Self-Regulatory Organizations; Nasdaq PHLX LLC; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Amend and Relocate the Qualified Contingent Cross Orders Rules, 14686-14690 [2019-07147]
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Federal Register / Vol. 84, No. 70 / Thursday, April 11, 2019 / Notices
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[FR Doc. 2019–07200 Filed 4–10–19; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–85519; File No. SR–Phlx–
2019–07]
Self-Regulatory Organizations; Nasdaq
PHLX LLC; Notice of Filing and
Immediate Effectiveness of a Proposed
Rule Change To Amend and Relocate
the Qualified Contingent Cross Orders
Rules
April 5, 2019.
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 March 27,
2019, 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.
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I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The Exchange proposes to relocate
Qualified Contingent Cross (‘‘QCC’’)
Orders which are submitted
electronically (‘‘Electronic QCC
Orders’’) 3 and QCC Orders which are
1 15
U.S.C. 78s(b)(1).
CFR 240.19b–4.
3 Qualified Contingent Cross Order is comprised
of an originating order to buy or sell at least 1,000
contracts, or 10,000 contracts in the case of Mini
Options that is identified as being part of a qualified
contingent trade coupled with a contra-side order
2 17
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transacted on the Floor (‘‘Floor QCC
Orders’’) 4 (collectively ‘‘QCC Orders’’).
The Electronic QCC Orders would be
relocated from Phlx Rule 1080(o) to new
Phlx Rule 1088. The Floor QCC Orders
are located at Rule 1064(e). Also, the
Exchange proposes to amend the current
rule text at Phlx Rule 1080(o) as well as
the current rule text in Phlx Rule
1064(e) to more accurately reflect the
manner in which contingency orders are
handled with regard to stop orders and
revise the Exchange’s functionality with
regard to how QCC Orders are handled
with regard to All-or-None Orders.
Finally, the Exchange proposes to
update cross-references to Rule 1080(o)
to reflect proposed Rule 1088.
The text of the proposed rule change
is available on the Exchange’s website 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: (i)
Relocate Electronic QCC Orders,
currently located at Phlx Rule 1080(o),
to new Phlx Rule 1088; (ii) amend the
current rule text at Phlx Rule 1080(o)
and Phlx Rule 1064 to more accurately
reflect the manner in which contingency
orders are handled with regard to stop
orders and revise the Exchange’s
functionality with regard to how QCC
Orders are handled with regard to Allor-None Orders; and (iii) update crossreferences to Rule 1080(o) to reflect
or orders totaling an equal number of contracts. See
Rule 1080(o).
4 A Floor Qualified Contingent Cross Order is
comprised of an originating order to buy or sell at
least 1,000 contracts, or 10,000 contracts in the case
of Mini Options, that is identified as being part of
a qualified contingent trade, coupled with a contraside order or orders totaling an equal number of
contracts. See Rule 1064(e).
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proposed Rule 1088. The Exchange also
proposes to delete ‘‘(p)’’ within Rule
1080, which is currently reserved.5
Background
In 2011, Phlx adopted an Electronic
QCC Order type 6 for execution of orders
within the System.7 The QCC order type
facilitates the execution of stock/option
Qualified Contingent Trades that satisfy
the requirements of the trade through
exemption in connection with Rule
611(d) of Regulation NMS (‘‘QCT Trade
Exemption’’).8 Specifically, Phlx Rule
1080(o) provides that a Phlx Order Entry
Firm effectuating a trade in the System
pursuant to the Regulation NMS QCT
Trade Exemption to Rule 611(a) can
cross the options leg of the trade on
Phlx as a QCC Order immediately upon
entry and without order exposure if no
Customer orders 9 exist on the
Exchange’s order book at the same price.
As set forth in Rule 1080(o), the
Electronic QCC Order must: (i) Be for at
least 1,000 contracts, (ii) meet the six
requirements of Rule 1080(o)(3) which
are modeled on the QCT Trade
Exemption, (iii) be executed at a price
at or between the National Best Bid and
Offer (‘‘NBBO’’); and (iv) be rejected if
a Customer order is resting on the
Exchange book at the same price.10
Separately, the Exchange received
approval to permit market participants
to effectuate Floor QCC Orders.11
5 The Exchange is removing Rule 1080(o) and
therefore proposes to remove (p) which is simply
reserved.
6 See Securities and Exchange Act Release No.
64249 (April 7, 2011), 76 FR 20773, 20774 (April
13, 2011) (SR–Phlx–2011–47).
7 System is defined at Phlx Rule 1000(b)(45).
8 See Securities Exchange Act Release No. 54389
(August 31, 2006), 71 FR 52829 (September 7,
2006); Securities Exchange Act Release No. 57620
(April 4, 2008) 73 FR 19271 (April 9, 2008).
9 Phlx will reject a QCC Order that attempts to
execute when any Customer orders are resting on
the Exchange limit order book at the same price.
The Exchange proposes to amend the term
‘‘customer’’ to ‘‘public customer.’’ For purposes of
this rule change the term ‘‘public customer’’ shall
mean a person or entity that is not a broker or
dealer in securities and is not a professional as
defined within Phlx Rule 1000(b)(14).
10 While the Electronic QCC Order would not
provide exposure for price improvement for the
options leg of a stock-option order, the options leg
must be executed at the NBBO or better.
11 See Securities Exchange Act Release No. 64688
(June 16, 2011), 76 FR 36606 (June 22, 2011) (SR–
Phlx–2011–56) (a rule change to establish a
qualified contingent cross order for execution on
the floor of the Exchange). A Floor QCC Order must:
(i) be for at least 1,000 contracts, (ii) meet the six
requirements of Rule 1080(o)(3) which are modeled
on the QCT Trade Exemption, (iii) be executed at
a price at or between the NBBO and (iv) be rejected
if a Customer order is resting on the Exchange book
at the same price. In order to satisfy the 1,000contract requirement, a Floor QCC Order must be
for 1,000 contracts and could not be, for example,
two 500-contract orders or two 500-contract legs.
See Phlx Rule 1064(e).
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Relocation
The Exchange is proposing to relocate
the text relating to Electronic QCC
Orders, currently located at Phlx Rule
1080(o), to new Phlx Rule 1088. The
Exchange believes that this relocation
will aid market participants in locating
Phlx’s Rule regarding Electronic QCC
Orders which is currently within a
much larger rule.
Amendments
The Exchange proposes to amend the
rule text related to Electronic QCC
Orders, currently contained in Rule
1080(o), which text is being relocated to
Rule 1088, as well as the rule text
related to Floor QCC Orders in Rule
1064(e) as noted below. Specifically,
with respect to the current text of Rule
1080(o), which applies to Electronic
QCC Orders, the Exchange proposes to
amend the rule text which is being
relocated to Rule 1088 to specifically
note that an Electronic QCC Order is
comprised of an originating electronic
order. This will serve to further
distinguish proposed Rule 1088, which
applies to Electronic QCC Orders, from
Rule 1064(e), which applies to Floor
QCC Orders. Also, the Exchange
proposes to remove the word ‘‘PHLX’’
from the current rule text in Rule
1080(o) before the word ‘‘System’’ when
relocating the text to proposed Rule
1088(a)(2). The Exchange uses the
defined term ‘‘System’’ elsewhere in the
rule.12
The Exchange proposes to add new
rule text, which is currently not
contained in Rule 1080(o) or Rule
1064(e), to make clear the handling of
contingency orders with respect to QCC
Orders. The Exchange proposes to add
a new Commentary .01 to proposed Rule
1088, which contains the relocated text
from Rule 1080(o) and also proposes to
add a new Commentary .03 to Rule 1064
to provide for the interaction of certain
contingency orders as they relate to QCC
Orders. The new commentary seeks to
address: (i) Certain order types on Phlx,
which unlike other order types, are not
displayed as part of Phlx’s best bid or
offer (‘‘PBBO’’); and (ii) repricing on the
order book.
