Self-Regulatory Organizations; Nasdaq PHLX LLC; Notice of Filing of Amendment No. 1, and Order Granting Accelerated Approval of a Proposed Rule Change, as Modified by Amendment No. 1, To Extend the Applicability of the Floor Broker Management System and the Snapshot Functionality to Registered Options Traders and Specialists, 34899-34901 [2018-15647]
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<![CDATA[
Federal Register / Vol. 83, No. 141 / Monday, July 23, 2018 / Notices
cautioned that we do not redact or edit
personal identifying information from
comment submissions. You should
submit only information that you wish
to make available publicly. All
submissions should refer to File
Number SR-NASDAQ-2018–052 and
should be submitted on or before
August 13, 2018.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.16
Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2018–15645 Filed 7–20–18; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–83656; File No. SR–Phlx–
2018–40]
Self-Regulatory Organizations; Nasdaq
PHLX LLC; Notice of Filing of
Amendment No. 1, and Order Granting
Accelerated Approval of a Proposed
Rule Change, as Modified by
Amendment No. 1, To Extend the
Applicability of the Floor Broker
Management System and the Snapshot
Functionality to Registered Options
Traders and Specialists
July 17, 2018.
I. Introduction
On May 24, 2018, Nasdaq PHLX LLC
(‘‘Phlx’’ or ‘‘Exchange’’) filed with the
Securities and Exchange Commission
(‘‘Commission’’), pursuant to Section
19(b)(1) of the Securities Exchange Act
of 1934 (‘‘Act’’) 1 and Rule 19b–4
thereunder,2 a proposed rule change to
extend the applicability of the Floor
Broker Management System and the
Snapshot functionality to Registered
Options Traders (‘‘ROTS’’) 3 and
Specialists.4 The proposed rule change
was published for comment in the
Federal Register on June 4, 2018.5 On
June 4, 2018, the Exchange filed
Amendment No. 1 to the proposed rule
change.6 The Commission received no
16 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
3 See Phlx Rule 1014(b) (defining a ROT).
4 See Phlx Rule 1020 (describing the functions of
a Specialist).
5 See Securities Exchange Act Release No. 83339
(May 29, 2018), 83 FR 25725 (‘‘Notice’’).
6 In Amendment No. 1 the Exchange: (1) Renumbered proposed Phlx Rule 1081 as proposed
Phlx Rule 1085 and (2) changed the proposed crossreferences in proposed Commentary .06 to Phlx
Rule 1080 and in Options Floor Procedure Advices
and Order & Decorum Regulations (‘‘Floor Advice’’)
A–9 from Phlx Rule 1081 to Phlx Rule 1085.
Amendment No. 1 is available at https://
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1 15
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comment letters on the proposed rule
change. This order provides notice of
filing of Amendment No. 1 and
approves the proposal, as modified by
Amendment No. 1, on an accelerated
basis.
II. Description of the Proposal
Currently, ROTs and Specialists
executing orders in the trading crowd
are required to record such orders and
related execution details on paper
trading tickets.7 ROTS and Specialists
must then provide those matched trade
tickets to an Exchange Data Entry
Technician (‘‘DET’’), who manually
enters the information written on the
trade tickets into the Exchange’s
electronic trading system.8 In contrast,
unless one of five exceptions applies,
Floor Brokers are required to enter
orders originating in the trading crowd
using the Exchange’s electronic order
entry system—the ‘‘Floor Broker
Management System’’ 9—and are not
permitted to execute orders in the
trading crowd. The Exchange proposes
to change the order entry process for
ROTS and Specialist by requiring them
to utilize the same electronic order entry
system that is currently used by Floor
Brokers. To accomplish this transition,
the Exchange proposes to change the
name of its electronic order entry
system from the ‘‘Floor Broker
Management System’’ to the ‘‘Floor
Based Management System’’ (‘‘FBMS’’)
to reflect its expanded applicability to
all members that operate on the
Exchange’s trading floor—namely, Floor
Brokers, ROT, and Specialists.10 In
addition, the Exchange proposes to
apply the same general obligations it
currently imposes upon Floor Brokers
regarding orders on the trading floor to
ROTS and Specialists.11 The Exchange
also proposes to extend FBMS’
Snapshot functionality to ROTs and
Specialists.12 To effectuate these
changes, the Exchange proposes several
amendments and additions to its Rules
and Floor Advices.13
Specifically, the Exchange proposes to
amend Phlx Rule 1000(f) to require
ROTs and Specialists to execute orders
utilizing FBMS and to prohibit ROTs
and Specialists from executing orders in
the Exchange’s options trading crowd,
www.sec.gov/comments/sr-phlx-2018-40/phlx201
840-3767632-162689.pdf).
