Self-Regulatory Organizations; Nasdaq PHLX LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Amend Order Types and Remove and Relocate Certain Rule Text Currently Located Within Rule 1080, 68197-68219 [2019-26841]

Download as PDF Federal Register / Vol. 84, No. 240 / Friday, December 13, 2019 / Notices For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.10 Jill M. Peterson, Assistant Secretary. [FR Doc. 2019–26840 Filed 12–12–19; 8:45 am] BILLING CODE 8011–01–P BILLING CODE 8011–01–P [Release No. 34–87688; File No. SR– CboeBZX–2019–041] Self-Regulatory Organizations; Cboe BZX Exchange, Inc.; Notice of Withdrawal of a Proposed Rule Change To Amend the Fee Schedule Assessed on Members To Establish a Monthly Trading Rights Fee December 9, 2019. On May 2, 2019, Cboe BZX Exchange, Inc. (‘‘BZX’’ or the ‘‘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 amend the BZX Fee Schedule to establish a monthly Trading Rights Fee to be assessed on Members.3 The proposed rule change was immediately effective upon filing with the Commission pursuant to Section 19(b)(3)(A) of the Act.4 The proposed rule change was published for comment in the Federal Register on May 16, 2019.5 On June 28, 2019, the Commission temporarily suspended the proposed rule change and instituted proceedings to determine whether to approve or disapprove the proposed rule change.6 In response to the BZX OIP, the Commission received three comment letters, including a response letter from the Exchange.7 On November 12, 2019, pursuant to Section 19(b)(2) of the Act,8 the Commission designated a longer period within which to approve or disapprove the proposed rule CFR 200.30–3(a)(12). U.S.C. 78s(b)(1). 2 17 CFR 240.19b–4. 3 The Commission notes that BZX initially filed the proposed rule change on April 29, 2019 (SR– CboeBZX–2019–036). On May 2, 2019, BZX withdrew that filing and submitted the present proposal (SR–CboeBZX–2019–041). 4 15 U.S.C. 78s(b)(3)(A). 5 See Securities Exchange Act Release No. 85840 (May 10, 2019), 84 FR 22190. 6 See Securities Exchange Act Release No. 86233, 84 FR 32230 (July 05, 2019) (‘‘BZX OIP’’). 7 See Letters from Theodore R. Lazo, Managing Director and Associate General Counsel, SIFMA, dated July 26, 2019; Tyler Gellasch, Executive Director, Healthy Markets, dated July 26, 2019; and Rebecca Tenuta, Counsel, Cboe Global Markets, dated August 9, 2019. 8 15 U.S.C. 78s(b)(2). jbell on DSKJLSW7X2PROD with NOTICES 1 15 VerDate Sep<11>2014 17:42 Dec 12, 2019 Jkt 250001 For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.10 Jill M. Peterson, Assistant Secretary. [FR Doc. 2019–26838 Filed 12–12–19; 8:45 am] SECURITIES AND EXCHANGE COMMISSION 10 17 change.9 On November 22, 2019, the Exchange withdrew the proposed rule change (SR–CboeBZX–2019–041). SECURITIES AND EXCHANGE COMMISSION [Release No. 34–87691; File No. SR–Phlx– 2019–52] Self-Regulatory Organizations; Nasdaq PHLX LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Amend Order Types and Remove and Relocate Certain Rule Text Currently Located Within Rule 1080 December 9, 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 November 26, 2019, Nasdaq PHLX LLC (‘‘Phlx’’ or ‘‘Exchange’’) filed with the Securities and Exchange Commission (‘‘Commission’’) the proposed rule change as described in Items I and II, below, which Items have been prepared by the self-regulatory organization. The Commission is publishing this notice to solicit comments on the proposed rule change from interested persons. I. Self-Regulatory Organization’s Statement of the Terms of Substance of the Proposed Rule Change The Exchange proposes to amend order types and remove and relocate certain rule text currently located within Rule 1080, titled ‘‘Electronic Acceptance of Quotes and Orders. Further, the Exchange proposes to amend Phlx Rules 1000, titled ‘‘Applicability, Definitions and References’’ to add definitions for ‘‘Order Entry Firm’’ and ‘‘Away Best Bid or Offer or ABBO’’ and remove the defined term ‘‘Agency Order.’’ The Exchange proposes to amend Rule 1014, titled ‘‘Obligations of Market Makers,’’ 3 9 See Securities Exchange Act Release No. 87500, 84 FR 63700 (November 18, 2019). The Commission designated January 11, 2020, as the date by which the Commission would approve or disapprove the proposed rule change. 10 17 CFR 200.30–3(a)(12). 1 15 U.S.C. 78s(b)(1). 2 17 CFR 240.19b–4. 3 ROTs include Streaming Quote Traders (‘‘SQTs’’) and Remote Streaming Quote Traders (‘‘RSQTs’’). A ROT is a regular member or a foreign PO 00000 Frm 00098 Fmt 4703 Sfmt 4703 68197 to permit Registered Options Traders (‘‘ROTS’’) and Specialists to enter orders. The Exchange proposes to update cross references within Rule 1017, titled ‘‘Opening in Options.’’ The rule text within Rule 1078, titled ‘‘Allor-None Orders’’ is being relocated to Rule 1080. The order types within Rule 1098 titled ‘‘Complex Orders on the System,’’ and Options 8, Section 32, titled ‘‘Certain Types of Floor-Based (Non-System) Orders Defined’’ are being amended to correspond to changes within Rule 1080 order types. Finally, Options 8, Section 39, at A–3 titled ‘‘All-or-None Option Orders’’ is being amended to update the floor applicability of this order type. The text of the proposed rule change is available on the Exchange’s website at http://nasdaqphlx.cchwallstreet.com/, at the principal office of the Exchange, and at the Commission’s Public Reference Room. II. Self-Regulatory Organization’s Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change In its filing with the Commission, the Exchange included statements concerning the purpose of and basis for the proposed rule change and discussed any comments it received on the proposed rule change. The text of these statements may be examined at the places specified in Item IV below. The Exchange has prepared summaries, set forth in sections A, B, and C below, of the most significant aspects of such statements. A. Self-Regulatory Organization’s Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change 1. Purpose The Exchange proposes to amend Rule 1080, entitled ‘‘Electronic Acceptance of Quotes and Orders’’ by: currency options participant of the Exchange who has received permission from the Exchange to trade in options for his own account. An SQT is an ROT who has received permission from the Exchange to generate and submit option quotations electronically in options to which such SQT is assigned. An SQT may only submit such quotations while such SQT is physically present on the floor of the Exchange. An SQT may only trade in a market making capacity in classes of options in which the SQT is assigned. An RSQT is an ROT that is a member affiliated with an RSQT with no physical trading floor presence who has received permission from the Exchange to generate and submit option quotations electronically in options to which such RSQT has been assigned. A qualified RSQT may function as a Remote Specialist upon Exchange approval. The Exchange notes that a Specialist, which is defined in Rule 1020, is a Registered Options Trader. For purposes of this rule the Exchange would note ROTs and Specialists, where applicable to be complete. E:\FR\FM\13DEN1.SGM 13DEN1 68198 Federal Register / Vol. 84, No. 240 / Friday, December 13, 2019 / Notices jbell on DSKJLSW7X2PROD with NOTICES (1) Removing and relocating certain rule text including obsolete rule text; and (2) amending order types. These amendments are detailed below. With respect to the removal of obsolete rule text, the Exchange filed prior rule changes 4 which established Phlx’s System as it exists today. As the new System was amended through a series of rule changes, certain older technology such as AUTOM, AUTO–X, specialist manual handling and other functionality noted within this rule change, became obsolete. During this timeframe, the Exchange’s System was automated to prevent any manual intervention, such as specialist manual handling, and provide System-enforced functionalities. These System enhancements effectively replaced and made obsolete certain processes that Phlx proposes to delete within this rule change. As an overview of the automation of Phlx and corresponding rule changes, in July 2004, the Exchange began trading options on Phlx XL, followed by index options in December 2004. Phlx XL was completely rolled out by February 2005.5 In 2006, Phlx commenced deleting certain obsolete provisions from its rules to reflect the automation that came about with the inception of Phlx XL.6 In 2007, the Exchange filed a proposal to modernize the Exchange’s System to account for technological advances that have been made in the industry since the original adoption of the rule and to provide more efficient executions for customers with marketable limit orders on the Exchange’s Order Book.7 In 2008, Phlx filed to permit the electronic handling of Complex Orders on Phlx XL.8 In 2009, the Exchange proposed to implement several enhancements to its electronic options trading system, Phlx XL. The enhanced system was called Phlx XL II and would reflect enhancements to the opening, linkage and routing, quoting, and order 4 See Securities Exchange Act Release Nos. 50100 (July 27, 2004), 69 FR 46612 (August 3, 2004) (SR– Phlx–2003–59); 55498 (March 20, 2007, 72 FR 14318 (March 27, 2007) (SR–Phlx–2007–15); 59995 (May 28, 2009), 74 FR 26750 (June 3, 2009) (SR– Phlx–2009–32); and 72152 (May 12, 2014), 79 FR 28561 (May 16, 2014) (SR–Phlx–2014–32). 5 See Securities Exchange Act Release No. 50100 (July 27, 2004), 69 FR 46612 (August 3, 2004) (SR– Phlx–2003–59). 6 See Securities Exchange Act Release Nos. 54312 (August 14, 2006), 71 FR 47856 (August 18, 2004) (SR–Phlx–2006–28) and 55498 (March 20, 2007), 72 FR 14318 (March 27, 2007) (SR–Phlx–2007–15). 7 See Securities Exchange Act Release Nos. 55825 (May 29, 2007), 72 FR 30890 (June 4, 2007) (SR– Phlx–2007–38). 8 See Securities Exchange Act Release Nos. 58361 (August 14, 2008), 73 FR 49529 (August 21, 2008) (SR–Phlx–2008–50). VerDate Sep<11>2014 17:42 Dec 12, 2019 Jkt 250001 management processes. The enhancements were intended to improve execution quality for Phlx users by improving a number of processes, including those related to the opening, order handling and order execution.9 The Exchange proposed its Price Improvement XL auction in 2010.10 The Exchange established a Qualified Contingent Cross Order in 2011.11 The Exchange eliminated the Market Exhaust functionality in 2012.12 The Exchange notes that its current functionalities were all filed for in various rule changes, however in filing each new functionality, the entirety of the obsolete functionality was not removed from Phlx rules. At this time, the Exchange proposes to remove those obsolete functionalities which are explained in more detail within this proposal. Rule 1080(b)–(f) New Rule Text The Exchange proposes to retitle Rule 1080(b) from ‘‘Eligible Orders’’ to ‘‘Order Types.’’ The current rule text provides, Eligible Orders (i) The following types of orders are eligible for entry into AUTOM: (A) Agency orders may be entered. The following types of agency orders are eligible for AUTOM: Day, GTC, Immediate or Cancel (‘‘IOC’’), Intermarket Sweep Order (‘‘ISO’’), market, limit, stop, stop-limit, all or none, or better, simple cancel, simple cancel to reduce size (cancel leaves), cancel to change price, cancel with replacement order, opening-onlymarket order, limit on opening order, and possible duplicate orders. For purposes of Exchange options trading, an agency order is any order entered on behalf of a public customer, and does not include any order entered for the account of a broker-dealer, or any account in which a broker-dealer or an associated person of a broker-dealer has any direct or indirect interest. Respecting Phlx XL II, the following order types are also permitted: DNR order, SRCH order, and FIND order; see Rule 1093. (B) Orders for the proprietary account(s) of SQTs, RSQTs and non-SQT ROTs and specialists via electronic interface with AUTOM may be entered, subject to the restrictions on order entry set forth in Commentary .04 of this Rule. (1) The following types of orders for the proprietary account(s) of non-SQT ROTs and specialists with a size of 10 contracts or 9 See Securities Exchange Act Release Nos. 59995 (May 28, 2009), 74 FR 26750 (June 3, 2009) (SR– Phlx–2009–32). At this time, the Exchange introduced a Do-Not-Route (‘‘DNR’’) order, a FIND order, and a SRCH order. 10 See Securities Exchange Act Release Nos. 63027 (October 1, 2010), 75 FR 62160 (October 7, 2010) (SR–Phlx–2010–108). 11 See Securities Exchange Act Release Nos. 64249 (April 7, 2011), 76 FR 20773 (April 13, 2011) (SR–Phlx–2011–47). 12 See Securities Exchange Act Release Nos. 66087 (January 3, 2012), 77 FR 1095 (January 9, 2012) (SR–Phlx–2012–101). PO 00000 Frm 00099 Fmt 4703 Sfmt 4703 greater are eligible for entry via electronic interface with AUTOM: GTC, day limit, IOC, ISO, limit on opening and simple cancel. Orders for the proprietary account(s) of nonSQT ROTs and specialists with a size of less than 10 contracts shall be submitted as IOC only. (2) The following types of orders for the proprietary account(s) of SQTs and RSQTs are eligible for entry via electronic interface with AUTOM: Limit on opening, IOC, ISO, and day limit. Respecting Phlx XL II, the following order types are also permitted: DNR order, SRCH order, and FIND order; see Rule 1093. (C) Off-floor broker-dealer limit orders, subject to the restrictions on order entry set forth in Commentary .05 of this Rule, may be entered. The following types of broker-dealer limit orders are eligible for AUTOM: Day, GTC, IOC, ISO, stop, stop-limit, simple cancel, simple cancel to reduce size (cancel leaves), cancel to change price, cancel with replacement order, limit on opening order. Respecting Phlx XL II, the following order types are also permitted: DNR order, SRCH order, and FIND order; see Rule 1093. For purposes of this Rule 1080, the term ‘‘offfloor broker-dealer order’’ means an order delivered from off the floor of the Exchange by or on behalf of a broker-dealer for the proprietary account(s) of such broker-dealer, including an order for a market maker located on an exchange or trading floor other than the Exchange’s trading floor delivered via AUTOM for the proprietary account(s) of such market maker. The Exchange proposes to delete the current rule text within Rule 1080(b)(i)(A) and replace it with a list of current order types and descriptions. The Exchange proposes to refer to the trading system as the defined term ‘‘System’’ 13 instead of ‘‘AUTOM’’ or ‘‘Phlx XL II’’ in the proposed rule text. The terms ‘‘AUTOM’’ and ‘‘Phlx XL II’’ are outdated references. The Exchange proposes to delete the following sentence currently within Rule 1080(b)(ii), ‘‘The Exchange may determine to accept additional types of orders as well as to discontinue accepting certain types of orders.’’ The Exchange further proposes to state within Rule 1080(b) new text, ‘‘The 13 The term ‘‘System’’ shall mean the automated system for order execution and trade reporting owned and operated by the Exchange which comprises: (A) An order execution service that enables members to automatically execute transactions in System Securities; and provides members with sufficient monitoring and updating capability to participate in an automated execution environment; (B) a trade reporting service that submits ‘‘locked-in’’ trades for clearing to a registered clearing agency for clearance and settlement; transmits last-sale reports of transactions automatically to the Options Price Reporting Authority (‘‘OPRA’’) for dissemination to the public and industry; and provides participants with monitoring and risk management capabilities to facilitate participation in a ‘‘locked-in’’ trading environment; and (C) the data feeds described at Rule 1070. See Phlx Rule 1000(b)(45). E:\FR\FM\13DEN1.SGM 13DEN1 Federal Register / Vol. 84, No. 240 / Friday, December 13, 2019 / Notices following order types may be submitted to the System.’’ Current Rule 1080(b)(i) defines the types of orders that may be submitted by categorization: (1) Agency; (2) proprietary; and (3) Off-Floor Broker Dealer. Agency Orders Currently, Phlx Rule 1080(b)(i)(A) defines agency. Current Rule 1080(b)(i)(A) states, ‘‘For purposes of Exchange options trading, an agency order is any order entered on behalf of a public customer, and does not include any order entered for the account of a broker-dealer, or any account in which a broker-dealer or an associated person of a broker-dealer has any direct or indirect interest.’’ 14 This rule also specifically provides order type requirements: The following types of agency orders are eligible for AUTOM: Day, GTC, Immediate or Cancel (‘‘IOC’’), Intermarket Sweep Order (‘‘ISO’’), market, limit, stop, stop-limit, all or none, or better, simple cancel, simple cancel to reduce size (cancel leaves), cancel to change price, cancel with replacement order, opening-only-market order, limit on opening order, and possible duplicate orders. For purposes of Exchange options trading, an agency order is any order entered on behalf of a public customer, and does not include any order entered for the account of a brokerdealer, or any account in which a brokerdealer or an associated person of a brokerdealer has any direct or indirect interest. Respecting Phlx XL II, the following order types are also permitted: DNR order, SRCH order, and FIND order; see Rule 1093. jbell on DSKJLSW7X2PROD with NOTICES The Exchange notes that current Rule 1080 defines these categories as they existed some time ago. Today, the options industry has expanded capacity codes 15 that are utilized to determine the category of market participant for whom an order is being submitted. When members submit orders to Phlx, a capacity code is required. The Exchange notes that the definition of Agency Order within Rule 1080 is utilized to distinguish orders that are not entered for the proprietary account of a market participant. The Exchange notes that while that distinction may have been applicable at one point in time with respect to entering orders, it is not suitable to limit the entry of 14 The term ‘‘Agency Order’’ is described at Phlx Rule 1000(b)(49) as ‘‘The term ‘‘Agency Order’’ shall mean any order entered on behalf of a public customer (which includes an order entered on behalf of a professional), and does not include any order entered for the account of a broker-dealer, or any account in which a broker-dealer or an associated person of a broker-dealer has any direct or indirect interest. 15 Capacity codes correspond to categorizations developed by The Options Clearing Corporation for all options exchanges. VerDate Sep<11>2014 17:42 Dec 12, 2019 Jkt 250001 certain orders on that basis. The Exchange proposes to eliminate the categorization of ‘‘agency orders’’ and ‘‘proprietary orders’’ as these categorizations are unnecessary. The current term ‘‘agency’’ is proposed to be deleted because the Exchange specifically identifies within the proposed rules which type of market participant may enter an order. The term ‘‘proprietary’’ as described within these rules refers to market participants conducting a market making business, such as ROTs (including SQTS and RSQTs) and Specialists. The Exchange notes that today no other options market segregates the submission of order types by whether the order is an agency or proprietary order.16 Rather, Phlx’s proposal as well as rules of other options exchanges impose limitations on the types of orders that may be entered by a market makers as described further herein, as well as other limitations related to ROTs and Specialists entering orders.17 While the Exchange is eliminating the references to ‘‘agency’’ and proprietary’’ orders, the Exchange notes that there is no impact to market participants or systemic change that results from the elimination of these terms. The list of order types presented below reflects current practice. Also, the Exchange is not changing the manner in which orders are being submitted to the Exchange. The Exchange believes that by defining the rules, similar to other options markets, it will bring greater transparency to the Exchange’s Rules and permit an ease of reference when comparing rulebooks. The Exchange notes that this proposal will not amend the System except for the changes described below where the Exchange is noting a change is proposed. Other functionalities offered by Phlx remain unchanged with this proposal. The current rule text refers to the following order types within Rule 1080(b)(i)(A), which were permitted to be entered as Agency Orders, are currently not supported by the System: ‘‘or better,’’ 18 ‘‘simple cancel to reduce 16 See Nasdaq ISE, LLC (‘‘ISE’’), Nasdaq GEMX, LLC (‘‘GEMX’’), Nasdaq MRX, LLC (‘‘MRX’’) Options 3, Section 7, Miami International Securities Exchange, LLC Rule 515 and Cboe Exchange, Inc. Rule 5.6. 17 See ISE, GEMX and MRX Options 2, Section 6. The Nasdaq Options Market LLC (‘‘NOM’’) and Nasdaq BX, Inc. (‘‘BX’’) do not have a rule which limits Market Makers from entering orders on those markets. See NOM Rules at Chapter VII, Section 5(d) and BX Options 2, Section 4(d), respectively. 18 The designation ‘‘or better’’ indicates that the originator of the order is aware that the market is currently better than the limit price of the order; this order is not filled at a price outside of the ‘‘or better’’ price. The ‘‘or better’’ designation is used to verify the validity of the order and confirms that the PO 00000 Frm 00100 Fmt 4703 Sfmt 4703 68199 size (cancel leaves),’’ 19 ‘‘cancel to change price’’ and ‘‘possible duplicate orders.’’ 20 These order types have not been supported by the System since Phlx replatformed its technology to INET in 2009. The order types described herein have not been offered to Phlx participants since the Phlx XL replatform. These order types are not offered on other options markets today and have not been requested by any market participant. In 1997, Phlx filed to Rule 1080, Philadelphia Stock Exchange Automated Options Market (‘‘AUTOM’’) and Automatic Executive System (‘‘AUTO–X’’), codifying and amending the policies and procedures concerning AUTOM. The Exchange also requested permanent approval of the AUTOM pilot program.21 The rule change provided Proposed Rule 1080 describes the AUTOM System and its features, with paragraph (a) as the general introduction. AUTOM is the Exchange’s electronic order delivery and reporting system, which provides for the automatic entry and routing of Exchangelisted equity options and index options orders to the Exchange trading floor. Option orders entered by Exchange member organizations into AUTOM are routed to the appropriate specialist unit on the Exchange trading floor. Orders delivered through AUTOM may be executed manually, or certain orders are eligible for AUTOM’s automatic execution feature, AUTO–X, in accordance with the provisions of this Rule. Equity option and index option specialists are required by the Exchange to participate in AUTOM and its features and enhancements. This paragraph also provides that Rule 1080 shall govern the orders, execution reports and administrative messages (‘‘order messages’’) transmitted between the offices of member organizations and the trading floors of the Exchange through AUTOM. The rule change further stated, The following types of orders are eligible for AUTOM: Day, good-till cancelled (‘‘GTC’’), market, limit, stop, stop limit, all or none, or better, simple cancel, simple cancel to reduce size (cancel leaves), cancel to change price, cancel with replacement order, order was entered on the correct side. See Securities Exchange Act Release No. 35601 (April 13, 1995), 75 FR 19616 (April 19, 1995) (SR–Phlx–95–18). 19 The designation ‘‘simple cancel’’ indicates that an order is to be cancelled, while ‘‘cancel leaves’’ indicates that the size of a previous order is being reduced and ‘‘cancel to change price’’ cancels the price of a previous order. See Securities Exchange Act Release No. 35601 (April 13, 1995), 75 FR 19616 (April 19, 1995) (SR–Phlx–95–18). 20 Possible duplicate’’ is a status which indicates that before an AUTOM order is executed manually by the specialist, the specialist should confirm that the order has not yet been executed. See Securities Exchange Act Release No. 35601 (April 13, 1995), 75 FR 19616 (April 19, 1995) (SR–Phlx–95–18). 21 See Securities Exchange Act Release No. 38683 (May 27, 1997), 62 FR 30366 (June 3, 1997) (SR– Phlx–97–24). E:\FR\FM\13DEN1.SGM 13DEN1 68200 Federal Register / Vol. 84, No. 240 / Friday, December 13, 2019 / Notices market close, market on opening, limit on opening, limit close, and possible duplicate orders. The Exchange’s Options Committee may determine to accept additional types of orders as well as to discontinue accepting certain types of orders. jbell on DSKJLSW7X2PROD with NOTICES Phlx discontinued offering the following order types at a certain point in time before the transition to Phlx XL: 22 Currently not supported by the System: ‘‘or better,’’ 23 ‘‘simple cancel to reduce size (cancel leaves),’’ 24 ‘‘cancel to change price’’ and ‘‘possible duplicate orders.’’ 25 The Exchange notes that an automated system such as Phlx XL would not have supported order types that permitted manual handling such as ‘‘or better’’ or ‘‘possible duplicate.’’ The order types ‘‘simple cancel to reduce size (cancel leaves),’’ ‘‘cancel to change price’’ can be achieved today with the cancelreplacement order. Customer orders may continue to be entered on an agency basis today, however the use of certain manual order types are no longer permitted. The Exchange no longer permits market participants the ability to manually handle orders, the System automatically executes order types today and therefore the Exchange believes the elimination of these order types is consistent with the Act and serves to protect investors and the public interest by enforcing order type provisions automatically. The remainder of the order types noted in current Rule 1080(b)(i), such as day, GTC, IOC, ISO, market, limit, stop, stoplimit, all or none, simple cancel, cancel with replacement order, opening-only market order and limit on opening order are currently offered on Phlx.26 22 The exact date the order types were no longer offered is unknown. 23 The designation ‘‘or better’’ indicates that the originator of the order is aware that the market is currently better than the limit price of the order; this order is not filled at a price outside of the ‘‘or better’’ price. The ‘‘or better’’ designation is used to verify the validity of the order and confirms that the order was entered on the correct side. See Securities Exchange Act Release No. 35601 (April 13, 1995), 75 FR 19616 (April 19, 1995) (SR–Phlx–95–18). 24 The designation ‘‘simple cancel’’ indicates that an order is to be cancelled, while ‘‘cancel leaves’’ indicates that the size of a previous order is being reduced and ‘‘cancel to change price’’ cancels the price of a previous order. See Securities Exchange Act Release No. 35601 (April 13, 1995), 75 FR 19616 (April 19, 1995) (SR–Phlx–95–18). 25 Possible duplicate’’ is a status which indicates that before an AUTOM order is executed manually by the specialist, the specialist should confirm that the order has not yet been executed. See Securities Exchange Act Release No. 35601 (April 13, 1995), 75 FR 19616 (April 19, 1995) (SR–Phlx–95–18). 26 The Exchange notes that ‘‘simple cancel’’ is not offered as an order type on Phlx, but as a functionality to simply cancel an existing order. Therefore, the Exchange is not proposing to add it back into the amended Rule 1080 as an order type. VerDate Sep<11>2014 17:42 Dec 12, 2019 Jkt 250001 Proprietary Current Rule 1080(b)(i)(B) refers to orders entered for proprietary accounts and specifically provides order type requirements for Specialists,27 ROTs,28 and non-SQT ROTs.29 Current Rule 1080(b)(i)(B) provides, Orders for the proprietary account(s) of SQTs, RSQTs and non-SQT ROTs and specialists via electronic interface with AUTOM may be entered, subject to the restrictions on order entry set forth in Commentary .04 of this Rule. (1) The following types of orders for the proprietary account(s) of non-SQT ROTs and specialists with a size of 10 contracts or greater are eligible for entry via electronic interface with AUTOM: GTC, day limit, IOC, ISO, limit on opening and simple cancel. Orders for the proprietary account(s) of nonSQT ROTs and specialists with a size of less than 10 contracts shall be submitted as IOC only. (2) The following types of orders for the proprietary account(s) of SQTs and RSQTs are eligible for entry via electronic interface with AUTOM: Limit on opening, IOC, ISO, and day limit. Respecting Phlx XL II, the following order types are also permitted: DNR order, SRCH order, and FIND order; see Rule 1093. Today, the Exchange limits its ROTs and Specialists from entering orders which may be entered on other markets such as Nasdaq ISE, LLC, Nasdaq GEMX, LLC and Nasdaq MRX, LLC.30 Currently, Rule 1080(b)(i)(B) provides, ‘‘Orders for the proprietary account(s) of SQTs, RSQTs and non-SQT ROTs and specialists via electronic interface with AUTOM may be entered, subject to the restrictions on order entry set forth in Commentary .04 of this Rule.’’ Commentary .04 provides, ‘‘ROT Limit Orders. Orders for the proprietary accounts of SQTs, RSQTs and non-SQT ROTs may be entered for delivery through AUTOM, through the use of Exchange approved proprietary systems to interface with AUTOM (‘‘interface’’). Such orders shall be for a minimum of one (1) contract. Orders for the proprietary account(s) of SQTs, RSQTs, and non-SQT ROTs with a size of less than 10 contracts shall be submitted as IOC only.’’ The Exchange notes that it will no longer refer to legacy names for the trading system such as AUTOM and will instead refer to ‘‘System’’ which is defined.31 The Exchange proposes to 27 A Specialist is an Exchange member who is registered as an options specialist. See Phlx Rule 1020(a). 28 See note 3 above. 29 A Floor Market Maker is known as a non-SQT ROT in Rule 1014(b)(ii)(C). A non-SQT ROT is an ROT who is neither an SQT nor an RSQT. 30 See ISE, GEMX and MRX rules at Options 2, Section 6. 31 See Phlx Rule 1000(b)(45). PO 00000 Frm 00101 Fmt 4703 Sfmt 4703 continue to require orders for SQTs and RSQTs to be for a minimum of one (1) contract in Rule 1080(e). The Exchange proposes to delete the rule text at Commentary .04 to Rule 1080. The Exchange is proposing new rule text within current Rule 1014, entitled ‘‘Obligations of Market Makers’’ as described below. Today, the Exchange distinguishes between contracts that non-SQT ROTs and Specialists can enter with a size of 10 contracts or greater and those that may be entered for any size. Further, for orders with a size of 10 contracts or less, non-SQT ROTs and specialists must enter those orders as IOC only. The Exchange proposes to remove the restriction that ‘‘Orders for the proprietary account(s) of non-SQT ROTs and specialists with a size of less than 10 contracts shall be submitted as IOC only.’’ Further, in deleting Commentary .04, the Exchange is removing any limitation as to the size of orders for IOC only purposes. The Exchange believes this limitation is no longer necessary given the evolution of the market place and further that it hinders non-SQT ROTs and Specialists unnecessarily. No other options market has similar limitations today.32 The 10 contract limitation was put in place to restrict participants, whose primary role was to provide liquidity, from using orders of small size to avoid providing liquidity using quotes which were historically required to be of a size of 10 contracts or more. Current Rule 1080(b)(i)(B)(1) provides, ‘‘The following types of orders for the proprietary account(s) of nonSQT ROTs and specialists with a size of 10 contracts or greater are eligible for entry via electronic interface with AUTOM: GTC, day limit, IOC, ISO, limit on opening and simple cancel. Orders for the proprietary account(s) of nonSQT ROTs and specialists with a size of less than 10 contracts shall be submitted as IOC only.’’ The Exchange is removing current Rule 1080(b)(i)(B)(1) in its entirety. As noted above, the Exchange proposes to no longer apply the 10 contract limitation. The rule text proposed within Rule 1014(e) and Rule 1080(e) do not contain a limitation on contract size. The Exchange notes that over the years the limitations that were placed on ROTs and Specialists entering orders has changed on all options markets. The Exchange does not propose to hinder these market participants in entering orders. With respect to non-SQT ROTs, those market participants may enter the orders noted 32 ISE, GEMX, MRX, NOM and BX do not limit orders to IOC by size. E:\FR\FM\13DEN1.SGM 13DEN1 Federal Register / Vol. 84, No. 240 / Friday, December 13, 2019 / Notices with Options 8, Section 32. Amendments to Phlx Rules at Options 8, Section 32 are described below. Current Rule 1080(b)(i)(B)(2) provides, ‘‘The following types of orders for the proprietary account(s) of SQTs and RSQTs are eligible for entry via electronic interface with AUTOM: Limit on opening, IOC, ISO, and day limit. Respecting Phlx XL II, the following order types are also permitted: DNR order, SRCH order,33 and FIND order; see Rule 1093.’’ The Exchange is removing current Rule 1080(b)(i)(B)(2) in its entirety. ROTs and Specialists Entering Orders on Phlx The Exchange proposes to relocate the restrictions for ROTs and Specialists within Rule 1014 which sets forth obligations of ROTs and Specialists, as noted below.34 Today, SQTs and Specialists on Phlx may not enter orders in non-appointed option series.35 Further, Commentary .01 to Rule 1014 provides a restriction on the amount of trading activity in classes of options to which an SQT or Specialist is assigned. Commentary .01 to Rule 1014 states: The Exchange has determined for purposes of paragraph (c) of this Rule that, except for unusual circumstances, at least 50% of the trading activity in any quarter (measured in terms of contract volume) of an ROT (other than an RSQT) shall ordinarily be in classes of options to which he is assigned. Temporarily undertaking the obligations of paragraph (c) at the request of a member of the Exchange in non assigned classes of options shall not be deemed trading in non assigned option contracts. The Exchange may, in computing the percentage specified herein, assign a weighting factor based upon relative inactivity to one or more classes or series of option contracts. jbell on DSKJLSW7X2PROD with NOTICES These prohibitions exist to ensure that market making participants are focused on adding liquidity to Phlx. Today, the Exchange requires ROTs and Specialists to add liquidity to Phlx, for example Specialists must quote during the Opening Process 36 and Specialists and ROTs have intra-day quoting obligations.37 The Exchange proposes to amend its current restriction related to entering 33 The Exchange notes that ‘‘SRCH,’’ is not supported for proprietary account(s) of SQTs and RSQTs. A SRCH Order is a Public Customer order that is routable at any time. See Phlx Rule 1093(a)(iii)(C). 34 Phlx Rule 1014(c) and (d) describes obligations for ROTs and Specialists in appointed and nonappointed options classes. 35 Phlx Rule 1014(b)(ii), SQTs and RSQTs may only trade in a market making capacity in classes of options in which the SQT is assigned. 36 See Phlx Rule 1017(d). 