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Non-Displayed Contingency Orders
The Phlx contingency orders, which
are non-displayed are exclusively: (i)
All-or-None Orders 13 and (ii) stop
12 See
footnote 7 above.
All-or None Order may only be submitted
by a public customer. All-or-None Orders are nondisplayed and non-routable. All-or-None Orders are
executed in price-time priority among all public
customer orders if the size contingency can be met.
The Acceptable Trade Range protection in Rule
13 An
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orders 14 (collectively ‘‘Non-Displayed
Contingency Orders’’). These NonDisplayed Contingency Orders are not
protected orders generally. An All-orNone Order would not be protected,
unless the size of the contingency may
be satisfied.15 Similar to other markets,
a stop order would be unprotected until
such order is triggered by either the
occurrence of a transaction or posting
on the order book.16 The Exchange notes
that these Non-Displayed Contingency
Orders are distinct from other order
types. As provided for in current Rule
1080(o)(1), QCC Orders are immediately
executed upon entry into the System by
an Order Entry Firm provided that (i) no
Customer Orders are at the same price
on the Exchange’s limit order book and
(ii) the price is at or between the better
of the NBBO. The ‘‘NBBO’’ is the best
Protected Bid and Protected Offer as
defined in the Options Order Protection
and Locked/Crossed Markets Plan;
Protected Bids and Protected Offers that
are displayed at a price but available on
the Exchange at a better non-displayed
price shall be included in the NBBO at
their better non-displayed price for
purposes of this rule.17 Rule 1083(o)
defines a ‘‘Protected Bid’’ or ‘‘Protected
1099(a) is not applied to All-Or-None Orders. See
Phlx Rule 1078.
14 A stop order is a limit or market order to buy
or sell at a limit price when a trade or quote on the
Exchange for a particular option contract reaches a
specified price. A stop-market or stop-limit order
shall not be triggered by a trade that is reported late
or out of sequence or by a complex order trading
with another complex order.
15 A ‘‘Protected Bid’’ or ‘‘Protected Offer’’ means
a Bid or Offer in an options series, respectively,
that: (i) Is disseminated pursuant to the Options
Price Reporting Authority (‘‘OPRA’’) Plan; and (ii)
is the Best Bid or Best Offer, respectively, displayed
by an Eligible Exchange. See Phlx Rule 1083(o).
Phlx Rule 1083 defines a ‘‘Protected Bid’’ or
‘‘Protected Offer’’ as a Bid or Offer in an options
series, respectively, that: (i) Is disseminated
pursuant to the Options Price Reporting Authority
(‘‘OPRA’’) Plan; and (ii) is the Best Bid or Best Offer,
respectively, displayed by an Eligible Exchange.
Once triggered, stop orders are treated as any other
disseminated orders and would be displayed on
OPRA.
16 See NYSE Arca, Inc. Rule 6.62–O. Stop Orders
(including Stop Limit Orders) shall not have
standing in any Order Process in the Consolidated
Book and shall not be displayed. A QCC Order
could trigger a Stop Order.
17 See Reg. NMS Rule 600(a)(42). National best
bid and national best offer means, with respect to
quotations for an NMS security, the best bid and
best offer for such security that are calculated and
disseminated on a current and continuing basis by
a plan processor pursuant to an effective national
market system plan; provided, that in the event two
or more market centers transmit to the plan
processor pursuant to such plan identical bids or
offers for an NMS security, the best bid or best offer
(as the case may be) shall be determined by ranking
all such identical bids or offers (as the case may be)
first by size (giving the highest ranking to the bid
or offer associated with the largest size), and then
by time (giving the highest ranking to the bid or
offer received first in time).
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Offer’’ as a Bid or Offer in an options
series, respectively, that: (i) Is
disseminated pursuant to the OPRA
Plan; 18 and (ii) is the Best Bid or Best
Offer, respectively, displayed by an
Eligible Exchange. Non-Displayed
Contingency Orders are not
disseminated to OPRA and not part of
the displayed PBBO. The Exchange
notes that a Non-Displayed Contingency
Order would never trade with the paired
QCC Order. A stop order would not
impact the execution of a QCC Order
until the stop order is elected 19 by
either the occurrence of a transaction or
posting on the order book, at which
point it would become a protected order
and cause a rejection of the QCC Order
provided it is a public customer order
at the same price as the QCC Order and
the price is at or between the NBBO.
Today, an All-or-None Order would not
cause a paired QCC Order to be
automatically cancelled. The Exchange
proposes to amend its current operation
with respect to All-or-None Orders such
that an All-or-None Order would cause
a QCC Order to be automatically
cancelled provided that the size of a
QCC Order is greater than or equal to
the size of the public customer All-orNone Order on the Exchange’s limit
order book and provided that the price
of the public customer All-or-None
Order locks or crosses the QCC Order.
Below are some examples:
Example 1: QCC cancels back when QCC size
is greater than public customer all-ornone (represented as ‘‘AON’’ for
purposes of the below examples)
The PBBO used in QCC entry price
validation does include resting AON
orders when they could be satisfied by
size of the incoming QCC
Minimum Price Variation (‘‘MPV’’): Penny
PBBO: $1.00 (10) × $1.20 (10)
Enter AON public customer Order to Sell 5
@$1.18
PBBO remains: $1.00 (10) × $1.20 (10)
PBBO (with AON): $1.00 (10) × $1.18 (5)
Enter single QCC for 1000 @$1.19
QCC cancels back to participant due to
public customer AON @$1.18
Example 2: QCC trades through AON when
QCC size is less than AON
18 ‘‘OPRA Plan’’ means the plan filed with the
SEC pursuant to Section 11Aa(1)(C)(iii) of the
Exchange Act, approved by the SEC and declared
effective as of January 22, 1976, as from time to time
amended.
19 Stop orders are inactive until they are
‘‘elected.’’ Stop orders are elected when either the
bid (offer) is updated to a price equal to or greater
(less) than the stop price of a Buy (Sell) Stop order
or an execution on the Exchange occurs at a price
equal to or greater (less) than the stop price of a Buy
(Sell) stop order. Stop order election takes place at
the end of the transaction that caused the election
and at that time the stop order enters the book as
a new market or limit order depending on the
participant instructions. Note: stop orders that are
‘‘electable’’ upon entry are rejected.
