[Federal Register: September 24, 2008 (Volume 73, Number 186)]
[Notices]
[Page 55190-55192]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr24se08-154]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-58582; File No. SR-Phlx-2008-66]
Self-Regulatory Organizations; NASDAQ OMX PHLX, Inc.; Notice of
Filing and Immediate Effectiveness of Proposed Rule Change Relating to
Quotation Size Decrementation
September 18, 2008.
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 September 16, 2008, the NASDAQ OMX PHLX, Inc. (``Phlx'' or
``Exchange'') filed with the Securities and Exchange Commission
(``Commission'') the proposed rule change as described in Items I and
II below, which Items have been prepared by Phlx. Phlx filed the
proposed rule change pursuant to Section 19(b)(3)(A) of the Act \3\ and
Rule 19b-4(f)(6) thereunder,\4\ which renders it effective upon filing
with the Commission. 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.
\3\ 15 U.S.C. 78s(b)(3)(A).
\4\ 17 CFR 240.19b-4(f)(6).
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange, pursuant to Section 19(b)(1) of the Act \5\ and Rule
19b-4 thereunder,\6\ proposes to amend Exchange Rule 1082, Firm
Quotations, to reflect a change to its fully electronic
[[Page 55191]]
trading platform for options, Phlx XL,\7\ in which automatic executions
will decrement the Exchange's disseminated size by the amount of the
automatic execution.
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\5\ 15 U.S.C. 78s(b)(1).
\6\ 17 CFR 240.19b-4.
\7\ See Securities Exchange Act Release No. 50100 (July 27,
2004), 69 FR 44612 (August 3, 2004) (SR-Phlx-2003-59). [sic]
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The text of the proposed rule change is available on the Exchange's
Web site at http://www.phlx.com/regulatory/reg_rulefilings.aspx.
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, the Exchange included statements
concerning the purpose of and basis for the proposed rule change and
discussed any comments it received on the proposed rule change. The
text of these statements may be examined at the places specified in
Item IV below. The Exchange has prepared summaries, set forth in
sections A, B, and C below, of the most significant aspects of such
statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
The purpose of the proposed rule change is to enhance the ability
of Exchange Streaming Quote Traders (``SQTs''),\8\ Remote Streaming
Quote Traders (``RSQTs''),\9\ non-SQT ROTs,\10\ and specialists
(collectively, ``Phlx XL participants'') to better manage risk by
modifying the Phlx XL system such that when a trade occurs, the Phlx XL
system will decrement the quote size by the number of contracts traded
in the affected option series on the side of the market that has traded
(i.e., bid size for sell transactions and offer size for buy
transactions).
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\8\ An SQT is a Registered Options Trader (``ROT'') who has
received permission from the Exchange to generate and submit option
quotations electronically through an electronic interface with AUTOM
via an Exchange approved proprietary electronic quoting device in
eligible options to which such SQT is assigned. See Exchange Rule
1014(b)(ii)(A).
\9\ An RSQT is an ROT that is a member or member organization
with no physical trading floor presence who has received permission
from the Exchange to generate and submit option quotations
electronically through AUTOM in eligible options to which such RSQT
has been assigned. An RSQT may only submit such quotations
electronically from off the floor of the Exchange. See Exchange Rule
1014(b)(ii)(B).
\10\ A non-SQT ROT is an ROT who is neither an SQT nor an RSQT.
See Exchange Rule 1014(b)(ii)(C).
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Phlx XL currently does not decrement quotation size in real time.
Instead, a Phlx XL participant has control over his or her quotation
size and can refresh the size (and price) for which he or she is firm
at the disseminated price. Phlx XL participants have experienced
situations where they execute more contracts at a particular price than
they intended due to the fact that Phlx XL currently does not decrement
quote size in real time.
The following example illustrates the issue that the proposed
system change would solve:
A Phlx XL participant submits an electronic quotation (a bid) to
buy 100 contracts. Under the current system functionality, if a single
trade of 100 contracts to sell interacts with that bid for 100
contracts, all 100 contracts will be executed and the Phlx XL
participant's quotation will be exhausted and removed from the market
place until that Phlx XL participant refreshes his or her
quotation.\11\
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\11\ See Exchange Rule 1082(a)(ii)(B)(1).
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If, however, a single trade of 100 contracts to sell interacts with
that bid for anything less than its full size, the Phlx XL system
currently does not decrement the size of the bid, and the bid is still
firm for the full original size of 100 contracts. For example, a single
trade of 90 contracts occurs on the bid price, all 90 contracts would
be executed automatically, but the disseminated size of the quotation
will continue to be 100 contracts. Phlx XL participants have
experienced situations where a quotation could be for a size of 100
contracts and an execution occurs for 99 contracts, followed by an
additional execution of 100 contracts at the same price before the Phlx
XL participant can revise his or her quotation in the affected series,
for a total execution of 199 contracts when the quotation was only
intended to be for a size of 100 contracts at the disseminated price.