37 See Phlx Rule 1081. VerDate Sep<11>2014 17:42 Dec 12, 2019 Jkt 250001 68201 The Exchange notes that its proposal is similar to other options markets.39 The Exchange is permitting ROTs and Specialists to enter all order types defined in Rule 1080(b) in the options classes to which they are appointed and non-appointed, except for Market Orders as provided in Rule 1080(b)(1), Stop Orders as provided in Rule 1080(b)(4), All-or-None Orders as provided in Rule 1080(b)(5), and Directed Orders as provided for in Rule 1068, and public customer-to-public customer cross orders subject to Rule 1087(a) and (f), so as not to restrict the ability of a ROT or Specialist from entering orders they may enter today on other options markets. Although the Exchange is amending its rules to allow ROTs and Specialists to enter orders in non-appointed classes, the Exchange will limit ROTs and Specialists to not exceed 25% 40 of the total number of all contracts executed by the ROT or Specialist in any calendar quarter in those non-appointed options classes. The Exchange proposes to remove the provision within Commentary .01 to Rule 1014 and replace the prohibition with proposed Rule 1014(e). The Exchange believes its proposal is consistent with the Act. Allowing ROTs and Specialists to enter orders in both assigned and unassigned classes of options will allow market making participants to enter more orders than they are permitted to enter today. The rule text at Commentary .01 of Rule 1014 which requires at least 50% of the trading activity in any quarter only applies to assigned options classes today and therefore is not very restrictive as ROTs and Specialists can only enter quotes or orders in assigned options series. While the Exchange is permitting ROTS and Specialists to enter more orders, particularly in assigned options classes, ROTs and Specialists continue to have obligations to quote intra-day 41 and in order to meet those obligations they will need to stay focused on adding liquidity to Phlx. The Exchange believes that liquidity will not be impacted on Phlx because the Exchange is permitting ROTs and Specialists to enter more orders in appointed classes as the obligations to provide liquidity remain the same. Further, permitting ROTs and Specialists to enter orders in nonappointed classes provided they do not exceed 25% of the total number of contracts executed in any quarter is consistent with the Act because the proposed rule will allow ROTs and Specialists to continue to provide liquidity on Phlx, as is the case today, while not restricting their business activity in a manner that is no other market participants is restricted to 38 The Exchange proposes to remove the limitation within Commentary .01 to Rule 1014 which applies to appointed options classes and instead adopt proposed Rule 1014(e) which describes the types of orders that ROTs and Specialists may enter in appointed and nonappointed options classes with the proposed 25% limitation on orders in appointed options classes. 39 See ISE, GEMX and MRX at Options at Options 2, Section 6. Further, NYSE Arca, Inc. (‘‘NYSE Arca’’) and NYSE American LLC (‘‘NYSE American’’) do not limit the types of orders that can be entered by market makers. See NYSE Arca Rule 6.37B–O and NYSE American Rule 925.2NY. 40 This limitation is an amendment to the current limitation within Commentary .01 to Rule 1014 which as noted herein, the Exchange proposes to eliminate. The proposed limitation of 25% would be less restrictive than the current ‘‘50% of the trading activity in any quarter’’ requirement, not only because it is a smaller percentage but because the 25% limitation only would apply to classes of options in which the ROT or Specialist is not appointed and the 50% limitation applied to classes of options in which the ROT or Specialist is appointed, and are the only types of orders which can be submitted by these participants today. 41 See Phlx Rule 1081. orders on Phlx to permit ROTs and Specialists to enter orders in classes of options to which they are assigned and classes of options in which they are not assigned, with certain limitations. The Exchange proposes within Rule 1014(e), which is currently reserved, to add rule text to permit ROTs and Specialists to enter Day orders, Opening Only Orders and Opening Sweeps and utilize the TIF of ‘‘GTC’’ when entering orders. This would be an amendment to current Rule 1080(b)(i)(B)(2), which does not currently permit these order types. As noted herein, the Exchange is proposing to remove the limit for contracts with a size of less than 10 contracts. The Exchange also proposes to permit ROTs (SQTs and RSQTs) and Specialists to enter orders in non-appointed option classes, however limit ROTs and Specialists to not exceed 25 percent 38 of the total number of all contracts executed by the ROT or Specialist in any calendar quarter. Proposed new Rule 1014(e) would provide: Market Maker Orders. ROTs and Specialists may enter all order types defined in Rule 1080(b) in the options classes to which they are appointed and nonappointed, except for Market Orders as provided in Rule 1080(b)(1), Stop Orders as provided in Rule 1080(b)(4), All-or-None Orders as provided in Rule 1080(b)(5), Directed Orders as provided for in Rule 1068, and public customer-to-public customer cross orders subject to Rule 1087(a) and (f). The total number of contracts executed during a quarter by a ROT or Specialist in options series to which it is not appointed may not exceed twenty-five percent (25%) of the total number of contracts executed by the ROT or Specialist in options series. PO 00000 Frm 00102 Fmt 4703 Sfmt 4703 E:\FR\FM\13DEN1.SGM 13DEN1 68202 Federal Register / Vol. 84, No. 240 / Friday, December 13, 2019 / Notices transact. Phlx’s proposal will allow market making participants the same flexibility as exists today on other options markets. With respect to proposed Rule 1014(e), the Exchange proposes to permit ROTs and Specialists to enter Day orders, Opening Only Orders and Opening Sweeps and utilize the TIF of ‘‘GTC.’’ This would be an amendment as current Rule 1080(b)(i)(B)(2), which does not currently permit these order types. As noted herein, the Exchange is removing the limit for contracts with a size of less than 10 contracts. The Exchange is excluding order types that today may not be entered by a Specialist or ROT, as is the case today, such as Allor-None Orders,42 Directed Orders,43 and public customer-to-public customer cross orders subject to Rule 1087(a) and (f).44 The Exchange proposes to prohibit SQTs and RSQTs from entering Market Orders and Stop Orders. Today, the Exchange requires SQTs and RSQTs to ‘‘maintain a two-sided market in those options in which the electronic ROT is registered to trade, in a manner that enhances the depth, liquidity and competitiveness of the market’’ pursuant to Phlx Rule 1081(a)(i). The Exchange believes that continuing the practice of prohibiting SQTs and RSQTs from entering Market Orders is consistent with the Act because Market Orders are designed to remove liquidity from the Order Book. Further, Stop Orders are non-displayed order types until they are triggered which does not benefit the role of an SQT or RSQT in displaying liquidity on the Order Book. jbell on DSKJLSW7X2PROD with NOTICES Off-Floor Broker-Dealer Current Phlx Rule 1080(b)(i)(C) provides that for purposes of this Rule 1080, the term ‘‘off-floor broker-dealer order’’ means an order delivered from off the floor of the Exchange by or on behalf of a broker-dealer for the proprietary account(s) of such broker42 All-or-None Orders may only be entered by a Public Customer. 43 Rule 1068(a)(i)(B) provides, ‘‘The term ‘‘Order Flow Provider’’ (‘‘OFP’’) means any member or member organization that submits, as agent, orders to the Exchange.’’ ROTs and Specialists do not submit orders on an agency basis and therefore are excluded from entering Directed Orders. See Securities Exchange Act Release No. 62320 (June 17, 2010), 75 FR 36132 (June 24, 2010) (SR–Phlx– 2010–83). In this rule change, Phlx noted that Directed Orders can be broker-dealer orders as well as public customer orders. The term public customer included professionals. 44 A PIXL Order is an order submitted for electronic execution into the PIXL Auction Mechanism pursuant to Rule 1087. Current PIXL Rule 1087(a) and (f) provides that a PIXL Order may be a public customer-to-public customer cross order, which is comprised of a Public Customer order to buy and a Public Customer to sell at the same price and for the same quantity. VerDate Sep<11>2014 17:42 Dec 12, 2019 Jkt 250001 dealer, including an order for a market maker located on an exchange or trading floor other than the Exchange’s trading floor delivered via AUTOM for the proprietary account(s) of such market maker. This rule also provides, in part: Off-floor broker-dealer limit orders, subject to the restrictions on order entry set forth in Commentary .05 of this Rule, may be entered. The following types of broker-dealer limit orders are eligible for AUTOM: Day, GTC, IOC, ISO, stop, stop-limit, simple cancel, simple cancel to reduce size (cancel leaves), cancel to change price, cancel with replacement order, limit on opening order. Respecting Phlx XL II, the following order types are also permitted: DNR order, SRCH order, and FIND order; see Rule 1093. Current Phlx Rule 1080(b)(i)(C) applies to Off-Floor Broker Dealers limit orders and provides that broker-dealer limit orders are eligible for AUTOM: Day, GTC, IOC, ISO, stop, stop-limit, simple cancel, simple cancel to reduce size (cancel leaves), cancel to change price, cancel with replacement order, limit on opening order. Current Rule 1080(b)(i)(C) and Commentary .05 to Rule 1080 45 describe restrictions for Off-Floor Broker Dealers. The Exchange proposes to amend and relocate text from current Rule 1080(b)(i)(C) to proposed Rule 1080(e). The Exchange proposes to state, at new Rule 1080(e), An off-floor broker-dealer order may be entered for a minimum size of one contract. Off-floor broker-dealers may enter all order types defined in Rule 1080(b) except for Allor-None Orders, Market Orders, Stop Market Orders, and public customer-to-public customer cross orders subject to Rule 1087(a) and (f). The Exchange proposes that Off-Floor Broker Dealers may continue to enter day, GTC, IOC, ISO, stop, stop-limit, cancel with replacement order and limit on opening order as specified within current Rule 1080(b)(i)(C). The Exchange notes that stop market and market orders, SRCH Orders,46 simple cancel to reduce size (cancel leaves) and cancel to change price are either no longer offered on the System or not offered to Off-Floor Broker Dealers. With this new proposed rule, the Exchange proposes to reflect the order 45 Commentary .05 to Rule 1080 states, ‘‘Off-floor broker-dealer orders delivered via AUTOM shall be for a minimum size of one (1) contract. Off-floor broker-dealer limit orders are subject to the following other provisions: (i) The restrictions and prohibitions concerning off-floor market makers set forth in Rule 1080(j). (ii) Off-floor broker-dealer limit orders entered via AUTOM establishing a bid or offer may establish priority, and the specialist and crowd may match such a bid or offer and be at parity, except as provided in Exchange Rule 1014(g)(i)(A).’’ 46 SRCH Orders are only offered to Public Customers pursuant to Rule 1093(a)(iii)(C). PO 00000 Frm 00103 Fmt 4703 Sfmt 4703 types that an Off-Floor Broker Dealer may enter by noting that all order types within Rule 1080(b) may be entered, except as noted. The Off-Floor Broker Dealer order restrictions remain unchanged except that the types of orders that Off-Floor Broker Dealers may enter are being amended to exclude order types that are no longer offered such as simple cancel to reduce size (cancel leaves) and cancel to change price and to also exclude Stop Market Orders, which are not available to OffFloor Broker Dealers today, so this is not changing. The Exchange notes that Stop Limit Orders are permitted to be entered today by Off-Floor Broker Dealers. The Exchange notes that only Market Orders and Stop Market Orders are restricted, as is the case today. The restrictions afforded to Off-Floor Broker Dealers remain the same. This amendment is not substantive. The Exchange notes that the term ‘‘Off-Floor Broker-Dealer Order’’ is currently defined within Rule 1000(b)(50) and therefore is not necessary to reiterate within Rule 1080(b). The Exchange proposes to delete Commentary .05 of Rule 1080, which references the outdated term ‘‘AUTOM.’’ 47 This provision is no longer necessary as the minimum size for Off-Floor Broker Dealer orders is noted in new proposed Rule 1080(e). The rule text in Commentary .05(i) is also being deleted as unnecessary as all members are subject to the rule text in Rule 1080(j), not just broker-dealers. The Exchange believes that this rule text is confusing. The Exchange proposes to delete Commentary .05(ii) to Rule 1080 because priority rules continue to be contained in Options 8, Section 25 (Floor Allocation). The priority rules have not changed and Off-Floor Broker Dealer Limit Orders continue to be bound by those rules. Exchange Rules 119 and 120 direct members in the establishment of priority of orders on the floor. This language within Commentary .05(ii) to Rule 1080 indicates that Off-Floor Broker Dealers may establish priority and the Specialist may match the priority, but these rules are subject to Rules 119, 120 and Options 8, Section 25 for allocation. There are other rules which address priority to all members, not just OffFloor Broker Dealers. Rather, at the time AUTOM was available, this priority could be established, but is no longer the case. Finally, Off-Floor Broker Dealer Limit Orders are no longer 47 The Exchange notes that AUTOM no longer exists. This legacy system was replaced by Phlx XL. E:\FR\FM\13DEN1.SGM 13DEN1 Federal Register / Vol. 84, No. 240 / Friday, December 13, 2019 / Notices entered via AUTOM.48 This exception to cited Rule 1014(g)(i)(A) is no longer possible. The AUTOM order delivery system grew over the years into the current fully automated Phlx options trading system XL II. AUTOM and AUTO–X were replaced by the Phlx XL System, such that references to both terms refer to Phlx XL.49 The Exchange notes that today all orders would be represented in the trading crowd pursuant to Options 8, Section 25(a)(1)(A). As noted above, Phlx proposes to remove the agency/proprietary order distinction from its rules. Instead, the Exchange proposes to note a list of order types available on Phlx and separately provide restrictions for ROTs, Specialists and Off-Floor Broker Dealers as already described herein. The Exchange notes that in separately limiting those market participants the Exchange is not substantively changing the format of the order types, it is eliminating the categories of ‘‘agency’’ and ‘‘proprietary’’. No other options markets segregates order types into those categories. Notwithstanding the restrictions for ROTs, Specialists and Off-Floor Broker Dealers within proposed Rule 1080(e) and Rule 1014(e), the Exchange proposes to replace the order types listed within Rule 1080(b) with the below order types and descriptions to be added to Rule 1080(b). jbell on DSKJLSW7X2PROD with NOTICES (1) Market Order. A Market Order is an order to buy or sell a stated number of options contracts that is to be executed at the best price obtainable when the order reaches the Exchange. Specialists, ROTs and OffFloor Broker-Dealers may not submit Market Orders. (2) Limit Order. A Limit Order is an order to buy or sell a stated number of options contracts at a specified price or better. (3) Intermarket Sweep Order. An Intermarket Sweep Order (ISO) is a Limit Order that meets the requirements of Rule 1083. Orders submitted to the Exchange as ISO are not routable and will ignore the ABBO and trade at allowable prices on the 48 AUTOM was a legacy electronic order delivery and reporting system which provided for the automatic entry and routing of Exchange-listed equity options and index options orders to the Exchange trading floor. Option orders entered by Exchange member organizations into AUTOM were routed to the appropriate specialist unit on the Exchange trading floor. Orders delivered through AUTOM could be executed manually, or certain orders were eligible for AUTOM’s automatic execution feature, AUTO–X. Equity option and index option specialists were required by the Exchange to participate in AUTOM and its features and enhancements. See Securities Exchange Act Release No. 38792 (June 30, 1997), 62 FR 36602 (July 8, 1997) (SR–Phlx–97–24). 49 See Securities Exchange Act 72152 (May 12, 2014), 79 FR 28561 (May 16, 2014) (SR–Phlx–2014– 32). VerDate Sep<11>2014 17:42 Dec 12, 2019 Jkt 250001 Exchange. ISOs may be entered on the regular order book or into the Price Improvement XL Mechanism (‘‘PIXL’’) pursuant to Rule 1087(b)(11). ISO Orders may not be submitted during the Opening Process pursuant to Rule 1017. (4) Stop Order. A Stop Order is a Limit Order or Market Order to buy or sell at a limit price when interest on the Exchange for a particular option contract reaches a specified price. A Stop Order shall be cancelled if it is immediately electable upon receipt. A Stop Order shall not be elected by a trade that is reported late or out of sequence or by a Complex Order trading with another Complex Order. Specialists and ROTs may not submit a Stop Order. Off-Floor BrokerDealers may not enter a Stop Market Order. (a) A Stop-Limit Order to buy becomes a Limit Order executable at the limit price or better when the option contract trades or is bid on the Exchange at or above the stoplimit price. A Stop-Limit Order to sell becomes a Limit Order executable at the limit price or better when the option contract trades or is offered on the Exchange at or below the stop-limit price. (b) A Stop Market Order is similar to a stop-limit except it becomes a Market Order when the option contract reaches a specified price. (5) All-or-None Order. An All-or-None Order is a limit order or market order that is to be executed in its entirety or not at all. 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. (i) Non-Displayed Contingency Orders. A Non-Displayed Contingency Order shall be defined to include the following nondisplayed order types: (1) Stop Orders; and (2) All-or-None Orders. (6) Opening Sweep. An Opening Sweep is a one-sided order entered by a Specialist or ROT through SQF for execution against eligible interest in the System during the Opening Process. This order type is not subject to any protections listed in Rule 1099, except for Automated Quotation Adjustments. The Opening Sweep will only participate in the Opening Process pursuant to Rule 1017 and will be cancelled upon the open if not executed. (7) Cancel-Replacement Order. A CancelReplacement Order is a single message for the immediate cancellation of a previously received order and the replacement of that order with a new order with new terms and conditions. If the previously placed order is already filled partially or in its entirety, the replacement order is automatically canceled or reduced by the number of contracts that were executed. The replacement order will result in a loss of priority. (8) Qualified Contingent Cross Order or QCC Order. A QCC Order is as that term is defined in Rule 1088. (9) PIXL Order. A PIXL Order is as described in Rule 1087. (10) Legging Order. A Legging Order is an as the term is specified in Rule 1098(f)(iii)(C). PO 00000 Frm 00104 Fmt 4703 Sfmt 4703 68203 (11) Directed Orders. A Directed Order is as described in Rule 1068. All members may enter a Market Order, except Specialists and ROTs, as noted in the exclusion of Market Orders from current Rule 1080(b)(i)(B)(2). Current Rule 1080(b)(i)(B)(1) did not permit Specialists or ROTs to enter Market Orders and current Rule 1080(b)(i)(C)(1) did not permit Off-Floor Broker-Dealers to enter Market Orders. Proposed Rule 1080(e), which is discussed below, also notes the OffFloor Broker-Dealer restriction for Market Orders. The Exchange proposes to describe a Market Order 50 at proposed 1080(b)(1) as, ‘‘an order to buy or sell a stated number of options contracts that is to be executed at the best price obtainable when the order reaches the Exchange. Specialists and ROTs may not submit a Market Order.’’ This is the same description as in Options 8, Section 32(a). The Exchange has historically defined its order types within Options 8, Section 32 which are related to floor trading and has filed rule changes noting this description of a Market Order.51 The Exchange is not substantively amending this order type. Today, all members may enter a Limit Order,52 which the Exchange proposes to describe at proposed Rule 1080(b)(2) as ‘‘an order to buy or sell a stated number of options contracts at a specified price or better.’’ The description of a Limit Order is currently identically described within Options 8, Section 32(b). The Exchange is not substantively amending this order type. An Intermarket Sweep Order is a Limit Order that meets the requirements of Rule 1083.53 The Exchange proposes to state within proposed Rule 1080(b)(3), ‘‘An Intermarket Sweep Order (ISO) is a Limit Order that meets the requirements of Rule 1083. Orders submitted to the Exchange as ISO are not routable and will ignore the ABBO and trade at allowable prices on the Exchange. ISOs may be entered on the regular order book or into the Price Improvement XL Mechanism (‘‘PIXL’’) pursuant to Rule 1087(b)(11). ISO Orders may be submitted during the Opening Process pursuant to Rule 1017.’’ The Exchange notes that all 50 Market Orders are described within Options 8, Section 32(a). 51 See Securities Exchange Act Release No. 83141 (May 1, 2018), 83 FR 20123 (May 7, 2018 (SR–Phlx– 2018–32). The Exchange drafted the description to be similar to the description in Options 8, Section 32. Although it is substantially similar to the footnote 4 in the aforementioned rule change which provides, ‘‘Market Orders are orders to buy or sell at the best price available at the time of execution.’’ 52 Limit Orders are described within Options 8, Section 32(b). 53 Rule 1083 currently describes an ISO Order. E:\FR\FM\13DEN1.SGM 13DEN1 68204 Federal Register / Vol. 84, No. 240 / Friday, December 13, 2019 / Notices members are eligible to enter an ISO.54 The Exchange notes that ISO behavior, while described within Phlx Rules today as mentioned above, are being centralized within Rule 1080(b)(3). No substantive changes are being made to this order type which is currently described in various rules mentioned herein. The Exchange proposes to describe a Stop Order 55 at proposed Rule 1080(b)(4), as ‘‘a Limit Order or Market Order to buy or sell at a limit price when interest on the Exchange for a particular option contract reaches a specified price. A Stop Order shall be cancelled if it is immediately electable upon receipt. A Stop Order shall not be elected by a trade that is reported late or out of sequence or by a Complex Order trading with another Complex Order. Specialists and ROTs may not submit a Stop Order. An Off-Floor Broker-Dealers may not enter a Stop Market Order.’’ The Exchange further proposes to describe a Stop-Limit Order at proposed Rule 1080(b)(4)(A) as follows ‘‘A Stop-Limit Order to buy becomes a Limit Order executable at the limit price or better when the option contract trades or is bid on the Exchange at or above the stop-limit price. A StopLimit Order to sell becomes a Limit Order executable at the limit price or better when the option contract trades or is offered on the Exchange at or below the stop-limit price.’’ The Exchange proposes to describe a Stop Market Order at proposed Rule 1080(b)(4)(B) as follows, ‘‘A Stop Market Order is similar to a stop-limit except it becomes a Market Order when the option contract reaches a specified price.’’ Today, all members except Specialists, ROTs and Off-Floor BrokerDealers may enter a Stop Order.56 Proposed Rule 1080(e), which is discussed below, also notes the OffFloor Broker-Dealer restriction for Stop Market Orders With this proposal, the terms stop and stop-limit are both 54 See Phlx Rule 1083. Orders are described within Options 8, Section 32(c)(1)–(2). The Exchange has reworded the Stop Order description to make clear that a Stop Order can be either a limit or market order in the first sentence and also more clearly describe the contingency. The Exchange does not believe that the descriptions differ substantively. Further, the Exchange has defined a stop order within a rule change. See Securities Exchange Act Release No. 85519 (April 5, 2019), 84 FR 14686 (April 11, 2019) (SR–Phlx–2019–07). The description in this rule change at footnote 14 is substantially similar in stating, ‘‘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 stoplimit 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.’’ 56 See Phlx Rule 1080(b)(i)(B)(1) and (2). jbell on DSKJLSW7X2PROD with NOTICES 55 Stop VerDate Sep<11>2014 17:42 Dec 12, 2019 Jkt 250001 provided for within the proposed term ‘‘Stop Order.’’ No substantive changes are being made to this order type. An All-or-None Order is currently described within Rule 1078. The Exchange proposes to relocate Rule 1078, without amendment, into Rule 1080(b)(5) and reserve Rule 1078.57 The Exchange also proposes to amend the definition of All-or-None Order currently within Options 8, Section 32(b)(3) which applies to the trading floor.58 The Exchange notes that unlike Rule 1080(b)(5), which applies to electronic trading, All-or-None Orders entered into open outcry would not be subject to Acceptable Trade Range protection in Rule 1099(a), which covers only those orders submitted electronically into the System. No substantive changes are being made to this order type. The Exchange proposes to define the term ‘‘Non-Displayed Contingency Orders’’ at proposed new Rule 1080(b)(5)(i) as follows: ‘‘A NonDisplayed Contingency Order shall be defined to include the following nondisplayed order types: (1) Stop Orders; and (2) All-or-None Orders.’’ The Exchange proposes to define the Opening Sweep functionality within proposed Rule 1080(b)(6) for ease of reference to order types. The Opening Sweep is currently described within Rule 1017(b)(i).59 Current Rule 1080(b)(i) notes the Exchange offers an opening-only-market order and a limit on opening order. The Exchange is amending the definition of Opening Sweep within Rule 1017(b)(i) by removing the language and simply referring to proposed Rule 1080(b)(6). The Exchange is amending and relocating the description of Opening 57 An All-or-None Order is a limit order or market order that is to be executed in its entirety or not at all. An 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 1099(a) is not applied to All-Or-None Orders. See Rule 1078. 58 Options 8, Section 32(c)(3) provides, ‘‘(3) All or None Order. An all-or-none order is a market or limit order which is to be executed in its entirety or not at all.’’ The Exchange notes that other revisions are being made to Options 8, Section 32(b)(3) that were made in a prior rule change. See Securities Exchange Act Release No. 85262 (March 7, 2019), 84 FR 9192 (SR–Phlx–2019–03) and were inadvertently reversed in a subsequent filing that did not capture the amended text. See Securities Exchange Act Release No. 85740 (April 29, 2019), 84 FR 19136 (SR–Phlx–2019–17). The Exchange is reinstating the changes that were made in SR–Phlx– 2019–03. 59 Rule 1017(b)(i) provides, ‘‘An Opening Sweep is a one-sided electronic quotation submitted for execution against eligible interest in the system during the Opening Process.’’ PO 00000 Frm 00105 Fmt 4703 Sfmt 4703 Sweep within proposed Rule 1080(b)(6). Further, the Exchange proposes a change to the current rule to state it is an order and not a quote. This change will not amend the order type other than to make clear the manner it will be categorized. Phlx traditionally has referred to all interest within the SQF protocol as quote interest. The Exchange proposes to amend the references to ‘‘quotation’’ to ‘‘order’’ to make clear the type of interest that is being entered. An Opening Sweep is a one-sided order that only may be entered into the Opening Process. Further, the Exchange proposes to make clear that an Opening Sweep may only be entered by a Specialist or ROT as this order type is submitted through the SQF protocol.60 Other market participants tag orders for the Opening Process by placing a TIF of ‘‘OPG’’ on the order as explained below. The Exchange notes that all members may submit interest into the Opening Process. The Exchange also proposes to add two new sentences to the Opening Sweep description which provide, ‘‘This order type is not subject to any protections listed in Rule 1099, except for Automated Quotation Adjustments. The Opening Sweep will only participate in the Opening Process pursuant to Rule 1017 and will be cancelled upon the open if not executed.’’ The Exchange notes that the Automated Quotation Adjustments protections applies to quotes entered into SQF but would not apply to an Opening Sweep which is an order entered into SQF. The Exchange notes that the second sentence is not new as Opening Sweeps are described within Rule 1017 today and apply only during the Opening Process. This sentence provides additional context to the Opening Sweep. The Exchange proposes to memorialize a cancel-replacement order within proposed Rule 1080(b)(7). A Cancel-Replacement Order is currently defined within Options 8, Section 32(c)(4) as ‘‘a contingency order consisting of two or more parts which require the immediate cancellation of a previously received order prior to the replacement of a new order with new terms and conditions. If the previously placed order is already filled partially or in its entirety the replacement order is automatically canceled or reduced by such number.’’ The Exchange proposes to amend this description to state, ‘‘a Cancel-Replacement Order is a single 60 See Phlx Rule 1080(a)(i)(B), which notes that the ‘‘Specialized Quote Feed’’ or ‘‘SQF’’ is an interface that allows Specialists, SQTs and RSQTs to submit Immediate-or-Cancel Orders through SQF. E:\FR\FM\13DEN1.SGM 13DEN1 Federal Register / Vol. 84, No. 240 / Friday, December 13, 2019 / Notices jbell on DSKJLSW7X2PROD with NOTICES message for the immediate cancellation of a previously received order and the replacement of that order with a new order with new terms and conditions. If the previously placed order is already filled partially or in its entirety, the replacement order is automatically canceled or reduced by the number of contracts that were executed.’’ The Exchange notes it is proposing to add the following language, which is not currently described within existing rules, ‘‘The replacement order will result in a loss in priority.’’ The Exchange believes that as amended the Exchange provides additional detail to the order type. The additional language concerning priority is intended to provide market participants with additional detail about the retention of priority when amending a CancelReplacement Order and makes clear that it will not retain priority. The Exchange is memorializing the manner in which a Cancel-Replacement Order is handled today by the System. The Exchange notes that the order would be prioritized anew if it partially filled and the remainder of the unfilled order was returned to the Exchange.61 The Exchange proposes to include a Qualified Contingent Cross or ‘‘QCC’’ Order within proposed Rule 1080(b)(8) for ease of reference, which directs one to Rule 1088, which provides the detailed explanation of this order type. A QCC Order is described in detail within Rule 1088 today. While this order type is not currently listed within Rule 1080, the Exchange believes that it is useful to market participants to have all order types centralized. No substantive changes are being made to this order type. The Exchange proposes to include a definition of a PIXL Order within proposed Rule 1080(b)(9) for ease of reference. A PIXL Order is described in greater detail within Rule 1087 today and that description is being referenced within Rule 1080(b)(9). While this order type is not currently listed within Rule 1080, the Exchange believes that it is useful to market participants to have all order types centralized. No substantive changes are being made to this order type. The Exchange proposes to include a definition of a Legging Order within proposed Rule 1080(b)(10) for ease of reference. A Legging Order is as described in greater detail within Rule 61 See Phlx Rule 1091(a)(i), ‘‘If a routed order is subsequently returned, in whole or in part, that routed order, or its remainder, shall receive a new time stamp reflecting the time of its return to the System, unless any portion of the original order remains on the System, in which case the routed order shall retain its timestamp and its priority.’’ VerDate Sep<11>2014 17:42 Dec 12, 2019 Jkt 250001 1098(f)(iii)(C). While this order type is not currently listed within Rule 1080, the Exchange believes that it is useful to market participants to have all order types centralized. No substantive changes are being made to this order type. The Exchange proposes to include a definition of a Directed Order within proposed Rule 1080(b)(11) for ease of reference. A Directed Order is described in greater detail within Rule 1068 today. While this order type is not currently listed within Rule 1080, the Exchange believes that it is useful to market participants to have all order types centralized. No substantive changes are being made to this order type. The Exchange proposes to add Time in Force or ‘‘TIF’’ types within proposed new Rule 1080(c). Today these TIFs are noted within current Rule 1080(b)(i)(A)– (C) by category. The Exchange proposes to add descriptions to provide greater detail for these existing TIFs. The term ‘‘Time in Force’’ shall mean the period of time that the System will hold an order for potential execution, and shall include: (1) Day. If not executed, an order entered with a TIF of ‘‘Day’’ expires at the end of the day on which it was entered. All orders by their terms are Day Orders unless otherwise specified. Day orders may be entered through FIX. (2) Immediate-or-Cancel or IOC. An Immediate-or-Cancel (‘‘IOC’’) Order entered with a TIF of ‘‘IOC’’ is a Market Order or Limit Order to be executed in whole or in part upon receipt. Any portion not so executed is cancelled. (A) Orders entered with a TIF of IOC are not eligible for routing. (B) IOC orders may be entered through FIX or SQF, provided that an IOC Order entered by a ROT or Specialist through SQF is not subject to the Order Price Protection or the Market Order Spread Protection in Rule 1099(a). (C) Orders entered into the Price Improvement XL Mechanism and Qualified Contingent Cross Mechanism are considered to have a TIF of IOC. By their terms, these orders will be: (1) Executed either on entry or after an exposure period, or (2) cancelled. (3) Opening Only. An Opening Only (‘‘OPG’’) order is entered with a TIF of ‘‘OPG’’. This order can only be executed in the Opening Process pursuant to Rule 1017. This order type is not subject to any protections listed in Rule 1099, except for Automated Quotation Adjustments. Any portion of the order that is not executed during the Opening Process is cancelled. (4) Good Til Cancelled. A Good Til Cancelled (‘‘GTC’’) Order entered with a TIF of GTC, if not fully executed, will remain available for potential display and/or execution unless cancelled by the entering party, or until the option expires, whichever comes first. GTC Orders shall be available for entry from the time prior to market open specified by the Exchange until market close. PO 00000 Frm 00106 Fmt 4703 Sfmt 4703 68205 The Exchange proposes to describe an order with a TIF of ‘‘Day’’ at proposed new Rule 1080(c)(1) as an order that if not executed, an order entered with a TIF of ‘‘Day’’ expires at the end of the day on which it was entered. All orders by their terms are Day Orders unless otherwise specified. Day Orders may be entered through FIX.62 The Exchange believes that describing a Day Order with greater specificity will add detail to how Day Orders are treated in the System. The Exchange notes that orders are permitted to be entered with a TIF of ‘‘day’’ as noted in proposed Rule 1080(b). The Exchange notes that Options 8, Section 32 does not describe a ‘‘Day’’ order. The Exchange proposes to include the definition of a ‘‘Day’’ Order in proposed Options 8, Section 32(c)(2). The Exchange proposes to describe an order with a TIF of ‘‘Immediate-orCancel’’ or ‘‘IOC’’ at proposed new Rule 1080(c)(2) as a Market Order or Limit Order to be executed in whole or in part upon receipt. Any portion not so executed is cancelled. Current Options 8, Section 32(c)(5) describes an IOC Order as ‘‘An Immediate-or-Cancel (‘‘IOC’’) order is a limit order that is to be executed in whole or in part upon receipt. Any portion not so executed shall be cancelled. IOC Orders are not routable and shall not be subject to any routing process described in these Rules.’’ The Exchange is including a definition of an IOC Order within proposed Rule 1080(c)(2) similar to that in Options 8, Section 32(c)(5) with no substantive changes. Proposed Rule 1080(c)(2)(A) notes that Orders entered with a TIF of IOC are not eligible for routing. Further the Exchange proposes to add new details to this rule that are applicable specifically to the electronic market by stating that ‘‘IOC orders may be entered through FIX 63 or SQF, provided that an IOC Order entered by a ROT or Specialist through SQF is not subject to the Order Price Protection or the Market Order Spread Protection in Rule 1099(a).’’ Today, orders that are entered as IOC by a ROT or Specialist through SQF 64 are subject to the protections listed in Rule 1099,65 except for Order Price Protection and Market Order Spread Protection. The Order 62 Financial Information eXchange’’ or ‘‘FIX’’ is an interface that allows members and their Sponsored Customers to connect, send, and receive messages related to orders and auction orders and responses to and from the Exchange. Features include the following: (1) Execution messages; (2) order messages; and (3) risk protection triggers and cancel notifications. See Rule 1080(a)(i)(A). 63 See Rule 1080(a)(i)(A). 64 See Rule 1080(a)(i)(B). 65 Phlx Rule 1099 is titled, ‘‘Risk Protections.’’ E:\FR\FM\13DEN1.SGM 13DEN1 68206 Federal Register / Vol. 84, No. 240 / Friday, December 13, 2019 / Notices jbell on DSKJLSW7X2PROD with NOTICES Price Protection and Market Order Spread Protection, while available for orders, are not available on SQF. The Exchange notes these exceptions within this rule to make clear that this information is available to market participants within the description of IOC. The Exchange notes ROTs and Specialists utilize IOC Orders to trade out of accumulated positions and manage their risk when providing liquidity on the Exchange. Proper risk management, including using these IOC Orders to offload risk, is vital for ROTs and Specialists, and allows them to maintain tight markets and meet their quoting and other obligations to the market. The Exchange believes that allowing ROTs and Specialists to submit IOC Orders though their preferred protocol increases their efficiency in submitting such orders and thereby allow them to maintain quality markets to the benefit of all market participants that trade on the Exchange. Further, unlike other market participants, ROTs and Specialists provide liquidity to the market place and have obligations.66 The Exchange believes not offering Order Price Protection and Market Order Spread Protection for IOC Orders entered through SQF is consistent with the Act because ROTs and Specialists have more sophisticated infrastructures than other market participants and are able to manage their risk, particularly with respect to quoting, using tools that are not available to other market participants.67 Also, the proposed rule would also specify that orders entered into the Price Improvement XL (‘‘PIXL’’) Mechanism and Qualified Contingent Cross (‘‘QCC’’) Mechanism are considered to have a TIF of IOC. By their terms, these orders will be: (1) Executed either on entry or after an exposure period, or (2) cancelled.68 The Exchange believes that adding these new details to the manner in which IOC Orders are handled within the System will bring greater transparency to these order types. The Exchange proposes to describe an order with a TIF of ‘‘Opening Only’’ or ‘‘OPG’’ at proposed new Rule 1080(c)(3) as an order can only be executed in the Opening Process pursuant to Rule 1017. 66 Specialists have quoting obligations during the Opening Process as specified in Rule 1017(d) and ROTs and Specialists have intra-day quoting obligations as specified in Rule 1093. 67 ROTs and Specialists quotes are subject to various protections listed in Rule 1099(c). These additional quoting protections permit ROTs and Specialists to manage their exposure at the Exchange. Other market participants would not be subject to these risk protections because they do not submit quotes on Phlx and do not utilize SQF. 68 The TIF of IOC is applied to all PIXL and QCC Orders today. VerDate Sep<11>2014 17:42 Dec 12, 2019 Jkt 250001 The proposed rule also provides that ‘‘Any portion of the order that is not executed during the Opening Process is cancelled.’’ The Exchange also proposes to note ‘‘This order type is not subject to any protections listed in Rule 1099, except for Automated Quotation Adjustments.’’ This limitation is already provided for within Rule 1099. The Exchange currently refers to this TIF as limit on opening order and proposes to rename this TIF ‘‘Opening Only’’ or ‘‘OPG.’’ The Exchange notes that the terms ‘‘opening-only market order’’ and ‘‘limit on opening’’ are market and limit orders with a TIF of OPG. The Exchange believes that memorializing OPG as a TIF explains the manner in which these orders are entered into the Opening Process for handling pursuant to Rule 1017. An order with a TIF of ‘‘Good Til Cancelled’’ or ‘‘GTC’’ is described at proposed new Rule 1080(c)(4) and is also being included in Options 8, Section 32(c)(3) as an order that if not fully executed, will remain available for potential display and/or execution unless cancelled by the entering party, or until the option expires, whichever comes first. GTC Orders shall be available for entry from the time prior to market open specified by the Exchange until market close. The Exchange has noted this TIF within the current Rule 1080(b), however it did not describe the TIF. The Exchange proposes to define it within both Rules 1080 and Options 8, Section 32, according to the manner in which the TIF is applied today within the System. Proposed Rule 1080(d) notes that DNR, SRCH and FIND are described within Rule 1093. Specifically, the proposed rule text provides, ‘‘Routing Strategies. Orders may be entered on the Exchange with a routing strategy of FIND, SRCH or Do-Not-Route (‘‘DNR’’) as provided in Rule 1093 through FIX only.’’ Rule 1093 describes DNR, SRCH and FIND Orders in greater detail. The Exchange is noting the limitation of FIX for additional information on the entry of routed orders. FIX is the only order entry protocol offered on Phlx today for FIND, SRCH, or DNR orders.69 The current rule text of Rule 1080(b)(i) includes this routing strategies in the list of order types. The Exchange proposes to separate out these FIX-only routing strategies within proposed Rule 1080(d) for clarity. 69 See PO 00000 Phlx Rule 1080(a)(i)(A). Frm 00107 Fmt 4703 Sfmt 4703 Rule 1080(f) Unbundling of Orders The Exchange proposes to amend the rule text within Rule 1080(b)(iii) 70 which concerns the unbundling of orders to simply re-number this provision as proposed new Rule 1080(f) and remove references to outdated systems (AUTOM and AUTO–X). Rule 1080(c) Rule 1080(c) currently states, Phlx XL automatically executes eligible orders using the Exchange disseminated quotation (except if executed pursuant to the NBBO Feature in sub-paragraph (i) below) and then automatically routes execution reports to the originating member organization. AUTOM orders not eligible for AUTO–X are executed manually in accordance with Exchange rules. Manual execution may also occur when AUTO–X is not engaged, such as pursuant to subparagraph (iv) below. An order may also be executed partially by AUTO–X and partially manually. The terms ‘‘Book Match’’ and ‘‘Book Sweep’’ are subsumed under the term ‘‘AUTO–X’’ for purposes of these rules. In Phlx XL II, respecting situations in which the Quote Exhaust feature is engaged, the system will automatically execute transactions as set forth in Rule 1082. The Exchange may for any period restrict the use of AUTO–X on the Exchange in any option or series provided that the effectiveness of any such restriction shall be conditioned upon its having been approved by the Securities and Exchange Commission pursuant to Section 19(b) of the Securities Exchange Act of 1934 and the rules and regulations thereunder. Any such restriction on the use of AUTO–X approved by the Exchange will be clearly communicated to Exchange membership and AUTOM users on the Exchange’s website. Such restriction would not take effect until after such communication has been made The Exchange shall provide automatic executions for eligible customer and brokerdealer orders up to the Exchange’s disseminated size as defined in Exchange Rule 1082 except with respect to orders eligible for ‘‘Book Match. The Exchange proposes to delete all of the aforementioned rule text. The first sentence, ‘‘Phlx XL automatically executes eligible orders using the Exchange disseminated quotation (except if executed pursuant to the NBBO Feature in sub-paragraph (i) below) and then automatically routes execution reports to the originating member organization’’ while true is explained in other rules. The Exchange notes in Options 8, Section 25 the manner in which orders are allocated today at the either the NBBO or the Phlx Best Bid or Offer. The Exchange also 70 Current Rule 1080(b)(iii) provides, ‘‘Orders may not be unbundled for the purposes of eligibility for AUTOM and AUTO–X, nor may a firm solicit a customer to unbundle an order for this purpose. E:\FR\FM\13DEN1.SGM 13DEN1 Federal Register / Vol. 84, No. 240 / Friday, December 13, 2019 / Notices jbell on DSKJLSW7X2PROD with NOTICES notes that Rule 1082 provide for the manner in which the Exchange does not trade-through the NBBO. This sentence is not providing the detail contained in those other rules. With respect to the next three sentences, which provide, ‘‘AUTOM orders not eligible for AUTO–X are executed manually in accordance with Exchange rules. Manual execution may also occur when AUTO–X is not engaged, such as pursuant to subparagraph (iv) below. An order may also be executed partially by AUTO–X and partially manually. The terms ‘‘Book Match’’ 71 and ‘‘Book Sweep’’ 72 are subsumed under the term ‘‘AUTO–X’’ for purposes of these rules,’’ the Exchange proposes to delete these sentences. As noted above AUTOM no longer exists so references to AUTOM orders are obsolete. Also, specialist manual handling no longer exists.73 The explanation of manual order handling is not relevant in today’s System. The Exchange notes that all executions occur within the match engine as explained in Options 8, Section 25. Partial manual execution is not possible within the System. As all AUTO–X functionality was overridden by the initiation of Phlx XL fully automated technology, the references to the terms ‘‘Book Match’’ and ‘‘Book Sweep’’ are no longer necessary. The rule text referring to legacy systems should have been removed at the time that Phlx XL was 71 Book Match was an automatic execution feature of the Exchange’s systems that automatically executes inbound marketable orders against limit orders on the book or specialist, RSQT and/or SQT electronic quotes (‘‘electronic quotes’’) at the disseminated price where: (1) The Exchange’s disseminated size includes limit orders on the book and/or electronic quotes at the disseminated price; and (2) the disseminated price is the National Best Bid or Offer. See Securities Exchange Act Release No. 54312 (August 14, 2006), 71 FR 47856 (August 18, 2006) (SR–Phlx–2006–28). 72 Book Sweep was an automatic execution feature of the Exchange’s systems that, respecting non-Streaming Quote Options, allowed certain orders resting on the limit order book to be automatically executed when the bid or offer generated by the Exchange’s system or by the specialist’s proprietary quoting system locks (i.e., $1.00 bid, $1.00 offer) or crosses (i.e., $1.05 bid, $1.00 offer) the Exchange’s best bid or offer in a particular series as established by an order on the limit order book. Orders in non-Streaming Quote Options executed by the Book Sweep feature were allocated among crowd participants participating on the Wheel. Book Sweep is being retained for Streaming Quote Options. See Securities Exchange Act Release No. 54312 (August 14, 2006), 71 FR 47856 (August 18, 2006) (SR–Phlx–2006–28). 73 Manual execution by a specialist could occur in AUTOM. Specialist manual handling, and this rule governing order messages, all of which is obsolete. AUTOM and AUTO–X were replaced by Phlx XL. See Securities Exchange Act Release No. 50100 (July 27, 2004), 69 FR 46612 (August 3, 2004) (SR–Phlx–2003–59). Rule 1080(c)(iv)(G) notes that no orders will be executed manually on Phlx XL which is the current System. VerDate Sep<11>2014 17:42 Dec 12, 2019 Jkt 250001 implemented. The Exchange is proposing to remove Rule 1080(c) rules related to a legacy system to avoid confusion. There is a reference to Phlx XL within Rule 1080(c), ‘‘In Phlx XL II, respecting situations in which the Quote Exhaust feature is engaged, the system will automatically execute transactions as set forth in Rule 1082.’’ The Exchange notes that the Quote Exhaust feature is described within Rule 1082(a)(3) and therefore this reference in not necessary within Rule 1080. The aforementioned rule text is being deleted in its entirety. For similar reasons, the Exchange is removing the remainder of 1080(c). Rule 1080(c)(i) The Exchange proposes to delete Rule 1080(c)(i)(A) and (B) in their entirely; the rule text states: (i) NBBO Calculation (A) Where an Options Exchange Official determines that quotes in options on the Exchange or another market or markets are subject to relief from the firm quote requirement set forth in the SEC Quote Rule, as defined in Exchange Rule 1082(a)(iii) (the ‘‘Quote Rule’’), customer market orders will receive an automatic execution at the NBBO based on the best bid or offer in markets whose quotes are not subject to relief from the firm quote requirement set forth in the Quote Rule. Such determination may be made by way of notification from another market that its quotes are not firm or are unreliable; administrative message from the Option Price Reporting Authority (‘‘OPRA’’); quotes received from another market designated as ‘‘not firm’’ using the appropriate indicator; and/or telephonic or electronic inquiry to, and verification from, another market that its quotes are not firm. AUTOM customers will be duly notified via electronic message from AUTOM that such quotes are excluded from the calculation of NBBO. The Exchange may determine to exclude quotes from its calculation of NBBO on a series-by-series basis or issue-by-issue basis, or may determine to exclude all options quotes from an exchange, where appropriate, under the conditions set forth above. The Exchange shall maintain a record of each instance in which another exchange’s quotes are excluded from the Exchange’s calculation of NBBO, and shall notify such other exchange that its quotes have been so excluded. Such documentation shall include: Identification of the option(s) affected by such action; the date and time such action was taken and concluded; identification of the other exchange(s) whose quotes were excluded from the Exchange’s calculation of NBBO; identification of the Options Exchange Official who approved such action; the reasons for which such action was taken; and identification of the specialist and the specialist unit. The Exchange will maintain these documents pursuant to the record retention requirements of the Securities Exchange Act of 1934 and the rule and regulations thereunder. PO 00000 Frm 00108 Fmt 4703 Sfmt 4703 68207 (B) Where an Options Exchange Official determines that quotes in options on the Exchange or another market or markets previously subject to relief from the firm quote requirement set forth in the Quote Rule are no longer subject to such relief, such quotations will be included in the calculation of NBBO for such options. Such determination may be made by way of notification from another market that its quotes are firm; administrative message from the Option Price Reporting Authority (‘‘OPRA’’); and/or telephonic or electronic inquiry to, and verification from, another market that its quotes are firm. AUTOM customers will be duly notified via electronic message from AUTOM that such quotes are again included in the calculation of NBBO. The SEC Quote Rule is referenced in current Rule 1082(a)(iii).74 The Exchange proposes to remove this rule text as Rule 1082 provides for Firm Quotations as does Rule 1019(b)(5). The Exchange describes NBBO Price Protection within Rule 1096(b). The Exchange notes that the references to AUTOM processes do not exist today. Rule 1080(c)(ii) The Exchange proposes to delete Rule 1080(b)(ii)(A) and (B) which provides, Order Entry Firms and Users (A) Definitions (1) The term ‘‘Order Entry Firm’’ means a member organization of the Exchange that is able to route orders to AUTOM. (2) The term ‘‘User’’ means any person or firm that obtains access to AUTO–X through an Order Entry Firm. (B) Obligations of Order Entry Firms. Order Entry Firms shall: (1) Comply with all applicable Exchange options trading rules and procedures; (2) Provide written notice to all Users regarding the proper use of AUTO–X. Rule 1080(c)(ii)(A)(1) currently defines an ‘‘Order Entry Firm’’ as a member organization of the Exchange that is able to route orders to AUTOM. The Exchange proposes to amend the definition of Order Entry Firm and relocate it to Rule 1000(b)(38) to provide, ‘‘An Order Entry Firm or ‘‘OEF’’ is a member organization that submits orders, as agent or principal, on the Exchange.’’ The Exchange believes that this new description more accurately describes these market participants. The Exchange notes that Rule 1080(c)(ii)(A)(2) currently defines a ‘‘User’’ as any person or firm that obtains access to AUTO–X through an Order Entry Firm. The Exchange proposes to delete this term. The term User is an obsolete definition intended to refer to the outdated AUTOM system. 74 See Phlx Rule 1082(a)(iii) The term ‘‘SEC Quote rule’’ shall mean rule 602 of Regulation NMS under the Securities Exchange Act of 1934, as amended. E:\FR\FM\13DEN1.SGM 13DEN1 68208 Federal Register / Vol. 84, No. 240 / Friday, December 13, 2019 / Notices The Exchange uses the terms ‘‘member’’ and ‘‘member organization’’ in its rules to apply to entities and persons that may access the System. The Exchange only permits members and member organizations to access it System. The Exchange currently provides for obligations of Order Entry Firms within current Rule 1080(c)(ii)(B). The rule text provides that ‘‘Obligations of Order Entry Firms. Order Entry Firms shall: (1) Comply with all applicable Exchange options trading rules and procedures; (2) Provide written notice to all Users regarding the proper use of AUTO–X.’’ The Exchange proposes to delete Rule 1080(c)(ii)(B) and eliminate the requirement that Order Entry Firms 75 comply with all applicable Exchange options trading rules and procedures and provide written notice to all Users regarding the proper use of AUTO–X. The Exchange notes that all members and member organizations are subject to its rules. An Order Entry Firm would be required to be a member or member organization to access the System. The AUTO–X procedures are irrelevant and therefore this sentence is being deleted. AUTO–X no longer exists, it was part of AUTOM as explained herein. jbell on DSKJLSW7X2PROD with NOTICES Rule 1080(c)(iii) The Exchange proposes to delete the rule text at Rule 1080(c)(iii)(A) and (B), titled ‘‘Quotations Interacting with Limit Orders on the Book’’ which provides, (A) Respecting options traded on the Phlx XL system, when the bid or offer generated by the Exchange’s Auto-Quote system, SQF (as defined in Commentary .01(b)(i) of this Rule), or by an SQT or RSQT (as defined in Rule 1014(b)(ii)) matches or crosses the Exchange’s best bid or offer in a particular series as established by an order on the limit order book, orders on the limit order book in that series will be automatically executed and automatically allocated in accordance with Exchange rules. If Book Sweep is not engaged at the time the Auto-Quote, SQF, RSQT or SQT bid or offer matches or crosses the Exchange’s best bid or offer represented by a limit order on the book, the specialist, RSQT, or SQT may manually initiate the Book Sweep feature. (B) Respecting options traded on the Phlx XL II system, Market Sweep will replace Book Sweep order processing. A Market Sweep is composed of one or more singlesided quotes submitted by a Phlx XL II participant to automatically execute at multiple order price levels and a single quote price level. A Market Sweep will execute against both quotes and orders, but when a quote level is exhausted, the system will cancel the balance of the Market Sweep back to the entering party to allow quotes to be updated. Market Sweeps are processed on an immediate-or-cancel basis, may not be 75 See Rule 1080(c)(ii)(A)(1). VerDate Sep<11>2014 17:42 Dec 12, 2019 Jkt 250001 routed, may be entered only at a single price, and may not trade through away markets. The Exchange proposes to delete this rule text within Rule 1080(c)(iii)(A) because it reflects an outdated AutoQuote system which no longer exists. The functionality described in subparagraph (iii)(A) no longer exists, including Auto-Quote 76 and the Book Sweep feature, as previously mentioned. These features initially existed within Phlx XL. Phlx XL was later replaced by Phlx XL II in 2009.77 With respect to Rule 1080(c)(iii)(B), the Exchange notes that the Phlx XL functionality described herein was renamed ‘‘Market Sweep.’’ The Market Sweep description within current Rule 1080(c)(iii)(B) describes an IOC order. Today, ROTs and Specialists may enter IOC orders through SQF. This functionality is already included as part of the SQF functionality and also the IOC description is proposed within new Rule 1080(c)(2). The Exchange therefore proposes the deletion of Rule 1080(c)(iii)(B). Rule 1080(c)(iv) The Exchange proposes to delete Rule 1080(c)(iv) which provides, Except as otherwise provided in this Rule, in the following circumstances, an order otherwise eligible for automatic execution will instead be manually handled by the specialist: (A) RESERVED; (B) Respecting options traded on Phlx XL, the AUTOM System is not open for trading when the order is received (which is known as a pre-market order); (C) Respecting options traded on Phlx XL, the disseminated market is produced during an opening or other rotation; (D) Respecting options traded on Phlx XL, when the Exchange’s best bid or offer is represented by a limit order on the book (except with respect to orders eligible for ‘‘Book Sweep’’ as described in Rule 1080(c)(iii) above, and ‘‘Book Match’’ as described in Rule 1080(g)(ii) below); (E) Respecting options traded on Phlx XL, if the Exchange’s bid or offer is not the NBBO; and (F) Reserved. 76 Auto-Quote was the Exchange’s electronic options pricing system, which enabled specialists, Streaming Quote Traders (‘‘SQTs’’) and Remote Streaming Quote Traders (‘‘RSQTs’’), to automatically monitor and instantly update and submit electronic quotations for equity option and index option contracts. Auto-Quote was eliminated in 2007. See Securities Exchange Act Release No. 55498 (March 20, 2007, 72 FR 14318 (March 27, 2007) (SR–Phlx–2007–15) (Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Delete the Exchange’s Auto-Quote Options Pricing Functionality). This filing inadvertently did not remove all references to Auto-Quote. 77 See Securities Exchange Act Release No. 59995 (May 28, 2009), 74 FR 26750 (June 3, 2009) (SR– Phlx–2009–32). PO 00000 Frm 00109 Fmt 4703 Sfmt 4703 (G) Respecting options traded on the Phlx XL II system, no orders will be executed manually. The Exchange’s systems are designed and programmed to identify the conditions that cause inbound orders to be ineligible for automatic execution. Once it is established that inbound orders are ineligible for automatic execution, Exchange staff has the ability to determine which of the above conditions occurred. The Exchange proposes to delete Rule 1080(c)(iv) because it refers to the possibility of executions being manually handled by the specialist, which cannot occur anymore, as described above.78 Rule 1080(c)(iv)(A) is currently reserved, and is being deleted. Rule 1080(c)(iv)(B) describes AUTOM, which is now obsolete and proposed to be deleted. Phlx Rule 1017 describes the timeframe interest will be accepted for the Opening Process. Similarly, Rule 1080(c)(iv)(C) describes a process for opening and reopening which is described in Phlx Rule 1017; the rule text is not necessary. A trading halt will result in a reopening pursuant to Rule 1017. Rule 1080(c)(iv)(D) and (E) is proposed to be deleted because it is not a possibility for manual handling today. As noted in Rule 1080(c)(iv)(G) no orders are handled manually on Phlx XL, which the Exchange is simply referring to as System. The Exchange also proposes to delete Rule 1080(c)(iv)(F) which is reserved. Rule 1080(c)(v) and vi The Exchange proposes to delete Rule 1080(c)(v) which provides, Respecting options traded on Phlx XL, in situations in which the Exchange receives a market order that is not eligible for automatic execution because of any of the conditions described in Rule 1080(c)(iv), such market order, if not already executed manually by the specialist, will nonetheless be executed automatically when: (A) A limit order resting on the limit order book or a quotation that was not priced at the NBBO at the time such market order was received, becomes priced at the NBBO; or (B) an inbound limit order or quotation priced at or better than the NBBO is received before the specialist has manually executed such market order. In each case, the AUTOM System will automatically execute the market order against such resting limit order or quotation, or against such inbound limit order or quotation, at or better than the NBBO price. The Exchange proposes to delete the rule text at Rule 1080(c)(v) because it 78 Manual execution by a specialist could occur in AUTOM. Specialist manual handling, and this rule governing order messages, all of which is obsolete. AUTOM and AUTO–X were replaced by Phlx XL. See Securities Exchange Act Release No. 50100 (July 27, 2004), 69 FR 46612 (August 3, 2004) (SR–Phlx–2003–59). Rule 1080(c)(iv)(G) notes that no orders will be executed manually on Phlx XL which is the current System. E:\FR\FM\13DEN1.SGM 13DEN1 Federal Register / Vol. 84, No. 240 / Friday, December 13, 2019 / Notices references obsolete functionality related to AUTOM and specialist manual handling. Phlx XL II contained no such functionality and replaced specialist manual handling with automated functionality. The Exchange also proposes to delete Rule 1080(b)(vi) which is currently reserved. Rule 1080(d), Hours The Exchange proposes to delete Rule 1080(d), ‘‘Hours.’’ AUTOM is no longer a relevant system. The Exchange’s trading hours for quotes is provided for in Rule 1019(b)(4) 79 and the trading hours for orders is provided for in Rule 1093(a)(2).80 The Exchange does not believe that this information is necessary. jbell on DSKJLSW7X2PROD with NOTICES Rule 1080(e), Extraordinary Circumstances The Exchange proposes to delete Rule 1080(e). ‘‘Extraordinary Circumstances,’’ which provides, Respecting options traded on the Phlx XL system, in the event extraordinary circumstances with respect to a particular class of options exist, an Options Exchange Official may determine to disengage AUTO– X with respect to that option, in accordance with Exchange procedures. Five minutes subsequent to the disengagement of AUTO– X for extraordinary circumstances (and every 15 minutes thereafter as long as AUTO–X is disengaged), the requesting specialist or his/ her designee, an Options Exchange Official, and a designated regulatory staff person, shall re-evaluate the circumstances to determine if the extraordinary circumstances still exist. AUTO–X will be re-engaged when either: (i) The specialist or his/her designee determines that the conditions supporting the extraordinary circumstances no longer exist, at which time the specialist or his/her designee shall inform the regulatory staff that the extraordinary circumstances no longer exist and that the specialist is re-engaging AUTO–X; or (ii) when an Options Exchange Official and the designated regulatory staff person determine that the conditions supporting the extraordinary circumstances no longer exist. In the event extraordinary conditions exist floor-wide, an Options Exchange Official may determine to disengage the AUTO–X feature floor-wide. Five minutes subsequent to a floor-wide disengagement of AUTO–X for extraordinary circumstances (and every 15 minutes thereafter as long as AUTO–X is disengaged), an Options Exchange Official and a designated regulatory staff person shall reevaluate the circumstances to determine if the extraordinary circumstances still exist. AUTO–X will be re-engaged when either: (1) The specialist determines that the conditions 79 The System accepts quotes for the Opening Process as specified in Rule 1017. 80 The System accepts orders beginning at a time specified by the Exchange and communicated on the Exchange’s website. VerDate Sep<11>2014 17:42 Dec 12, 2019 Jkt 250001 supporting the extraordinary circumstances no longer exist for their particular class of options at which time the specialist or his/ her designee will inform regulatory staff that the extraordinary circumstances no longer exist for their particular class of options and that the specialist is re-engaging AUTO–X; or (2) when an Options Exchange Official and the designated regulatory staff person determine that the extraordinary circumstances no longer exist. The NBBO Feature is always disengaged when AUTO– X is disengaged. Extraordinary circumstances include market occurrences and system malfunctions that impact a specialist’s ability to accurately price and disseminate option quotations in a timely manner. Such occurrences include fast market conditions such as volatility, order imbalances, volume surges or significant price variances in the underlying security in the case of equity options or in the underlying currency in the case of U.S. dollar-settled foreign currency options; internal system malfunctions including the Exchange’s Auto-Quote system; or malfunctions of external systems such as specialized quote feed, or delays in the dissemination of quotes from the Option Price Reporting Authority; or other similar occurrences. The Exchange shall document any action taken to disengage AUTO–X pursuant to this Rule 1080(e), and shall notify all AUTOM Users of each instance in which AUTO–X is disengaged due to extraordinary circumstances. Such documentation shall include: Identification of the option(s) affected by such action (except in a case of floor-wide disengagement); the date and time such action was taken and concluded; identification of the Options Exchange Official who approved such action, the reasons for which such action was taken; identification of the specialist and the specialist Unit (or in the case of floor-wide disengagement, identification of the Exchange designee); and identification of the regulatory staff person monitoring the situation. The Exchange will maintain these documents pursuant to the record retention requirements of the Securities Exchange Act of 1934 and the rules and regulations thereunder. (i) The Exchange’s Emergency Committee, pursuant to Rule 98, may take other action respecting AUTOM in extraordinary circumstances. Rule 1080(e), Extraordinary Circumstances, is proposed to be deleted because it refers to the obsolete functionality of Phlx XL and AUTO–X (AUTO–X was part of AUTOM and is no longer in existence). This also involves the deletion of subparagraph (i), because the Emergency Committee no longer exists; 81 emergencies related to the System or trading floor are handled pursuant to various other provisions.82 81 See Securities Exchange Act Release No. 71906 (April 8, 2014), 79 FR 20949 (April 14, 2014) (SR– Phlx–2014–20). 82 See By-Law Article VII, Section 7–5, Authority to Take Action Under Emergency or Extraordinary Market Conditions. PO 00000 Frm 00110 Fmt 4703 Sfmt 4703 68209 Rule 1080(f) Specialist Obligations The Exchange proposes to delete Rule 1080(f), ‘‘Specialist Obligations,’’ which provides, Specialist Obligations—Respecting options traded on Phlx XL, a specialist must accept eligible orders delivered through AUTOM. A specialist must comply with the obligations of Rule 1014, as well as other Exchange rules, in the handling of AUTOM orders. (i) RESERVED. (ii) A specialist must respond promptly to all messages communicated through AUTOM, including order entry, execution and cancellation and replacement of orders as well as administrative messages. (iii) A specialist is responsible for the remainder of an AUTOM order where a partial execution occurred. (iv) A specialist is responsible for the visibility to the trading crowd of both the screens displaying incoming AUTO–X orders as well as bids/offers for the at-the-money strike prices in displayed options. (v) To ensure proper notification to AUTOM users, a specialist must promptly notify the Surveillance Post of any AUTOMrelated Options Exchange Official approval in order for such approval to be valid. Rule 1080(f), Specialist Obligations, is proposed to be deleted because it refers to obligations that were once applicable to trading on Phlx XL and AUTOM, both of which are obsolete, as discussed above. Specialist obligations are noted within Phlx Rule 1020, ‘‘Registration and Functions of Options Specialists’’ as well as Rule 1014, ‘‘Obligations of Market Makers.’’ Rule 1080(g), Contra-Party Participation The Exchange proposes to delete Rule 1080(g), ‘‘Contra-Party Participation,’’ which provides, Contra-Party Participation—Respecting options traded on the Phlx XL system: (A) Book Match—For purposes of this subparagraph, the contra-side to automatically executed inbound marketable orders shall be a limit order on the book or specialist, RSQT and/or SQT electronic quotes (‘‘electronic quotes’’) at the disseminated price where: (1) The Exchange’s disseminated size includes limit orders on the book and/or electronic quotes at the disseminated price; and (2) the disseminated price is the National Best Bid or Offer. This feature is called Book Match. However, respecting options trading on the Phlx XL II system, the contra-side to automatically executed inbound marketable orders can also be a sweep, pursuant to Rule 1082. The Exchange proposes to delete Rule 1080(g), Contra-Party Participation, because Book Match is obsolete. As noted in the last sentence of the text, with Phlx XL, Rule 1082(a)(ii)(B)(3)(c) discusses new interest in the opposite side of the market. E:\FR\FM\13DEN1.SGM 13DEN1 68210 Federal Register / Vol. 84, No. 240 / Friday, December 13, 2019 / Notices Rule 1080(h), Responsibility for AUTOM Orders The Exchange proposes to delete Rule 1080(h), Responsibility for AUTOM Orders, which provides, Responsibility for AUTOM Orders— Respecting options traded on Phlx XL, a member organization who initiates the transmission of an order message to the floor (the ‘‘initiating member’’) through AUTOM is responsible for that order message up to the point that a legible and properly formatted copy of the order message is received on the trading floor by the specialist unit. Thereafter, the specialist who is registered in the option specified in the order message is responsible for the contents of the order message received and is responsible for the order until one of the following occurs: (i) An execution report for the entire amount of the order is properly sent; (ii) a cancellation acknowledgement is properly sent; or (iii) an order properly expires. For the convenience of members using AUTOM, the Exchange provides an AUTOM Service Desk to assist on the trading floor in the operation of AUTOM. In accordance with Exchange By-Law Article VI, Section 6–3, the Exchange shall not be liable for any loss, expenses or damage resulting from or claimed to have resulted from the acts, errors or omissions of its agents, employees or members in connection with AUTOM, or the AUTOM System. The Exchange proposes to delete Rule 1080(h), Responsibility for AUTOM Orders, because Phlx XL and AUTOM are obsolete, as discussed above. In addition, the specialist no longer handles or submits orders on behalf of others, such that references to the receipt of order messages are also obsolete. The Exchange is also deleting reference to its AUTOM Service Desk; various operations personnel work in support of the trading floor but the Exchange does not believe their functions need to be described in a rule. By-Law Article VI, Section 6–3 applies to limit liability regardless of whether it is listed in this rule. The Exchange proposes to delete Rule 1080(i), (m), and (n) which are currently reserved. The Exchange also proposes to delete the following extraneous sentence: ‘‘Such orders will be automatically placed on the limit order book in price-time priority.’’ jbell on DSKJLSW7X2PROD with NOTICES Commentary .01 The Exchange proposes to delete Commentary .01 to Rule 1080 which provides, .01 Reserved (b) If options trading systems throttle quotations for at least three minutes, the Chairperson of the Board of Directors or his designee may, for capacity management purposes, mandate that the specialized quote feed be set to update quotations based on a certain minimum movement in the VerDate Sep<11>2014 17:42 Dec 12, 2019 Jkt 250001 underlying security or the underlying foreign currency for: (i) All options; (ii) index options only; or (iii) certain specified options, taking into account certain factors that may include, but are not limited to, the price of the underlying security, volatility in the underlying security or the underlying foreign currency, or whether there has been any trading volume over the last two trading days. Such mandated minimum setting may continue for a period of 15 minutes, and may be continued every 15 minutes thereafter, provided that the Exchange’s options trading systems are throttling quotations at the end of each such 15-minute period. The Exchange notes that the language contained in Commentary .01 to Rule 1080 refers to legacy functionality that existed prior to the INET transition and does not reflect current functionality. Today, the System automatically throttles and provides equal access to the Order Book across all interfaces. Commentary .02 The Exchange proposes to delete Commentary .02 which provides, The Electronic Order Book is the Exchange’s automated limit order book, which automatically routes all unexecuted AUTOM orders to the book and displays orders real-time in order of price/time priority. (a)(i) Except as provided in sub-paragraph (a)(ii) below, the AUTOM System will immediately display the full price and size of any limit order that establishes the Exchange’s disseminated price or increases the size of the Exchange’s disseminated bid or offer. (ii) The AUTOM System will not display: (A) An order executed upon receipt; (B) An order where the customer who placed it requests that it not be displayed, and upon representation of such order in the trading crowd the Floor Broker announces in public outcry the information concerning the order that would be displayed if the order were subject to being displayed; (C) A customer limit order for which, immediately upon receipt, a related order for the principal account of the specialist, reflecting the terms of the customer order, is routed to another options exchange; (D) Orders received before or during a trading rotation, however, such limit orders will be displayed immediately upon conclusion of the applicable rotation if they represent the Exchange’s best bid or offer; (E) The following order types as defined in Rule 1066: Contingency Orders; One-Cancelsthe-Other Orders; Hedge Orders (e.g., spreads, straddles, combination orders); Synthetic Options; (F) Immediate or Cancel (‘‘IOC’’) orders. (b) Limit orders may only be placed on the limit order book by: (i) An ROT via electronic interface with AUTOM pursuant to Rule 1014, Commentary .18; (ii) a Floor Broker using the Options Floor Broker Management System (as described in Commentary .06 below); or (iii) the AUTOM System for eligible customer and off-floor broker-dealer limit orders. PO 00000 Frm 00111 Fmt 4703 Sfmt 4703 (c) A limit order to be executed manually by the specialist pursuant to Rule 1080(c)(iv) will be displayed automatically by the AUTOM System until such limit order is executed or cancelled. If such limit order is partially executed, the AUTOM System will automatically display the actual number of contracts remaining in such limit order. As explained herein, AUTOM is an outdated system. The Exchange notes its order types within Phlx Rules 1080(b) and Options 8, Section 32, including Limit Orders. Other rules govern trading on the floor, including, but not limited to Options 8, Sections 25, 29 and 30. Also, as discussed above, specialist manual execution no longer exists. Commentary .03 The Exchange proposes to delete Commentary .03 to Rule 1080 which provides, ‘‘Intermarket Sweep Order’’ or ‘‘ISO’’ is a limit order that is designated as an ISO in the manner prescribed by the Exchange and is executed within the system by Participants at multiple price levels without respect to Protected Quotations of other Eligible Exchanges as defined in Rule 1083. ISOs are immediately executable within the Phlx XL II system or cancelled, and shall not be eligible for routing as set out in Rule 1080. Simultaneously with the routing of an ISO to the Phlx XL II system, one or more additional limit orders, as necessary, are routed by the entering party to execute against the full displayed size of any Protected Bid or Offer (as defined in Rule 1083(n)) in the case of a limit order to sell or buy with a price that is superior to the limit price of the limit order identified as an ISO. These additional routed orders must be identified as ISOs. The Exchange relocated an updated description of ISO Orders to proposed Rule 1080(b)(3). The Exchange notes that it removed references to Phlx XL and added greater detail about ISO in the PIXL Auction and during the Opening Process. Rule 1083 contains more information with respect to ISO Orders which is referenced within the rule. Commentary .04 and .05 The Exchange proposed the deletion of these commentaries within the discussion of Rule 1080(b) as these commentaries related to text within that section. Rule 1000, Applicability, Definitions and References The Exchange proposes to amend Rule 1000(b)(40) which is currently reserved, to define the term ‘‘Away Best Bid or Offer’’ or ‘‘ABBO’’ to mean the displayed National Best Bid or Offer not including the Exchange’s Best Bid or Offer. The Exchange believes that this term will bring greater clarity to the E:\FR\FM\13DEN1.SGM 13DEN1 Federal Register / Vol. 84, No. 240 / Friday, December 13, 2019 / Notices Exchange’s rules. The Exchange proposes to delete Rule 1000(b)(49) to remove the definition of ‘‘Agency Order,’’ as it is no longer using this categorization of orders, as discussed above. Rule 1014, Obligations and Restrictions Applicable to Specialists and Registered Options Traders The Exchange explained above the proposed addition of rule text to Rule 1014(e), which is currently reserved, to explain what types of orders a ROT or Specialist may not enter. Rule 1017 The term ‘‘All-or-None’’ is being capitalized within Rule 1017(b). The description of the Opening Sweep in Rule 1017(b)(i) is being deleted, and a cross-reference to the new definition for Opening Sweep, in 1080(b)(6), is being added within the rule. jbell on DSKJLSW7X2PROD with NOTICES Rule 1078, All-or-None As noted above, the Exchange is relocating the text of this rule into Rule 1080(b)(5) and reserving this rule. Rule 1098, Complex Orders on the System The Exchange proposes to update Rule 1098 to note that certain order types are described in proposed Rule 1080(b) and (c). The Exchange is removing the descriptions of order types within Rule 1098(b)(v) and instead referencing back to Rule 1080. The order types entered as complex orders do not differ in description from those entered on the simple market. This proposal will conform order types across the electronic market, as well as the floor, with the proposed changes to Options 8, Section 32. The Exchange is adding Directed Orders to Rule 1098(b)(v) as Directed Orders are proposed to be added to Rule 1080(b). The Exchange also proposes to amend Rule 1098(d)(B), 1098(e)(iv) and 1098(f)(ii) to redefine certain sweeps as ‘‘orders’’ instead of ‘‘quotations.’’ Specifically, similar to the amendment for Opening Sweeps defined above, the Exchange is proposing to amend the references to COOP Sweep, COLA Sweep and CBOOK Sweep to describe them as a ‘‘one-sided electronic order entered by a Specialist or ROT through SQF’’ instead of ‘‘a one-sided electronic quotation.’’ Phlx traditionally has referred to all interest within the SQF protocol as quote interest. There is no systemic change as a result of this amendment. The Exchange is simply recategorizing these ‘‘quotes’’ as ‘‘orders’’ as they are identical to IOC orders. The Exchange proposes to amend the VerDate Sep<11>2014 17:42 Dec 12, 2019 Jkt 250001 references to ‘‘quotation’’ to ‘‘order’’ to make clear the type of interest that is being entered. Further, the Exchange proposes to make clear that these sweeps may only be entered by a Specialist or ROT through SQF.83 This is the case today. The Exchange offers ROTs and Specialists the ability to expeditiously submit IOC orders through SQF, without having to utilize the FIX protocol. This allows ROTs and Specialists to manage risk utilizing a single protocol, SQF. Unlike other market participants, ROTs and Specialists are required to provide liquidity to the market and are subject to certain obligations, including a requirement to provide continuous twosided quotes on a daily basis.84 ROTs and Specialists utilize IOCs (today sweeps) to trade out of accumulated positions and manage their risk when providing liquidity on the Exchange. Proper risk management, including using these IOCs to offload risk, is vital for ROTs and Specialists, and allows them to maintain tight markets and meet their quoting and other obligations to the market. The Exchange believes that unlike other market participants, ROTs and Specialists have obligations and risks, which are mitigated by providing these market participants with the ability to increase their efficiency in submitting such orders and thereby allow them to maintain quality markets to the benefit of all market participants that trade on the Exchange. The Exchange notes that other exchanges offer similar capabilities to market makers.85 Furthermore, other exchanges do not offer order protections on order submitted through a quoting protocol. MIAX’s Price Protection on Non-Market Maker Orders is not available for orders submitted by a Market Maker.86 The Price Protection on Non-Market Maker Orders prevents an order from being executed at a price beyond the price designated in the order’s price protection instructions, and is a similar protection to the Exchange’s Limit Order Price Protection. The Exchange similarly believes that it is consistent with the Act to not apply certain protections to Market Maker Immediateor-Cancel Orders submitted through SQF. ROTs and Specialists handle a large amount of risk when quoting on the 83 Market Makers on Phlx include Specialists and ROTs. See note 3. 84 See Phlx Rule 1081. 85 Miami International Securities Exchange LLC (‘‘MIAX’’) utilizes its MIAX Express Interface (MEI), a quoting interface, for market makers to enter immediate-or-cancel orders. 86 See MIAX Rule 515(c)(1). PO 00000 Frm 00112 Fmt 4703 Sfmt 4703 68211 Exchange and in addition to the risk protections required by the Exchange, ROTs and Specialists utilize their own risk management parameters when entering orders, minimizing the likelihood of a ROTs and Specialist order resulting from an error from being entered. The Exchange believes that ROTs and Specialists, unlike other market participants, have the ability to manage their risk when submitting IOC Orders through SQF and should be permitted to elect this method of order entry to obtain efficiency and speed of order entry, particularly in light of the continuous quoting obligations the Exchange imposes on these participants. Options 8, Section 32 The Exchange is proposing to amend Options 8, Section 32 to add an ‘‘(a)’’ before the rule text. The Exchange proposes to amend the ‘‘a’’ and ‘‘b’’ before Market Order 87 and Limit Order 88 to a ‘‘1’’ and ‘‘2’’ respectively. Options 8, Section 32 governs the trading floor while Rule 1080 governs electronic trading. A member enters orders through FBMS, directly into the System shall be governed by Rule 1080 with respect to order types. The Exchange proposes to re-letter Contingency Order from ‘‘c’’ to ‘‘b.’’ The Exchange proposes to replace the current All or None Order 89 description within Options 8, Section 32(b)(3) with the rule text currently within Rule 1078 with the exception of the description of the Acceptable Trade Range Protection, which is not applied when submitting orders in open outcry. The Exchange proposes to add a new Options 8, Section 32(c) which provides, ‘‘Time in Force or ‘‘TIF.’’ The term ‘‘Time in Force’’ shall mean the period of time that the System will hold an order for potential execution, and shall include:’’. This sentence will provide more contextual information. The Exchange will renumber the Immediate or Cancel Order from Options 8, Section 32(b)(5) to new Options 8, Section 32(c)(1). The Exchange proposes to add two additional TIFs, ‘‘Day’’ and ‘‘Good Til Cancelled’’ at proposed new Options 8, Section 32(c)(2) and (3). The Exchange proposes to utilize the descriptions proposed within new Rule 1080(c)(1) 87 Market Order. A market order is an order to buy or sell a stated number of option contracts and is to be executed at the best price obtainable when the order reaches the post. 88 Limit Order. A limit order is an order to buy or sell a stated number of option contracts at a specified price, or better. 89 All or None Order. An all-or-none order is a market or limit order which is to be executed in its entirety or not at all. E:\FR\FM\13DEN1.SGM 13DEN1 68212 Federal Register / Vol. 84, No. 240 / Friday, December 13, 2019 / Notices and (4). The Exchange proposes to add a description for Floor Qualified Contingent Cross Orders within new proposed Options 8, Section 32(e). The description is copied from Rule 1064(e) with a title, ‘‘Floor Qualified Contingent Cross Order or Floor QCC Order.’’ 90 The Exchange proposes to re-letter the remainder of the rule. Options 8, OFPA A–3 The Exchange proposes to add a cross-reference to the definition of Allor-None Orders in proposed new Rule 1080(b)(5) within Options Floor Procedure Advice A–3. The Exchange notes that other revisions are being made to Options 8, Section 32(b)(3) that were made in a prior rule change 91 and inadvertently removed by a subsequent rule change. The subsequent rule change did not capture the amended text.92 The Exchange is reinstating the changes that were made in SR–Phlx–2019–03 within this rule change. 2. Statutory Basis The Exchange believes that its proposal is consistent with Section 6(b) of the Act,93 in general, and furthers the objectives of Section 6(b)(5) of the Act,94 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 Rule 1080 to amend the order types descriptions and eliminate references and descriptions of outdated functionality. Order Types jbell on DSKJLSW7X2PROD with NOTICES The Exchange’s proposal to remove the distinction between ‘‘agency and ‘‘proprietary’’ is consistent with the Act because this distinction is not necessary to describe the types of orders available on Phlx. The Exchange notes that while that distinction may have been applicable at one point in time with respect to entering orders, it is not suitable to limit the entry of certain orders on that basis. Phlx captures capacity of market participants when they submit orders to the System. Further, the Exchange notes within 90 The Exchange proposes, ‘‘A Floor Qualified Contingent Cross Order is comprised of an originating order to buy or sell at least 1,000 contracts, as provided in Options 8, Section 30(e), that is identified as being part of a qualified contingent trade, as that term is defined in subsection Options 8, Section 30(e)(3), coupled with a contra-side order or orders totaling an equal number of contracts.’’ 91 See Securities Exchange Act Release No. 85262 (March 7, 2019), 84 FR 9192 (SR–Phlx–2019–03). 92 See Securities Exchange Act Release No. 85740 (April 29, 2019), 84 FR 19136 (SR–Phlx–2019–17). 93 15 U.S.C. 78f(b). 94 15 U.S.C. 78f(b)(5). VerDate Sep<11>2014 17:42 Dec 12, 2019 Jkt 250001 proposed Rule 1080(b) any limitations that impact a market participant’s ability to submit an order. Finally, proposed Rule 1014(e) will provide limitations for ROTs and Specialists submitting orders. The Exchange notes that today no other options market segregates the submission of order types by whether the order is an agency or proprietary order. Rather, Phlx’s proposal as well as rules of other options exchanges impose limitations on the types of orders that may be entered by ROTs and Specialists as described further herein, as well as other limitations related to market ROTs and Specialists makers entering orders.95 While the Exchange is eliminating the references to ‘‘agency’’ and proprietary’’ orders, the Exchange notes that there is no impact to market participants or systemic change that results from the elimination of these terms. The list of order types presented below reflect current practice. The Exchange is not changing the manner in which orders are being submitted to the Exchange. The Exchange believes that by defining the rules, similar to other options markets, it will bring greater transparency to the Exchange’s Rules and permit an ease of reference when comparing rulebooks. The Exchange notes that this proposal will not amend the System except for the changes described below where the Exchange is noting a change is proposed. Other functionalities offered by Phlx remains unchanged with this proposal. The Exchange’s proposal to replace the current rule text regarding order types within Rule 1080(b) with a list of current order types will bring greater transparency to the Exchange’s Rules. Today, Rule 1080(b)(i) lists certain order types that have not been available on Phlx since Phlx replatformed its technology to INET in 2009. Specifically, the Exchange believes that eliminating order types that are not available, which include ‘‘or better,’’ ‘‘simple cancel to reduce size (cancel leaves),’’ ‘‘cancel to change price’’ and ‘‘possible duplicate orders,’’ is consistent with the Act because the revised rule will make clear the order types that are available and will clarify the rules. The Exchange notes that these order types have not been available for some time. The Exchange believes market participants are aware of the current order types that are accepted by the System because they review the Exchange’s specifications. Proposed Rule 1080(b) would make clear what 95 See ISE, GEMX and MRX Options 3, Section 7, Miami International Securities Exchange, LLC Rule 515 and Cboe Exchange, Inc. Rule 5.6. PO 00000 Frm 00113 Fmt 4703 Sfmt 4703 order types are available and provide a description of each order type. Current Options 8, Section 32 describes the order types available for trading on the Trading Floor of the Exchange. The order types available within Phlx are the same regardless of whether the order is entered electronically or through the Options Floor Broker Management System.96 Additionally, these order types may be entered in either the simple or complex order books. For these reasons, the Exchange is simultaneously updating the descriptions of the order types into Options 8, Section 32, and Rules 1080 and 1098 to ensure conformity among these rules. The description of Market Order within proposed Rule 1080(b)(1) is substantially similar to the description of Options 8 Section 32(a). The description of a Limit Order within proposed 1080(b)(2) is identical to the description within Options 8, Section 32(b). The ISO description within proposed Rule 1080(b)(3) refers to current Rule 1083 and references the current behavior within PIXL pursuant to Rule 1087. Finally, ISO behavior for the Opening Process is referenced within Rule 1017. The Exchange believes that describing the behavior of the ISO Order within Rule 1080(b) is consistent with the Act because this functionality exists today and is being centralized within one description for ease of reference for members. The Stop Order description proposed within Rule 1080(b)(4) is being modified from the definition within Options 8, Section 32(c)(1) but the Exchange believes the description is substantially similar. Adding a description for NonDisplayed Contingency Orders within Rule 1080(b)(5) will enhance the Rulebook and allow the Exchange to readily refer to these categories of orders within its rules. In addition, this description will apprise members of the order types on Phlx that are NonDisplayed in one location within the 96 Options Floor Based Management System or (‘‘FBMS’’) is a component of the System designed to enable members and/or their employees to enter, route and report transactions stemming from options orders received on the Exchange. The FBMS also is designed to establish an electronic audit trail for options orders negotiated, represented and executed by members on the Exchange, to the extent permissible under Rule 1000(f), such that the audit trail provides an accurate, time-sequenced record of electronic and other orders, quotations and transactions on the Exchange, beginning with the receipt of an order by the Exchange, and further documenting the life of the order through the process of execution, partial execution, or cancellation of that order. The features of FBMS are described in Rules 1063(e) and 1085. In addition, a non-member or member may utilize an FBMS FIX interface to create and send an order into FBMS to be represented by a Floor Broker for execution. See Phlx Rule 1080(a)(i)(C). E:\FR\FM\13DEN1.SGM 13DEN1 Federal Register / Vol. 84, No. 240 / Friday, December 13, 2019 / Notices jbell on DSKJLSW7X2PROD with NOTICES Rulebook. The All-or-None description within proposed Rule 1080(b)(6) is identical to Rule 1078. The Opening Sweep description is being revised to describe this order type as an order and not a quote. The Exchange notes that the categorization of the Opening Sweep is not a substantial change to the manner in which the order type functions. The System is not being amended. The Opening Sweep is currently described within Rule 1017(b)(i).97 Current Rule 1080(b)(i) notes the Exchange offers an opening-only-market order and a limit on opening order. The Exchange is amending the definition of Opening Sweep within Rule 1017(b)(i) by removing the language and simply referring to proposed Rule 1080(b)(6). Phlx traditionally has referred to all interest within the SQF protocol as quote interest. The Exchange proposes to amend the references to ‘‘quotation’’ to ‘‘order’’ to make clear the type of interest that is being entered. The Opening Sweep is an IOC Order that only may be entered into the Opening Process. Further, the Exchange proposes to make clear that an Opening Sweep may only be entered by a Specialist or ROT as this order type is submitted through the SQF protocol.98 Other market participants tag orders for the Opening Process by placing a TIF of ‘‘OPG’’ on the order as explained below. The Exchange notes that all members may submit interest into the Opening Process. The Exchange believes that this rule change is consistent with the Act because the categorization has no impact on the functionality on the manner in which members utilize the Opening Sweep functionality. From the member prospective there is no functional change. The Exchange believes that this amendment will conform the categorization of this order type to that of order types that are Immediate-or-Cancel Orders despite the protocol. The Exchange’s proposal to add two new sentences to the Opening Sweep description which provide, ‘‘This order type is not subject to any protections listed in Rule 1099, except for Automated Quotation Adjustments. The Opening Sweep will only participate in the Opening Process pursuant to Rule 1017 and will be cancelled upon the open if not executed’’ are consistent with the Act. 97 Rule 1017(b)(i) provides, ‘‘An Opening Sweep is a one-sided electronic quotation submitted for execution against eligible interest in the system during the Opening Process.’’ 98 See Phlx Rule 1080(a)(i)(B) notes that (B) ‘‘Specialized Quote Feed’’ or ‘‘SQF’’ is an interface that allows Specialists, SQTs and RSQTs may submit Immediate-or-Cancel Orders through SQF. VerDate Sep<11>2014 17:42 Dec 12, 2019 Jkt 250001 Automated Quotation Adjustments protections applies to quotes entered into SQF but would not apply to an Opening Sweep which is an order entered into SQF. The Exchange notes that the second sentence is not new as Opening Sweeps are described within Rule 1017 today and apply only during the Opening Process. Both of sentences bring greater transparency to this rule. The Exchange offers ROTs and Specialists the ability to expeditiously submit IOC orders through SQF, without having to utilize the FIX protocol. This allows ROTs and Specialists to manage risk utilizing a single protocol, SQF. Unlike other market participants, ROTs and Specialists are required to provide liquidity to the market and are subject to certain obligations, including a requirement to provide continuous twosided quotes on a daily basis.99 ROTs and Specialists utilize IOCs (today sweeps) to trade out of accumulated positions and manage their risk when providing liquidity on the Exchange. Proper risk management, including using these IOCs to offload risk, is vital for ROTs and Specialists, and allows them to maintain tight markets and meet their quoting and other obligations to the market. The Exchange believes that unlike other market participants, ROTs and Specialists have obligations and risks, which are mitigated by providing these market participants with the ability to increase their efficiency in submitting such orders and thereby allow them to maintain quality markets to the benefit of all market participants that trade on the Exchange. The Exchange notes that other exchanges offer similar capabilities to market makers.100 Furthermore, other exchanges do not other order protections on order submitted through a quoting protocol. MIAX’s Price Protection on Non-Market Maker Orders is not available for orders submitted by a Market Maker.101 The Price Protection on Non-Market Maker Orders prevents an order from being executed at a price beyond the price designated in the order’s price protection instructions, and is a similar protection to the Exchange’s Limit Order Price Protection. The Exchange similarly believes that it is consistent with the Act to not apply certain protections to 99 Specialists have quoting obligations during the Opening Process as specified in Rule 1017(d) and ROTs and Specialists have intra-day quoting obligations as specified in Rule 1093. 100 Miami International Securities Exchange LLC (‘‘MIAX’’) utilizes its MIAX Express Interface (MEI), a quoting interface, for market makers to enter immediate-or-cancel orders. 101 See MIAX Rule 515(c)(1). PO 00000 Frm 00114 Fmt 4703 Sfmt 4703 68213 Market Maker Immediate-or-Cancel Orders submitted through SQF. ROTs and Specialists handle a large amount of risk when quoting on the Exchange and in addition to the risk protections required by the Exchange, ROTs and Specialists utilize their own risk management parameters when entering orders, minimizing the likelihood of a ROTs and Specialist order resulting from an error from being entered. The Exchange believes that ROTs and Specialists, unlike other market participants, have the ability to manage their risk when submitting IOC Orders through SQF and should be permitted to elect this method of order entry to obtain efficiency and speed of order entry, particularly in light of the continuous quoting obligations the Exchange imposes on these participants. The Exchange’s proposal to describe the Cancel-Replacement Order within proposed Rule 1080(b)(7) is similar to the order type currently described within Options 8, Section 32(c)(7). The Exchange is amending this description in a manner that is similar to Options 8, Section 32(7) except the Exchange is adding additional rule text that is not currently described within the existing Rules. The Exchange proposes to make clear when a loss of priority would occur when submitting a CancelReplacement Order. The Exchange believes that memorializing the current System practice in which the System determines how to prioritize a CancelReplacement Order is consistent with the Act because when an order is routable, the System would need to recheck the order to determine if it is marketable and therefore routable. Phlx Rule 1093 describes routing functionality. With respect to QCC Orders, PIXL Orders, Legging Orders and Directed Orders, the Exchange’s proposal to note the rule where a detailed explanation of the Order Type may be found will add greater transparency to the Exchange’s Rules. The Exchange’s proposal to include all order types within proposed Rule 1080(b) is consistent with the Act and the protection of investors and the general public because it will provide members with a complete list of order types thereby adding greater transparency to the Exchange’s Rules. The Exchange’s proposal to add TIFs to proposed Rule 1080(c) will also enhance the Exchange’s Rulebook by including these order types to the proposed set of Rules and providing additional transparency. The Exchange proposes to add at Rule 1080(c)(1) a description of a Day Order. The Exchange’s proposed description of a Day Order memorializes the manner in E:\FR\FM\13DEN1.SGM 13DEN1 jbell on DSKJLSW7X2PROD with NOTICES 68214 Federal Register / Vol. 84, No. 240 / Friday, December 13, 2019 / Notices which the System currently treats a TIF of ‘‘Day.’’ Exchange members today are familiar with a Day Order which is described in the specifications. The Exchange believes that this description is consistent with the Act in that the TIF of Day simply clarifies that an order with a TIF of day will be cancelled at the end of the day if not executed and serves to provide greater clarity to the Exchange’s Rules. The Exchange’s proposal to describe an IOC Order at proposed Rule 1080(c)(2) similar to Options 8 Section 32(c)(8) except that the Exchange also proposes to note that the IOC Order may be a Market Order. This is not the case for Market Orders on the trading floor as a price is required to be specified in the trading crowd. Today, Market Orders may be marked with a TIF of ‘‘IOC’’, this is not a System change. The Exchange is also proposing to include new rule text to further describe that in an electronic market the types of protocols that may be utilized on Phlx to submit IOC Orders. Further the Exchange proposes to note that IOC orders submitted through SQF are not subject to the order protections within Phlx Rule 1099, except for Automated Quotation Adjustments. The Exchange notes that SQF is utilized by ROTs and Specialists. These market participants are required to provide liquidity to the market and are subject to certain obligations, including requirements to provide two-sided quotes on a daily basis.102 ROTs and Specialists use IOC Orders to trade out of accumulated positions and manage their risk when providing liquidity on the Exchange. Proper risk management, including using IOC Order to offload risk, is vital for these market participants, and allows them to maintain tight markets and meet their quoting obligations to the market. ROTs and Specialists handle a large amount of risk when quoting and in addition to the risk protections required by the Exchange, ROTs and Specialists utilize their own risk management parameters when entering orders, minimizing the likelihood of a ROT or Specialist order resulting from an error from being entered. The Exchange believes that ROTs and Specialists, unlike other market participants, have the ability to manage their risk when submitting IOC Orders through SQF and should be permitted to elect this method of order entry to obtain efficiency and speed of order entry, particularly in light of the quoting obligations the Exchange imposes on these participants. The Exchange noted in a another rule change 102 See Phlx Rule 1091. VerDate Sep<11>2014 17:42 Dec 12, 2019 Jkt 250001 that market makers on Phlx may enter Immediate-or-Cancel Orders through SQF and are similarly not subject to certain risk protections.103 The Exchange’s proposal to define an order with a TIF of ‘‘Opening Only’’ within Rule 1080(c)(3) as an IOC Order that can be entered during the Opening Process is consistent with the Act. The limitation of order protections within the Opening Process is noted within Rule 1099. The Exchange notes that this TIF exists today but is being renamed. Today, orders that are entered as IOC by a ROT or Specialist through SQF 104 are subject to the protections listed in Rule 1099,105 except for Order Price Protection and Market Order Spread Protection. The Order Price Protection and Market Order Spread Protection, while available for orders, are not available on SQF. The Exchange’s proposal to note these exceptions within this rule is consistent with the Act because it brings greater transparency with respect to the availability of order protections. The Exchange notes ROTs and Specialists utilize IOC Orders to trade out of accumulated positions and manage their risk when providing liquidity on the Exchange. Proper risk management, including using these IOC Orders to offload risk, is vital for ROTs and Specialists, and allows them to maintain tight markets and meet their quoting and other obligations to the market. The Exchange believes that allowing ROTs and Specialists to submit IOC Orders though their preferred protocol increases their efficiency in submitting such orders and thereby allow them to maintain quality markets to the benefit of all market participants that trade on the Exchange. Further, unlike other market participants, ROTs and Specialists provide liquidity to the market place and have obligations.106 The Exchange believes not offering Order Price Protection and Market Order Spread Protection for IOC Orders entered through SQF is consistent with the Act because ROTs and Specialists 103 See Securities Exchange Act Release No. 81034 (June 27, 2017), 82 FR 30923 (July 3, 2017) (SR–ISE–2017–58). See also Securities and Exchange Release No. 76295 (October 29, 2015), 80 FR 68338 at 68339 (November 4, 2015) (SR–Phlx– 2015–83) (Phlx noted in footnote 8 that while SQF permits the receipt of quotes, sweeps are not included for purposes of the Percentage Based risk protection in Rule 1095(i)). Phlx Rule 1080(c)(iii)(B) provides that, ‘‘Market Sweeps are processed on an immediate-or-cancel basis, may not be routed, may be entered only at a single price, and may not trade through away markets.’’ 104 See Rule 1080(a)(i)(B). 105 Phlx Rule 1099 is titled, ‘‘Risk Protections.’’ 