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The PBBO used in QCC entry price
validation does include resting AON
orders when they could be satisfied by
size of the incoming QCC
MPV: Penny
PBBO: $1.00 (10) × $1.20 (10)
Enter AON public customer order to Sell
5000 @$1.18
PBBO remains: $1.00 (10) × $1.20 (10)
PBBO (with AON): $1.00 (10) × $1.18
(5000)
Enter single QCC for 1000 @$1.19
QCC prints @$1.19 (Note, the 5000 lot public
customer AON cannot be satisfied by the
1000 lot QCC)
Example 3: QCC blocked by public customer
order behind AON that could not be
satisfied by QCC
The PBBO used in QCC entry price
validation does include resting AON
orders when they could be satisfied by
size of the incoming QCC
MPV: Penny
PBBO: $1.00 (10) × $1.20 (10)
Enter AON public customer order to Sell
5000 @$1.18
Enter public customer Order to sell 1 @$1.19
PBBO adjusts: $1.00 (10) × $1.19 (1)
PBBO (with AON): $1.00 (10) × $1.18
(5000)
Enter single QCC for 1000 @$1.19
QCC cancels back to participant due to
public customer order @$1.19 (Note, the
5000 lot public customer AON cannot be
satisfied by the 1000 lot QCC and
therefore this does not cause the cancel)
Example 4: QCC cancels back due to AON
that could be satisfied by QCC
The PBBO used in QCC entry price
validation does include resting AON
orders when they could be satisfied by
size of the incoming QCC
MPV: Penny
PBBO: $1.00 (10) × $1.20 (10)
Enter AON public customer order to Sell 5@
$1.18
Enter public customer order to sell 1 @$1.19
PBBO adjusts: $1.00 (10) × $1.19 (1)
PBBO (with AON): $1.00 (10) × $1.18 (5)
Enter single QCC for 1000 @$1.19
QCC cancels back to participant due to
public customer AON @$1.18
Example 5: Stop Order triggered by incoming
QCC
MPV: Penny
PBBO: $1.00 (10) × $1.20 (10)
Enter Stop-Limit order to sell 10 contracts
with a Stop price of $1.18 and a limit
price of $1.19
Enter single QCC for 1000 @$1.18
QCC prints @$1.18 since the QCC price is
better than the NBBO. The $1.18 execution
of the QCC causes the sell stop order to be
elected. Election of the stop order causes the
order to be entered onto the book offered at
$1.19. PBBO updates to be $1.00 (10) × $1.19
(10).
With respect to stop orders, the
Exchange’s proposal does not expand
how Non-Displayed Contingency Orders
are handled by the System, rather the
Exchange is proposing to add
transparency to its rules with respect to
these non-protected order types. With
the Exchange’s proposal to amend the
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current handling of All-or-None Orders,
if the size of a QCC Order is greater than
or equal to the size of the resting public
customer All-or-None Order, the QCC
Order would be automatically
cancelled 20 provided that the price of
the public customer All-or-None Order
is the same as, or better than, the price
of the QCC Order. A market participant
that elects to enter an All-or-None Order
is choosing to request that the order be
executed only if a certain contingency is
met. The Exchange provides market
participants the opportunity to enter
limit orders, which unlike All-or-None
Orders, are protected and displayed.
Market participants electing to utilize
the All-or-None Order type will have no
standing on the order book in relation
to an incoming QCC Order because Allor-None Orders are not protected, unless
the size of a public customer All-orNone Order could be satisfied by the
size of the QCC Order, and provided
that the price of the public customer
All-or-None Order is the same as, or
better than, the price of the QCC Order.
The Exchange believes that it provides
market participants with an array of
order types and allows market
participants to determine the manner in
which they would like to be executed.
Repricing
Certain orders are repriced on Phlx
because the order locks or crosses the
ABBO.21 With respect to Do-Not-Route
or ‘‘DNR’’ Orders, where the best away
market is at an inferior price level to the
PBBO, the System will automatically reprice that order from its one minimum
price variation inferior to the original
away best bid/offer price to one
minimum trading increment away from
the new away best bid/offer price or its
original limit price, and expose such
orders at the NBBO to Phlx XL II
participants and other market
participants only if the re-priced order
locks or crosses the ABBO.22 With
20 The
System would technically accept the order
upon entry and then upon a review of the Order
Book send a message to the market participant
automatically cancelling an order because of the
resting public customer All-or-None Order.
21 ABBO shall mean the away best bid or offer.
22 See Phlx Rule 1080(m)(iv)(A). Further, with
respect to routable orders, the same repricing takes
place for FIND and SRCH Orders.
A FIND Order received during open trading that
is marketable against the PBBO when the ABBO is
inferior to the PBBO will be traded at the PBBO
price. If the FIND Order has size remaining after
exhausting the PBBO, it may: (1) Trade at the next
PBBO price (or prices) if the order price is locking
or crossing that price (or prices) up to and including
the ABBO price, or (2) be entered into the Phlx XL
II book at its limit price, or one MPV away from
the ABBO if locking or crossing the ABBO. See Phlx
Rule 1080(m)(iv)(B).
A SRCH Order is a customer order that is routable
at any time. A SRCH Order may trade at the Phlx
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respect to the automatic re-pricing from
its one minimum price variation inferior
to the original away best bid/offer price
the Exchange notes that other markets
also re-price orders to avoid locked and/
or crossed markets,23 and such repricing
impacts the execution price of a QCC
Order. The Exchange may have a quote
or order that will not be displayed at its
actual better price. For example, an
order limit price may lock an away
market, in which case the order is
displayed one minimum increment
away from the away market price but
remains part of the Exchange’s internal
BBO 24 at the locking price. The
Exchange is proposing to add newly
proposed Rule 1088(a)(1) and current
Rule 1064(e)(1) to make clear that the
price of the QCC Order must be at or
between not just the NBBO, but the
better of the PBBO and the NBBO to
immediately execute. The Exchange
notes that it protects re-priced orders
that are part of the Exchange’s internal
BBO at the locked pricing with an away
market. This preserves the priority of
interest which may be available at an
internal price, internal BBO, which is
better than the displayed PBBO and
NBBO and permits executions only at
prices which are at or better than the
best price available. Repricing does not
expand how QCC Orders are handled by
the System, rather the Exchange is
proposing to add transparency to its
rules with respect to how QCC Orders
are handled when there are re-priced
orders on the book which are available
at a price better than the displayed
PBBO and NBBO.
Public Customer
Specifying the term ‘‘public
customer’’ in place of the term
‘‘customer’’ within the rule text will
make clear the meaning of that term. For
purposes of this rule change the term
‘‘public customer’’ shall mean a person
price if that price is equal to or better than the
ABBO or, if the ABBO is better than the Phlx price,
orders have been routed to better priced markets for
their full size; or (2) be routed to better priced
markets if the ABBO price is the best price, and/
or (3) be placed on the Phlx XL II book at its limit
price if not participating in the Phlx opening at the
opening price and not locking or crossing the
ABBO. Once on the order book, the SRCH Order is
eligible for routing if it is locked or crossed by an
away market. See Phlx Rule 1080(m)(iv)(C).
23 See Miami International Securities Exchange
LLC (‘‘MIAX’’) Rule 515(h)(2) which provides that
if trading interest exists on the MIAX Book that is
subject to the liquidity refresh pause or managed
interest process pursuant to Rule 515(c), or a route
timer pursuant to Rule 529 when the Exchange
receives a Qualified Contingent Cross Order, the
System will reject the Qualified Contingent Cross
Order.
24 The words ‘‘internal BBO’’ refer to the actual
better price of an order resting on Phlx’s order book
which is not displayed, but available for execution.
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or entity that is not a broker or dealer
in securities and is not a professional as
defined within Phlx Rule 1000(b)(14).
Cross-References
The Exchange proposes to update
cross-references to Electronic QCC
Orders within Rule 1080(o) within other
Exchange rules to cite the new
electronic rule.25
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Implementation
The Exchange would implement the
changes proposed herein prior to May
31, 2019. The Exchange would issue an
Options Trader Alert announcing the
exact date of implementation in
advance.26
2. Statutory Basis
The Exchange believes that its
proposal is consistent with Section 6(b)
of the Act,27 in general, and furthers the
objectives of Section 6(b)(5) of the Act,28
in particular, in that it is designed to
promote just and equitable principles of
trade and to protect investors and the
public interest by amending the rule
text relating to QCC Orders to correct
and make clear the current rule text.
The Exchange believes that the
amendments to add the word
‘‘electronic’’ in proposed Rule 1088(a)
and the deletion of the word ‘‘PHLX’’ in
proposed Rule 1088(a)(2) are nonsubstantive amendments which simply
add specificity and conform the rule
text, respectively. Further, the proposals
to update the cross-references to Rule
1080(o) to proposed Rule 1088 will
correct the citations within the
Rulebook for accuracy.