The Exchange believes that this aspect of the current system exposes
Phlx XL participants to undue risk respecting the size for which they
are firm at a particular price in a particular option series.
Accordingly, under the proposal, every trade executed automatically
in the Phlx XL system would cause the Exchange's disseminated size to
be reduced by the number of contracts traded in the affected series at
the disseminated price. Receipt of a revised quote from the affected
Phlx XL participant would reset the price and size for that series.
2. Statutory Basis
The Exchange believes that its proposal is consistent with Section
6(b) of the Act \12\ in general, and furthers the objectives of Section
6(b)(5) of the Act \13\ 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 providing Phlx XL participants with additional protection
from exposure to undue market risk through the real-time decrementation
of the Exchange's disseminated size.
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\12\ 15 U.S.C. 78f(b).
\13\ 15 U.S.C. 78f(b)(5).
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The Exchange further believes that the proposed rule change is
consistent with the Act because the risk protection afforded Phlx XL
participants should encourage them to quote options series with greater
size, adding liquidity to the Exchange's markets against which
customers can trade.
B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the proposed rule change will
impose any burden on competition not necessary or appropriate in
furtherance of the purposes of the Act.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants or Others
Written comments were neither solicited nor received.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
Because the proposed rule change: (i) Does not significantly affect
the protection of investors or the public interest; (ii) does not
impose any significant burden on competition; and (iii) does not become
operative for 30 days after the date of the filing, or such shorter
time as the Commission may designate if consistent with the protection
of investors and the public interest, the proposed rule change has
become effective pursuant to Section 19(b)(3)(A) of the Act \14\ and
Rule 19b-4(f)(6) thereunder.\15\
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\14\ 15 U.S.C. 78s(b)(3)(A).
\15\ 17 CFR 240.19b-4(f)(6). Pursuant to Rule 19b-4(f)(6)(iii)
under the Act, the Exchange is required to give the Commission
written notice of its intent to file the proposed rule change, along
with a brief description and text of the proposed rule change, at
least five business days prior to the date of filing of the proposed
rule change, or such shorter time as designated by the Commission.
The Exchange has requested that the Commission waive the 5-day pre-
filing notice requirement. The Commission has determined to waive
this requirement.
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A proposed rule change filed pursuant to Rule 19b-4(f)(6) under the
[[Page 55192]]
Act \16\ normally does not become operative for 30 days after the date
of its filing. However, Rule 19b-4(f)(6)(iii) \17\ permits the
Commission to designate a shorter time if such action is consistent
with the protection of investors and the public interest. The Exchange
has requested that the Commission waive the 30-day operative delay. The
Commission believes that waiving the 30-day operative delay is
consistent with the protection of investors and the public interest.
The Commission notes that under the proposal, the Exchange's
disseminated size should accurately reflect revised quotation sizes
based on automatic executions through Phlx XL in real time.
Accordingly, the Commission designates that the proposed rule change
become operative immediately.\18\
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\16\ 17 CFR 240.19b-4(f)(6).
\17\ 17 CFR 240.19b-4(f)(6)(iii).
\18\ 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).
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At any time within 60 days of the filing of the proposed rule
change, the Commission may summarily abrogate the rule change if it
appears to the Commission that such action is necessary or appropriate
in the public interest, for the protection of investors, or otherwise
in furtherance of the purposes of the Act.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
Electronic Comments
Use the Commission's Internet comment form (http://
www.sec.gov/rules/sro.shtml); or
Send an e-mail to rule-comments@sec.gov. Please include
File Number SR-Phlx-2008-66 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-2008-66. This file
number should be included on the subject line if e-mail is used. To
help the Commission process and review your comments more efficiently,
please use only one method. The Commission will post all comments on
the Commission's Internet Web site (http://www.sec.gov/rules/
sro.shtml). Copies of the submission, all subsequent amendments, all
written statements with respect to the proposed rule change that are
filed with the Commission, and all written communications relating to
the proposed rule change between the Commission and any person, other
than those that may be withheld from the public in accordance with the
provisions of 5 U.S.C. 552, will be available for inspection and
copying in the Commission's Public Reference Room, 100 F Street, NE.,
Washington, DC 20549, on official business days between the hours of 10
am and 3 pm. Copies of such filing also will be available for
inspection and copying at the principal office of Phlx. 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-2008-66 and should be
submitted on or before October 15, 2008.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\19\
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\19\ 17 CFR 200.30-3(a)(12).
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J. Lynn Taylor,
Assistant Secretary.
[FR Doc. E8-22378 Filed 9-23-08; 8:45 am]
BILLING CODE 8010-01-P