Self-Regulatory Organizations; NASDAQ PHLX LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change Regarding Quote Mitigation, 32741-32743 [2017-14886]

Download as PDF Federal Register / Vol. 82, No. 135 / Monday, July 17, 2017 / Notices 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–CBOE– 2017–052 and should be submitted on or before August 7, 2017. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.10 Jill M. Peterson, Assistant Secretary. [FR Doc. 2017–14888 Filed 7–14–17; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–81116; File No. SR–Phlx– 2017–48] Self-Regulatory Organizations; NASDAQ PHLX LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change Regarding Quote Mitigation asabaliauskas on DSKBBXCHB2PROD with NOTICES July 11, 2017. 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 June 30, 2017, 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, 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. 10 17 CFR 200.30–3(a)(12). U.S.C. 78s(b)(1). 2 17 CFR 240.19b–4. 1 15 VerDate Sep<11>2014 17:45 Jul 14, 2017 Jkt 241001 I. Self-Regulatory Organization’s Statement of the Terms of Substance of the Proposed Rule Change The Exchange proposes to amend Phlx Rule 1082, regarding quote mitigation. The text of the proposed rule change is available on the Exchange’s Web site at https://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 proposes to amend Phlx Rule 1082, entitled ‘‘Firm Quotations,’’ to specifically remove Phlx Rule 1082(a)(ii)(C)(4), which process is not currently in effect on Phlx. Today, Phlx Rule 1082(a)(ii)(C) sets forth the conditions under which Phlx disseminates updated quotations based on changes in the Exchange’s disseminated price and/or size. Phlx disseminates an updated bid and offer price, together with the size associated with such bid and offer, when: (1) Phlx’s disseminated bid or offer price increases or decreases; (2) the size associated with Phlx’s disseminated bid or offer decreases; or (3) the size associated with Phlx’s bid (offer) increases by an amount greater than or equal to a percentage (never to exceed 20%) 3 of the size associated with the previously disseminated bid (offer); 4 3 Phlx has set its percentage to 10%. See https:// www.nasdaqtrader.com/content/phlxmemos/2007/ jan/0197-07.pdf. 4 Such percentage, which would never exceed 20%, would be determined on an issue-by-issue basis by the Exchange and announced to membership via Exchange circular. The percentage size increase necessary to give rise to a refreshed quote may vary from issue to issue, depending, without limitation, on the liquidity, average volume, and average number of quotations submitted in the issue. PO 00000 Frm 00066 Fmt 4703 Sfmt 4703 32741 and (4) automatic executions will decrement the disseminated size by the amount of the automatic execution. The Exchange notes that it is removing Phlx Rule 1082(a)(ii)(C)(4) because this functionality is not necessary today. By way of background, the Exchange initially adopted the quote mitigation rule text in Phlx Rule 1082(a)(ii)(C)(4) to enhance the ability of Exchange Streaming Quote Traders (‘‘SQTs’’),5 Remote Streaming Quote Traders (‘‘RSQTs’’),6 non-SQT ROTs,7 and specialists 8 (collectively, ‘‘Phlx XL participants’’) to better manage risk by modifying the legacy Phlx XL system 9 such that when a trade occured [sic], the Exchange caused the Phlx XL system to 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). At that time, the Exchange did not decrement quotation size in real time,10 rather it updated quotes and executions separately in two applications. The Exchange would update the quote sent to OPRA with each decrement. However with a size increase the Exchange would only update the quote sent to OPRA if it was beyond the 10% threshold. At this time, a Phlx XL participant, who controlled his or her quotation size, could refresh the size (and price) for which he or she was firm at the disseminated price. Phlx adopted the rule because participants experienced situations where they executed more contracts at a particular price than they intended due to the fact that Phlx XL 5 An SQT is an ROT who has received permission from the Exchange to generate and submit option quotations electronically in options to which such SQT is assigned. An SQT may only submit such quotations while such SQT is physically present on the floor of the Exchange. An SQT may only trade in a market making capacity in classes of options in which the SQT is assigned. See Rule 1014(b)(ii)(A). 6 An RSQT is an ROT that is a member affiliated with and RSQTO with no physical trading floor presence who has received permission from the Exchange to generate and submit option quotations electronically in options to which such RSQT has been assigned. A qualified RSQT may function as a Remote Specialist upon Exchange approval. See Rule 1014(b)(ii)(B). 7 A non-SQT ROT is an ROT who is neither an SQT nor an RSQT. See Rule 1014(b)(ii)(C). 8 A Specialist is an Exchange member who is registered as an options specialist pursuant to Rule 501(a). An options Specialist includes a Remote Specialist which is defined as an options specialist in one or more classes that does not have a physical presence on an Exchange floor and is approved by the Exchange pursuant to Rule 501. 9 See Securities Exchange Act Release No. 58582 (September 18, 2008), 73 FR 55190 (September 24, 2008) (SR–Phlx–2008–66) (Notice of Filing and Immediate Effectiveness of Proposed Rule Change Relating to Quotation Size Decrementation). 