The Exchange’s proposal to add new
Commentary .01 to Rule 1088 and new
Commentary .03 to Rule 1064 for QCC
Orders is consistent with the Act
because the proposed functionalities are
consistent with the public customer
protection provisions Phlx provides
when a QCC order is submitted to the
System. The Exchange notes that NonDisplayed Contingency Order Types are
distinct from other order types. The
Exchange offers an array of order types
which do not have similar limitations
and would be protected orders and are
displayed. Other markets have stop
orders which require a triggering (or
‘‘electing’’) event prior to being
protected.29
With respect to stop orders, the
Exchange’s proposal does not expand
how Non-Displayed Contingency Orders
25 See Phlx’s Pricing Schedule at Options 7,
Section 1, B. and Section 4 and Phlx Rule 1064.
26 See Options Trader Alert 2018–47.
27 15 U.S.C. 78f(b).
28 15 U.S.C. 78f(b)(5).
29 See note 16 above.
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are handled by the System, rather the
Exchange is proposing to add
transparency to its rules with respect to
these non-protected order types. The
proposal would clarify that stop orders
which have not been elected are not
protected orders and are thus not
considered for the acceptance or
execution of QCC Orders. With respect
to All-or-None Orders, the Exchange’s
proposal to automatically cancel a QCC
Order, provided the size of a QCC Order
is greater than or equal to the size of the
resting public customer All-or-None
Order and the price of the public
customer All-or-None Order is the same
as, or better than, the price of the QCC
Order, is consistent with Act. Today,
QCC Orders are immediately executed
upon entry into the System by an Order
Entry Firm provided that (i) no
Customer Orders are at the same price
on the Exchange’s limit order book and
(ii) the price is at or between the better
of the NBBO for all other order types,
with the exception of All-or-None
Orders. The Exchange is extending the
same level of protection to public
customer All-or-None Orders in the case
of QCC Orders that today is provided to
all other order types submitted by
public customers.30 By automatically
cancelling a QCC Order with a size
greater than or equal to the size of a
resting public customer All-or-None
Order, provided the QCC price locks or
crosses the All-or-None Order, will
cause those public customer All-orNone orders to be prioritized.
The Exchange’s proposal to add rule
text to make clear that with respect to
Non-Displayed Contingency Orders, the
price of the QCC Order must be at or
between not just the NBBO, but the
better of the internal PBBO and the
NBBO to immediately execute adds
more transparency to the Exchange’s
Rules. The Exchange notes that other
markets also re-price orders to avoid
locked and/or crossed markets,31 and
such repricing impacts the execution
price of a QCC Order. The Exchange
protects re-priced orders at their
‘‘actual’’ price rather than their
displayed price which preserves the
priority of interest which may be
available at an internal price, internal
BBO, which is better than the displayed
PBBO and NBBO and permits
executions only at prices which are at
or better than the best price available
and continues to facilitate the execution
of qualified contingent trades, thereby
benefitting the market as a whole.
30 See note 6 above. Public customer priority
existed at the adoption of Phlx’s QCC Order
functionality.
31 See note 23 above.
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14689
Repricing does not expand how QCC
Orders are handled by the System. The
proposed text adds transparency with
respect to how QCC Orders are handled
when there are re-priced orders on the
book which are available at a price
better than the displayed PBBO and
NBBO.
Finally, specifying the term ‘‘public
customer’’ in place of the term
‘‘customer’’ within the rule text will
make clear the meaning of that term.
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
proposals to add the word ‘‘electronic’’
in proposed Rule 1088(a) and delete the
word ‘‘PHLX’’ in proposed Rule
1088(a)(2) are non-substantive
amendments which simply add
specificity and conforms the rule text.
The Exchange’s proposal to amend
cross-references will bring greater
clarity to the Exchange’s rules.
The Exchange’s proposal to describe
how Non-Displayed Contingency Orders
are handled by the System does not
impose an undue burden on
competition, rather the rule text adds
transparency to the rules because it
describes how these non-protected order
types are handled. The Exchange’s
proposal to automatically cancel a QCC
Order, provided the size of a QCC Order
is greater than or equal to the size of the
resting public customer All-or-None
Order and the price of the public
customer All-or-None Order is the same
as, or better than, the price of the QCC
Order, does not impose an undue
burden on competition because the
Exchange will uniformly cancel all QCC
Orders if there is a public customer Allor-None Order resting on the order book
with eligible size. The Exchange is
extending the same level of protection
to public customer All-or-None Orders
in the case of QCC Orders that today is
provided to all other order types
submitted by public customers and
therefore uniformly prioritizing all
public customer orders.
The Exchange’s proposal to add rule
text to make clear that with respect to
Non-Displayed Contingency Orders, the
price of the QCC Order must be at or
between not just the NBBO, but the
better of the internal PBBO and the
NBBO to immediately execute does not
impose an undue burden on
competition. This rule text adds more
transparency to the Exchange’s Rules.
The Exchange notes that other markets
also re-price orders to avoid locked and/
E:\FR\FM\11APN1.SGM
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Federal Register / Vol. 84, No. 70 / Thursday, April 11, 2019 / Notices
or crossed markets,32 and such repricing
impacts the execution price of a QCC
Order. Repricing does not expand how
QCC Orders are handled by the System.
The Exchange’s proposal would add
transparency to its rules with respect to
how QCC Orders are handled when
there are re-priced orders on the order
book which are available at a price
better than the displayed PBBO and
NBBO. The Exchange uniformly
reprices orders within the System.
Specifying the term ‘‘public customer’’
in place of the term ‘‘customer’’ within
the rule text will make clear the
meaning of that term.
C. Self-Regulatory Organization’s
Statement on Comments on the
Proposed Rule Change Received From
Members, Participants, or Others
The Exchange has not solicited, and
does not intend to solicit, comments on
this proposed rule change. The
Exchange has not received any
unsolicited written comments from
members or other interested parties.
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 33 and
subparagraph (f)(6) of Rule 19b–4
thereunder.34
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 necessary or appropriate in the
public interest, for the protection of
investors, or otherwise in furtherance of
the purposes of the Act. If the
Commission takes such action, the
Commission shall institute proceedings
to determine whether the proposed rule
should be approved or disapproved.
IV. Solicitation of Comments
Interested persons are invited to
submit written data, views, and
amozie on DSK9F9SC42PROD with NOTICES
32 See
note 23 above.
33 15 U.S.C. 78s(b)(3)(A)(iii).
34 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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16:50 Apr 10, 2019
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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:
SECURITIES AND EXCHANGE
COMMISSION
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–2019–07 on the subject line.
Precidian ETFs Trust, et al.; Notice of
Application
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–2019–07. 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 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.
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
Number SR–Phlx–2019–07, and should
be submitted on or before May 2, 2019.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.35
Eduardo A. Aleman,
Deputy Secretary.
[FR Doc. 2019–07147 Filed 4–10–19; 8:45 am]
BILLING CODE 8011–01–P
35 17
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[Investment Company Act Release No.
33440; 812–14405]
April 8, 2019.
Securities and Exchange
Commission (‘‘Commission’’).
ACTION: Notice of an application for
exemptive relief.
AGENCY:
Applicants
request an order under section 6(c) of
the Investment Company Act of 1940
(‘‘Act’’) for an exemption from sections
2(a)(32), 5(a)(1), and 22(d) of the Act
and rule 22c–1 under the Act, under
sections 6(c) and 17(b) of the Act for an
exemption from sections 17(a)(1) and
17(a)(2) of the Act, and under section
12(d)(1)(J) of the Act for an exemption
from sections 12(d)(1)(A) and
12(d)(1)(B) of the Act. If granted, the
requested order would permit registered
open-end investment companies that are
exchange-traded funds (each, an ‘‘ETF’’)
and are actively managed to operate
without being subject to the current
daily portfolio transparency condition
in actively managed ETF orders.