106 Specialists have quoting obligations during the Opening Process as specified in Rule 1017(d) and ROTs and Specialists have intra-day quoting obligations as specified in Rule 1093. PO 00000 Frm 00115 Fmt 4703 Sfmt 4703 have more sophisticated infrastructures than other market participants and are able to manage their risk, particularly with respect to quoting, using tools that are not available to other market participants.107 Finally, the Exchange’s proposal to memorialize a GTC Order within proposed Rule 1080(c)(4) is consistent with the Act and will provide a description for a GTC Order that does not exist today. The TIF is noted within current Rule 1080(b)(i) without a description. Similar to a Day Order, the Exchange believes that it is consistent with the Act to describe a GTC Order, which is eligible as an order until cancelled, within Rule 1080(c) to provide members with greater transparency as to the TIFs which are available on Phlx. The Exchange’s proposal to note the various routing strategies within Rule 1080(d) is consistent with the Act because it will also add greater transparency to the Exchange’s rules. These routing strategies are already described within Rule 1093 and will add greater transparency to this rule. The Exchange is simply relocating the restrictions that are applicable today to Off-Floor Broker Dealers to new Rule 1080(e) without any substantive changes. The order types description within proposed Rule 1080(b) should promote just and equitable principles of trade and perfect the mechanisms of a free and open market and the national market system by providing greater clarity concerning certain aspects of the System’s operations. The order types proposed within Rule 1080(b) do not add any new functionality, rather, they provide descriptions for each available order type currently offered by the Exchange. The proposed rules provide additional detail related to functionality for certain order types and the handling of orders which offers greater transparency with respect to the Exchange’s order type functionality. Proposed Rule 1014(e) would permit ROTs and Specialists to enter orders in both their assigned and unassigned options, but it would also limit a ROT or Specialist to not exceed 25 percent of the total number of all contracts executed by the ROT or Specialist in unassigned options in any calendar quarter. This limitation is similar to 107 ROTs and Specialists quotes are subject to various protections listed in Rule 1099(c). These additional quoting protections permit ROTs and Specialists to manage their exposure at the Exchange. Other market participants would not be subject to these risk protections because they do not submit quotes on Phlx and do not utilize SQF. E:\FR\FM\13DEN1.SGM 13DEN1 Federal Register / Vol. 84, No. 240 / Friday, December 13, 2019 / Notices jbell on DSKJLSW7X2PROD with NOTICES limitations on other options markets.108 Today, ROTs and Specialists on Phlx may not enter orders in non-appointed option series.109 The Exchange’s proposal to permit a ROT or Specialist to enter a limited amount of orders is consistent with the Act because ROTs and Specialists may enter orders for purposes of providing liquidity on the Exchange in certain circumstances. Further, the Exchange still proposes to limit ROTs and Specialists. The Exchange is excluding order types that today may not be entered by a Specialist or ROT today. Today, Specialists and ROTs may not enter All-or-None Orders, and public customer-to-public customer cross orders subject to Rule 1087(a) and (f), which orders may only be entered by a Public Customer. The Exchange proposes to prohibit SQTs and RSQTs from entering Market Orders and Stop Orders as well because the Exchange requires SQTs and RSQTs to ‘‘maintain a two-sided market in those options in which the electronic ROT is registered to trade, in a manner that enhances the depth, liquidity and competitiveness of the market’’ pursuant to Phlx Rule 1081(a)(i). The Exchange believes that permitting SQTs and RSQTs to enter Market Orders does not achieve this objective as Market Orders are designed to remove liquidity from the Order Book. Further, the Exchange does believes that Stop Orders similarly are designed to remove liquidity from the Order Book and are non-displayed order types until they are triggered which does not benefit the role of an SQT or RSQT in displaying liquidity on the Order Book. Finally, Directed Orders may not be entered by Specialists and ROTs today pursuant to Rule 1068. The Exchange believes its proposal is consistent with the Act. No longer limiting the amount of orders that may be executed by ROTs and Specialists to simply appointed classes will allow market making participants to enter more orders than they are permitted to enter today. The current restriction imposed by Commentary .01 to Rule 1014 to execute at least 50% of the trading activity in any quarter is only possible today in assigned options series and therefore is not very restrictive. Allowing ROTs and Specialists to enter order in assigned series is in addition to 108 See ISE, GEMX and MRX Options 2, Section 6, NOM Rules at Chapter VII, Section 6(e), and BX Rules at Options 2, Section 5(e). Further, NYSE Arca, Inc. (‘‘NYSE Arca’’) and NYSE American LLC (‘‘NYSE American’’) do not limit the types of orders that can be entered by market makers. See NYSE Arca Rule 6.37B–O and NYSE American Rule 925.2NY. 109 Phlx Rule 1014(b)(ii), SQTs and RSQTs may only trade in a market making capacity in classes of options in which the SQT is assigned. VerDate Sep<11>2014 17:42 Dec 12, 2019 Jkt 250001 their current obligations to quote intraday.110 In order to meet those obligations ROTs and Specialists will need to stay focused on adding liquidity to Phlx. Further, permitting ROTs and Specialists to enter orders in nonappointed classes provided they do not exceed 25% of the total number of contracts executed in any quarter is consistent with the Act because the proposed rule will allow ROTs and Specialists to continue to provide liquidity on Phlx, as is the case today, while not restricting their business activity in a manner that is no other market participants is restricted to transact. Phlx’s proposal will allow market making participants the same flexibility as exists today on other options markets. The Exchange’s proposal to amend current Rule 1080(b)(i)(B) and (C) to remove the current size limitation of 10 contracts pursuant to which certain orders must be entered as IOC by ROTs and Specialists is consistent with the Act because the Exchange believes that this limitation is no longer necessary given the evolution of the market place and further that it hinders non-SQT ROTs and Specialists unnecessarily. No other options market has similar limitations today.111 The 10 contract limitation was put in place to restrict participants, whose primary role was to provide liquidity, from using orders of small size to avoid providing liquidity using quotes which were historically required to be of a size of 10 contracts or more. Proposed Rule 1080(b) does not impose any limit and serves to promote just and equitable principles of trade by not limiting ROTs and Specialists, who today are the only market participants with such a restriction. Similar to the rule change proposed for Opening Sweeps within proposed Rule 1080(b)(6) the Exchange proposes to amend Rule 1098 to amend the descriptions of COOP Sweeps, COLA Sweeps and CBOOK Sweeps to change the description of these IOC Orders from a quote to an order. The Exchange’s proposal to describe these sweeps as one-sided orders entered by a Specialist or ROT through SQF instead of as onesided quotations will make clear the type of interest that these sweeps are for purposes of order entry. Phlx traditionally has referred to all interest within the SQF protocol as quote interest but this classification is not correct when distinguishing interest as either a quote or order. Today these sweeps are considered order interest, so no change is being made to the manner 110 See 111 See PO 00000 Phlx Rule 1081. note 32 above. Frm 00116 Fmt 4703 Sfmt 4703 68215 in the System accepts or processes these sweeps. The Exchange believes its proposal is consistent with the Act because the proposal will align sweeps in the proper category of interest as order interest to avoid confusion and protect investors and the general public. Outdated Systems The Exchange proposes to remove references to obsolete functionality within Rule 1080(c)–(h). There are multiple references to legacy systems and terms related to those Systems. The AUTOM order delivery system grew over the years into the current fully automated Phlx options trading system XL II. AUTOM and AUTO–X were replaced by the Phlx XL System, such that references to both terms refer to Phlx XL.112 Also, specialist manual handling no longer exists.113 The explanation of manual order handling is not relevant in today’s System. The Exchange notes that all executions occur within the match engine as provided for within Options 8, Section 25. Partial manual execution is not possible within the current System. Rule 1080(c)(iv)(G) provides that no orders are handled manually on Phlx XL, which the Exchange is simply referring to as System. As all AUTO–X functionality was overridden by the initiation of Phlx XL fully automated technology, the references to the terms ‘‘Book Match’’ and ‘‘Book Sweep’’ are no longer necessary. The rule text referring to legacy systems should have been removed at the time that Phlx XL was implemented. The functionality described in Rule 1080(c) (iii)(A) no longer exists, including Auto-Quote 114 and the Book Sweep feature, as previously mentioned. These features initially existed within Phlx XL. Phlx XL was later replaced by Phlx XL II in 112 See Securities Exchange Act 72152 (May 12, 2014), 79 FR 28561 (May 16, 2014) (SR–Phlx–2014– 32). 113 Manual execution by a specialist could occur in AUTOM. Specialist manual handling, and this rule governing order messages, all of which is obsolete. AUTOM and AUTO–X were replaced by Phlx XL. See Securities Exchange Act Release No. 50100 (July 27, 2004), 69 FR 46612 (August 3, 2004) (SR–Phlx–2003–59). Rule 1080(c)(iv)(G) notes that no orders will be executed manually on Phlx XL which is the current System. 114 Auto-Quote was the Exchange’s electronic options pricing system, which enabled specialists, Streaming Quote Traders (‘‘SQTs’’) and Remote Streaming Quote Traders (‘‘RSQTs’’), to automatically monitor and instantly update and submit electronic quotations for equity option and index option contracts. Auto-Quote was eliminated in 2007. See Securities Exchange Act Release No. 55498 (March 20, 2007, 72 FR 14318 (March 27, 2007) (SR–Phlx–2007–15). E:\FR\FM\13DEN1.SGM 13DEN1 68216 Federal Register / Vol. 84, No. 240 / Friday, December 13, 2019 / Notices jbell on DSKJLSW7X2PROD with NOTICES 2009.115 Rule 1080(e), Extraordinary Circumstances, is proposed to be deleted, because it refers to the obsolete functionality of Phlx XL and AUTO–X (AUTO–X was part of AUTOM and is no longer in existence). This also involves the deletion of subparagraph (i), because the Emergency Committee no longer exists; 116 emergencies related to the System or trading floor are handled pursuant to various other provisions.117 The Exchange believes that removing obsolete rule text and functionality will protect investors and the public interest because it will avoid confusion within the rules. Additionally, certain redundant rule text is being removed. With respect to Rule 1080(c)(iii)(B), the Exchange notes that the Phlx XL functionality described herein was renamed ‘‘Market Sweep.’’ Today this functionality is referred to within the Specialized Quote Feed functionality within Rule 1080(a)(i)(B) and will also be referred to within proposed Rule 1080(c)(2)(B) which describes IOC Orders. The Exchange notes that the Quote Exhaust feature is described within Rule 1082(a)(3) and therefore this reference in not necessary within Rule 1082. The SEC Quote Rule is referenced in current Rule 1082(a)(iii).118 Rule 1080(c)(ii)(A)(1) defines an ‘‘Order Entry Firm’’ as a member organization of the Exchange that is able to route orders to AUTOM. The term Order Entry Firm is not necessary to describe order types or other functionality. Rule 1080(c)(ii)(A)(2) defines a ‘‘User’’ as any person or firm that obtains access to AUTO–X through an Order Entry Firm. The term User is an obsolete definition intended to refer to the outdated AUTOM system. The Exchange uses the terms member and member organization in its rules to apply to entities and persons that may access the System. The Exchange only permits members and member organizations to access it System. Rule 1080(f), Specialist Obligations, is proposed to be deleted because it refers to obligations that were once applicable to trading on Phlx XL and AUTOM, both of which are obsolete, as discussed above. Specialist obligations are noted within Phlx Rule 115 See Securities Exchange Act Release No. 59995 (May 28, 2009), 74 FR 26750 (June 3, 2009) (SR–Phlx–2009–32). 116 See Securities Exchange Act Release No. 71906 (April 8, 2014), 79 FR 20949 (April 14, 2014) (SR–Phlx–2014–20). 117 See By-Law Article VII, Section 7–5, Authority to Take Action Under Emergency or Extraordinary Market Conditions. 118 See Phlx Rule 1082(a)(iii) The term ‘‘SEC Quote rule’’ shall mean rule 602 of Regulation NMS under the Securities Exchange Act of 1934, as amended. VerDate Sep<11>2014 17:42 Dec 12, 2019 Jkt 250001 1020, ‘‘Registration and Functions of Options Specialists’’ as well as Rule 1014, ‘‘Obligations of Market Makers.’’ The Exchange proposes to delete Rule 1080(g), Contra-Party Participation, because Book Match is obsolete. As noted in the last sentence of the text, with Phlx XL, Rule 1082(a)(ii)(B)(3)(c) discusses new interest in the opposite side of the market. Removing obsolete and redundant rule text will bring greater clarity to the Exchange’s rules. With respect to Commentary .01(b) of Rule 1080, the Exchange notes that it does not throttle as described in this rule text. The Exchange notes that the language contained in Commentary .01 to Rule 1080 refers to legacy functionality that existed prior to the INET transition and does not reflect current functionality. Today, the System automatically throttles and provides equal access to the Order Book across all interfaces. Rule 1000 The Exchange’s proposal to memorialize the defined term ‘‘Order Entry Firm’’ within proposed Rule 1000(b)(38) will permit the term to be utilized throughout the Rulebook. The Exchange’s proposal to amend Rule 1000(b)(40) which is currently reserved, to define the term ‘‘Away Best Bid or Offer’’ or ‘‘ABBO’’ to mean the displayed National Best Bid or Offer not including the Exchange’s Best Bid or Offer will add greater clarity to the Exchange’s rules. The Exchange’s proposal to remove the term ‘‘Agency Order’’ from Rule 1000(b)(49) is consistent with the Act because this term is not necessary or utilized elsewhere in the Rulebook other than without Rule 1080(b). The Exchange is revising Rule 1080(b) such that this term is no longer required. Options 8, Section 32 The Exchange’s proposal to renumber/re-letter Options 8, Section 32 is non-substantive. The Exchange’s proposal to amend proposed Rule 1080(b)(3) to add further information to the All-or-None Order to align the rule with proposed Rule 1080(b)(5), except with respect to the last sentence of proposed Rule 1080(b)(5) which does not apply with respect to Floor Trading is consistent with the Act. The additional clarity will serve to align the rules and bring greater transparency to the distinctions between electronic and Floor Trading where those distinctions exist. Adding a new TIF section to proposed Options 8, Section 32(c) similar to proposed Rule 1080(c) will align those rules. Memorializing a Day Order and a GTC Order will also make clear that those TIFs are available today on the Trading Floor. Those TIFs are available today and are not included within Options 8, Section 32. Finally, the Exchange seeks to memorialize the Floor QCC Order which is described within Options 8, Section 30(e) within Options 8, Section 32 to bring greater transparency to the order types available on the Trading Floor. This amendment is non-substantive as this order type exists today. The Exchange notes that this proposal does not amend the System or the manner in which Floor Trading members may submit orders to the Trading Floor. Options 8, Section 39 The Exchange proposes to amend the All-or-None Order to refer to Rule 1080(b)(5). As described herein, the remaining changes are intended to conform the rule to a prior rule change that was inadvertently amended.119 Rule 1017 The Exchange’s proposal to capitalize the term ‘‘All-Or-None’’ and revise the defined term ‘‘Opening Sweep’’ to refer to Rule 1080(b)(6) are non-substantive amendments. Technical Amendments The Exchange’s proposal to update the cross-references, remove reserved sections and re-number/re-letter its rules will bring greater organization to the Rulebook. Rule 1078 The Exchange’s proposal to delete Rule 1078 is non-substantive. B. Self-Regulatory Organization’s Statement on Burden on Competition The Exchange does not believe that the proposed rule change will impose Rule 1098 The Exchange’s proposal to crossreference proposed Rule 1080(c) refer to the defined terms within Rule 1080(b) is consistent with the Act because as noted herein both simple and complex orders are similar for the order types defined within proposed Rule 1080(b). This amendment merely continues to conform those terms. PO 00000 Frm 00117 Fmt 4703 Sfmt 4703 119 The Exchange notes that other revisions are being made to Options 8, Section 32(b)(3) that were made in a prior rule change. See Securities Exchange Act Release No. 85262 (March 7, 2019), 84 FR 9192 (SR–Phlx–2019–03) and were inadvertently revered in a subsequent filing that did not capture the amended text. See Securities Exchange Act Release No. 85740 (April 29, 2019), 84 FR 19136 (SR–Phlx–2019–17). The Exchange is reinstating the changes that were made in SR–Phlx– 2019–03. E:\FR\FM\13DEN1.SGM 13DEN1 Federal Register / Vol. 84, No. 240 / Friday, December 13, 2019 / Notices jbell on DSKJLSW7X2PROD with NOTICES any burden on competition not necessary or appropriate in furtherance of the purposes of the Act. Order Types The Exchange’s proposal to remove the distinction between ‘‘agency’’ and ‘‘proprietary’’ will apply uniformly to all market participants in that it will not cause an undue burden on competition. The change will not impact the manner in which member submit orders into the System. The Exchange is not changing the manner in which orders are being submitted to the Exchange. The Exchange notes that today no other options market segregates the submission of order types by whether the order is an agency or proprietary order. The Exchange’s proposal to replace the current rule text regarding order types within Rule 1080(b) with a list of current order types will not impose an undue burden on competition, rather it will bring greater transparency to the Exchange’s Rules. The order types listed within Rule 1080 are available to all market participants except that All-orNone Orders are available only to customers as provided today within Rule 1078. Current Options 8, Section 32 describes the order types available for trading on the Trading Floor of the Exchange. The order types available within Phlx are the same regardless of whether the order is entered electronically or through the Options Floor Broker Management System.120 Additionally, these order types may be entered in either the simple or complex Order Book. For these reasons, the Exchange is simultaneously updating the descriptions of the order types into Options 8, Section 32, 1080 and 1098 to ensure conformity among these rules. Eliminating the rule text for the following order types, ‘‘or better,’’ ‘‘simple cancel to reduce size (cancel leaves),’’ ‘‘cancel to change price’’ and ‘‘possible duplicate orders,’’ does not create an undue burden on competition because the Exchange does not offer these order types to any market participant today. The Exchange notes that it believes market participants are aware of the current order types that are accepted by the System. Currently, the rule provides a list of order types within Options 8, Section 32 which describe the order types for trading on the floor of the Exchange. The order types available within Phlx are the same regardless of whether the order is entered electronically or through the Options Floor Broker Management System. Additionally, these order types 120 See note 96 above. VerDate Sep<11>2014 17:42 Dec 12, 2019 Jkt 250001 may be entered in either the simple or complex order books. Further, the Exchange is defining terms within Rule 1080(b) which are already defined in the Rulebook, in some cases, for ease of reference.121 The new descriptions of order types will provide greater clarity regarding the operation of the System. The order types within Rule 1080(b) do not add any new functionality but instead re-organize the Exchange’s order type rules to provide additional detail regarding the order type functionality currently offered by the Exchange. The description of Market Order within proposed Rule 1080(b)(1) is substantially similar to the description of Options 8 Section 32(a). The description of a Limit Order within proposed 1080(b)(2) is identical to the description within Options 8, Section 32(b). The ISO description within proposed Rule 1080(b)(3) refers to current Rule 1083 and references the current behavior within PIXL pursuant to Rule 1087. Finally, ISO behavior for the Opening Process is referenced within Rule 1017. The Exchange believes that describing the behavior of the ISO Order within Rule 1080(b) does not impose an undue burden on competition because this functionality exists today and is being centralized within one description for ease of reference for members. The Stop Order description proposed within Rule 1080(b)(4) is being modified from the definition within Options 8, Section 32(c)(1) but the Exchange believes the description is substantially similar. Adding a description for NonDisplayed Contingency Orders within Rule 1080(b)(5) will enhance the Rulebook and allow the Exchange to readily refer to these categories of orders within its rules. The All-or-None Order description within proposed Rule 1080(b)(6) is identical to Rule 1078. The Opening Sweep description is being revised to describe this order type as an order and not a quote. The Exchange does not believe this change imposes an undue burden on competition because an Opening Sweep may only be entered by a Specialist or ROT as this order type is submitted through the SQF protocol.122 Other market participants tag orders for the 121 Opening Sweep is defined in Rule 1017(b)(i). QCC Order is defined within Rule 1080(o). The PIXL Order is defined within Rule 1087. All-orNone Orders are defined within Rule 1078. A Legging Order is defined within Rule 1098(f)(iii)(C). Directed Orders if defined with Rule 1068. Do No Route Orders are defined within Rule 1093. 122 See Phlx Rule 1080(a)(i)(B) notes that (B) ‘‘Specialized Quote Feed’’ or ‘‘SQF’’ is an interface that allows Specialists, SQTs and RSQTs may submit Immediate-or-Cancel Orders through SQF. PO 00000 Frm 00118 Fmt 4703 Sfmt 4703 68217 Opening Process by placing a TIF of ‘‘OPG’’ on the order as explained below. The Exchange notes that all members may submit interest into the Opening Process. Further, the categorization has no impact on the functionality on the manner in which members utilize the Opening Sweep functionality. The Exchange’s proposal to describe the Cancel-Replacement Order within proposed Rule 1080(b)(7) is similar to the order type currently described within Options 8, Section 32(c)(7). The Exchange’s proposal to add rule text that is not currently described within the existing Rules to make clear when a loss of priority would occur when submitting a Cancel-Replacement Order does not impose an undue burden on competition. The Exchange’s proposal to add TIFs to proposed Rule 1080(c) will enhance the Exchange’s Rulebook by including these order types to the proposed set of Rules and providing additional transparency. The Exchange proposal to add at Rule 1080(c)(1) of a Day Order does not impose an undue burden on competition, rather it memorializes the manner in which the System currently treats a TIF of ‘‘Day’’ thereby adding transparency. The Exchange’s proposal to describe an IOC Order at proposed Rule 1080(c)(2) similar to Options 8 Section 32(c)(8), with the addition of Market Order, and include new rule text to further describe that in an electronic market the types of protocols that may be utilized on Phlx to submit IOC Orders does not impose an undue burden on competition. Further the Exchange proposes to note that IOC orders submitted through SQF are not subject to the order protections within Phlx Rule 1099, except for Automated Quotation Adjustments. The Exchange notes that SQF is utilized by ROTs and Specialists, which market participants are required to provide liquidity to the market and are subject to certain obligations, including requirements to provide two-sided quotes on a daily basis.123 ROTs and Specialists utilize their own risk management parameters when entering orders, minimizing the likelihood of a ROT or Specialist order resulting from an error from being entered. The Exchange believes that ROTs and Specialists, unlike other market participants, have the ability to manage their risk when submitting IOC Orders through SQF and should be permitted to elect this method of order entry to obtain efficiency and speed of order entry, particularly in light of the 123 See E:\FR\FM\13DEN1.SGM Phlx Rule 1091. 13DEN1 jbell on DSKJLSW7X2PROD with NOTICES 68218 Federal Register / Vol. 84, No. 240 / Friday, December 13, 2019 / Notices quoting obligations the Exchange imposes on these participants. The Exchange’s proposal to define an order with a TIF of ‘‘Opening Only’’ within Rule 1080(c)(3) as an IOC Order that can be entered during the Opening Process and note as new language to this order type that this order type is not subject to the risk protection within Rule 1099, except for Automated Quotation Adjustment does not impose an undue burden on competition as the limitation of order protections within the Opening Process is noted within Rule 1099. The Exchange notes that this TIF exists today but is being renamed. Finally, the Exchange’s proposal to memorialize a GTC Order within proposed Rule 1080(c)(4) will provide a description for a GTC Order that does not exist today. The TIF is noted within current Rule 1080(b)(i) without a description. This amendment will provide members with greater transparency as to the TIFs which are available on Phlx. The Exchange’s proposal to note the various routing strategies within Rule 1080(d) will also add greater transparency to the Exchange’s rules. These routing strategies are already described within Rule 1093 and will add greater transparency to this rule. The Exchange is simply relocating the restrictions that are applicable today to Off-Floor Broker Dealers to new Rule 1080(e) without any substantive changes. The Exchange’s proposal at Rule 1014(e) would permit ROTs and Specialists to enter orders in their assigned and unassigned options series, but limit a ROT or Specialist to not exceed 25 percent of the total number of all contracts executed by the ROT or Specialist in their unassigned options series in any calendar quarter, does not impose an undue burden on competition, rather it provides ROTs and Specialists with the ability to enter orders subject to the same limitation that exists today on other options markets.124 Today, ROTs and Specialists on Phlx may not enter orders in nonappointed option series 125 and further the Exchange requires, pursuant to Commentary .01 to Rule 1014 that at least 50% of the trading activity in any quarter (measured in terms of contract volume) of an ROT (other than an RSQT) shall ordinarily be in classes of options to which he is assigned. Proposed Rule 1014(e) does not impose an undue burden on competition 124 See note 109 above. Rule 1014(b)(ii), SQTs and RSQTs may only trade in a market making capacity in classes of options in which the SQT is assigned. because unlike other market participants, ROTs and Specialists continue to have obligations to quote intra-day 126 and in order to meet those obligations they will need to stay focused on adding liquidity to Phlx. The Exchange believes that liquidity will not be impacted on Phlx because the Exchange is permitting ROTs and Specialists to enter more orders in appointed classes because ROTs and Specialists may enter orders in nonappointed classes provided they do not exceed 25% of the total number of contracts executed in any quarter. The proposal will allow ROTs and Specialists to continue to provide liquidity on Phlx, as is the case today, while not restricting their business activity in a manner that is no other market participants is restricted to transact. The Exchange’s proposal to remove a size limitation of 10 contracts within current Rule 1080(b)(i)(B) and (C) pursuant to which certain orders must be entered as IOC by ROTs and Specialists does not impose an undue burden on competition, rather the Exchange believes the provision unnecessarily hinders non-SQT ROTs and Specialists. ROTs and Specialists are the only market participants with such a restriction. The limitation is no longer necessary given the evolution of the market place. No other options market has similar limitations today.127 The 10 contract limitation was put in place to restrict participants, whose primary role was to provide liquidity, from using orders of small size to avoid providing liquidity using quotes which were historically required to be of a size of 10 contracts or more. The Exchange’s proposal to make clear that Opening Sweeps within Rule 1080(b)(6), COOP Sweeps, COLA Sweeps and CBOOK Sweeps within Rule 1098 are in fact orders and not quotations will bring greater clarity to the Exchange’s rules. The Exchange’s proposal to describe these sweeps as one-sided orders entered by a Specialist or ROT through SQF instead of as onesided quotations will make clear the type of interest that these sweeps are for purposes of order entry. Phlx traditionally has referred to all interest within the SQF protocol as quote interest but this classification is not correct when distinguishing interest as either a quote or order. The Exchange believes its proposal does not impose any burden on competition because sweeps are orders today and would be uniformly considered orders for all 125 Phlx VerDate Sep<11>2014 17:42 Dec 12, 2019 Jkt 250001 126 See 127 See PO 00000 Phlx Rule 1081. note 32 above. Frm 00119 Fmt 4703 Sfmt 4703 ROTs and Specialists. All market participants may enter interest during the Opening Process. The Exchange notes that the amending these sweep descriptions will align sweeps in the proper category of interest as order interest to avoid confusion. The Exchange’s proposal to note the various routing strategies within Rule 1080, and relocate the restrictions that are applicable today to Off-Floor Broker Dealers to new Rule 1080(e) do not impose an undue burden on competition, rather these changes add greater clarity to the Exchange’s Rules. Outdated Systems Removing references to obsolete functionality within Rule 1080(c)–(h) does not impose an undue burden on competition, rather it brings greater clarity to the Exchange’s rules. Today, no market participant has access to the functionality which is proposed to be deleted. Removing the obsolete functionality will make clear what is offered on the Exchange. In addition, removing redundant text which is already described elsewhere in the Rulebook will bring greater clarity to the Rulebook. Removing obsolete and redundant rule text will bring greater clarity to the Exchange’s rules. With respect to Commentary .01(b) of Rule 1080, the Exchange notes that it does not throttle as described in this rule text. The Exchange notes that the language contained in Commentary .01 to Rule 1080 refers to legacy functionality that existed prior to the INET transition and does not reflect current functionality. Today, the System automatically throttles and provides equal access to the Order Book across all interfaces. Rule 1000 The Exchange’s proposal to memorialize the defined term ‘‘Order Entry Firm’’ within proposed Rule 1000(b)(38) will permit the term to be utilized throughout the Rulebook. The Exchange’s proposal to amend Rule 1000(b)(40) which is currently reserved, to define the term ‘‘Away Best Bid or Offer’’ or ‘‘ABBO’’ to mean the displayed National Best Bid or Offer not including the Exchange’s Best Bid or Offer will add greater clarity to the Exchange’s rules. The Exchange’s proposal to remove the term ‘‘Agency Order’’ from Rule 1000(b)(40) is consistent with the Act because this term is not necessary or utilized elsewhere in the Rulebook other than without Rule 1080(b). The Exchange is revising Rule 1080(b) such that this term is no longer required. E:\FR\FM\13DEN1.SGM 13DEN1 Federal Register / Vol. 84, No. 240 / Friday, December 13, 2019 / Notices Rule 1098 Technical Amendments Paper Comments The Exchange’s proposal to crossreference proposed Rule 1080(c) refer to the defined terms within Rule 1080(b) does not impose an undue burden on competition because as noted herein both simple and complex orders are similar for the order types defined within proposed Rule 1080(b). This amendment merely continues to conform those terms. The Exchange’s proposal to update the cross-references, remove reserved sections and re-number/re-letter its rules will bring greater organization to the Rulebook. • Send paper comments in triplicate to Secretary, Securities and Exchange Commission, 100 F Street NE, Washington, DC 20549–1090. Options 8, Section 32 No written comments were either solicited or received. The Exchange’s proposal to renumber/re-letter Options 8, Section 32 is non-substantive. The Exchange’s proposal to amend proposed Rule 1080(b)(3) to add further information to the All-or-None Order to align the rule with proposed Rule 1080(b)(5), except with respect to the last sentence of proposed Rule 1080(b)(5) which does not apply with respect to Floor Trading does not impose an undue burden on competition, rather the amendment adds clarity to the Rule and brings greater transparency to the distinctions between electronic and Floor Trading where those distinctions exist. Adding a new TIF section to proposed Options 8, Section 32(c) similar to proposed Rule 1080(c) will align those rules. Memorializing a Day Order and a GTC Order will also make clear that those TIFs are available today on the Trading Floor. Those TIFs are available today and are not included within Options 8, Section 32. Finally, the Exchange seeks to memorialize the Floor QCC Order which is described within Options 8, Section 30(e) within Options 8, Section 32 to bring greater transparency to the order types available on the Trading Floor. This amendment is non-substantive as this order type exists today. The Exchange notes that this proposal does not amend the System or the manner in which Floor Trading members may submit orders to the Trading Floor. Options 8, Section 39 The Exchange proposes to amend the All-or-None Order to refer to Rule 1080(b)(5). As described herein, the remaining changes are intended to conform the rule to a prior rule change that was inadvertently amended.128 jbell on DSKJLSW7X2PROD with NOTICES 68219 128 The Exchange notes that other revisions are being made to Options 8, Section 32(b)(3) that were made in a prior rule change. See Securities Exchange Act Release No. 85262 (March 7, 2019), 84 FR 9192 (SR–Phlx–2019–03) and were inadvertently revered in a subsequent filing that did not capture the amended text. See Securities Exchange Act Release No. 85740 (April 29, 2019), 84 FR 19136 (SR–Phlx–2019–17). The Exchange is reinstating the changes that were made in SR-Phlx2019–03. VerDate Sep<11>2014 17:42 Dec 12, 2019 Jkt 250001 C. Self-Regulatory Organization’s Statement on Comments on the Proposed Rule Change Received From Members, Participants, or Others 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 129 and subparagraph (f)(6) of Rule 19b–4 thereunder.130 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 (http://www.sec.gov/ rules/sro.shtml); or • Send an email to rule-comments@ sec.gov. Please include File Number SR– Phlx–2019–52 on the subject line. U.S.C. 78s(b)(3)(A)(iii). 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. All submissions should refer to File Number SR–Phlx–2019–52. 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 (http://www.sec.gov/ rules/sro.shtml). Copies of the submission, all subsequent amendments, all written statements with respect to the proposed rule change that are filed with the Commission, and all written communications relating to the proposed rule change between the Commission and any person, other than those that may be withheld from the public in accordance with the provisions of 5 U.S.C. 552, will be available for 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–2019–52 and should be submitted on or before January 3, 2020. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.131 Jill M. Peterson, Assistant Secretary. [FR Doc. 2019–26841 Filed 12–12–19; 8:45 am] BILLING CODE 8011–01–P 129 15 130 17 PO 00000 Frm 00120 Fmt 4703 Sfmt 9990 131 17 E:\FR\FM\13DEN1.SGM CFR 200.30–3(a)(12). 13DEN1