10 The Exchange was disseminating a size which was not necessarily on the Exchange’s book. E:\FR\FM\17JYN1.SGM 17JYN1 32742 Federal Register / Vol. 82, No. 135 / Monday, July 17, 2017 / Notices asabaliauskas on DSKBBXCHB2PROD with NOTICES did not decrement quote size in real time. The rule was intended to ensure that the Exchange’s disseminated size was decremented after each trade automatically executed in Phlx XL. Receipt of a revised quote from the affected Phlx XL participant would reset the price and size for that series.11 Phlx subsequently began operating on INET in 2009.12 With the migration to INET functionality, the Exchange began to decrement quotation size in real time. The Exchange’s system considered both updated quotes and executions within the same process in updating OPRA when considering a decrement. Because of the manner in which the INET system architecture decrements on INET, the language in Phlx Rule 1082(a)(ii)(C)(4) is no longer a correct representation of the function of the quote mitigation in place on Phlx. By way of example, presuming the Phlx quote mitigation is set to 10% and the following sequence occurs: If Market Maker (MM)1 has a quote of 1.00 (100) × 1.10 (100) OPRA quote disseminated—1.00 (100) × 1.10 (100) A new MM2 sends a quote of 1.00 (5) × 1.10 (5). Because the quote is not increased by 10%, no new OPRA Quote is disseminated. The new Phlx book would be 1.00 (105) × 1.10 (105) pursuant to Phlx Rule 1082(a)(ii)(C) both before and after the system was migrated to INET. Case (1): Presuming an incoming buy order of 5 contracts trades on INET with MM1 trading a 4 lot and MM2 trading a 1 lot. If Phlx Rule 1082(a)(ii)(C)(4) did not exist, with net disseminated size at 100, no OPRA quote update would be disseminated because the current offer did not change as it is not over 10% and the last update remains at 1.00 (100) × 1.10 (100). This would be the manner in which the system would continue to work with this rule proposal. The new Phlx book would be 1.00 (100) × 1.10 (100) pursuant to Phlx Rule 1082(a)(ii)(C)(4). This scenario would be same for any buy order of 5 contracts or less since any execution of 5 contracts or less would not decrement the last OPRA quote size of 100 contracts. With Phlx Rule 1082(a)(ii)(C)(4) employed on legacy PHLX (prior to INET), the incoming buy order of 5 contracts would cause the disseminated size to be decremented by the amount of the automatic execution. Since the prior OPRA quote was 1.00 (100) × 1.10 (100), the OPRA quote update would have been disseminated at 1.00 (100) × 1.10 (95) to reflect the automatic execution of 5 contracts at 1.10. Case (2): Presuming an incoming buy order of 6 contracts total trades with MM1 trading a 5 lot and MM2 trading a 1 lot, this execution causes the net book size to be decremented from 105 contracts to 99 contracts and the OPRA quote would be disseminated because the size associated 11 See 12 See with Phlx’s disseminated offer decreased. The new updated OPRA quote would be 1.00 (105) × 1.10 (99) which also reflects the new Phlx book of 1.00 (105) × 1.10 (99) pursuant to Phlx Rule 1082(a)(ii)(C)(2). This scenario would be same for any buy order of more than 5 contracts since an execution of more than 5 contracts would cause the Phlx disseminated offer to decrease. With Phlx Rule 1082(a)(ii)(C)(4) employed on the legacy Phlx system, the OPRA quote update in Case 2 would have been disseminated at 1.00 (100) × 1.10 (94). 2. Statutory Basis The Exchange believes that its proposal is consistent with Section 6(b) of the Act,13 in general, and furthers the objectives of Section 6(b)(5) of the Act,14 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 continuing to reduce the number of options quotations required to be submitted to OPRA and, therefore, mitigating the Exchange’s quote message traffic and capacity. By removing Phlx Rule 1082(a)(ii)(C)(4), the Exchange will update its rule to better describe the current functionality and remove obsolete language. By way of background, when the Exchange initially adopted the rule text in Phlx Rule 1082(a)(ii)(C)(4) Phlx XL, its operating system at the time, did not decrement quotation size in real time meaning that the Exchange’s legacy XL system did not consider both updated quotes and executions within the same process when updating OPRA. Phlx Rule 1082(a)(ii)(C)(4) ensured the Exchange’s disseminated size was decremented after each trade automatically executed in Phlx XL. Phlx subsequently began operating on INET, thereby rendering Phlx Rule 1082(a)(ii)(C)(4) no longer necessary because of the real-time features which exist on INET which dynamically update and/or purge quotes. At the time of the migration, the Exchange’s system considered both updated quotes and executions within the same process in updating OPRA. This represents the current functionality today. The Exchange believes that the amendment to the rule will provide greater clarity as to the Exchange’s plan for quote mitigation. The Exchange believes that deleting the provision in Phlx Rule 1082(a)(ii)(C)(4) is consistent with the Act in that it removes impediments to note 5, supra. Options Trader Alert #2009–17. VerDate Sep<11>2014 17:45 Jul 14, 2017 Jkt 241001 13 15 14 15 PO 00000 U.S.C. 78f(b). U.S.C. 78f(b)(5). Frm 00067 Fmt 4703 and perfect the mechanism of a free and open market and a national market