APPLICANTS: Precidian Funds LLC (the
‘‘Initial Adviser’’); Precidian ETFs Trust
and Precidian ETF Trust II (each, a
‘‘Trust’’ and, together the ‘‘Trusts’’); and
Foreside Fund Services, LLC.
FILING DATES: The application was filed
on December 22, 2014, and amended on
August 11, 2015, September 21, 2015,
May 3, 2017, October 2, 2017, December
4, 2017, May 30, 2018, and April 4,
2019.
HEARING OR NOTIFICATION OF HEARING:
An order granting the requested relief
will be issued unless the Commission
orders a hearing. Interested persons may
request a hearing by writing to the
Commission’s Secretary and serving
Applicants with a copy of the request,
personally or by mail. Hearing requests
should be received by the Commission
by 5:30 p.m. on May 3, 2019, and
should be accompanied by proof of
service on Applicants, in the form of an
affidavit, or for lawyers, a certificate of
service. Pursuant to rule 0–5 under the
Act, hearing requests should state the
nature of the writer’s interest, any facts
bearing upon the desirability of a
hearing on the matter, the reason for the
request, and the issues contested.
Persons who wish to be notified of a
hearing may request notification by
writing to the Commission’s Secretary.
ADDRESSES: Secretary, Securities and
Exchange Commission, 100 F Street NE,
SUMMARY OF APPLICATION:
E:\FR\FM\11APN1.SGM
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Agencies
[Federal Register Volume 84, Number 70 (Thursday, April 11, 2019)]
[Notices]
[Pages 14686-14690]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-07147]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-85519; File No. SR-Phlx-2019-07]
Self-Regulatory Organizations; Nasdaq PHLX LLC; Notice of Filing
and Immediate Effectiveness of a Proposed Rule Change To Amend and
Relocate the Qualified Contingent Cross Orders Rules
April 5, 2019.
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 March 27, 2019, 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.
---------------------------------------------------------------------------
I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange proposes to relocate Qualified Contingent Cross
(``QCC'') Orders which are submitted electronically (``Electronic QCC
Orders'') \3\ and QCC Orders which are transacted on the Floor (``Floor
QCC Orders'') \4\ (collectively ``QCC Orders''). The Electronic QCC
Orders would be relocated from Phlx Rule 1080(o) to new Phlx Rule 1088.
The Floor QCC Orders are located at Rule 1064(e). Also, the Exchange
proposes to amend the current rule text at Phlx Rule 1080(o) as well as
the current rule text in Phlx Rule 1064(e) to more accurately reflect
the manner in which contingency orders are handled with regard to stop
orders and revise the Exchange's functionality with regard to how QCC
Orders are handled with regard to All-or-None Orders. Finally, the
Exchange proposes to update cross-references to Rule 1080(o) to reflect
proposed Rule 1088.
---------------------------------------------------------------------------
\3\ Qualified Contingent Cross Order is comprised of an
originating order to buy or sell at least 1,000 contracts, or 10,000
contracts in the case of Mini Options that is identified as being
part of a qualified contingent trade coupled with a contra-side
order or orders totaling an equal number of contracts. See Rule
1080(o).
\4\ A Floor Qualified Contingent Cross Order is comprised of an
originating order to buy or sell at least 1,000 contracts, or 10,000
contracts in the case of Mini Options, that is identified as being
part of a qualified contingent trade, coupled with a contra-side
order or orders totaling an equal number of contracts. See Rule
1064(e).
---------------------------------------------------------------------------
The text of the proposed rule change is available on the Exchange's
website 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: (i) Relocate Electronic QCC Orders,
currently located at Phlx Rule 1080(o), to new Phlx Rule 1088; (ii)
amend the current rule text at Phlx Rule 1080(o) and Phlx Rule 1064 to
more accurately reflect the manner in which contingency orders are
handled with regard to stop orders and revise the Exchange's
functionality with regard to how QCC Orders are handled with regard to
All-or-None Orders; and (iii) update cross-references to Rule 1080(o)
to reflect proposed Rule 1088. The Exchange also proposes to delete
``(p)'' within Rule 1080, which is currently reserved.\5\
---------------------------------------------------------------------------
\5\ The Exchange is removing Rule 1080(o) and therefore proposes
to remove (p) which is simply reserved.
---------------------------------------------------------------------------
Background
In 2011, Phlx adopted an Electronic QCC Order type \6\ for
execution of orders within the System.\7\ The QCC order type
facilitates the execution of stock/option Qualified Contingent Trades
that satisfy the requirements of the trade through exemption in
connection with Rule 611(d) of Regulation NMS (``QCT Trade
Exemption'').\8\ Specifically, Phlx Rule 1080(o) provides that a Phlx
Order Entry Firm effectuating a trade in the System pursuant to the
Regulation NMS QCT Trade Exemption to Rule 611(a) can cross the options
leg of the trade on Phlx as a QCC Order immediately upon entry and
without order exposure if no Customer orders \9\ exist on the
Exchange's order book at the same price. As set forth in Rule 1080(o),
the Electronic QCC Order must: (i) Be for at least 1,000 contracts,
(ii) meet the six requirements of Rule 1080(o)(3) which are modeled on
the QCT Trade Exemption, (iii) be executed at a price at or between the
National Best Bid and Offer (``NBBO''); and (iv) be rejected if a
Customer order is resting on the Exchange book at the same price.\10\
Separately, the Exchange received approval to permit market
participants to effectuate Floor QCC Orders.\11\
---------------------------------------------------------------------------
\6\ See Securities and Exchange Act Release No. 64249 (April 7,
2011), 76 FR 20773, 20774 (April 13, 2011) (SR-Phlx-2011-47).
\7\ System is defined at Phlx Rule 1000(b)(45).
\8\ See Securities Exchange Act Release No. 54389 (August 31,
2006), 71 FR 52829 (September 7, 2006); Securities Exchange Act
Release No. 57620 (April 4, 2008) 73 FR 19271 (April 9, 2008).
\9\ Phlx will reject a QCC Order that attempts to execute when
any Customer orders are resting on the Exchange limit order book at
the same price. The Exchange proposes to amend the term ``customer''
to ``public customer.'' For purposes of this rule change the term
``public customer'' shall mean a person or entity that is not a
broker or dealer in securities and is not a professional as defined
within Phlx Rule 1000(b)(14).
\10\ While the Electronic QCC Order would not provide exposure
for price improvement for the options leg of a stock-option order,
the options leg must be executed at the NBBO or better.
\11\ See Securities Exchange Act Release No. 64688 (June 16,
2011), 76 FR 36606 (June 22, 2011) (SR-Phlx-2011-56) (a rule change
to establish a qualified contingent cross order for execution on the
floor of the Exchange). A Floor QCC Order must: (i) be for at least
1,000 contracts, (ii) meet the six requirements of Rule 1080(o)(3)
which are modeled on the QCT Trade Exemption, (iii) be executed at a
price at or between the NBBO and (iv) be rejected if a Customer
order is resting on the Exchange book at the same price. In order to
satisfy the 1,000-contract requirement, a Floor QCC Order must be
for 1,000 contracts and could not be, for example, two 500-contract
orders or two 500-contract legs. See Phlx Rule 1064(e).