7 See Notice, supra note 5, at 25726.
8 See id.
9 Phlx Rule 1000(f)(iii).
10 See Notice, supra note 5, at 25726.
11 See id. at 25725.
12 See id. at 25726.
13 A more detailed description of the proposal
appears in the Notice and in Amendment No. 1.
PO 00000
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Sfmt 4703
34899
unless one of five exceptions applies.14
These exceptions are listed in Phlx Rule
1000(f)(iii)(A)–(E) and would permit a
Floor Broker, ROT or Specialist to
execute an order in the trading crowd if:
(1) There is a problem with the
Exchange’s systems; (2) the member is
executing an order pursuant to Phlx
Rule 1059 (‘‘Accommodation
Transactions’’) or Phlx Rule 1079
(‘‘FLEX Index, Equity, and Currency
Options’’); (3) the transaction involves a
multi-leg order with more than 15 legs;
(4) the transaction involves certain splitprice orders that, due to FBMS system
limitations, require manual calculation;
or (5) the member elects to use of the
Snapshot functionality to provisionally
execute certain designated categories of
trades, as described below.15
With respect to Snapshot, the
Exchange proposes to allow ROTs and
Specialists, like Floor Brokers, to use
Snapshot to provisionally execute, in
the options trading crowd, multi-leg
orders and simple orders in options on
exchange-traded funds (‘‘ETFs’’) that are
included in the Options Penny Pilot,
subject to the procedures for and the
limitations to the use of Snapshot.16 The
Exchange represents that it does not
anticipate that the use of Snapshot by
ROTs or Specialists will pose any
increased or unique risks relative to its
current use by Floor Brokers.17
Therefore, the Exchange proposes to
utilize the same methods it currently
uses to surveil Floor Brokers’ use of
Snapshot to also monitor ROTs’ and
Specialists’ uses of the Snapshot
functionality.18
To implement the renaming of FBMS
and the extension of FBMS (including
its Snapshot functionality) to ROTs and
Specialists, the Exchange also proposes
to make changes to its Rules and Floor
Advices, as well as to update multiple
cross-references within its Rules and
Floor Advices, so that its current
requirements regarding the use of FBMS
will apply to ROTS and Specialists.19
14 See
Notice, supra note 5, at 25726.
id.
16 See id. These procedures and limitations
regarding the use of Snapshot are currently set forth
in Phlx Rule 1063(e)(v), but the Exchange proposes
to move them to a new Phlx Rule 1069, where they
will apply broadly to ‘‘members’’ rather than only
to Floor Brokers.
17 See id.
18 See id. at 25726–27.
19 See id. at 25726–28; Amendment No. 1, supra
note 6. The Exchange is proposing minor alterations
to its Rules that presently govern the use of FBMS
by Floor Brokers to, among other things, account for
the fact that ROTS and Specialists negotiate orders
on the floor for their own account and do not
represent orders on behalf of others. See Notice,
supra note 5, at 25728. In addition, the Exchange
is proposing several changes to remove obsolete
15 See
E:\FR\FM\23JYN1.SGM
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23JYN1
34900
Federal Register / Vol. 83, No. 141 / Monday, July 23, 2018 / Notices
The Exchange represents that it will
not require ROTs or Specialists to use
FBMS until one month after the date on
which the Commission approves the
Exchange’s proposal.20 The Exchange
will notify Members via an Options
Trader Alert, to be posted on the
Exchange’s website, at least seven
calendar days prior to the date when
FBMS will be available for use by ROTs
and Specialists.21 The alert will also
contain the mandatory start date.22
III. Discussion and Commission
Findings
amozie on DSK3GDR082PROD with NOTICES1
After careful review, the Commission
finds that the proposed rule change, as
modified by Amendment No. 1, is
consistent with the requirements of the
Act and the rules and regulations
thereunder applicable to a national
securities exchange.23 In particular, the
Commission finds that the proposed
rule change is consistent with Section
6(b)(5) of the Act,24 which requires,
among other things, that the rules of a
national securities exchange be
designed to promote just and equitable
principles of trade, to foster cooperation
and coordination with persons engaged
in regulating, clearing, settling,
processing information with respect to,
and facilitating transactions in securities
and, in general, to protect investors and
the public interest, and not be designed
to permit unfair discrimination between
customers, issuers, brokers, or dealers.