system because the Exchange may have unintentionally disseminated a size which was not necessarily on the Exchange’s book. The Exchange believes that Phlx’s quote mitigation process has successfully controlled Phlx’s quote capacity. The Exchange believes that the removal of the rule text is consistent with the Act because the removal of this rule text will align the functionality of quote mitigation with the language of the rule and properly update OPRA. With the removal of the language, the Exchange’s rule properly represents its current function which decrements from a quote actually on the Exchange’s book. Notwithstanding the removal of this provision from the rule, the Exchange will continue to mitigate quotes and monitor its quote capacity, as is the case today. The Exchange believes that Phlx’s quote mitigation process has successfully controlled Phlx’s quote capacity. The Exchange believes that the removal of the rule text will not impact the effectiveness of quote mitigation. 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 proposal will better reflect its current quote mitigation process which applies to all options trading on Phlx. All options exchanges have a quote mitigation process in place in connection with their participation in the Penny Pilot Program. 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 15 15 Sfmt 4703 E:\FR\FM\17JYN1.SGM U.S.C. 78s(b)(3)(A)(iii). 17JYN1 Federal Register / Vol. 82, No. 135 / Monday, July 17, 2017 / Notices subparagraph (f)(6) of Rule 19b–4 thereunder.16 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. 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: 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–2017–48 and should be submitted on or before August 7, 2017. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.17 Jill M. Peterson, Assistant Secretary. [FR Doc. 2017–14886 Filed 7–14–17; 8:45 am] BILLING CODE 8011–01–P Electronic Comments • Use the Commission’s Internet comment form (https://www.sec.gov/ rules/sro.shtml); or • Send an email to rule-comments@ sec.gov. Please include File Number SR– Phlx–2017–48 on the subject line. asabaliauskas on DSKBBXCHB2PROD with NOTICES 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–2017–48. 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 (https://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 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. VerDate Sep<11>2014 17:45 Jul 14, 2017 Jkt 241001 SECURITIES AND EXCHANGE COMMISSION [Release No. 34–81122; File No. SR–MIAX– 2017–32] Self-Regulatory Organizations; Miami International Securities Exchange, LLC; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change by Miami International Securities Exchange, LLC To Amend MIAX Options Rule 524, Reporting of Matched Trades to Clearing Corporation July 11, 2017. Pursuant to the provisions of 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 June 28, 2017, Miami International Securities Exchange, LLC (‘‘MIAX Options’’ or the ‘‘Exchange’’) filed with the Securities and Exchange Commission (‘‘Commission’’) a 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. I. Self-Regulatory Organization’s Statement of the Terms of Substance of the Proposed Rule Change The Exchange is filing a proposal to amend Exchange Rule 524, Reporting of PO 00000 17 17 CFR 200.30–3(a)(12). U.S.C. 78s (b)(1). 2 17 CFR 240.19b–4. 1 15 Frm 00068 Fmt 4703 Sfmt 4703 32743 Matched Trades to Clearing Corporation. The text of the proposed rule change is available on the Exchange’s Web site at https://www.miaxoptions.com/rulefilings, at MIAX’s principal office, and at the Commission’s Public Reference Room. II. Self-Regulatory Organization’s Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change In its filing with the Commission, the Exchange included statements concerning the purpose of and basis for the proposed rule change 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 the Statutory Basis for, the Proposed Rule Change 1. Purpose The Exchange proposes to amend Exchange Rule 524, Reporting of Matched Trades to Clearing Corporation, to adopt Interpretations and Policies .01, to state that post-trade adjustments that do not affect the contractual terms of a trade are to be performed by the Exchange Member 3 via an Exchange approved electronic interface. The Exchange will notify Members of the approved electronic interface via Regulatory Circular. The Exchange staffs a Help Desk 4 to provide customer service and support to its Members. One of the support functions the Help Desk currently provides is to make certain post-trade adjustments to a Member’s matched trades at the Member’s request and on its behalf. The Exchange has also developed functionality that it makes available to all Members that enables Members to electronically and independently perform post-trade adjustments that do not affect the contractual terms of the transaction to their side of the matched trade. 3 The term ‘‘Member’’ means an individual or organization approved to exercise the trading rights associate with a Trading Permit. Members are deemed ‘‘members’’ under the Exchange Act. See Exchange Rule 100. 4 The term ‘‘Help Desk’’ means the Exchange’s control room consisting of Exchange staff authorized to make certain trading determinations on behalf of the Exchange. The Help Desk shall report to and be supervised by a senior executive officer of the Exchange. See Exchange Rule 100. E:\FR\FM\17JYN1.SGM 17JYN1