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[[Page 14687]]
Relocation
The Exchange is proposing to relocate the text relating to
Electronic QCC Orders, currently located at Phlx Rule 1080(o), to new
Phlx Rule 1088. The Exchange believes that this relocation will aid
market participants in locating Phlx's Rule regarding Electronic QCC
Orders which is currently within a much larger rule.
Amendments
The Exchange proposes to amend the rule text related to Electronic
QCC Orders, currently contained in Rule 1080(o), which text is being
relocated to Rule 1088, as well as the rule text related to Floor QCC
Orders in Rule 1064(e) as noted below. Specifically, with respect to
the current text of Rule 1080(o), which applies to Electronic QCC
Orders, the Exchange proposes to amend the rule text which is being
relocated to Rule 1088 to specifically note that an Electronic QCC
Order is comprised of an originating electronic order. This will serve
to further distinguish proposed Rule 1088, which applies to Electronic
QCC Orders, from Rule 1064(e), which applies to Floor QCC Orders. Also,
the Exchange proposes to remove the word ``PHLX'' from the current rule
text in Rule 1080(o) before the word ``System'' when relocating the
text to proposed Rule 1088(a)(2). The Exchange uses the defined term
``System'' elsewhere in the rule.\12\
---------------------------------------------------------------------------
\12\ See footnote 7 above.
---------------------------------------------------------------------------
The Exchange proposes to add new rule text, which is currently not
contained in Rule 1080(o) or Rule 1064(e), to make clear the handling
of contingency orders with respect to QCC Orders. The Exchange proposes
to add a new Commentary .01 to proposed Rule 1088, which contains the
relocated text from Rule 1080(o) and also proposes to add a new
Commentary .03 to Rule 1064 to provide for the interaction of certain
contingency orders as they relate to QCC Orders. The new commentary
seeks to address: (i) Certain order types on Phlx, which unlike other
order types, are not displayed as part of Phlx's best bid or offer
(``PBBO''); and (ii) repricing on the order book.
Non-Displayed Contingency Orders
The Phlx contingency orders, which are non-displayed are
exclusively: (i) All-or-None Orders \13\ and (ii) stop orders \14\
(collectively ``Non-Displayed Contingency Orders''). These Non-
Displayed Contingency Orders are not protected orders generally. An
All-or-None Order would not be protected, unless the size of the
contingency may be satisfied.\15\ Similar to other markets, a stop
order would be unprotected until such order is triggered by either the
occurrence of a transaction or posting on the order book.\16\ The
Exchange notes that these Non-Displayed Contingency Orders are distinct
from other order types. As provided for in current Rule 1080(o)(1), QCC
Orders are immediately executed upon entry into the System by an Order
Entry Firm provided that (i) no Customer Orders are at the same price
on the Exchange's limit order book and (ii) the price is at or between
the better of the NBBO. The ``NBBO'' is the best Protected Bid and
Protected Offer as defined in the Options Order Protection and Locked/
Crossed Markets Plan; Protected Bids and Protected Offers that are
displayed at a price but available on the Exchange at a better non-
displayed price shall be included in the NBBO at their better non-
displayed price for purposes of this rule.\17\ Rule 1083(o) defines a
``Protected Bid'' or ``Protected Offer'' as a Bid or Offer in an
options series, respectively, that: (i) Is disseminated pursuant to the
OPRA Plan; \18\ and (ii) is the Best Bid or Best Offer, respectively,
displayed by an Eligible Exchange. Non-Displayed Contingency Orders are
not disseminated to OPRA and not part of the displayed PBBO. The
Exchange notes that a Non-Displayed Contingency Order would never trade
with the paired QCC Order. A stop order would not impact the execution
of a QCC Order until the stop order is elected \19\ by either the
occurrence of a transaction or posting on the order book, at which
point it would become a protected order and cause a rejection of the
QCC Order provided it is a public customer order at the same price as
the QCC Order and the price is at or between the NBBO. Today, an All-
or-None Order would not cause a paired QCC Order to be automatically
cancelled. The Exchange proposes to amend its current operation with
respect to All-or-None Orders such that an All-or-None Order would
cause a QCC Order to be automatically cancelled provided that the size
of a QCC Order is greater than or equal to the size of the public
customer All-or-None Order on the Exchange's limit order book and
provided that the price of the public customer All-or-None Order locks
or crosses the QCC Order. Below are some examples:
---------------------------------------------------------------------------
\13\ An All-or None Order may only be submitted by a public
customer. All-or-None Orders are non-displayed and non-routable.
All-or-None Orders are executed in price-time priority among all
public customer orders if the size contingency can be met. The
Acceptable Trade Range protection in Rule 1099(a) is not applied to
All-Or-None Orders. See Phlx Rule 1078.
\14\ A stop order is a limit or market order to buy or sell at a
limit price when a trade or quote on the Exchange for a particular
option contract reaches a specified price. A stop-market or stop-
limit order shall not be triggered by a trade that is reported late
or out of sequence or by a complex order trading with another
complex order.
\15\ A ``Protected Bid'' or ``Protected Offer'' means a Bid or
Offer in an options series, respectively, that: (i) Is disseminated
pursuant to the Options Price Reporting Authority (``OPRA'') Plan;
and (ii) is the Best Bid or Best Offer, respectively, displayed by
an Eligible Exchange. See Phlx Rule 1083(o). Phlx Rule 1083 defines
a ``Protected Bid'' or ``Protected Offer'' as a Bid or Offer in an
options series, respectively, that: (i) Is disseminated pursuant to
the Options Price Reporting Authority (``OPRA'') Plan; and (ii) is
the Best Bid or Best Offer, respectively, displayed by an Eligible
Exchange. Once triggered, stop orders are treated as any other
disseminated orders and would be displayed on OPRA.
\16\ See NYSE Arca, Inc. Rule 6.62-O. Stop Orders (including
Stop Limit Orders) shall not have standing in any Order Process in
the Consolidated Book and shall not be displayed. A QCC Order could
trigger a Stop Order.
\17\ See Reg. NMS Rule 600(a)(42). National best bid and
national best offer means, with respect to quotations for an NMS
security, the best bid and best offer for such security that are
calculated and disseminated on a current and continuing basis by a
plan processor pursuant to an effective national market system plan;
provided, that in the event two or more market centers transmit to
the plan processor pursuant to such plan identical bids or offers
for an NMS security, the best bid or best offer (as the case may be)
shall be determined by ranking all such identical bids or offers (as
the case may be) first by size (giving the highest ranking to the
bid or offer associated with the largest size), and then by time
(giving the highest ranking to the bid or offer received first in
time).
\18\ ``OPRA Plan'' means the plan filed with the SEC pursuant to
Section 11Aa(1)(C)(iii) of the Exchange Act, approved by the SEC and
declared effective as of January 22, 1976, as from time to time
amended.
\19\ Stop orders are inactive until they are ``elected.'' Stop
orders are elected when either the bid (offer) is updated to a price
equal to or greater (less) than the stop price of a Buy (Sell) Stop
order or an execution on the Exchange occurs at a price equal to or
greater (less) than the stop price of a Buy (Sell) stop order. Stop
order election takes place at the end of the transaction that caused
the election and at that time the stop order enters the book as a
new market or limit order depending on the participant instructions.
Note: stop orders that are ``electable'' upon entry are rejected.