The Commission notes that the
Exchange’s rules currently require Floor
Brokers to execute transactions through
FBMS and prohibit Floor Brokers from
executing orders in the trading crowd
unless an exception applies.25 The
Commission also notes that use of the
Snapshot functionality is one of the
current exceptions set forth in Phlx Rule
1000(f), which allows Floor Brokers to
provisionally execute, in the options
trading crowd (as opposed to through
FBMS), multi-leg orders and simple
orders in options on ETFs that are
included in the Options Penny Pilot.26
According to the Exchange, the
manual order entry process that ROTs
and Specialists currently use has
become outmoded in comparison to its
language from its Rules and make conforming
changes to its Rules.
20 See Notice, supra note 5, at 25728. See also
Amendment No. 1, supra note 6.
21 See id.
22 See id.
23 In approving this proposed rule change, the
Commission has considered the proposed rule’s
impact on efficiency, competition, and capital
formation. See 15 U.S.C. 78c(f).
24 15 U.S.C. 78f(b)(5).
25 See Phlx Rule 1000(f).
26 See Phlx Rule 1000(f)(iii)(E).
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electronic order entry process.27
Specifically, the Exchange represents
that because the manual process is less
efficient, manual trades are often
reported with a ‘‘Late’’ or ‘‘Out of
Sequence’’ trade condition.28 The
Exchange further represents that,
compared to FBMS, the current manual
process is more prone to human error
and it does not establish an immediate
audit trail for orders.29 The Exchange
notes that its proposed extension of
FBMS to ROTs and Specialists is
intended to address these inefficiencies,
mitigate risks, and improve the
Exchange’s compliance record by
establishing an immediately available
audit trail.30 Moreover, the Exchange
believes that requiring all members to
use the same electronic order entry
system (and to do so subject to the same
general conditions, requirements, and
exceptions) will help ensure fair and
equal treatment for all members that
operate on the trading floor.31 Further,
the Exchange represents that it does not
anticipate any unique risks associated
with ROTs and Specialists use of FBMS
and therefore believes that the current
exceptions and conditions set forth in
Phlx Rule 1000(f) should apply without
modification to ROTs and Specialists.
For example, according to the
Exchange, FBMS’ Snapshot
functionality was designed to mitigate
the risk that, when engaging in floorbased trading, the market for multi-leg
orders and simple orders in options on
ETFs that are included in the Options
Penny Pilot may move faster than a
Floor Broker would be able to manually
enter and submit a paper trade ticket on
a trade consummated in the trading
crowd.32 According to the Exchange,
ROTs and Specialists are subject to this
same risk and the Exchange does not
perceive any unique risks or concerns
associated with the use of Snapshot by
ROTs and Specialists that would
necessitate changes to, or restrictions
on, market makers’ use of the Snapshot
functionality.33 Therefore, the Exchange
believes the Snapshot functionality is
appropriate for use by ROTs and
Specialists, notwithstanding the fact
that ROTS and Specialists trade on a
proprietary basis, rather than an agency
basis like Floor Brokers.34 The Exchange
represents that it will monitor ROTs’
and Specialists’ use of the Snapshot
27 See
Notice, supra note 5, at 25726.
id.
29 See id.
30 See id. at 25726 and 25728.
31 See id. at 25728.
32 See id. at 25726.
33 See id. at 25726 and 25729.
34 See id. at 25726.
28 See
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Frm 00078
Fmt 4703
Sfmt 4703
feature using the same methods that it
currently uses to surveil Floor Brokers’
use of Snapshot.35
The Commission notes that proposed
Phlx Rule 1069(a)(i)(B) will prohibit all
members from triggering the Snapshot
feature for the purpose of obtaining
favorable, or avoiding unfavorable,
priority or trade-through conditions. In
addition, the Exchange represents that
its surveillance staff will monitor ROTs
and Specialists to determine whether
they exhibit patterns of using Snapshot
excessively, including in circumstances
where the nature of the orders or
movements in the markets for such
orders do not reasonably warrant the
use of Snapshot or the full extent of its
use.36 The Exchange will compare the
times of provisional executions in the
crowd that Snapshot captures with the
records of such times that Options
Exchange Officials capture to ensure
accuracy.37 The Exchange will also
surveil for patterns of orders subject to
Snapshots that ROTs and Specialists
abandon without submitting them to the
Trading System for final execution.38
The Commission notes that these
measures were designed to ensure that
Snapshot operates, and is used by Floor
Brokers, in a manner that is consistent
with the Act and Phlx’s Rules and notes
that these measuer should similarly
ensure that ROTs and Specialists
electing to use the Snapshot
functionality will do so in a manner that
is consistent with the Act and Phlx’s
Rules.39
For the foregoing reasons, the
Commission finds that the proposed
rule change, as modified by Amendment
No. 1, is consistent with Section 6(b)(5)
of the Act and the rules and regulations
thereunder applicable to national
securities exchanges.