Agencies

[Federal Register Volume 84, Number 240 (Friday, December 13, 2019)]
[Notices]
[Pages 68197-68219]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-26841]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-87691; File No. SR-Phlx-2019-52]


Self-Regulatory Organizations; Nasdaq PHLX LLC; Notice of Filing 
and Immediate Effectiveness of Proposed Rule Change To Amend Order 
Types and Remove and Relocate Certain Rule Text Currently Located 
Within Rule 1080

December 9, 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 November 26, 2019, Nasdaq PHLX LLC (``Phlx'' or ``Exchange'') filed 
with the Securities and Exchange Commission (``Commission'') the 
proposed rule change as described in Items I and II, below, which Items 
have been prepared by the self-regulatory organization. The Commission 
is publishing this notice to solicit comments on the proposed rule 
change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to amend order types and remove and relocate 
certain rule text currently located within Rule 1080, titled 
``Electronic Acceptance of Quotes and Orders.
    Further, the Exchange proposes to amend Phlx Rules 1000, titled 
``Applicability, Definitions and References'' to add definitions for 
``Order Entry Firm'' and ``Away Best Bid or Offer or ABBO'' and remove 
the defined term ``Agency Order.'' The Exchange proposes to amend Rule 
1014, titled ``Obligations of Market Makers,'' \3\ to permit Registered 
Options Traders (``ROTS'') and Specialists to enter orders. The 
Exchange proposes to update cross references within Rule 1017, titled 
``Opening in Options.'' The rule text within Rule 1078, titled ``All-
or-None Orders'' is being relocated to Rule 1080. The order types 
within Rule 1098 titled ``Complex Orders on the System,'' and Options 
8, Section 32, titled ``Certain Types of Floor-Based (Non-System) 
Orders Defined'' are being amended to correspond to changes within Rule 
1080 order types. Finally, Options 8, Section 39, at A-3 titled ``All-
or-None Option Orders'' is being amended to update the floor 
applicability of this order type.
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    \3\ ROTs include Streaming Quote Traders (``SQTs'') and Remote 
Streaming Quote Traders (``RSQTs''). A ROT is a regular member or a 
foreign currency options participant of the Exchange who has 
received permission from the Exchange to trade in options for his 
own account. An SQT is an ROT who has received permission from the 
Exchange to generate and submit option quotations electronically in 
options to which such SQT is assigned. An SQT may only submit such 
quotations while such SQT is physically present on the floor of the 
Exchange. An SQT may only trade in a market making capacity in 
classes of options in which the SQT is assigned. An RSQT is an ROT 
that is a member affiliated with an RSQT with no physical trading 
floor presence who has received permission from the Exchange to 
generate and submit option quotations electronically in options to 
which such RSQT has been assigned. A qualified RSQT may function as 
a Remote Specialist upon Exchange approval. The Exchange notes that 
a Specialist, which is defined in Rule 1020, is a Registered Options 
Trader. For purposes of this rule the Exchange would note ROTs and 
Specialists, where applicable to be complete.
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    The text of the proposed rule change is available on the Exchange's 
website at http://nasdaqphlx.cchwallstreet.com/, at the principal 
office of the Exchange, and at the Commission's Public Reference Room.

II. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    In its filing with the Commission, the Exchange included statements 
concerning the purpose of and basis for the proposed rule change and 
discussed any comments it received on the proposed rule change. The 
text of these statements may be examined at the places specified in 
Item IV below. The Exchange has prepared summaries, set forth in 
sections A, B, and C below, of the most significant aspects of such 
statements.

A. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The Exchange proposes to amend Rule 1080, entitled ``Electronic 
Acceptance of Quotes and Orders'' by:

[[Page 68198]]

(1) Removing and relocating certain rule text including obsolete rule 
text; and (2) amending order types. These amendments are detailed 
below.
    With respect to the removal of obsolete rule text, the Exchange 
filed prior rule changes \4\ which established Phlx's System as it 
exists today. As the new System was amended through a series of rule 
changes, certain older technology such as AUTOM, AUTO-X, specialist 
manual handling and other functionality noted within this rule change, 
became obsolete. During this timeframe, the Exchange's System was 
automated to prevent any manual intervention, such as specialist manual 
handling, and provide System-enforced functionalities. These System 
enhancements effectively replaced and made obsolete certain processes 
that Phlx proposes to delete within this rule change.
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    \4\ See Securities Exchange Act Release Nos. 50100 (July 27, 
2004), 69 FR 46612 (August 3, 2004) (SR-Phlx-2003-59); 55498 (March 
20, 2007, 72 FR 14318 (March 27, 2007) (SR-Phlx-2007-15); 59995 (May 
28, 2009), 74 FR 26750 (June 3, 2009) (SR-Phlx-2009-32); and 72152 
(May 12, 2014), 79 FR 28561 (May 16, 2014) (SR-Phlx-2014-32).
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    As an overview of the automation of Phlx and corresponding rule 
changes, in July 2004, the Exchange began trading options on Phlx XL, 
followed by index options in December 2004. Phlx XL was completely 
rolled out by February 2005.\5\ In 2006, Phlx commenced deleting 
certain obsolete provisions from its rules to reflect the automation 
that came about with the inception of Phlx XL.\6\ In 2007, the Exchange 
filed a proposal to modernize the Exchange's System to account for 
technological advances that have been made in the industry since the 
original adoption of the rule and to provide more efficient executions 
for customers with marketable limit orders on the Exchange's Order 
Book.\7\ In 2008, Phlx filed to permit the electronic handling of 
Complex Orders on Phlx XL.\8\ In 2009, the Exchange proposed to 
implement several enhancements to its electronic options trading 
system, Phlx XL. The enhanced system was called Phlx XL II and would 
reflect enhancements to the opening, linkage and routing, quoting, and 
order management processes. The enhancements were intended to improve 
execution quality for Phlx users by improving a number of processes, 
including those related to the opening, order handling and order 
execution.\9\ The Exchange proposed its Price Improvement XL auction in 
2010.\10\ The Exchange established a Qualified Contingent Cross Order 
in 2011.\11\ The Exchange eliminated the Market Exhaust functionality 
in 2012.\12\ The Exchange notes that its current functionalities were 
all filed for in various rule changes, however in filing each new 
functionality, the entirety of the obsolete functionality was not 
removed from Phlx rules. At this time, the Exchange proposes to remove 
those obsolete functionalities which are explained in more detail 
within this proposal.
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    \5\ See Securities Exchange Act Release No. 50100 (July 27, 
2004), 69 FR 46612 (August 3, 2004) (SR-Phlx-2003-59).
    \6\ See Securities Exchange Act Release Nos. 54312 (August 14, 
2006), 71 FR 47856 (August 18, 2004) (SR-Phlx-2006-28) and 55498 
(March 20, 2007), 72 FR 14318 (March 27, 2007) (SR-Phlx-2007-15).
    \7\ See Securities Exchange Act Release Nos. 55825 (May 29, 
2007), 72 FR 30890 (June 4, 2007) (SR-Phlx-2007-38).
    \8\ See Securities Exchange Act Release Nos. 58361 (August 14, 
2008), 73 FR 49529 (August 21, 2008) (SR-Phlx-2008-50).
    \9\ See Securities Exchange Act Release Nos. 59995 (May 28, 
2009), 74 FR 26750 (June 3, 2009) (SR-Phlx-2009-32). At this time, 
the Exchange introduced a Do-Not-Route (``DNR'') order, a FIND 
order, and a SRCH order.
    \10\ See Securities Exchange Act Release Nos. 63027 (October 1, 
2010), 75 FR 62160 (October 7, 2010) (SR-Phlx-2010-108).
    \11\ See Securities Exchange Act Release Nos. 64249 (April 7, 
2011), 76 FR 20773 (April 13, 2011) (SR-Phlx-2011-47).
    \12\ See Securities Exchange Act Release Nos. 66087 (January 3, 
2012), 77 FR 1095 (January 9, 2012) (SR-Phlx-2012-101).
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Rule 1080(b)-(f) New Rule Text
    The Exchange proposes to retitle Rule 1080(b) from ``Eligible 
Orders'' to ``Order Types.'' The current rule text provides,

    Eligible Orders (i) The following types of orders are eligible 
for entry into AUTOM:
    (A) Agency orders may be entered. The following types of agency 
orders are eligible for AUTOM: Day, GTC, Immediate or Cancel 
(``IOC''), Intermarket Sweep Order (``ISO''), market, limit, stop, 
stop-limit, all or none, or better, simple cancel, simple cancel to 
reduce size (cancel leaves), cancel to change price, cancel with 
replacement order, opening-only-market order, limit on opening 
order, and possible duplicate orders. For purposes of Exchange 
options trading, an agency order is any order entered on behalf of a 
public customer, and does not include any order entered for the 
account of a broker-dealer, or any account in which a broker-dealer 
or an associated person of a broker-dealer has any direct or 
indirect interest. Respecting Phlx XL II, the following order types 
are also permitted: DNR order, SRCH order, and FIND order; see Rule 
1093.
    (B) Orders for the proprietary account(s) of SQTs, RSQTs and 
non-SQT ROTs and specialists via electronic interface with AUTOM may 
be entered, subject to the restrictions on order entry set forth in 
Commentary .04 of this Rule.
    (1) The following types of orders for the proprietary account(s) 
of non-SQT ROTs and specialists with a size of 10 contracts or 
greater are eligible for entry via electronic interface with AUTOM: 
GTC, day limit, IOC, ISO, limit on opening and simple cancel. Orders 
for the proprietary account(s) of non-SQT ROTs and specialists with 
a size of less than 10 contracts shall be submitted as IOC only.
    (2) The following types of orders for the proprietary account(s) 
of SQTs and RSQTs are eligible for entry via electronic interface 
with AUTOM: Limit on opening, IOC, ISO, and day limit. Respecting 
Phlx XL II, the following order types are also permitted: DNR order, 
SRCH order, and FIND order; see Rule 1093.
    (C) Off-floor broker-dealer limit orders, subject to the 
restrictions on order entry set forth in Commentary .05 of this 
Rule, may be entered. The following types of broker-dealer limit 
orders are eligible for AUTOM: Day, GTC, IOC, ISO, stop, stop-limit, 
simple cancel, simple cancel to reduce size (cancel leaves), cancel 
to change price, cancel with replacement order, limit on opening 
order. Respecting Phlx XL II, the following order types are also 
permitted: DNR order, SRCH order, and FIND order; see Rule 1093. For 
purposes of this Rule 1080, the term ``off-floor broker-dealer 
order'' means an order delivered from off the floor of the Exchange 
by or on behalf of a broker-dealer for the proprietary account(s) of 
such broker-dealer, including an order for a market maker located on 
an exchange or trading floor other than the Exchange's trading floor 
delivered via AUTOM for the proprietary account(s) of such market 
maker.

    The Exchange proposes to delete the current rule text within Rule 
1080(b)(i)(A) and replace it with a list of current order types and 
descriptions. The Exchange proposes to refer to the trading system as 
the defined term ``System'' \13\ instead of ``AUTOM'' or ``Phlx XL II'' 
in the proposed rule text. The terms ``AUTOM'' and ``Phlx XL II'' are 
outdated references. The Exchange proposes to delete the following 
sentence currently within Rule 1080(b)(ii), ``The Exchange may 
determine to accept additional types of orders as well as to 
discontinue accepting certain types of orders.'' The Exchange further 
proposes to state within Rule 1080(b) new text, ``The

[[Page 68199]]

following order types may be submitted to the System.''
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    \13\ The term ``System'' shall mean the automated system for 
order execution and trade reporting owned and operated by the 
Exchange which comprises: (A) An order execution service that 
enables members to automatically execute transactions in System 
Securities; and provides members with sufficient monitoring and 
updating capability to participate in an automated execution 
environment; (B) a trade reporting service that submits ``locked-
in'' trades for clearing to a registered clearing agency for 
clearance and settlement; transmits last-sale reports of 
transactions automatically to the Options Price Reporting Authority 
(``OPRA'') for dissemination to the public and industry; and 
provides participants with monitoring and risk management 
capabilities to facilitate participation in a ``locked-in'' trading 
environment; and (C) the data feeds described at Rule 1070. See Phlx 
Rule 1000(b)(45).
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    Current Rule 1080(b)(i) defines the types of orders that may be 
submitted by categorization: (1) Agency; (2) proprietary; and (3) Off-
Floor Broker Dealer.
Agency Orders
    Currently, Phlx Rule 1080(b)(i)(A) defines agency. Current Rule 
1080(b)(i)(A) states, ``For purposes of Exchange options trading, an 
agency order is any order entered on behalf of a public customer, and 
does not include any order entered for the account of a broker-dealer, 
or any account in which a broker-dealer or an associated person of a 
broker-dealer has any direct or indirect interest.'' \14\ This rule 
also specifically provides order type requirements:
---------------------------------------------------------------------------

    \14\ The term ``Agency Order'' is described at Phlx Rule 
1000(b)(49) as ``The term ``Agency Order'' shall mean any order 
entered on behalf of a public customer (which includes an order 
entered on behalf of a professional), and does not include any order 
entered for the account of a broker-dealer, or any account in which 
a broker-dealer or an associated person of a broker-dealer has any 
direct or indirect interest.

