer) (including
the proposed rule change and discussed Exceptions to LOP PSX), or if no such National Best Bid or National
any comments it received on the Best Offer, the most recent reported last-sale eligible
proposed rule change. The text of these The Exchange also noted in its trade from the responsible single plan processor for
adoptive filing that LOP would not that day, or if none, the previous closing price of
statements may be examined at the the security as adjusted to reflect any corporate
sradovich on DSK3GMQ082PROD with NOTICES
places specified in Item IV below. The 3 See Securities Exchange Act Release No. 78246 actions (e.g., dividends or stock splits) in the
Exchange has prepared summaries, set [sic] (August 24, 2016), 81 FR 59672 (August 30, security. See PSX Rule 3301A(b)(5)(A).
7 An Intermarket Sweep or ISO Order, which is
forth in sections A, B, and C below, of 2016) (SR–Phlx–2016–58).
4 If an Order is modified, LOP will review the an Order that is immediately executable within PSX
the most significant aspects of such against Orders against which they are marketable,
order anew and, if LOP is triggered, such
statements. modification will not take effect and the original is not subject to LOP. See PSX Rule 3401(g).
order will be rejected. 8 Orders with Market and Primary Pegging
1 15 U.S.C. 78s(b)(1). 5 See Rule 4756 (Entry and Display of Quotes and available through RASH and FIX only.
2 17 CFR 240.19b–4. Orders) at (a)(3). 9 PSX Rule 3301B(d).
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![83918 Federal Register / Vol. 81, No. 225 / Tuesday, November 22, 2016 / Notices
An Order with Midpoint Pegging is not In contrast, an Order with Midpoint all protocols.14 The LOP feature will be
displayed. An Order with Midpoint Pegging Pegging will only be at the midpoint mandatory for all PSX members.
may be executed in sub-pennies if necessary and not have the same impact as the
to obtain a midpoint price. Implementation of LOP
other two types of orders and therefore
Midpoint Pegging will be the only subjecting such an order to LOP does The Exchange indicated in its
Pegging Order subject to LOP, provided not impact the potential of the order adoptive rule change that it would
it has a limit price. An Order with since by definition it is set to the implement this rule within ninety (90)
Pegging may specify a limit price midpoint. An Order with Midpoint days of the approval of the proposed
beyond which the Order may not be Pegging will not be displayed and is not rule change.15 At this time, the
executed; provided, however, that if an subject to a collar. Exchange proposes to delay this
Order has been assigned a Pegging An Order with Market Pegging and no implementation an additional sixty (60)
Order Attribute and a Discretion Offset behaves as a ‘‘market order’’ with days from the original timeframe in
Order 10 Attribute, the Order may respect to any liquidity on the PSX Book order to implement the LOP with the
execute at any price within the at the Inside Quotation on the opposite changes proposed herein. The Exchange
discretionary price range, even if side of the market because it is will issue an Equities Trader Alert in
beyond the limit price specified with immediately executable at that price. If, advance to inform market participants
respect to the Pegging Order Attribute. at the time of entry, there is no price to of such implementation date.
A Midpoint Pegging Order may have a which a Pegged Order can be pegged, Pegging Order Collar
discretion attribute. A Midpoint Pegging the Order will be rejected; provided,
however, that a Displayed Order that In 2009, the Exchange adopted a
Order with a discretion price would not
has Market Pegging, or an Order with a collar for certain Unpriced Orders.16 At
be subject to LOP. The Exchange notes
Non-Display Attribute that has Primary that time, the Exchange defined an
that a Midpoint Pegging Order, similar
Pegging or Market Pegging, will be Unpriced Order as any order type
to a Primary or Market Pegging Order,
accepted at its limit price. In the case of permitted by the System to buy or sell
as explained below, may result is [sic]
an Order with Midpoint Pegging, if the shares of a security at the national best
an aggressive or passive price. As a
Inside Bid and Inside Offer are locked, bid (best offer) (‘‘NBBO’’) at the time
result, the LOP may remove orders that
the Order will be priced at the locking when the order reaches the System. Any
were intended to be more aggressive or
price, if the Inside Bid and Inside Offer portion of an Unpriced Order that
passive due to the discretionary
are crossed, the Order will nevertheless would execute on PSX at a price more
attribute. For this reason, the Exchange
be priced at the midpoint between the than $0.25 or 5 percent worse than the
will not subject a Midpoint Pegging
Inside Bid and Inside Offer, and if there NBBO at the time when the order
Order with a discretion price to LOP.
is no Inside Bid and/or Inside Offer, the reaches the System, whichever is
In addition, an Order with Primary
Order will be rejected. However, even if greater, will be cancelled.