IV. Solicitation of Comments on
Amendment No. 1
Interested persons are invited to
submit written data, views, and
arguments concerning whether
Amendment No. 1 to 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
35 See
id. at 25726–27.
id. at 25727 n.7.
37 See id.
38 See id.
39 See Securities Exchange Act Release No. 81980
(October 30, 2017), 82 FR 51313 (November 3, 2017)
(SR–Phlx–2017–34) (approving the Snapshot
functionality as an exception to Phlx Rule 1000(f)).
36 See
E:\FR\FM\23JYN1.SGM
23JYN1
Federal Register / Vol. 83, No. 141 / Monday, July 23, 2018 / Notices
• Send an email to rule-comments@
sec.gov. Please include File No. SR–
Phlx–2018–40 on the subject line.
amozie on DSK3GDR082PROD with NOTICES1
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 No.
SR–Phlx–2018–40. 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 website (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 website viewing and
printing in the Commission’s Public
Reference Room, 100 F Street NE,
Washington, DC 20549, on official
business days between the hours of
10:00 a.m. and 3:00 p.m. Copies of such
filing will also be available for
inspection and copying at the principal
office of the Exchange. All comments
received will be posted without change.
Persons submitting comments are
cautioned that we do not redact or edit
personal identifying information from
comment submissions. You should
submit only information that you wish
to make available publicly. All
submissions should refer to File No.
SR–Phlx–2018–40 and should be
submitted on or before August 13, 2018.
V. Accelerated Approval of Proposed
Rule Change, as Modified by
Amendment No. 1
The Commission finds good cause to
approve the proposed rule change, as
modified by Amendment No. 1, prior to
the thirtieth day after the date of
publication of notice of the amended
proposal in the Federal Register. As
described above, in Amendment No. 1,
the Exchange (a) re-numbered proposed
Phlx Rule 1081 as proposed Phlx Rule
1085 and (b) changed the proposed
cross-references in proposed
Commentary .06 to Phlx Rule 1080 and
in Floor Advice A–9 from Phlx Rule
1081 to Phlx Rule 1085.40 The
40 See
Commission believes that Amendment
No. 1 simply modified certain proposed
rule numbering and cross-referencing
and does not raise novel regulatory
issues. Accordingly, the Commission
finds good cause, pursuant to Section
19(b)(2) of the Act,41 to approve the
proposed rule change, as modified by
Amendment No. 1, on an accelerated
basis.
VI. Conclusion
It is therefore ordered, pursuant to
Section 19(b)(2) of the Act,42 that the
proposed rule change (SR–Phlx–2018–
40), as modified by Amendment No. 1,
be, and it hereby is, approved on an
accelerated basis.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.43
Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2018–15647 Filed 7–20–18; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–83654; File No. SR–NSCC–
2018–003]
Self-Regulatory Organizations;
National Securities Clearing
Corporation; Notice of Filing of and
Immediate Effectiveness of a Proposed
Rule Change To Clarify and Enhance
Rules Related to the CNS
Reorganization Processing System
and NSCC’s Authority To Reveal the
Identity of Counterparties in Certain
Circumstances
July 17, 2018.
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 July 9,
2018, National Securities Clearing
Corporation (‘‘NSCC’’) filed with the
Securities and Exchange Commission
(‘‘Commission’’) the proposed rule
change as described in Items I, II and III
below, which Items have been prepared
by the clearing agency. NSCC filed the
proposed rule change pursuant to
Section 19(b)(3)(A) of the Act 3 and Rule
19b–4(f)(4) thereunder.4 The
Commission is publishing this notice to
Amendment No. 1, supra note 6.
VerDate Sep<11>2014
17:59 Jul 20, 2018
Jkt 244001
PO 00000
41 15
U.S.C. 78s(b)(2).
42 Id.
43 17
CFR 200.30–3(a)(12).