Agencies

SECURITIES AND EXCHANGE COMMISSION

[Federal Register Volume 82, Number 135 (Monday, July 17, 2017)]
[Notices]
[Pages 32741-32743]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2017-14886]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-81116; File No. SR-Phlx-2017-48]


Self-Regulatory Organizations; NASDAQ PHLX LLC; Notice of Filing 
and Immediate Effectiveness of Proposed Rule Change Regarding Quote 
Mitigation

July 11, 2017.
    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 June 30, 2017, 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, 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.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to amend Phlx Rule 1082, regarding quote 
mitigation.
    The text of the proposed rule change is available on the Exchange's 
Web site at https://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 proposes to amend Phlx Rule 1082, entitled ``Firm 
Quotations,'' to specifically remove Phlx Rule 1082(a)(ii)(C)(4), which 
process is not currently in effect on Phlx.
    Today, Phlx Rule 1082(a)(ii)(C) sets forth the conditions under 
which Phlx disseminates updated quotations based on changes in the 
Exchange's disseminated price and/or size. Phlx disseminates an updated 
bid and offer price, together with the size associated with such bid 
and offer, when: (1) Phlx's disseminated bid or offer price increases 
or decreases; (2) the size associated with Phlx's disseminated bid or 
offer decreases; or (3) the size associated with Phlx's bid (offer) 
increases by an amount greater than or equal to a percentage (never to 
exceed 20%) \3\ of the size associated with the previously disseminated 
bid (offer); \4\ and (4) automatic executions will decrement the 
disseminated size by the amount of the automatic execution.
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    \3\ Phlx has set its percentage to 10%. See https://www.nasdaqtrader.com/content/phlxmemos/2007/jan/0197-07.pdf.
    \4\ Such percentage, which would never exceed 20%, would be 
determined on an issue-by-issue basis by the Exchange and announced 
to membership via Exchange circular. The percentage size increase 
necessary to give rise to a refreshed quote may vary from issue to 
issue, depending, without limitation, on the liquidity, average 
volume, and average number of quotations submitted in the issue.
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    The Exchange notes that it is removing Phlx Rule 1082(a)(ii)(C)(4) 
because this functionality is not necessary today. By way of 
background, the Exchange initially adopted the quote mitigation rule 
text in Phlx Rule 1082(a)(ii)(C)(4) to enhance the ability of Exchange 
Streaming Quote Traders (``SQTs''),\5\ Remote Streaming Quote Traders 
(``RSQTs''),\6\ non-SQT ROTs,\7\ and specialists \8\ (collectively, 
``Phlx XL participants'') to better manage risk by modifying the legacy 
Phlx XL system \9\ such that when a trade occured [sic], the Exchange 
caused the Phlx XL system to 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). At that time, the Exchange did not 
decrement quotation size in real time,\10\ rather it updated quotes and 
executions separately in two applications. The Exchange would update 
the quote sent to OPRA with each decrement. However with a size 
increase the Exchange would only update the quote sent to OPRA if it 
was beyond the 10% threshold. At this time, a Phlx XL participant, who 
controlled his or her quotation size, could refresh the size (and 
price) for which he or she was firm at the disseminated price. Phlx 
adopted the rule because participants experienced situations where they 
executed more contracts at a particular price than they intended due to 
the fact that Phlx XL