Pegging or Market Pegging may specify This rule related to the collar was
an Offset Amount,11 such that the price the Inside Bid and Inside Offer are
locked or crossed, an Order with inadvertently removed from the
of the Order will vary from the Inside Exchange’s rules.17 At this time, the
Quotation by the selected Offset Midpoint Pegging that locked or crossed
an Order on the PSX Book would Exchange proposes to amend the PSX
Amount. The Offset Amount may be rules to add the collar into the rules
either aggressive or passive. Thus, for execute (provided, however, that a
Midpoint Peg Post-Only Order would once again.
example, if a Participant entered an The purpose of the collar is to protect
Order to buy with Primary Pegging and execute or post as described in Rule
3301B(d). It is important to note that market participants by reducing the risk
a passive Offset Amount of $0.05 and that Primary and Market Pegging Orders
the Inside Bid was $11, the Order would only to the extent that a Midpoint
Pegging Order has a limit price that the will execute at prices that are
be priced at $10.95. If the Participant significantly worse than the national
selected an aggressive Offset Amount of Order would be subject to LOP, unless
$0.02, however, the Order would be the Midpoint Pegging Order also has a
less than the LOP Reference Threshold for a sell
priced at $11.02. An Order with Primary discretion attribute. If no limit price is Limit Order. The LOP Reference Threshold for buy
Pegging and an Offset Amount will not specified, the Midpoint Pegging Order orders will be the LOP Reference Price (offer) plus
be Displayed, unless the Order is would not be subject to LOP. the applicable percentage specified in the LOP
LOP will be operational each trading Limit. The LOP Reference Threshold for sell orders
Attributable. The Exchange notes that will be the LOP Reference Price (bid) minus the
both Market and Primary Pegging may day, except during trading halts and applicable percentage specified in the LOP Limit.
impact the market by effecting the bid pauses. Members will continue to be The LOP Limit will be the greater of 10% of the
or offer. subject to certain parameters when LOP Reference Price or $0.50 for all securities
submitting Limit Orders into the Order across all trading sessions. The LOP Reference Price
The Exchange is not applying LOP to will be the current National Best Bid or Best Offer
orders with Market or Primary Pegging Book. LOP will not apply in the event (NBBO), the bid for sell orders and the offer for buy
because it may result in removing orders that there is no established LOP orders.
that were intended to be more Reference Price.12 The LOP Reference 14 PSX maintains several communications
aggressive or to set the bid or offer on Price shall be the current National Best protocols for members to use in entering Orders and
Bid or Best Offer (NBBO), the bid for sending other messages to PSX, such as: OUCH,
the market due to the order attributes RASH, FLITE, and FIX.
noted above. These Pegging Orders are sell orders and the offer for buy 15 See note 3 above.
also subject to a collar, which is orders.13 LOP is will be applicable on 16 See Securities Exchange Act Release No. 63051
explained in this rule change. (October 6, 2010), 75 FR 63240 (October 14, 2010)
sradovich on DSK3GMQ082PROD with NOTICES
12 For example, if there is a one-sided quote or if (SR–Phlx–2010–135). An ‘‘Unpriced Order’’ was
the NBB, when used as the LOP Reference Price, defined in this rule change as any order type
10 Discretion is an Order Attribute under which is equal to or less than $0.50. permitted by the System to buy or sell shares of a
an Order has a non-displayed discretionary price 13 The Exchange will not accept incoming Limit security at the national best bid (best offer)
range within which the entering Participant is Orders that exceed the LOP Reference Threshold. (‘‘NBBO’’) at the time when the order reaches the
willing to trade; such an Order may be referred to Limit Orders will not be accepted if the price of the System.
as a ‘‘Discretionary Order.’’ See PSX Rule 3301B(g). Limit Order is greater than the LOP Reference 17 See Securities Exchange Act Commission [sic]
11 An offset is not supported for a Midpoint Threshold for a buy Limit Order. Limit Orders will Release No. 75293 (June 24, 2015), 80 FR 37327
Pegging Order. not be accepted if the price of the Limit Order is (June 30, 2015) (SR–Phlx–2015–29).
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![83920 Federal Register / Vol. 81, No. 225 / Tuesday, November 22, 2016 / Notices
protection from anomalous executions. to include the modifications in this Paper Comments
This feature is not optional and is proposed rule change with the • Send paper comments in triplicate
applicable to all members submitting implementation of the LOP. Waiver of to Brent J. Fields, Secretary, Securities
Limit Orders. Thus, the Exchange does the 30-day operative delay would allow and Exchange Commission, 100 F Street
not believe the proposal creates any the Exchange to immediately extend the NE., Washington, DC 20549–1090.