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)(4).
1 15
Frm 00079
Fmt 4703
Sfmt 4703
34901
solicit comments on the proposed rule
change from interested persons.
I. Clearing Agency’s Statement of the
Terms of Substance of the Proposed
Rule Change
The proposed rule change consists of
modifications to the Rules and
Procedures of NSCC (‘‘Rules’’) 5 in order
to (1) clarify, correct, and enhance the
description of the procedures by which
NSCC processes transactions in
securities that are eligible for its
Continuous Net Settlement (‘‘CNS’’)
system (‘‘CNS Securities’’) 6 and are
subject to a corporate reorganization
event through the CNS Reorganization
Processing System; and (2) describe
NSCC’s authority to identify to Members
their counterparties for their positions
in a subject security as of the critical
date of an applicable payment or event,
as described in greater detail below.
II. Clearing Agency’s Statement of the
Purpose of, and Statutory Basis for, the
Proposed Rule Change
In its filing with the Commission, the
clearing agency 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
clearing agency has prepared
summaries, set forth in sections A, B,
and C below, of the most significant
aspects of such statements.
(A) Clearing Agency’s Statement of the
Purpose of, and Statutory Basis for, the
Proposed Rule Change
1. Purpose
NSCC is proposing to make certain
revisions to Procedure VII, Section H of
the Rules, which describes, among other
matters, NSCC’s CNS Reorganization
Processing System.
First, the proposed changes would
clarify, correct, and enhance the
description of the CNS Reorganization
Processing System by (1) revising the
description of the scope of corporate
reorganization events that may be
processed through the CNS
Reorganization Processing System; (2)
revising the description of the
processing of voluntary reorganizations
through the CNS Reorganization
Processing System; and (3) making
technical revisions to Section H of
5 The Rules are available at https://www.dtcc.com/
legal/rules-and-procedures. Capitalized terms used
herein and not otherwise defined shall have the
meaning assigned to such terms in the Rules.
6 CNS and its operation are described in Rule 11
and Procedure VII of the Rules. Id.
E:\FR\FM\23JYN1.SGM
23JYN1
]]>Agencies
[Federal Register Volume 83, Number 141 (Monday, July 23, 2018)]
[Notices]
[Pages 34899-34901]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2018-15647]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-83656; File No. SR-Phlx-2018-40]
Self-Regulatory Organizations; Nasdaq PHLX LLC; Notice of Filing
of Amendment No. 1, and Order Granting Accelerated Approval of a
Proposed Rule Change, as Modified by Amendment No. 1, To Extend the
Applicability of the Floor Broker Management System and the Snapshot
Functionality to Registered Options Traders and Specialists
July 17, 2018.
I. Introduction
On May 24, 2018, Nasdaq PHLX LLC (``Phlx'' or ``Exchange'') filed
with the Securities and Exchange Commission (``Commission''), pursuant
to Section 19(b)(1) of the Securities Exchange Act of 1934 (``Act'')
\1\ and Rule 19b-4 thereunder,\2\ a proposed rule change to extend the
applicability of the Floor Broker Management System and the Snapshot
functionality to Registered Options Traders (``ROTS'') \3\ and
Specialists.\4\ The proposed rule change was published for comment in
the Federal Register on June 4, 2018.\5\ On June 4, 2018, the Exchange
filed Amendment No. 1 to the proposed rule change.\6\ The Commission
received no comment letters on the proposed rule change. This order
provides notice of filing of Amendment No. 1 and approves the proposal,
as modified by Amendment No. 1, on an accelerated basis.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ See Phlx Rule 1014(b) (defining a ROT).
\4\ See Phlx Rule 1020 (describing the functions of a
Specialist).
\5\ See Securities Exchange Act Release No. 83339 (May 29,
2018), 83 FR 25725 (``Notice'').