    The following types of agency orders are eligible for AUTOM: 
Day, GTC, Immediate or Cancel (``IOC''), Intermarket Sweep Order 
(``ISO''), market, limit, stop, stop-limit, all or none, or better, 
simple cancel, simple cancel to reduce size (cancel leaves), cancel 
to change price, cancel with replacement order, opening-only-market 
order, limit on opening order, and possible duplicate orders. For 
purposes of Exchange options trading, an agency order is any order 
entered on behalf of a public customer, and does not include any 
order entered for the account of a broker-dealer, or any account in 
which a broker-dealer or an associated person of a broker-dealer has 
any direct or indirect interest. Respecting Phlx XL II, the 
following order types are also permitted: DNR order, SRCH order, and 
---------------------------------------------------------------------------
FIND order; see Rule 1093.

    The Exchange notes that current Rule 1080 defines these categories 
as they existed some time ago. Today, the options industry has expanded 
capacity codes \15\ that are utilized to determine the category of 
market participant for whom an order is being submitted. When members 
submit orders to Phlx, a capacity code is required. The Exchange notes 
that the definition of Agency Order within Rule 1080 is utilized to 
distinguish orders that are not entered for the proprietary account of 
a market participant. The Exchange notes that while that distinction 
may have been applicable at one point in time with respect to entering 
orders, it is not suitable to limit the entry of certain orders on that 
basis. The Exchange proposes to eliminate the categorization of 
``agency orders'' and ``proprietary orders'' as these categorizations 
are unnecessary.
---------------------------------------------------------------------------

    \15\ Capacity codes correspond to categorizations developed by 
The Options Clearing Corporation for all options exchanges.
---------------------------------------------------------------------------

    The current term ``agency'' is proposed to be deleted because the 
Exchange specifically identifies within the proposed rules which type 
of market participant may enter an order. The term ``proprietary'' as 
described within these rules refers to market participants conducting a 
market making business, such as ROTs (including SQTS and RSQTs) and 
Specialists.
    The Exchange notes that today no other options market segregates 
the submission of order types by whether the order is an agency or 
proprietary order.\16\ Rather, Phlx's proposal as well as rules of 
other options exchanges impose limitations on the types of orders that 
may be entered by a market makers as described further herein, as well 
as other limitations related to ROTs and Specialists entering 
orders.\17\ While the Exchange is eliminating the references to 
``agency'' and proprietary'' orders, the Exchange notes that there is 
no impact to market participants or systemic change that results from 
the elimination of these terms. The list of order types presented below 
reflects current practice. Also, the Exchange is not changing the 
manner in which orders are being submitted to the Exchange. The 
Exchange believes that by defining the rules, similar to other options 
markets, it will bring greater transparency to the Exchange's Rules and 
permit an ease of reference when comparing rulebooks. The Exchange 
notes that this proposal will not amend the System except for the 
changes described below where the Exchange is noting a change is 
proposed. Other functionalities offered by Phlx remain unchanged with 
this proposal.
---------------------------------------------------------------------------

    \16\ See Nasdaq ISE, LLC (``ISE''), Nasdaq GEMX, LLC (``GEMX''), 
Nasdaq MRX, LLC (``MRX'') Options 3, Section 7, Miami International 
Securities Exchange, LLC Rule 515 and Cboe Exchange, Inc. Rule 5.6.
    \17\ See ISE, GEMX and MRX Options 2, Section 6. The Nasdaq 
Options Market LLC (``NOM'') and Nasdaq BX, Inc. (``BX'') do not 
have a rule which limits Market Makers from entering orders on those 
markets. See NOM Rules at Chapter VII, Section 5(d) and BX Options 
2, Section 4(d), respectively.
---------------------------------------------------------------------------

    The current rule text refers to the following order types within 
Rule 1080(b)(i)(A), which were permitted to be entered as Agency 
Orders, are currently not supported by the System: ``or better,'' \18\ 
``simple cancel to reduce size (cancel leaves),'' \19\ ``cancel to 
change price'' and ``possible duplicate orders.'' \20\ These order 
types have not been supported by the System since Phlx replatformed its 
technology to INET in 2009. The order types described herein have not 
been offered to Phlx participants since the Phlx XL replatform. These 
order types are not offered on other options markets today and have not 
been requested by any market participant. In 1997, Phlx filed to Rule 
1080, Philadelphia Stock Exchange Automated Options Market (``AUTOM'') 
and Automatic Executive System (``AUTO-X''), codifying and amending the 
policies and procedures concerning AUTOM. The Exchange also requested 
permanent approval of the AUTOM pilot program.\21\ The rule change 
provided
---------------------------------------------------------------------------

    \18\ The designation ``or better'' indicates that the originator 
of the order is aware that the market is currently better than the 
limit price of the order; this order is not filled at a price 
outside of the ``or better'' price. The ``or better'' designation is 
used to verify the validity of the order and confirms that the order 
was entered on the correct side. See Securities Exchange Act Release 
No. 35601 (April 13, 1995), 75 FR 19616 (April 19, 1995) (SR-Phlx-
95-18).
    \19\ The designation ``simple cancel'' indicates that an order 
is to be cancelled, while ``cancel leaves'' indicates that the size 
of a previous order is being reduced and ``cancel to change price'' 
cancels the price of a previous order. See Securities Exchange Act 
Release No. 35601 (April 13, 1995), 75 FR 19616 (April 19, 1995) 
(SR-Phlx-95-18).
    \20\ Possible duplicate'' is a status which indicates that 
before an AUTOM order is executed manually by the specialist, the 
specialist should confirm that the order has not yet been executed. 
See Securities Exchange Act Release No. 35601 (April 13, 1995), 75 
FR 19616 (April 19, 1995) (SR-Phlx-95-18).
    \21\ See Securities Exchange Act Release No. 38683 (May 27, 
1997), 62 FR 30366 (June 3, 1997) (SR-Phlx-97-24).

    Proposed Rule 1080 describes the AUTOM System and its features, 
with paragraph (a) as the general introduction. AUTOM is the 
Exchange's electronic order delivery and reporting system, which 
provides for the automatic entry and routing of Exchange-listed 
equity options and index options orders to the Exchange trading 
floor. Option orders entered by Exchange member organizations into 
AUTOM are routed to the appropriate specialist unit on the Exchange 
trading floor. Orders delivered through AUTOM may be executed 
manually, or certain orders are eligible for AUTOM's automatic 
execution feature, AUTO-X, in accordance with the provisions of this 
Rule. Equity option and index option specialists are required by the 
Exchange to participate in AUTOM and its features and enhancements. 
This paragraph also provides that Rule 1080 shall govern the orders, 
execution reports and administrative messages (``order messages'') 
transmitted between the offices of member organizations and the 
---------------------------------------------------------------------------
trading floors of the Exchange through AUTOM.

    The rule change further stated,

    The following types of orders are eligible for AUTOM: Day, good-
till cancelled (``GTC''), market, limit, stop, stop limit, all or 
none, or better, simple cancel, simple cancel to reduce size (cancel 
leaves), cancel to change price, cancel with replacement order,

[[Page 68200]]

market close, market on opening, limit on opening, limit close, and 
possible duplicate orders. The Exchange's Options Committee may 
determine to accept additional types of orders as well as to 
discontinue accepting certain types of orders.

    Phlx discontinued offering the following order types at a certain 
point in time before the transition to Phlx XL: \22\ Currently not 
supported by the System: ``or better,'' \23\ ``simple cancel to reduce 
size (cancel leaves),'' \24\ ``cancel to change price'' and ``possible 
duplicate orders.'' \25\ The Exchange notes that an automated system 
such as Phlx XL would not have supported order types that permitted 
manual handling such as ``or better'' or ``possible duplicate.'' The 
order types ``simple cancel to reduce size (cancel leaves),'' ``cancel 
to change price'' can be achieved today with the cancel-replacement 
order. Customer orders may continue to be entered on an agency basis 
today, however the use of certain manual order types are no longer 
permitted. The Exchange no longer permits market participants the 
ability to manually handle orders, the System automatically executes 
order types today and therefore the Exchange believes the elimination 
of these order types is consistent with the Act and serves to protect 
investors and the public interest by enforcing order type provisions 
automatically. The remainder of the order types noted in current Rule 
1080(b)(i), such as day, GTC, IOC, ISO, market, limit, stop, stop-
limit, all or none, simple cancel, cancel with replacement order, 
opening-only market order and limit on opening order are currently 
offered on Phlx.\26\
---------------------------------------------------------------------------

    \22\ The exact date the order types were no longer offered is 
unknown.
    \23\ The designation ``or better'' indicates that the originator 
of the order is aware that the market is currently better than the 
limit price of the order; this order is not filled at a price 
outside of the ``or better'' price. The ``or better'' designation is 
used to verify the validity of the order and confirms that the order 
was entered on the correct side. See Securities Exchange Act Release 
No. 35601 (April 13, 1995), 75 FR 19616 (April 19, 1995) (SR-Phlx-
95-18).
    \24\ The designation ``simple cancel'' indicates that an order 
is to be cancelled, while ``cancel leaves'' indicates that the size 
of a previous order is being reduced and ``cancel to change price'' 
cancels the price of a previous order. See Securities Exchange Act 
Release No. 35601 (April 13, 1995), 75 FR 19616 (April 19, 1995) 
(SR-Phlx-95-18).
    \25\ Possible duplicate'' is a status which indicates that 
before an AUTOM order is executed manually by the specialist, the 
specialist should confirm that the order has not yet been executed. 
See Securities Exchange Act Release No. 35601 (April 13, 1995), 75 
FR 19616 (April 19, 1995) (SR-Phlx-95-18).
    \26\ The Exchange notes that ``simple cancel'' is not offered as 
an order type on Phlx, but as a functionality to simply cancel an 
existing order. Therefore, the Exchange is not proposing to add it 
back into the amended Rule 1080 as an order type.
---------------------------------------------------------------------------

Proprietary
    Current Rule 1080(b)(i)(B) refers to orders entered for proprietary 
accounts and specifically provides order type requirements for 
Specialists,\27\ ROTs,\28\ and non-SQT ROTs.\29\ Current Rule 
1080(b)(i)(B) provides,
---------------------------------------------------------------------------

    \27\ A Specialist is an Exchange member who is registered as an 
options specialist. See Phlx Rule 1020(a).
    \28\ See note 3 above.
    \29\ A Floor Market Maker is known as a non-SQT ROT in Rule 
1014(b)(ii)(C). A non-SQT ROT is an ROT who is neither an SQT nor an 
RSQT.

    Orders for the proprietary account(s) of SQTs, RSQTs and non-SQT 
ROTs and specialists via electronic interface with AUTOM may be 
entered, subject to the restrictions on order entry set forth in 
Commentary .04 of this Rule.
    (1) The following types of orders for the proprietary account(s) 
of non-SQT ROTs and specialists with a size of 10 contracts or 
greater are eligible for entry via electronic interface with AUTOM: 
GTC, day limit, IOC, ISO, limit on opening and simple cancel. Orders 
for the proprietary account(s) of non-SQT ROTs and specialists with 
a size of less than 10 contracts shall be submitted as IOC only.
    (2) The following types of orders for the proprietary account(s) 
of SQTs and RSQTs are eligible for entry via electronic interface 
with AUTOM: Limit on opening, IOC, ISO, and day limit. Respecting 
Phlx XL II, the following order types are also permitted: DNR order, 
SRCH order, and FIND order; see Rule 1093.

    Today, the Exchange limits its ROTs and Specialists from entering 
orders which may be entered on other markets such as Nasdaq ISE, LLC, 
Nasdaq GEMX, LLC and Nasdaq MRX, LLC.\30\ Currently, Rule 1080(b)(i)(B) 
provides, ``Orders for the proprietary account(s) of SQTs, RSQTs and 
non-SQT ROTs and specialists via electronic interface with AUTOM may be 
entered, subject to the restrictions on order entry set forth in 
Commentary .04 of this Rule.'' Commentary .04 provides, ``ROT Limit 
Orders. Orders for the proprietary accounts of SQTs, RSQTs and non-SQT 
ROTs may be entered for delivery through AUTOM, through the use of 
Exchange approved proprietary systems to interface with AUTOM 
(``interface''). Such orders shall be for a minimum of one (1) 
contract. Orders for the proprietary account(s) of SQTs, RSQTs, and 
non-SQT ROTs with a size of less than 10 contracts shall be submitted 
as IOC only.'' The Exchange notes that it will no longer refer to 
legacy names for the trading system such as AUTOM and will instead 
refer to ``System'' which is defined.\31\ The Exchange proposes to 
continue to require orders for SQTs and RSQTs to be for a minimum of 
one (1) contract in Rule 1080(e). The Exchange proposes to delete the 
rule text at Commentary .04 to Rule 1080. The Exchange is proposing new 
rule text within current Rule 1014, entitled ``Obligations of Market 
Makers'' as described below.
---------------------------------------------------------------------------

    \30\ See ISE, GEMX and MRX rules at Options 2, Section 6.
    \31\ See Phlx Rule 1000(b)(45).
---------------------------------------------------------------------------

    Today, the Exchange distinguishes between contracts that non-SQT 
ROTs and Specialists can enter with a size of 10 contracts or greater 
and those that may be entered for any size. Further, for orders with a 
size of 10 contracts or less, non-SQT ROTs and specialists must enter 
those orders as IOC only. The Exchange proposes to remove the 
restriction that ``Orders for the proprietary account(s) of non-SQT 
ROTs and specialists with a size of less than 10 contracts shall be 
submitted as IOC only.'' Further, in deleting Commentary .04, the 
Exchange is removing any limitation as to the size of orders for IOC 
only purposes. The Exchange believes this limitation is no longer 
necessary given the evolution of the market place and further that it 
hinders non-SQT ROTs and Specialists unnecessarily. No other options 
market has similar limitations today.\32\ The 10 contract limitation 
was put in place to restrict participants, whose primary role was to 
provide liquidity, from using orders of small size to avoid providing 
liquidity using quotes which were historically required to be of a size 
of 10 contracts or more.
---------------------------------------------------------------------------

    \32\ ISE, GEMX, MRX, NOM and BX do not limit orders to IOC by 
size.
---------------------------------------------------------------------------

    Current Rule 1080(b)(i)(B)(1) provides, ``The following types of 
orders for the proprietary account(s) of non-SQT ROTs and specialists 
with a size of 10 contracts or greater are eligible for entry via 
electronic interface with AUTOM: GTC, day limit, IOC, ISO, limit on 
opening and simple cancel. Orders for the proprietary account(s) of 
non-SQT ROTs and specialists with a size of less than 10 contracts 
shall be submitted as IOC only.'' The Exchange is removing current Rule 
1080(b)(i)(B)(1) in its entirety. As noted above, the Exchange proposes 
to no longer apply the 10 contract limitation. The rule text proposed 
within Rule 1014(e) and Rule 1080(e) do not contain a limitation on 
contract size. The Exchange notes that over the years the limitations 
that were placed on ROTs and Specialists entering orders has changed on 
all options markets. The Exchange does not propose to hinder these 
market participants in entering orders. With respect to non-SQT ROTs, 
those market participants may enter the orders noted

[[Page 68201]]

with Options 8, Section 32. Amendments to Phlx Rules at Options 8, 
Section 32 are described below.
    Current Rule 1080(b)(i)(B)(2) provides, ``The following types of 
orders for the proprietary account(s) of SQTs and RSQTs are eligible 
for entry via electronic interface with AUTOM: Limit on opening, IOC, 
ISO, and day limit. Respecting Phlx XL II, the following order types 
are also permitted: DNR order, SRCH order,\33\ and FIND order; see Rule 
1093.'' The Exchange is removing current Rule 1080(b)(i)(B)(2) in its 
entirety.
---------------------------------------------------------------------------

    \33\ The Exchange notes that ``SRCH,'' is not supported for 
proprietary account(s) of SQTs and RSQTs. A SRCH Order is a Public 
Customer order that is routable at any time. See Phlx Rule 
1093(a)(iii)(C).
---------------------------------------------------------------------------

ROTs and Specialists Entering Orders on Phlx
    The Exchange proposes to relocate the restrictions for ROTs and 
Specialists within Rule 1014 which sets forth obligations of ROTs and 
Specialists, as noted below.\34\ Today, SQTs and Specialists on Phlx 
may not enter orders in non-appointed option series.\35\ Further, 
Commentary .01 to Rule 1014 provides a restriction on the amount of 
trading activity in classes of options to which an SQT or Specialist is 
assigned. Commentary .01 to Rule 1014 states:
---------------------------------------------------------------------------

    \34\ Phlx Rule 1014(c) and (d) describes obligations for ROTs 
and Specialists in appointed and non-appointed options classes.
    \35\ Phlx Rule 1014(b)(ii), SQTs and RSQTs may only trade in a 
market making capacity in classes of options in which the SQT is 
assigned.

    The Exchange has determined for purposes of paragraph (c) of 
this Rule that, except for unusual circumstances, at least 50% of 
the trading activity in any quarter (measured in terms of contract 
volume) of an ROT (other than an RSQT) shall ordinarily be in 
classes of options to which he is assigned. Temporarily undertaking 
the obligations of paragraph (c) at the request of a member of the 
Exchange in non assigned classes of options shall not be deemed 
trading in non assigned option contracts.
    The Exchange may, in computing the percentage specified herein, 
assign a weighting factor based upon relative inactivity to one or 
more classes or series of option contracts.

    These prohibitions exist to ensure that market making participants 
are focused on adding liquidity to Phlx. Today, the Exchange requires 
ROTs and Specialists to add liquidity to Phlx, for example Specialists 
must quote during the Opening Process \36\ and Specialists and ROTs 
have intra-day quoting obligations.\37\
---------------------------------------------------------------------------

    \36\ See Phlx Rule 1017(d).
    \37\ See Phlx Rule 1081.
---------------------------------------------------------------------------

    The Exchange proposes to amend its current restriction related to 
entering orders on Phlx to permit ROTs and Specialists to enter orders 
in classes of options to which they are assigned and classes of options 
in which they are not assigned, with certain limitations. The Exchange 
proposes within Rule 1014(e), which is currently reserved, to add rule 
text to permit ROTs and Specialists to enter Day orders, Opening Only 
Orders and Opening Sweeps and utilize the TIF of ``GTC'' when entering 
orders. This would be an amendment to current Rule 1080(b)(i)(B)(2), 
which does not currently permit these order types. As noted herein, the 
Exchange is proposing to remove the limit for contracts with a size of 
less than 10 contracts. The Exchange also proposes to permit ROTs (SQTs 
and RSQTs) and Specialists to enter orders in non-appointed option 
classes, however limit ROTs and Specialists to not exceed 25 percent 
\38\ of the total number of all contracts executed by the ROT or 
Specialist in any calendar quarter. Proposed new Rule 1014(e) would 
provide:
---------------------------------------------------------------------------

    \38\ The Exchange proposes to remove the limitation within 
Commentary .01 to Rule 1014 which applies to appointed options 
classes and instead adopt proposed Rule 1014(e) which describes the 
types of orders that ROTs and Specialists may enter in appointed and 
non-appointed options classes with the proposed 25% limitation on 
orders in appointed options classes.

    Market Maker Orders. ROTs and Specialists may enter all order 
types defined in Rule 1080(b) in the options classes to which they 
are appointed and non-appointed, except for Market Orders as 
provided in Rule 1080(b)(1), Stop Orders as provided in Rule 
1080(b)(4), All-or-None Orders as provided in Rule 1080(b)(5), 
Directed Orders as provided for in Rule 1068, and public customer-
to-public customer cross orders subject to Rule 1087(a) and (f). The 
total number of contracts executed during a quarter by a ROT or 
Specialist in options series to which it is not appointed may not 
exceed twenty-five percent (25%) of the total number of contracts 
---------------------------------------------------------------------------
executed by the ROT or Specialist in options series.

    The Exchange notes that its proposal is similar to other options 
markets.\39\ The Exchange is permitting ROTs and Specialists to enter 
all order types defined in Rule 1080(b) in the options classes to which 
they are appointed and non-appointed, except for Market Orders as 
provided in Rule 1080(b)(1), Stop Orders as provided in Rule 
1080(b)(4), All-or-None Orders as provided in Rule 1080(b)(5), and 
Directed Orders as provided for in Rule 1068, and public customer-to-
public customer cross orders subject to Rule 1087(a) and (f), so as not 
to restrict the ability of a ROT or Specialist from entering orders 
they may enter today on other options markets. Although the Exchange is 
amending its rules to allow ROTs and Specialists to enter orders in 
non-appointed classes, the Exchange will limit ROTs and Specialists to 
not exceed 25% \40\ of the total number of all contracts executed by 
the ROT or Specialist in any calendar quarter in those non-appointed 
options classes. The Exchange proposes to remove the provision within 
Commentary .01 to Rule 1014 and replace the prohibition with proposed 
Rule 1014(e).
---------------------------------------------------------------------------

    \39\ See ISE, GEMX and MRX at Options at Options 2, Section 6. 
Further, NYSE Arca, Inc. (``NYSE Arca'') and NYSE American LLC 
(``NYSE American'') do not limit the types of orders that can be 
entered by market makers. See NYSE Arca Rule 6.37B-O and NYSE 
American Rule 925.2NY.
    \40\ This limitation is an amendment to the current limitation 
within Commentary .01 to Rule 1014 which as noted herein, the 
Exchange proposes to eliminate. The proposed limitation of 25% would 
be less restrictive than the current ``50% of the trading activity 
in any quarter'' requirement, not only because it is a smaller 
percentage but because the 25% limitation only would apply to 
classes of options in which the ROT or Specialist is not appointed 
and the 50% limitation applied to classes of options in which the 
ROT or Specialist is appointed, and are the only types of orders 
which can be submitted by these participants today.
---------------------------------------------------------------------------

    The Exchange believes its proposal is consistent with the Act. 
Allowing ROTs and Specialists to enter orders in both assigned and 
unassigned classes of options will allow market making participants to 
enter more orders than they are permitted to enter today. The rule text 
at Commentary .01 of Rule 1014 which requires at least 50% of the 
trading activity in any quarter only applies to assigned options 
classes today and therefore is not very restrictive as ROTs and 
Specialists can only enter quotes or orders in assigned options series.
    While the Exchange is permitting ROTS and Specialists to enter more 
orders, particularly in assigned options classes, ROTs and Specialists 
continue to have obligations to quote intra-day \41\ and in order to 
meet those obligations they will need to stay focused on adding 
liquidity to Phlx. The Exchange believes that liquidity will not be 
impacted on Phlx because the Exchange is permitting ROTs and 
Specialists to enter more orders in appointed classes as the 
obligations to provide liquidity remain the same. Further, permitting 
ROTs and Specialists to enter orders in non-appointed classes provided 
they do not exceed 25% of the total number of contracts executed in any 
quarter is consistent with the Act because the proposed rule will allow 
ROTs and Specialists to continue to provide liquidity on Phlx, as is 
the case today, while not restricting their business activity in a 
manner that is no other market participants is restricted to

[[Page 68202]]

transact. Phlx's proposal will allow market making participants the 
same flexibility as exists today on other options markets.
---------------------------------------------------------------------------

    \41\ See Phlx Rule 1081.
---------------------------------------------------------------------------

    With respect to proposed Rule 1014(e), the Exchange proposes to 
permit ROTs and Specialists to enter Day orders, Opening Only Orders 
and Opening Sweeps and utilize the TIF of ``GTC.'' This would be an 
amendment as current Rule 1080(b)(i)(B)(2), which does not currently 
permit these order types. As noted herein, the Exchange is removing the 
limit for contracts with a size of less than 10 contracts. The Exchange 
is excluding order types that today may not be entered by a Specialist 
or ROT, as is the case today, such as All-or-None Orders,\42\ Directed 
Orders,\43\ and public customer-to-public customer cross orders subject 
to Rule 1087(a) and (f).\44\ The Exchange proposes to prohibit SQTs and 
RSQTs from entering Market Orders and Stop Orders. Today, the Exchange 
requires SQTs and RSQTs to ``maintain a two-sided market in those 
options in which the electronic ROT is registered to trade, in a manner 
that enhances the depth, liquidity and competitiveness of the market'' 
pursuant to Phlx Rule 1081(a)(i). The Exchange believes that continuing 
the practice of prohibiting SQTs and RSQTs from entering Market Orders 
is consistent with the Act because Market Orders are designed to remove 
liquidity from the Order Book. Further, Stop Orders are non-displayed 
order types until they are triggered which does not benefit the role of 
an SQT or RSQT in displaying liquidity on the Order Book.
---------------------------------------------------------------------------

    \42\ All-or-None Orders may only be entered by a Public 
Customer.
    \43\ Rule 1068(a)(i)(B) provides, ``The term ``Order Flow 
Provider'' (``OFP'') means any member or member organization that 
submits, as agent, orders to the Exchange.'' ROTs and Specialists do 
not submit orders on an agency basis and therefore are excluded from 
entering Directed Orders. See Securities Exchange Act Release No. 
62320 (June 17, 2010), 75 FR 36132 (June 24, 2010) (SR-Phlx-2010-
83). In this rule change, Phlx noted that Directed Orders can be 
broker-dealer orders as well as public customer orders. The term 
public customer included professionals.
    \44\ A PIXL Order is an order submitted for electronic execution 
into the PIXL Auction Mechanism pursuant to Rule 1087. Current PIXL 
Rule 1087(a) and (f) provides that a PIXL Order may be a public 
customer-to-public customer cross order, which is comprised of a 
Public Customer order to buy and a Public Customer to sell at the 
same price and for the same quantity.
---------------------------------------------------------------------------

Off-Floor Broker-Dealer
    Current Phlx Rule 1080(b)(i)(C) provides that for purposes of this 
Rule 1080, the term ``off-floor broker-dealer order'' means an order 
delivered from off the floor of the Exchange by or on behalf of a 
broker-dealer for the proprietary account(s) of such broker-dealer, 
including an order for a market maker located on an exchange or trading 
floor other than the Exchange's trading floor delivered via AUTOM for 
the proprietary account(s) of such market maker. This rule also 
provides, in part:

    Off-floor broker-dealer limit orders, subject to the 
restrictions on order entry set forth in Commentary .05 of this 
Rule, may be entered. The following types of broker-dealer limit 
orders are eligible for AUTOM: Day, GTC, IOC, ISO, stop, stop-limit, 
simple cancel, simple cancel to reduce size (cancel leaves), cancel 
to change price, cancel with replacement order, limit on opening 
order. Respecting Phlx XL II, the following order types are also 
permitted: DNR order, SRCH order, and FIND order; see Rule 1093.

    Current Phlx Rule 1080(b)(i)(C) applies to Off-Floor Broker Dealers 
limit orders and provides that broker-dealer limit orders are eligible 
for AUTOM: Day, GTC, IOC, ISO, stop, stop-limit, simple cancel, simple 
cancel to reduce size (cancel leaves), cancel to change price, cancel 
with replacement order, limit on opening order. Current Rule 
1080(b)(i)(C) and Commentary .05 to Rule 1080 \45\ describe 
restrictions for Off-Floor Broker Dealers. The Exchange proposes to 
amend and relocate text from current Rule 1080(b)(i)(C) to proposed 
Rule 1080(e). The Exchange proposes to state, at new Rule 1080(e),
---------------------------------------------------------------------------

    \45\ Commentary .05 to Rule 1080 states, ``Off-floor broker-
dealer orders delivered via AUTOM shall be for a minimum size of one 
(1) contract. Off-floor broker-dealer limit orders are subject to 
the following other provisions:
    (i) The restrictions and prohibitions concerning off-floor 
market makers set forth in Rule 1080(j).
    (ii) Off-floor broker-dealer limit orders entered via AUTOM 
establishing a bid or offer may establish priority, and the 
specialist and crowd may match such a bid or offer and be at parity, 
except as provided in Exchange Rule 1014(g)(i)(A).''

    An off-floor broker-dealer order may be entered for a minimum 
size of one contract. Off-floor broker-dealers may enter all order 
types defined in Rule 1080(b) except for All-or-None Orders, Market 
Orders, Stop Market Orders, and public customer-to-public customer 
---------------------------------------------------------------------------
cross orders subject to Rule 1087(a) and (f).