Example 1: QCC cancels back when QCC size is greater than public
customer all-or-none (represented as ``AON'' for purposes of the
below examples)
The PBBO used in QCC entry price validation does include resting AON
orders when they could be satisfied by size of the incoming QCC
Minimum Price Variation (``MPV''): Penny
PBBO: $1.00 (10) x $1.20 (10)
Enter AON public customer Order to Sell 5 @$1.18
PBBO remains: $1.00 (10) x $1.20 (10)
PBBO (with AON): $1.00 (10) x $1.18 (5)
Enter single QCC for 1000 @$1.19
QCC cancels back to participant due to public customer AON @$1.18
Example 2: QCC trades through AON when QCC size is less than AON
[[Page 14688]]
The PBBO used in QCC entry price validation does include resting AON
orders when they could be satisfied by size of the incoming QCC
MPV: Penny
PBBO: $1.00 (10) x $1.20 (10)
Enter AON public customer order to Sell 5000 @$1.18
PBBO remains: $1.00 (10) x $1.20 (10)
PBBO (with AON): $1.00 (10) x $1.18 (5000)
Enter single QCC for 1000 @$1.19
QCC prints @$1.19 (Note, the 5000 lot public customer AON cannot be
satisfied by the 1000 lot QCC)
Example 3: QCC blocked by public customer order behind AON that
could not be satisfied by QCC
The PBBO used in QCC entry price validation does include resting AON
orders when they could be satisfied by size of the incoming QCC
MPV: Penny
PBBO: $1.00 (10) x $1.20 (10)
Enter AON public customer order to Sell 5000 @$1.18
Enter public customer Order to sell 1 @$1.19
PBBO adjusts: $1.00 (10) x $1.19 (1)
PBBO (with AON): $1.00 (10) x $1.18 (5000)
Enter single QCC for 1000 @$1.19
QCC cancels back to participant due to public customer order @$1.19
(Note, the 5000 lot public customer AON cannot be satisfied by the
1000 lot QCC and therefore this does not cause the cancel)
Example 4: QCC cancels back due to AON that could be satisfied by
QCC
The PBBO used in QCC entry price validation does include resting AON
orders when they could be satisfied by size of the incoming QCC
MPV: Penny
PBBO: $1.00 (10) x $1.20 (10)
Enter AON public customer order to Sell [email protected]$1.18
Enter public customer order to sell 1 @$1.19
PBBO adjusts: $1.00 (10) x $1.19 (1)
PBBO (with AON): $1.00 (10) x $1.18 (5)
Enter single QCC for 1000 @$1.19
QCC cancels back to participant due to public customer AON @$1.18
Example 5: Stop Order triggered by incoming QCC
MPV: Penny
PBBO: $1.00 (10) x $1.20 (10)
Enter Stop-Limit order to sell 10 contracts with a Stop price of
$1.18 and a limit price of $1.19
Enter single QCC for 1000 @$1.18
QCC prints @$1.18 since the QCC price is better than the NBBO.
The $1.18 execution of the QCC causes the sell stop order to be
elected. Election of the stop order causes the order to be entered
onto the book offered at $1.19. PBBO updates to be $1.00 (10) x
$1.19 (10).
With respect to stop orders, the Exchange's proposal does not
expand how Non-Displayed Contingency Orders are handled by the System,
rather the Exchange is proposing to add transparency to its rules with
respect to these non-protected order types. With the Exchange's
proposal to amend the current handling of All-or-None Orders, if the
size of a QCC Order is greater than or equal to the size of the resting
public customer All-or-None Order, the QCC Order would be automatically
cancelled \20\ provided that the price of the public customer All-or-
None Order is the same as, or better than, the price of the QCC Order.
A market participant that elects to enter an All-or-None Order is
choosing to request that the order be executed only if a certain
contingency is met. The Exchange provides market participants the
opportunity to enter limit orders, which unlike All-or-None Orders, are
protected and displayed. Market participants electing to utilize the
All-or-None Order type will have no standing on the order book in
relation to an incoming QCC Order because All-or-None Orders are not
protected, unless the size of a public customer All-or-None Order could
be satisfied by the size of the QCC Order, and provided that the price
of the public customer All-or-None Order is the same as, or better
than, the price of the QCC Order. The Exchange believes that it
provides market participants with an array of order types and allows
market participants to determine the manner in which they would like to
be executed.
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\20\ The System would technically accept the order upon entry
and then upon a review of the Order Book send a message to the
market participant automatically cancelling an order because of the
resting public customer All-or-None Order.
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Repricing
Certain orders are repriced on Phlx because the order locks or
crosses the ABBO.\21\ With respect to Do-Not-Route or ``DNR'' Orders,
where the best away market is at an inferior price level to the PBBO,
the System will automatically re-price that order from its one minimum
price variation inferior to the original away best bid/offer price to
one minimum trading increment away from the new away best bid/offer
price or its original limit price, and expose such orders at the NBBO
to Phlx XL II participants and other market participants only if the
re-priced order locks or crosses the ABBO.\22\ With respect to the
automatic re-pricing from its one minimum price variation inferior to
the original away best bid/offer price the Exchange notes that other
markets also re-price orders to avoid locked and/or crossed
markets,\23\ and such repricing impacts the execution price of a QCC
Order. The Exchange may have a quote or order that will not be
displayed at its actual better price. For example, an order limit price
may lock an away market, in which case the order is displayed one
minimum increment away from the away market price but remains part of
the Exchange's internal BBO \24\ at the locking price. The Exchange is
proposing to add newly proposed Rule 1088(a)(1) and current Rule
1064(e)(1) to make clear that the price of the QCC Order must be at or
between not just the NBBO, but the better of the PBBO and the NBBO to
immediately execute. The Exchange notes that it protects re-priced
orders that are part of the Exchange's internal BBO at the locked
pricing with an away market. This preserves the priority of interest
which may be available at an internal price, internal BBO, which is
better than the displayed PBBO and NBBO and permits executions only at
prices which are at or better than the best price available. Repricing
does not expand how QCC Orders are handled by the System, rather the
Exchange is proposing to add transparency to its rules with respect to
how QCC Orders are handled when there are re-priced orders on the book
which are available at a price better than the displayed PBBO and NBBO.
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\21\ ABBO shall mean the away best bid or offer.
\22\ See Phlx Rule 1080(m)(iv)(A). Further, with respect to
routable orders, the same repricing takes place for FIND and SRCH
Orders.
A FIND Order received during open trading that is marketable
against the PBBO when the ABBO is inferior to the PBBO will be
traded at the PBBO price. If the FIND Order has size remaining after
exhausting the PBBO, it may: (1) Trade at the next PBBO price (or
prices) if the order price is locking or crossing that price (or
prices) up to and including the ABBO price, or (2) be entered into
the Phlx XL II book at its limit price, or one MPV away from the
ABBO if locking or crossing the ABBO. See Phlx Rule 1080(m)(iv)(B).
A SRCH Order is a customer order that is routable at any time. A
SRCH Order may trade at the Phlx price if that price is equal to or
better than the ABBO or, if the ABBO is better than the Phlx price,
orders have been routed to better priced markets for their full
size; or (2) be routed to better priced markets if the ABBO price is
the best price, and/or (3) be placed on the Phlx XL II book at its
limit price if not participating in the Phlx opening at the opening
price and not locking or crossing the ABBO. Once on the order book,
the SRCH Order is eligible for routing if it is locked or crossed by
an away market. See Phlx Rule 1080(m)(iv)(C).
\23\ See Miami International Securities Exchange LLC (``MIAX'')
Rule 515(h)(2) which provides that if trading interest exists on the
MIAX Book that is subject to the liquidity refresh pause or managed
interest process pursuant to Rule 515(c), or a route timer pursuant
to Rule 529 when the Exchange receives a Qualified Contingent Cross
Order, the System will reject the Qualified Contingent Cross Order.
\24\ The words ``internal BBO'' refer to the actual better price
of an order resting on Phlx's order book which is not displayed, but
available for execution.