\6\ In Amendment No. 1 the Exchange: (1) Re-numbered proposed
Phlx Rule 1081 as proposed Phlx Rule 1085 and (2) changed the
proposed cross-references in proposed Commentary .06 to Phlx Rule
1080 and in Options Floor Procedure Advices and Order & Decorum
Regulations (``Floor Advice'') A-9 from Phlx Rule 1081 to Phlx Rule
1085. Amendment No. 1 is available at https://www.sec.gov/comments/sr-phlx-2018-40/phlx201840-3767632-162689.pdf).
---------------------------------------------------------------------------
II. Description of the Proposal
Currently, ROTs and Specialists executing orders in the trading
crowd are required to record such orders and related execution details
on paper trading tickets.\7\ ROTS and Specialists must then provide
those matched trade tickets to an Exchange Data Entry Technician
(``DET''), who manually enters the information written on the trade
tickets into the Exchange's electronic trading system.\8\ In contrast,
unless one of five exceptions applies, Floor Brokers are required to
enter orders originating in the trading crowd using the Exchange's
electronic order entry system--the ``Floor Broker Management System''
\9\--and are not permitted to execute orders in the trading crowd. The
Exchange proposes to change the order entry process for ROTS and
Specialist by requiring them to utilize the same electronic order entry
system that is currently used by Floor Brokers. To accomplish this
transition, the Exchange proposes to change the name of its electronic
order entry system from the ``Floor Broker Management System'' to the
``Floor Based Management System'' (``FBMS'') to reflect its expanded
applicability to all members that operate on the Exchange's trading
floor--namely, Floor Brokers, ROT, and Specialists.\10\ In addition,
the Exchange proposes to apply the same general obligations it
currently imposes upon Floor Brokers regarding orders on the trading
floor to ROTS and Specialists.\11\ The Exchange also proposes to extend
FBMS' Snapshot functionality to ROTs and Specialists.\12\ To effectuate
these changes, the Exchange proposes several amendments and additions
to its Rules and Floor Advices.\13\
---------------------------------------------------------------------------
\7\ See Notice, supra note 5, at 25726.
\8\ See id.
\9\ Phlx Rule 1000(f)(iii).
\10\ See Notice, supra note 5, at 25726.
\11\ See id. at 25725.
\12\ See id. at 25726.
\13\ A more detailed description of the proposal appears in the
Notice and in Amendment No. 1.
---------------------------------------------------------------------------
Specifically, the Exchange proposes to amend Phlx Rule 1000(f) to
require ROTs and Specialists to execute orders utilizing FBMS and to
prohibit ROTs and Specialists from executing orders in the Exchange's
options trading crowd, unless one of five exceptions applies.\14\ These
exceptions are listed in Phlx Rule 1000(f)(iii)(A)-(E) and would permit
a Floor Broker, ROT or Specialist to execute an order in the trading
crowd if: (1) There is a problem with the Exchange's systems; (2) the
member is executing an order pursuant to Phlx Rule 1059
(``Accommodation Transactions'') or Phlx Rule 1079 (``FLEX Index,
Equity, and Currency Options''); (3) the transaction involves a multi-
leg order with more than 15 legs; (4) the transaction involves certain
split-price orders that, due to FBMS system limitations, require manual
calculation; or (5) the member elects to use of the Snapshot
functionality to provisionally execute certain designated categories of
trades, as described below.\15\
---------------------------------------------------------------------------
\14\ See Notice, supra note 5, at 25726.
\15\ See id.
---------------------------------------------------------------------------
With respect to Snapshot, the Exchange proposes to allow ROTs and
Specialists, like Floor Brokers, to use Snapshot to provisionally
execute, in the options trading crowd, multi-leg orders and simple
orders in options on exchange-traded funds (``ETFs'') that are included
in the Options Penny Pilot, subject to the procedures for and the
limitations to the use of Snapshot.\16\ The Exchange represents that it
does not anticipate that the use of Snapshot by ROTs or Specialists
will pose any increased or unique risks relative to its current use by
Floor Brokers.\17\ Therefore, the Exchange proposes to utilize the same
methods it currently uses to surveil Floor Brokers' use of Snapshot to
also monitor ROTs' and Specialists' uses of the Snapshot
functionality.\18\
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\16\ See id. These procedures and limitations regarding the use
of Snapshot are currently set forth in Phlx Rule 1063(e)(v), but the
Exchange proposes to move them to a new Phlx Rule 1069, where they
will apply broadly to ``members'' rather than only to Floor Brokers.
\17\ See id.
\18\ See id. at 25726-27.
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To implement the renaming of FBMS and the extension of FBMS
(including its Snapshot functionality) to ROTs and Specialists, the
Exchange also proposes to make changes to its Rules and Floor Advices,
as well as to update multiple cross-references within its Rules and
Floor Advices, so that its current requirements regarding the use of
FBMS will apply to ROTS and Specialists.\19\
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\19\ See id. at 25726-28; Amendment No. 1, supra note 6. The
Exchange is proposing minor alterations to its Rules that presently
govern the use of FBMS by Floor Brokers to, among other things,
account for the fact that ROTS and Specialists negotiate orders on
the floor for their own account and do not represent orders on
behalf of others. See Notice, supra note 5, at 25728. In addition,
the Exchange is proposing several changes to remove obsolete
language from its Rules and make conforming changes to its Rules.