[[Page 32742]]

did not decrement quote size in real time. The rule was intended to 
ensure that the Exchange's disseminated size was decremented after each 
trade automatically executed in Phlx XL. Receipt of a revised quote 
from the affected Phlx XL participant would reset the price and size 
for that series.\11\
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    \5\ An SQT is an ROT who has received permission from the 
Exchange to generate and submit option quotations electronically in 
options to which such SQT is assigned. An SQT may only submit such 
quotations while such SQT is physically present on the floor of the 
Exchange. An SQT may only trade in a market making capacity in 
classes of options in which the SQT is assigned. See Rule 
1014(b)(ii)(A).
    \6\ An RSQT is an ROT that is a member affiliated with and RSQTO 
with no physical trading floor presence who has received permission 
from the Exchange to generate and submit option quotations 
electronically in options to which such RSQT has been assigned. A 
qualified RSQT may function as a Remote Specialist upon Exchange 
approval. See Rule 1014(b)(ii)(B).
    \7\ A non-SQT ROT is an ROT who is neither an SQT nor an RSQT. 
See Rule 1014(b)(ii)(C).
    \8\ A Specialist is an Exchange member who is registered as an 
options specialist pursuant to Rule 501(a). An options Specialist 
includes a Remote Specialist which is defined as an options 
specialist in one or more classes that does not have a physical 
presence on an Exchange floor and is approved by the Exchange 
pursuant to Rule 501.
    \9\ See Securities Exchange Act Release No. 58582 (September 18, 
2008), 73 FR 55190 (September 24, 2008) (SR-Phlx-2008-66) (Notice of 
Filing and Immediate Effectiveness of Proposed Rule Change Relating 
to Quotation Size Decrementation).
    \10\ The Exchange was disseminating a size which was not 
necessarily on the Exchange's book.
    \11\ See note 5, supra.
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    Phlx subsequently began operating on INET in 2009.\12\ With the 
migration to INET functionality, the Exchange began to decrement 
quotation size in real time. The Exchange's system considered both 
updated quotes and executions within the same process in updating OPRA 
when considering a decrement. Because of the manner in which the INET 
system architecture decrements on INET, the language in Phlx Rule 
1082(a)(ii)(C)(4) is no longer a correct representation of the function 
of the quote mitigation in place on Phlx.
---------------------------------------------------------------------------

    \12\ See Options Trader Alert #2009-17.
---------------------------------------------------------------------------

    By way of example, presuming the Phlx quote mitigation is set to 
10% and the following sequence occurs:

If Market Maker (MM)1 has a quote of 1.00 (100) x 1.10 (100)
OPRA quote disseminated--1.00 (100) x 1.10 (100)