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Public Customer
Specifying the term ``public customer'' in place of the term
``customer'' within the rule text will make clear the meaning of that
term. For purposes of this rule change the term ``public customer''
shall mean a person
[[Page 14689]]
or entity that is not a broker or dealer in securities and is not a
professional as defined within Phlx Rule 1000(b)(14).
Cross-References
The Exchange proposes to update cross-references to Electronic QCC
Orders within Rule 1080(o) within other Exchange rules to cite the new
electronic rule.\25\
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\25\ See Phlx's Pricing Schedule at Options 7, Section 1, B. and
Section 4 and Phlx Rule 1064.
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Implementation
The Exchange would implement the changes proposed herein prior to
May 31, 2019. The Exchange would issue an Options Trader Alert
announcing the exact date of implementation in advance.\26\
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\26\ See Options Trader Alert 2018-47.
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2. Statutory Basis
The Exchange believes that its proposal is consistent with Section
6(b) of the Act,\27\ in general, and furthers the objectives of Section
6(b)(5) of the Act,\28\ in particular, in that it is designed to
promote just and equitable principles of trade and to protect investors
and the public interest by amending the rule text relating to QCC
Orders to correct and make clear the current rule text.
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\27\ 15 U.S.C. 78f(b).
\28\ 15 U.S.C. 78f(b)(5).
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The Exchange believes that the amendments to add the word
``electronic'' in proposed Rule 1088(a) and the deletion of the word
``PHLX'' in proposed Rule 1088(a)(2) are non-substantive amendments
which simply add specificity and conform the rule text, respectively.
Further, the proposals to update the cross-references to Rule 1080(o)
to proposed Rule 1088 will correct the citations within the Rulebook
for accuracy.
The Exchange's proposal to add new Commentary .01 to Rule 1088 and
new Commentary .03 to Rule 1064 for QCC Orders is consistent with the
Act because the proposed functionalities are consistent with the public
customer protection provisions Phlx provides when a QCC order is
submitted to the System. The Exchange notes that Non-Displayed
Contingency Order Types are distinct from other order types. The
Exchange offers an array of order types which do not have similar
limitations and would be protected orders and are displayed. Other
markets have stop orders which require a triggering (or ``electing'')
event prior to being protected.\29\
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\29\ See note 16 above.
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With respect to stop orders, the Exchange's proposal does not
expand how Non-Displayed Contingency Orders are handled by the System,
rather the Exchange is proposing to add transparency to its rules with
respect to these non-protected order types. The proposal would clarify
that stop orders which have not been elected are not protected orders
and are thus not considered for the acceptance or execution of QCC
Orders. With respect to All-or-None Orders, the Exchange's proposal to
automatically cancel a QCC Order, provided the size of a QCC Order is
greater than or equal to the size of the resting public customer All-
or-None Order and the price of the public customer All-or-None Order is
the same as, or better than, the price of the QCC Order, is consistent
with Act. Today, QCC Orders are immediately executed upon entry into
the System by an Order Entry Firm provided that (i) no Customer Orders
are at the same price on the Exchange's limit order book and (ii) the
price is at or between the better of the NBBO for all other order
types, with the exception of All-or-None Orders. The Exchange is
extending the same level of protection to public customer All-or-None
Orders in the case of QCC Orders that today is provided to all other
order types submitted by public customers.\30\ By automatically
cancelling a QCC Order with a size greater than or equal to the size of
a resting public customer All-or-None Order, provided the QCC price
locks or crosses the All-or-None Order, will cause those public
customer All-or-None orders to be prioritized.
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\30\ See note 6 above. Public customer priority existed at the
adoption of Phlx's QCC Order functionality.
---------------------------------------------------------------------------
The Exchange's proposal to add rule text to make clear that with
respect to Non-Displayed Contingency Orders, the price of the QCC Order
must be at or between not just the NBBO, but the better of the internal
PBBO and the NBBO to immediately execute adds more transparency to the
Exchange's Rules. The Exchange notes that other markets also re-price
orders to avoid locked and/or crossed markets,\31\ and such repricing
impacts the execution price of a QCC Order. The Exchange protects re-
priced orders at their ``actual'' price rather than their displayed
price which preserves the priority of interest which may be available
at an internal price, internal BBO, which is better than the displayed
PBBO and NBBO and permits executions only at prices which are at or
better than the best price available and continues to facilitate the
execution of qualified contingent trades, thereby benefitting the
market as a whole. Repricing does not expand how QCC Orders are handled
by the System. The proposed text adds transparency with respect to how
QCC Orders are handled when there are re-priced orders on the book
which are available at a price better than the displayed PBBO and NBBO.
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\31\ See note 23 above.
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Finally, specifying the term ``public customer'' in place of the
term ``customer'' within the rule text will make clear the meaning of
that term.
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 proposals to add the word
``electronic'' in proposed Rule 1088(a) and delete the word ``PHLX'' in
proposed Rule 1088(a)(2) are non-substantive amendments which simply
add specificity and conforms the rule text. The Exchange's proposal to
amend cross-references will bring greater clarity to the Exchange's
rules.
The Exchange's proposal to describe how Non-Displayed Contingency
Orders are handled by the System does not impose an undue burden on
competition, rather the rule text adds transparency to the rules
because it describes how these non-protected order types are handled.
The Exchange's proposal to automatically cancel a QCC Order, provided
the size of a QCC Order is greater than or equal to the size of the
resting public customer All-or-None Order and the price of the public
customer All-or-None Order is the same as, or better than, the price of
the QCC Order, does not impose an undue burden on competition because
the Exchange will uniformly cancel all QCC Orders if there is a public
customer All-or-None Order resting on the order book with eligible
size. The Exchange is extending the same level of protection to public
customer All-or-None Orders in the case of QCC Orders that today is
provided to all other order types submitted by public customers and
therefore uniformly prioritizing all public customer orders.
The Exchange's proposal to add rule text to make clear that with
respect to Non-Displayed Contingency Orders, the price of the QCC Order
must be at or between not just the NBBO, but the better of the internal
PBBO and the NBBO to immediately execute does not impose an undue
burden on competition. This rule text adds more transparency to the
Exchange's Rules. The Exchange notes that other markets also re-price
orders to avoid locked and/
[[Page 14690]]
or crossed markets,\32\ and such repricing impacts the execution price
of a QCC Order. Repricing does not expand how QCC Orders are handled by
the System. The Exchange's proposal would add transparency to its rules
with respect to how QCC Orders are handled when there are re-priced
orders on the order book which are available at a price better than the
displayed PBBO and NBBO. The Exchange uniformly reprices orders within
the System. Specifying the term ``public customer'' in place of the
term ``customer'' within the rule text will make clear the meaning of
that term.
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\32\ See note 23 above.
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C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
The Exchange has not solicited, and does not intend to solicit,
comments on this proposed rule change. The Exchange has not received
any unsolicited written comments from members or other interested
parties.
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 \33\ and
subparagraph (f)(6) of Rule 19b-4 thereunder.\34\
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\33\ 15 U.S.C. 78s(b)(3)(A)(iii).
\34\ 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 necessary or
appropriate in the public interest, for the protection of investors, or
otherwise in furtherance of the purposes of the Act. If the Commission
takes such action, the Commission shall institute proceedings to
determine whether the proposed rule 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 [email protected]. Please include
File Number SR-Phlx-2019-07 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-2019-07. 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 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. 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 Number SR-Phlx-2019-07, and should be submitted on
or before May 2, 2019.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\35\
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\35\ 17 CFR 200.30-3(a)(12).
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Eduardo A. Aleman,
Deputy Secretary.
[FR Doc. 2019-07147 Filed 4-10-19; 8:45 am]
BILLING CODE 8011-01-P