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[[Page 34900]]
The Exchange represents that it will not require ROTs or
Specialists to use FBMS until one month after the date on which the
Commission approves the Exchange's proposal.\20\ The Exchange will
notify Members via an Options Trader Alert, to be posted on the
Exchange's website, at least seven calendar days prior to the date when
FBMS will be available for use by ROTs and Specialists.\21\ The alert
will also contain the mandatory start date.\22\
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\20\ See Notice, supra note 5, at 25728. See also Amendment No.
1, supra note 6.
\21\ See id.
\22\ See id.
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III. Discussion and Commission Findings
After careful review, the Commission finds that the proposed rule
change, as modified by Amendment No. 1, is consistent with the
requirements of the Act and the rules and regulations thereunder
applicable to a national securities exchange.\23\ In particular, the
Commission finds that the proposed rule change is consistent with
Section 6(b)(5) of the Act,\24\ which requires, among other things,
that the rules of a national securities exchange be designed to promote
just and equitable principles of trade, to foster cooperation and
coordination with persons engaged in regulating, clearing, settling,
processing information with respect to, and facilitating transactions
in securities and, in general, to protect investors and the public
interest, and not be designed to permit unfair discrimination between
customers, issuers, brokers, or dealers.
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\23\ In approving this proposed rule change, the Commission has
considered the proposed rule's impact on efficiency, competition,
and capital formation. See 15 U.S.C. 78c(f).
\24\ 15 U.S.C. 78f(b)(5).
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The Commission notes that the Exchange's rules currently require
Floor Brokers to execute transactions through FBMS and prohibit Floor
Brokers from executing orders in the trading crowd unless an exception
applies.\25\ The Commission also notes that use of the Snapshot
functionality is one of the current exceptions set forth in Phlx Rule
1000(f), which allows Floor Brokers to provisionally execute, in the
options trading crowd (as opposed to through FBMS), multi-leg orders
and simple orders in options on ETFs that are included in the Options
Penny Pilot.\26\
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\25\ See Phlx Rule 1000(f).
\26\ See Phlx Rule 1000(f)(iii)(E).
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According to the Exchange, the manual order entry process that ROTs
and Specialists currently use has become outmoded in comparison to its
electronic order entry process.\27\ Specifically, the Exchange
represents that because the manual process is less efficient, manual
trades are often reported with a ``Late'' or ``Out of Sequence'' trade
condition.\28\ The Exchange further represents that, compared to FBMS,
the current manual process is more prone to human error and it does not
establish an immediate audit trail for orders.\29\ The Exchange notes
that its proposed extension of FBMS to ROTs and Specialists is intended
to address these inefficiencies, mitigate risks, and improve the
Exchange's compliance record by establishing an immediately available
audit trail.\30\ Moreover, the Exchange believes that requiring all
members to use the same electronic order entry system (and to do so
subject to the same general conditions, requirements, and exceptions)
will help ensure fair and equal treatment for all members that operate
on the trading floor.\31\ Further, the Exchange represents that it does
not anticipate any unique risks associated with ROTs and Specialists
use of FBMS and therefore believes that the current exceptions and
conditions set forth in Phlx Rule 1000(f) should apply without
modification to ROTs and Specialists.
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\27\ See Notice, supra note 5, at 25726.
\28\ See id.
\29\ See id.
\30\ See id. at 25726 and 25728.
\31\ See id. at 25728.
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For example, according to the Exchange, FBMS' Snapshot
functionality was designed to mitigate the risk that, when engaging in
floor-based trading, the market for multi-leg orders and simple orders
in options on ETFs that are included in the Options Penny Pilot may
move faster than a Floor Broker would be able to manually enter and
submit a paper trade ticket on a trade consummated in the trading
crowd.\32\ According to the Exchange, ROTs and Specialists are subject
to this same risk and the Exchange does not perceive any unique risks
or concerns associated with the use of Snapshot by ROTs and Specialists
that would necessitate changes to, or restrictions on, market makers'
use of the Snapshot functionality.\33\ Therefore, the Exchange believes
the Snapshot functionality is appropriate for use by ROTs and
Specialists, notwithstanding the fact that ROTS and Specialists trade
on a proprietary basis, rather than an agency basis like Floor
Brokers.\34\ The Exchange represents that it will monitor ROTs' and
Specialists' use of the Snapshot feature using the same methods that it
currently uses to surveil Floor Brokers' use of Snapshot.\35\
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\32\ See id. at 25726.