    A new MM2 sends a quote of 1.00 (5) x 1.10 (5). Because the 
quote is not increased by 10%, no new OPRA Quote is disseminated. 
The new Phlx book would be 1.00 (105) x 1.10 (105) pursuant to Phlx 
Rule 1082(a)(ii)(C) both before and after the system was migrated to 
INET.
    Case (1): Presuming an incoming buy order of 5 contracts trades 
on INET with MM1 trading a 4 lot and MM2 trading a 1 lot. If Phlx 
Rule 1082(a)(ii)(C)(4) did not exist, with net disseminated size at 
100, no OPRA quote update would be disseminated because the current 
offer did not change as it is not over 10% and the last update 
remains at 1.00 (100) x 1.10 (100). This would be the manner in 
which the system would continue to work with this rule proposal. The 
new Phlx book would be 1.00 (100) x 1.10 (100) pursuant to Phlx Rule 
1082(a)(ii)(C)(4). This scenario would be same for any buy order of 
5 contracts or less since any execution of 5 contracts or less would 
not decrement the last OPRA quote size of 100 contracts.
    With Phlx Rule 1082(a)(ii)(C)(4) employed on legacy PHLX (prior 
to INET), the incoming buy order of 5 contracts would cause the 
disseminated size to be decremented by the amount of the automatic 
execution. Since the prior OPRA quote was 1.00 (100) x 1.10 (100), 
the OPRA quote update would have been disseminated at 1.00 (100) x 
1.10 (95) to reflect the automatic execution of 5 contracts at 1.10.
    Case (2): Presuming an incoming buy order of 6 contracts total 
trades with MM1 trading a 5 lot and MM2 trading a 1 lot, this 
execution causes the net book size to be decremented from 105 
contracts to 99 contracts and the OPRA quote would be disseminated 
because the size associated with Phlx's disseminated offer 
decreased. The new updated OPRA quote would be 1.00 (105) x 1.10 
(99) which also reflects the new Phlx book of 1.00 (105) x 1.10 (99) 
pursuant to Phlx Rule 1082(a)(ii)(C)(2). This scenario would be same 
for any buy order of more than 5 contracts since an execution of 
more than 5 contracts would cause the Phlx disseminated offer to 
decrease.
    With Phlx Rule 1082(a)(ii)(C)(4) employed on the legacy Phlx 
system, the OPRA quote update in Case 2 would have been disseminated 
at 1.00 (100) x 1.10 (94).
2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act,\13\ in general, and furthers the objectives of Section 
6(b)(5) of the Act,\14\ 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 continuing to reduce the number of options quotations 
required to be submitted to OPRA and, therefore, mitigating the 
Exchange's quote message traffic and capacity. By removing Phlx Rule 
1082(a)(ii)(C)(4), the Exchange will update its rule to better describe 
the current functionality and remove obsolete language. By way of 
background, when the Exchange initially adopted the rule text in Phlx 
Rule 1082(a)(ii)(C)(4) Phlx XL, its operating system at the time, did 
not decrement quotation size in real time meaning that the Exchange's 
legacy XL system did not consider both updated quotes and executions 
within the same process when updating OPRA. Phlx Rule 1082(a)(ii)(C)(4) 
ensured the Exchange's disseminated size was decremented after each 
trade automatically executed in Phlx XL. Phlx subsequently began 
operating on INET, thereby rendering Phlx Rule 1082(a)(ii)(C)(4) no 
longer necessary because of the real-time features which exist on INET 
which dynamically update and/or purge quotes. At the time of the 
migration, the Exchange's system considered both updated quotes and 
executions within the same process in updating OPRA. This represents 
the current functionality today. The Exchange believes that the 
amendment to the rule will provide greater clarity as to the Exchange's 
plan for quote mitigation.
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    \13\ 15 U.S.C. 78f(b).
    \14\ 15 U.S.C. 78f(b)(5).
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    The Exchange believes that deleting the provision in Phlx Rule 
1082(a)(ii)(C)(4) is consistent with the Act in that it removes 
impediments to and perfect the mechanism of a free and open market and 
a national market system because the Exchange may have unintentionally 
disseminated a size which was not necessarily on the Exchange's book. 
The Exchange believes that Phlx's quote mitigation process has 
successfully controlled Phlx's quote capacity. The Exchange believes 
that the removal of the rule text is consistent with the Act because 
the removal of this rule text will align the functionality of quote 
mitigation with the language of the rule and properly update OPRA. With 
the removal of the language, the Exchange's rule properly represents 
its current function which decrements from a quote actually on the 
Exchange's book.
    Notwithstanding the removal of this provision from the rule, the 
Exchange will continue to mitigate quotes and monitor its quote 
capacity, as is the case today. The Exchange believes that Phlx's quote 
mitigation process has successfully controlled Phlx's quote capacity. 
The Exchange believes that the removal of the rule text will not impact 
the effectiveness of quote mitigation.

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 proposal will 
better reflect its current quote mitigation process which applies to 
all options trading on Phlx. All options exchanges have a quote 
mitigation process in place in connection with their participation in 
the Penny Pilot Program.

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

[[Page 32743]]

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.

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 (https://www.sec.gov/rules/sro.shtml); or
     Send an email to rule-comments@sec.gov. Please include 
File Number SR-Phlx-2017-48 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-2017-48. 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 (https://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-2017-48 and 
should be submitted on or before August 7, 2017.

    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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Jill M. Peterson,
Assistant Secretary.
[FR Doc. 2017-14886 Filed 7-14-17; 8:45 am]
 BILLING CODE 8011-01-P

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