significant impact on competition. In LOP implementation date. The waiver
addition, the proposed collar in Rule All submissions should refer to File
would also permit the Exchange to
3301B would be applicable to all Market Number SR–Phlx–2016–113. This file
immediately clarify the application of
and Primary Pegging Orders entered number should be included on the
the LOP to modified orders. Moreover,
into the PSX System. Similarly, all subject line if email is used. To help the
the waiver would allow the Exchange to
Midpoint Pegging Order will be subject Commission process and review your
immediately exclude from the LOP
to LOP, unless they have a discretion comments more efficiently, please use
Market Pegging Orders, Primary Pegging
attribute. only one method. The Commission will
Orders, and Midpoint Pegging Orders
post all comments on the Commission’s
C. Self-Regulatory Organization’s that have a discretion price. As noted
Internet Web site (http://www.sec.gov/
Statement on Comments on the above, the Exchange proposes to
rules/sro.shtml). Copies of the
Proposed Rule Change Received From exclude these Orders because these submission, all subsequent
Members, Participants, or Others Orders may be intended to be aggressive amendments, all written statements
or to set the bid or offer on the market. with respect to the proposed rule
No written comments were either Moreover, as noted above, Market and
solicited or received. change that are filed with the
Primary Pegging Orders are currently Commission, and all written
III. Date of Effectiveness of the subject to collars. Lastly, the waiver communications relating to the
Proposed Rule Change and Timing for would allow the Exchange’s rules to proposed rule change between the
Commission Action immediately and accurately reflect the Commission and any person, other than
current collars for Market and Primary those that may be withheld from the
Because the foregoing proposed rule Pegging Orders, which were removed
change does not: (i) Significantly affect public in accordance with the
inadvertently. Accordingly, the provisions of 5 U.S.C. 552, will be
the protection of investors or the public
Commission finds that waiving the 30- available for Web site viewing and
interest; (ii) impose any significant
day operative delay is consistent with printing in the Commission’s Public
burden on competition; and (iii) become
the protection of investors and the Reference Room, 100 F Street NE.,
operative for 30 days from the date on
public interest and designates the Washington, DC 20549, on official
which it was filed, or such shorter time
proposal operative upon filing.26 business days between the hours of
as the Commission may designate, it has
become effective pursuant to Section At any time within 60 days of the 10:00 a.m. and 3:00 p.m. Copies of the
19(b)(3)(A) of the Act and Rule 19b– filing of such proposed rule change, the filing also will be available for
4(f)(6) thereunder.22 Commission summarily may inspection and copying at the principal
A proposed rule change filed temporarily suspend such rule change if office of the Exchange. All comments
pursuant to Rule 19b–4(f)(6) under the it appears to the Commission that such received will be posted without change;
Act 23 normally does not become action is necessary or appropriate in the the Commission does not edit personal
operative for 30 days after the date of its public interest, for the protection of identifying information from
filing. However, Rule 19b–4(f)(6)(iii) 24 investors, or otherwise in furtherance of submissions. You should submit only
permits the Commission to designate a the purposes of the Act. If the information that you wish to make
shorter time if such action is consistent Commission takes such action, the available publicly. All submissions
with the protection of investors and the Commission shall institute proceedings should refer to File Number SR–Phlx–
public interest. The Exchange has asked to determine whether the proposed rule 2016–113 and should be submitted on
the Commission to waive the 30-day change should be approved or or before December 13, 2016.
operative delay so that the proposal may disapproved. For the Commission, by the Division of
become operative immediately upon Trading and Markets, pursuant to delegated
IV. Solicitation of Comments authority.27
filing. When the Exchange first
proposed the LOP, the Exchange Interested persons are invited to Brent J. Fields,
represented that it would implement the submit written data, views, and Secretary.
LOP within 90 days of obtaining arguments concerning the foregoing, [FR Doc. 2016–28033 Filed 11–21–16; 8:45 am]
Commission approval (i.e., by including whether the proposed rule BILLING CODE 8011–01–P
November 22, 2016).25 The Exchange change is consistent with the Act.
now proposes to extend the LOP Comments may be submitted by any of
implementation date by 60 days in order the following methods: SMALL BUSINESS ADMINISTRATION
22 17 CFR 240.19b–4(f)(6). As required under Rule Electronic Comments [Disaster Declaration #14921 and #14922]
19b–4(f)(6)(iii), the Exchange provided the
Commission with written notice of its intent to file • Use the Commission’s Internet South Carolina Disaster Number SC–
the proposed rule change, along with a brief comment form (http://www.sec.gov/
description and the text of the proposed rule 00040
change, at least five business days prior to the date rules/sro.shtml); or
sradovich on DSK3GMQ082PROD with NOTICES
of filing of the proposed rule change, or such • Send an email to rule-comments@ AGENCY: U.S. Small Business
shorter time as designated by the Commission.
sec.gov. Please include File Number SR– Administration.
23 17 CFR 240.19b–4(f)(6).
24 17 CFR 240.19b–4(f)(6)(iii). Phlx–2016–113 on the subject line. ACTION: Amendment 4.
25 See Securities Exchange Act Release Nos.
SUMMARY: This is an amendment of the
78245 (July 7, 2016), 81 FR 45337 (July 13, 2016) 26 For purposes only of waiving the 30-day
(noticing SR–Phlx–2016–58) and 78667 (August 24, operative delay, the Commission has considered the Presidential declaration of a major
2016), 81 FR 59672 (August 30, 2016) (approving proposed rule’s impact on efficiency, competition,
SR–Phlx–2016–58). and capital formation. 15 U.S.C. 78c(f). 27 17 CFR 200.30–3(a)(12).
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Document Created: 2018-02-14 08:29:39
Document Modified: 2018-02-14 08:29:39
| Category | Regulatory Information | |
| Collection | Federal Register | |
| sudoc Class | AE 2.7: GS 4.107: AE 2.106: | |
| Publisher | Office of the Federal Register, National Archives and Records Administration | |
| Section | Notices | |
| FR Citation | 81 FR 83917 |
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