\33\ See id. at 25726 and 25729.
\34\ See id. at 25726.
\35\ See id. at 25726-27.
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The Commission notes that proposed Phlx Rule 1069(a)(i)(B) will
prohibit all members from triggering the Snapshot feature for the
purpose of obtaining favorable, or avoiding unfavorable, priority or
trade-through conditions. In addition, the Exchange represents that its
surveillance staff will monitor ROTs and Specialists to determine
whether they exhibit patterns of using Snapshot excessively, including
in circumstances where the nature of the orders or movements in the
markets for such orders do not reasonably warrant the use of Snapshot
or the full extent of its use.\36\ The Exchange will compare the times
of provisional executions in the crowd that Snapshot captures with the
records of such times that Options Exchange Officials capture to ensure
accuracy.\37\ The Exchange will also surveil for patterns of orders
subject to Snapshots that ROTs and Specialists abandon without
submitting them to the Trading System for final execution.\38\ The
Commission notes that these measures were designed to ensure that
Snapshot operates, and is used by Floor Brokers, in a manner that is
consistent with the Act and Phlx's Rules and notes that these measuer
should similarly ensure that ROTs and Specialists electing to use the
Snapshot functionality will do so in a manner that is consistent with
the Act and Phlx's Rules.\39\
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\36\ See id. at 25727 n.7.
\37\ See id.
\38\ See id.
\39\ See Securities Exchange Act Release No. 81980 (October 30,
2017), 82 FR 51313 (November 3, 2017) (SR-Phlx-2017-34) (approving
the Snapshot functionality as an exception to Phlx Rule 1000(f)).
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For the foregoing reasons, the Commission finds that the proposed
rule change, as modified by Amendment No. 1, is consistent with Section
6(b)(5) of the Act and the rules and regulations thereunder applicable
to national securities exchanges.
IV. Solicitation of Comments on Amendment No. 1
Interested persons are invited to submit written data, views, and
arguments concerning whether Amendment No. 1 to 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
[[Page 34901]]
Send an email to [email protected]. Please include
File No. SR-Phlx-2018-40 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 No. SR-Phlx-2018-40. 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 website (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 website viewing and printing in
the Commission's Public Reference Room, 100 F Street NE, Washington, DC
20549, on official business days between the hours of 10:00 a.m. and
3:00 p.m. Copies of such filing will also be available for inspection
and copying at the principal office of the Exchange. All comments
received will be posted without change. Persons submitting comments are
cautioned that we do not redact or edit personal identifying
information from comment submissions. You should submit only
information that you wish to make available publicly. All submissions
should refer to File No. SR-Phlx-2018-40 and should be submitted on or
before August 13, 2018.
V. Accelerated Approval of Proposed Rule Change, as Modified by
Amendment No. 1
The Commission finds good cause to approve the proposed rule
change, as modified by Amendment No. 1, prior to the thirtieth day
after the date of publication of notice of the amended proposal in the
Federal Register. As described above, in Amendment No. 1, the Exchange
(a) re-numbered proposed Phlx Rule 1081 as proposed Phlx Rule 1085 and
(b) changed the proposed cross-references in proposed Commentary .06 to
Phlx Rule 1080 and in Floor Advice A-9 from Phlx Rule 1081 to Phlx Rule
1085.\40\ The Commission believes that Amendment No. 1 simply modified
certain proposed rule numbering and cross-referencing and does not
raise novel regulatory issues. Accordingly, the Commission finds good
cause, pursuant to Section 19(b)(2) of the Act,\41\ to approve the
proposed rule change, as modified by Amendment No. 1, on an accelerated
basis.
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\40\ See Amendment No. 1, supra note 6.
\41\ 15 U.S.C. 78s(b)(2).
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VI. Conclusion
It is therefore ordered, pursuant to Section 19(b)(2) of the
Act,\42\ that the proposed rule change (SR-Phlx-2018-40), as modified
by Amendment No. 1, be, and it hereby is, approved on an accelerated
basis.
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\42\ Id.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\43\
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\43\ 17 CFR 200.30-3(a)(12).
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Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2018-15647 Filed 7-20-18; 8:45 am]
BILLING CODE 8011-01-P