    The Exchange proposes that Off-Floor Broker Dealers may continue to 
enter day, GTC, IOC, ISO, stop, stop-limit, cancel with replacement 
order and limit on opening order as specified within current Rule 
1080(b)(i)(C). The Exchange notes that stop market and market orders, 
SRCH Orders,\46\ simple cancel to reduce size (cancel leaves) and 
cancel to change price are either no longer offered on the System or 
not offered to Off-Floor Broker Dealers. With this new proposed rule, 
the Exchange proposes to reflect the order types that an Off-Floor 
Broker Dealer may enter by noting that all order types within Rule 
1080(b) may be entered, except as noted. The Off-Floor Broker Dealer 
order restrictions remain unchanged except that the types of orders 
that Off-Floor Broker Dealers may enter are being amended to exclude 
order types that are no longer offered such as simple cancel to reduce 
size (cancel leaves) and cancel to change price and to also exclude 
Stop Market Orders, which are not available to Off-Floor Broker Dealers 
today, so this is not changing. The Exchange notes that Stop Limit 
Orders are permitted to be entered today by Off-Floor Broker Dealers. 
The Exchange notes that only Market Orders and Stop Market Orders are 
restricted, as is the case today. The restrictions afforded to Off-
Floor Broker Dealers remain the same. This amendment is not 
substantive.
---------------------------------------------------------------------------

    \46\ SRCH Orders are only offered to Public Customers pursuant 
to Rule 1093(a)(iii)(C).
---------------------------------------------------------------------------

    The Exchange notes that the term ``Off-Floor Broker-Dealer Order'' 
is currently defined within Rule 1000(b)(50) and therefore is not 
necessary to reiterate within Rule 1080(b). The Exchange proposes to 
delete Commentary .05 of Rule 1080, which references the outdated term 
``AUTOM.'' \47\ This provision is no longer necessary as the minimum 
size for Off-Floor Broker Dealer orders is noted in new proposed Rule 
1080(e). The rule text in Commentary .05(i) is also being deleted as 
unnecessary as all members are subject to the rule text in Rule 
1080(j), not just broker-dealers. The Exchange believes that this rule 
text is confusing. The Exchange proposes to delete Commentary .05(ii) 
to Rule 1080 because priority rules continue to be contained in Options 
8, Section 25 (Floor Allocation). The priority rules have not changed 
and Off-Floor Broker Dealer Limit Orders continue to be bound by those 
rules. Exchange Rules 119 and 120 direct members in the establishment 
of priority of orders on the floor. This language within Commentary 
.05(ii) to Rule 1080 indicates that Off-Floor Broker Dealers may 
establish priority and the Specialist may match the priority, but these 
rules are subject to Rules 119, 120 and Options 8, Section 25 for 
allocation. There are other rules which address priority to all 
members, not just Off-Floor Broker Dealers. Rather, at the time AUTOM 
was available, this priority could be established, but is no longer the 
case. Finally, Off-Floor Broker Dealer Limit Orders are no longer

[[Page 68203]]

entered via AUTOM.\48\ This exception to cited Rule 1014(g)(i)(A) is no 
longer possible. The AUTOM order delivery system grew over the years 
into the current fully automated Phlx options trading system XL II. 
AUTOM and AUTO-X were replaced by the Phlx XL System, such that 
references to both terms refer to Phlx XL.\49\ The Exchange notes that 
today all orders would be represented in the trading crowd pursuant to 
Options 8, Section 25(a)(1)(A).
---------------------------------------------------------------------------

    \47\ The Exchange notes that AUTOM no longer exists. This legacy 
system was replaced by Phlx XL.
    \48\ AUTOM was a legacy electronic order delivery and reporting 
system which provided for the automatic entry and routing of 
Exchange-listed equity options and index options orders to the 
Exchange trading floor. Option orders entered by Exchange member 
organizations into AUTOM were routed to the appropriate specialist 
unit on the Exchange trading floor. Orders delivered through AUTOM 
could be executed manually, or certain orders were eligible for 
AUTOM's automatic execution feature, AUTO-X. Equity option and index 
option specialists were required by the Exchange to participate in 
AUTOM and its features and enhancements. See Securities Exchange Act 
Release No. 38792 (June 30, 1997), 62 FR 36602 (July 8, 1997) (SR-
Phlx-97-24).
    \49\ See Securities Exchange Act 72152 (May 12, 2014), 79 FR 
28561 (May 16, 2014) (SR-Phlx-2014-32).
---------------------------------------------------------------------------

    As noted above, Phlx proposes to remove the agency/proprietary 
order distinction from its rules. Instead, the Exchange proposes to 
note a list of order types available on Phlx and separately provide 
restrictions for ROTs, Specialists and Off-Floor Broker Dealers as 
already described herein. The Exchange notes that in separately 
limiting those market participants the Exchange is not substantively 
changing the format of the order types, it is eliminating the 
categories of ``agency'' and ``proprietary''. No other options markets 
segregates order types into those categories.
    Notwithstanding the restrictions for ROTs, Specialists and Off-
Floor Broker Dealers within proposed Rule 1080(e) and Rule 1014(e), the 
Exchange proposes to replace the order types listed within Rule 1080(b) 
with the below order types and descriptions to be added to Rule 
1080(b).

    (1) Market Order. A Market Order is an order to buy or sell a 
stated number of options contracts that is to be executed at the 
best price obtainable when the order reaches the Exchange. 
Specialists, ROTs and Off-Floor Broker-Dealers may not submit Market 
Orders.
    (2) Limit Order. A Limit Order is an order to buy or sell a 
stated number of options contracts at a specified price or better.
    (3) Intermarket Sweep Order. An Intermarket Sweep Order (ISO) is 
a Limit Order that meets the requirements of Rule 1083. Orders 
submitted to the Exchange as ISO are not routable and will ignore 
the ABBO and trade at allowable prices on the Exchange. ISOs may be 
entered on the regular order book or into the Price Improvement XL 
Mechanism (``PIXL'') pursuant to Rule 1087(b)(11). ISO Orders may 
not be submitted during the Opening Process pursuant to Rule 1017.
    (4) Stop Order. A Stop Order is a Limit Order or Market Order to 
buy or sell at a limit price when interest on the Exchange for a 
particular option contract reaches a specified price. A Stop Order 
shall be cancelled if it is immediately electable upon receipt. A 
Stop Order shall not be elected by a trade that is reported late or 
out of sequence or by a Complex Order trading with another Complex 
Order. Specialists and ROTs may not submit a Stop Order. Off-Floor 
Broker-Dealers may not enter a Stop Market Order.
    (a) A Stop-Limit Order to buy becomes a Limit Order executable 
at the limit price or better when the option contract trades or is 
bid on the Exchange at or above the stop-limit price. A Stop-Limit 
Order to sell becomes a Limit Order executable at the limit price or 
better when the option contract trades or is offered on the Exchange 
at or below the stop-limit price.
    (b) A Stop Market Order is similar to a stop-limit except it 
becomes a Market Order when the option contract reaches a specified 
price.
    (5) All-or-None Order. An All-or-None Order is a limit order or 
market order that is to be executed in its entirety or not at all. 
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.
    (i) Non-Displayed Contingency Orders. A Non-Displayed 
Contingency Order shall be defined to include the following non-
displayed order types: (1) Stop Orders; and (2) All-or-None Orders.
    (6) Opening Sweep. An Opening Sweep is a one-sided order entered 
by a Specialist or ROT through SQF for execution against eligible 
interest in the System during the Opening Process. This order type 
is not subject to any protections listed in Rule 1099, except for 
Automated Quotation Adjustments. The Opening Sweep will only 
participate in the Opening Process pursuant to Rule 1017 and will be 
cancelled upon the open if not executed.
    (7) Cancel-Replacement Order. A Cancel-Replacement Order is a 
single message for the immediate cancellation of a previously 
received order and the replacement of that order with a new order 
with new terms and conditions. If the previously placed order is 
already filled partially or in its entirety, the replacement order 
is automatically canceled or reduced by the number of contracts that 
were executed. The replacement order will result in a loss of 
priority.
    (8) Qualified Contingent Cross Order or QCC Order. A QCC Order 
is as that term is defined in Rule 1088.
    (9) PIXL Order. A PIXL Order is as described in Rule 1087.
    (10) Legging Order. A Legging Order is an as the term is 
specified in Rule 1098(f)(iii)(C).
    (11) Directed Orders. A Directed Order is as described in Rule 
1068.

    All members may enter a Market Order, except Specialists and ROTs, 
as noted in the exclusion of Market Orders from current Rule 
1080(b)(i)(B)(2). Current Rule 1080(b)(i)(B)(1) did not permit 
Specialists or ROTs to enter Market Orders and current Rule 
1080(b)(i)(C)(1) did not permit Off-Floor Broker-Dealers to enter 
Market Orders. Proposed Rule 1080(e), which is discussed below, also 
notes the Off-Floor Broker-Dealer restriction for Market Orders. The 
Exchange proposes to describe a Market Order \50\ at proposed 
1080(b)(1) as, ``an order to buy or sell a stated number of options 
contracts that is to be executed at the best price obtainable when the 
order reaches the Exchange. Specialists and ROTs may not submit a 
Market Order.'' This is the same description as in Options 8, Section 
32(a). The Exchange has historically defined its order types within 
Options 8, Section 32 which are related to floor trading and has filed 
rule changes noting this description of a Market Order.\51\ The 
Exchange is not substantively amending this order type.
---------------------------------------------------------------------------

    \50\ Market Orders are described within Options 8, Section 
32(a).
    \51\ See Securities Exchange Act Release No. 83141 (May 1, 
2018), 83 FR 20123 (May 7, 2018 (SR-Phlx-2018-32). The Exchange 
drafted the description to be similar to the description in Options 
8, Section 32. Although it is substantially similar to the footnote 
4 in the aforementioned rule change which provides, ``Market Orders 
are orders to buy or sell at the best price available at the time of 
execution.''
---------------------------------------------------------------------------

    Today, all members may enter a Limit Order,\52\ which the Exchange 
proposes to describe at proposed Rule 1080(b)(2) as ``an order to buy 
or sell a stated number of options contracts at a specified price or 
better.'' The description of a Limit Order is currently identically 
described within Options 8, Section 32(b). The Exchange is not 
substantively amending this order type.
---------------------------------------------------------------------------

    \52\ Limit Orders are described within Options 8, Section 32(b).
---------------------------------------------------------------------------

    An Intermarket Sweep Order is a Limit Order that meets the 
requirements of Rule 1083.\53\ The Exchange proposes to state within 
proposed Rule 1080(b)(3), ``An Intermarket Sweep Order (ISO) is a Limit 
Order that meets the requirements of Rule 1083. Orders submitted to the 
Exchange as ISO are not routable and will ignore the ABBO and trade at 
allowable prices on the Exchange. ISOs may be entered on the regular 
order book or into the Price Improvement XL Mechanism (``PIXL'') 
pursuant to Rule 1087(b)(11). ISO Orders may be submitted during the 
Opening Process pursuant to Rule 1017.'' The Exchange notes that all

[[Page 68204]]

members are eligible to enter an ISO.\54\ The Exchange notes that ISO 
behavior, while described within Phlx Rules today as mentioned above, 
are being centralized within Rule 1080(b)(3). No substantive changes 
are being made to this order type which is currently described in 
various rules mentioned herein.
---------------------------------------------------------------------------

    \53\ Rule 1083 currently describes an ISO Order.
    \54\ See Phlx Rule 1083.
---------------------------------------------------------------------------

    The Exchange proposes to describe a Stop Order \55\ at proposed 
Rule 1080(b)(4), as ``a Limit Order or Market Order to buy or sell at a 
limit price when interest on the Exchange for a particular option 
contract reaches a specified price. A Stop Order shall be cancelled if 
it is immediately electable upon receipt. A Stop Order shall not be 
elected by a trade that is reported late or out of sequence or by a 
Complex Order trading with another Complex Order. Specialists and ROTs 
may not submit a Stop Order. An Off-Floor Broker-Dealers may not enter 
a Stop Market Order.'' The Exchange further proposes to describe a 
Stop-Limit Order at proposed Rule 1080(b)(4)(A) as follows ``A Stop-
Limit Order to buy becomes a Limit Order executable at the limit price 
or better when the option contract trades or is bid on the Exchange at 
or above the stop-limit price. A Stop-Limit Order to sell becomes a 
Limit Order executable at the limit price or better when the option 
contract trades or is offered on the Exchange at or below the stop-
limit price.'' The Exchange proposes to describe a Stop Market Order at 
proposed Rule 1080(b)(4)(B) as follows, ``A Stop Market Order is 
similar to a stop-limit except it becomes a Market Order when the 
option contract reaches a specified price.'' Today, all members except 
Specialists, ROTs and Off-Floor Broker-Dealers may enter a Stop 
Order.\56\ Proposed Rule 1080(e), which is discussed below, also notes 
the Off-Floor Broker-Dealer restriction for Stop Market Orders With 
this proposal, the terms stop and stop-limit are both provided for 
within the proposed term ``Stop Order.'' No substantive changes are 
being made to this order type.
---------------------------------------------------------------------------

    \55\ Stop Orders are described within Options 8, Section 
32(c)(1)-(2). The Exchange has reworded the Stop Order description 
to make clear that a Stop Order can be either a limit or market 
order in the first sentence and also more clearly describe the 
contingency. The Exchange does not believe that the descriptions 
differ substantively. Further, the Exchange has defined a stop order 
within a rule change. See Securities Exchange Act Release No. 85519 
(April 5, 2019), 84 FR 14686 (April 11, 2019) (SR-Phlx-2019-07). The 
description in this rule change at footnote 14 is substantially 
similar in stating, ``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.''
    \56\ See Phlx Rule 1080(b)(i)(B)(1) and (2).
---------------------------------------------------------------------------

    An All-or-None Order is currently described within Rule 1078. The 
Exchange proposes to relocate Rule 1078, without amendment, into Rule 
1080(b)(5) and reserve Rule 1078.\57\ The Exchange also proposes to 
amend the definition of All-or-None Order currently within Options 8, 
Section 32(b)(3) which applies to the trading floor.\58\ The Exchange 
notes that unlike Rule 1080(b)(5), which applies to electronic trading, 
All-or-None Orders entered into open outcry would not be subject to 
Acceptable Trade Range protection in Rule 1099(a), which covers only 
those orders submitted electronically into the System. No substantive 
changes are being made to this order type.
---------------------------------------------------------------------------

    \57\ An All-or-None Order is a limit order or market order that 
is to be executed in its entirety or not at all. 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 Rule 1078.
    \58\ Options 8, Section 32(c)(3) provides, ``(3) All or None 
Order. An all-or-none order is a market or limit order which is to 
be executed in its entirety or not at all.'' The Exchange notes that 
other revisions are being made to Options 8, Section 32(b)(3) that 
were made in a prior rule change. See Securities Exchange Act 
Release No. 85262 (March 7, 2019), 84 FR 9192 (SR-Phlx-2019-03) and 
were inadvertently reversed in a subsequent filing that did not 
capture the amended text. See Securities Exchange Act Release No. 
85740 (April 29, 2019), 84 FR 19136 (SR-Phlx-2019-17). The Exchange 
is reinstating the changes that were made in SR-Phlx-2019-03.
---------------------------------------------------------------------------

    The Exchange proposes to define the term ``Non-Displayed 
Contingency Orders'' at proposed new Rule 1080(b)(5)(i) as follows: ``A 
Non-Displayed Contingency Order shall be defined to include the 
following non-displayed order types: (1) Stop Orders; and (2) All-or-
None Orders.''
    The Exchange proposes to define the Opening Sweep functionality 
within proposed Rule 1080(b)(6) for ease of reference to order types. 
The Opening Sweep is currently described within Rule 1017(b)(i).\59\ 
Current Rule 1080(b)(i) notes the Exchange offers an opening-only-
market order and a limit on opening order. The Exchange is amending the 
definition of Opening Sweep within Rule 1017(b)(i) by removing the 
language and simply referring to proposed Rule 1080(b)(6). The Exchange 
is amending and relocating the description of Opening Sweep within 
proposed Rule 1080(b)(6). Further, the Exchange proposes a change to 
the current rule to state it is an order and not a quote. This change 
will not amend the order type other than to make clear the manner it 
will be categorized. Phlx traditionally has referred to all interest 
within the SQF protocol as quote interest. The Exchange proposes to 
amend the references to ``quotation'' to ``order'' to make clear the 
type of interest that is being entered. An Opening Sweep is a one-sided 
order that only may be entered into the Opening Process. Further, the 
Exchange proposes to make clear that an Opening Sweep may only be 
entered by a Specialist or ROT as this order type is submitted through 
the SQF protocol.\60\ Other market participants tag orders for the 
Opening Process by placing a TIF of ``OPG'' on the order as explained 
below. The Exchange notes that all members may submit interest into the 
Opening Process. The Exchange also proposes to add two new sentences to 
the Opening Sweep description which provide, ``This order type is not 
subject to any protections listed in Rule 1099, except for Automated 
Quotation Adjustments. The Opening Sweep will only participate in the 
Opening Process pursuant to Rule 1017 and will be cancelled upon the 
open if not executed.'' The Exchange notes that the Automated Quotation 
Adjustments protections applies to quotes entered into SQF but would 
not apply to an Opening Sweep which is an order entered into SQF. The 
Exchange notes that the second sentence is not new as Opening Sweeps 
are described within Rule 1017 today and apply only during the Opening 
Process. This sentence provides additional context to the Opening 
Sweep.
---------------------------------------------------------------------------

    \59\ Rule 1017(b)(i) provides, ``An Opening Sweep is a one-sided 
electronic quotation submitted for execution against eligible 
interest in the system during the Opening Process.''
    \60\ See Phlx Rule 1080(a)(i)(B), which notes that the 
``Specialized Quote Feed'' or ``SQF'' is an interface that allows 
Specialists, SQTs and RSQTs to submit Immediate-or-Cancel Orders 
through SQF.
---------------------------------------------------------------------------

    The Exchange proposes to memorialize a cancel-replacement order 
within proposed Rule 1080(b)(7). A Cancel-Replacement Order is 
currently defined within Options 8, Section 32(c)(4) as ``a contingency 
order consisting of two or more parts which require the immediate 
cancellation of a previously received order prior to the replacement of 
a new order with new terms and conditions. If the previously placed 
order is already filled partially or in its entirety the replacement 
order is automatically canceled or reduced by such number.'' The 
Exchange proposes to amend this description to state, ``a Cancel-
Replacement Order is a single

[[Page 68205]]

message for the immediate cancellation of a previously received order 
and the replacement of that order with a new order with new terms and 
conditions. If the previously placed order is already filled partially 
or in its entirety, the replacement order is automatically canceled or 
reduced by the number of contracts that were executed.'' The Exchange 
notes it is proposing to add the following language, which is not 
currently described within existing rules, ``The replacement order will 
result in a loss in priority.'' The Exchange believes that as amended 
the Exchange provides additional detail to the order type. The 
additional language concerning priority is intended to provide market 
participants with additional detail about the retention of priority 
when amending a Cancel-Replacement Order and makes clear that it will 
not retain priority. The Exchange is memorializing the manner in which 
a Cancel-Replacement Order is handled today by the System. The Exchange 
notes that the order would be prioritized anew if it partially filled 
and the remainder of the unfilled order was returned to the 
Exchange.\61\
---------------------------------------------------------------------------

    \61\ See Phlx Rule 1091(a)(i), ``If a routed order is 
subsequently returned, in whole or in part, that routed order, or 
its remainder, shall receive a new time stamp reflecting the time of 
its return to the System, unless any portion of the original order 
remains on the System, in which case the routed order shall retain 
its timestamp and its priority.''
---------------------------------------------------------------------------

    The Exchange proposes to include a Qualified Contingent Cross or 
``QCC'' Order within proposed Rule 1080(b)(8) for ease of reference, 
which directs one to Rule 1088, which provides the detailed explanation 
of this order type. A QCC Order is described in detail within Rule 1088 
today. While this order type is not currently listed within Rule 1080, 
the Exchange believes that it is useful to market participants to have 
all order types centralized. No substantive changes are being made to 
this order type.
    The Exchange proposes to include a definition of a PIXL Order 
within proposed Rule 1080(b)(9) for ease of reference. A PIXL Order is 
described in greater detail within Rule 1087 today and that description 
is being referenced within Rule 1080(b)(9). While this order type is 
not currently listed within Rule 1080, the Exchange believes that it is 
useful to market participants to have all order types centralized. No 
substantive changes are being made to this order type.
    The Exchange proposes to include a definition of a Legging Order 
within proposed Rule 1080(b)(10) for ease of reference. A Legging Order 
is as described in greater detail within Rule 1098(f)(iii)(C). While 
this order type is not currently listed within Rule 1080, the Exchange 
believes that it is useful to market participants to have all order 
types centralized. No substantive changes are being made to this order 
type.
    The Exchange proposes to include a definition of a Directed Order 
within proposed Rule 1080(b)(11) for ease of reference. A Directed 
Order is described in greater detail within Rule 1068 today. While this 
order type is not currently listed within Rule 1080, the Exchange 
believes that it is useful to market participants to have all order 
types centralized. No substantive changes are being made to this order 
type.
    The Exchange proposes to add Time in Force or ``TIF'' types within 
proposed new Rule 1080(c). Today these TIFs are noted within current 
Rule 1080(b)(i)(A)-(C) by category. The Exchange proposes to add 
descriptions to provide greater detail for these existing TIFs. The 
term ``Time in Force'' shall mean the period of time that the System 
will hold an order for potential execution, and shall include:

    (1) Day. If not executed, an order entered with a TIF of ``Day'' 
expires at the end of the day on which it was entered. All orders by 
their terms are Day Orders unless otherwise specified. Day orders 
may be entered through FIX.
    (2) Immediate-or-Cancel or IOC. An Immediate-or-Cancel (``IOC'') 
Order entered with a TIF of ``IOC'' is a Market Order or Limit Order 
to be executed in whole or in part upon receipt. Any portion not so 
executed is cancelled.
    (A) Orders entered with a TIF of IOC are not eligible for 
routing.
    (B) IOC orders may be entered through FIX or SQF, provided that 
an IOC Order entered by a ROT or Specialist through SQF is not 
subject to the Order Price Protection or the Market Order Spread 
Protection in Rule 1099(a).
    (C) Orders entered into the Price Improvement XL Mechanism and 
Qualified Contingent Cross Mechanism are considered to have a TIF of 
IOC. By their terms, these orders will be: (1) Executed either on 
entry or after an exposure period, or (2) cancelled.
    (3) Opening Only. An Opening Only (``OPG'') order is entered 
with a TIF of ``OPG''. This order can only be executed in the 
Opening Process pursuant to Rule 1017. This order type is not 
subject to any protections listed in Rule 1099, except for Automated 
Quotation Adjustments. Any portion of the order that is not executed 
during the Opening Process is cancelled.
    (4) Good Til Cancelled. A Good Til Cancelled (``GTC'') Order 
entered with a TIF of GTC, if not fully executed, will remain 
available for potential display and/or execution unless cancelled by 
the entering party, or until the option expires, whichever comes 
first. GTC Orders shall be available for entry from the time prior 
to market open specified by the Exchange until market close.

    The Exchange proposes to describe an order with a TIF of ``Day'' at 
proposed new Rule 1080(c)(1) as an order that if not executed, an order 
entered with a TIF of ``Day'' expires at the end of the day on which it 
was entered. All orders by their terms are Day Orders unless otherwise 
specified. Day Orders may be entered through FIX.\62\ The Exchange 
believes that describing a Day Order with greater specificity will add 
detail to how Day Orders are treated in the System. The Exchange notes 
that orders are permitted to be entered with a TIF of ``day'' as noted 
in proposed Rule 1080(b). The Exchange notes that Options 8, Section 32 
does not describe a ``Day'' order. The Exchange proposes to include the 
definition of a ``Day'' Order in proposed Options 8, Section 32(c)(2).
---------------------------------------------------------------------------

    \62\ Financial Information eXchange'' or ``FIX'' is an interface 
that allows members and their Sponsored Customers to connect, send, 
and receive messages related to orders and auction orders and 
responses to and from the Exchange. Features include the following: 
(1) Execution messages; (2) order messages; and (3) risk protection 
triggers and cancel notifications. See Rule 1080(a)(i)(A).
---------------------------------------------------------------------------

    The Exchange proposes to describe an order with a TIF of 
``Immediate-or-Cancel'' or ``IOC'' at proposed new Rule 1080(c)(2) as a 
Market Order or Limit Order to be executed in whole or in part upon 
receipt. Any portion not so executed is cancelled. Current Options 8, 
Section 32(c)(5) describes an IOC Order as ``An Immediate-or-Cancel 
(``IOC'') order is a limit order that is to be executed in whole or in 
part upon receipt. Any portion not so executed shall be cancelled. IOC 
Orders are not routable and shall not be subject to any routing process 
described in these Rules.'' The Exchange is including a definition of 
an IOC Order within proposed Rule 1080(c)(2) similar to that in Options 
8, Section 32(c)(5) with no substantive changes. Proposed Rule 
1080(c)(2)(A) notes that Orders entered with a TIF of IOC are not 
eligible for routing. Further the Exchange proposes to add new details 
to this rule that are applicable specifically to the electronic market 
by stating that ``IOC orders may be entered through FIX \63\ or SQF, 
provided that an IOC Order entered by a ROT or Specialist through SQF 
is not subject to the Order Price Protection or the Market Order Spread 
Protection in Rule 1099(a).'' Today, orders that are entered as IOC by 
a ROT or Specialist through SQF \64\ are subject to the protections 
listed in Rule 1099,\65\ except for Order Price Protection and Market 
Order Spread Protection. The Order

[[Page 68206]]

Price Protection and Market Order Spread Protection, while available 
for orders, are not available on SQF. The Exchange notes these 
exceptions within this rule to make clear that this information is 
available to market participants within the description of IOC. The 
Exchange notes ROTs and Specialists utilize IOC Orders to trade out of 
accumulated positions and manage their risk when providing liquidity on 
the Exchange. Proper risk management, including using these IOC Orders 
to offload risk, is vital for ROTs and Specialists, and allows them to 
maintain tight markets and meet their quoting and other obligations to 
the market. The Exchange believes that allowing ROTs and Specialists to 
submit IOC Orders though their preferred protocol increases their 
efficiency in submitting such orders and thereby allow them to maintain 
quality markets to the benefit of all market participants that trade on 
the Exchange. Further, unlike other market participants, ROTs and 
Specialists provide liquidity to the market place and have 
obligations.\66\ The Exchange believes not offering Order Price 
Protection and Market Order Spread Protection for IOC Orders entered 
through SQF is consistent with the Act because ROTs and Specialists 
have more sophisticated infrastructures than other market participants 
and are able to manage their risk, particularly with respect to 
quoting, using tools that are not available to other market 
participants.\67\
---------------------------------------------------------------------------

    \63\ See Rule 1080(a)(i)(A).
    \64\ See Rule 1080(a)(i)(B).
    \65\ Phlx Rule 1099 is titled, ``Risk Protections.''
    \66\ Specialists have quoting obligations during the Opening 
Process as specified in Rule 1017(d) and ROTs and Specialists have 
intra-day quoting obligations as specified in Rule 1093.
    \67\ ROTs and Specialists quotes are subject to various 
protections listed in Rule 1099(c). These additional quoting 
protections permit ROTs and Specialists to manage their exposure at 
the Exchange. Other market participants would not be subject to 
these risk protections because they do not submit quotes on Phlx and 
do not utilize SQF.
---------------------------------------------------------------------------

    Also, the proposed rule would also specify that orders entered into 
the Price Improvement XL (``PIXL'') Mechanism and Qualified Contingent 
Cross (``QCC'') Mechanism are considered to have a TIF of IOC. By their 
terms, these orders will be: (1) Executed either on entry or after an 
exposure period, or (2) cancelled.\68\ The Exchange believes that 
adding these new details to the manner in which IOC Orders are handled 
within the System will bring greater transparency to these order types.
---------------------------------------------------------------------------

    \68\ The TIF of IOC is applied to all PIXL and QCC Orders today.
---------------------------------------------------------------------------

    The Exchange proposes to describe an order with a TIF of ``Opening 
Only'' or ``OPG'' at proposed new Rule 1080(c)(3) as an order can only 
be executed in the Opening Process pursuant to Rule 1017. The proposed 
rule also provides that ``Any portion of the order that is not executed 
during the Opening Process is cancelled.'' The Exchange also proposes 
to note ``This order type is not subject to any protections listed in 
Rule 1099, except for Automated Quotation Adjustments.'' This 
limitation is already provided for within Rule 1099. The Exchange 
currently refers to this TIF as limit on opening order and proposes to 
rename this TIF ``Opening Only'' or ``OPG.'' The Exchange notes that 
the terms ``opening-only market order'' and ``limit on opening'' are 
market and limit orders with a TIF of OPG. The Exchange believes that 
memorializing OPG as a TIF explains the manner in which these orders 
are entered into the Opening Process for handling pursuant to Rule 
1017.
    An order with a TIF of ``Good Til Cancelled'' or ``GTC'' is 
described at proposed new Rule 1080(c)(4) and is also being included in 
Options 8, Section 32(c)(3) as an order that if not fully executed, 
will remain available for potential display and/or execution unless 
cancelled by the entering party, or until the option expires, whichever 
comes first. GTC Orders shall be available for entry from the time 
prior to market open specified by the Exchange until market close. The 
Exchange has noted this TIF within the current Rule 1080(b), however it 
did not describe the TIF. The Exchange proposes to define it within 
both Rules 1080 and Options 8, Section 32, according to the manner in 
which the TIF is applied today within the System.
    Proposed Rule 1080(d) notes that DNR, SRCH and FIND are described 
within Rule 1093. Specifically, the proposed rule text provides, 
``Routing Strategies. Orders may be entered on the Exchange with a 
routing strategy of FIND, SRCH or Do-Not-Route (``DNR'') as provided in 
Rule 1093 through FIX only.'' Rule 1093 describes DNR, SRCH and FIND 
Orders in greater detail. The Exchange is noting the limitation of FIX 
for additional information on the entry of routed orders. FIX is the 
only order entry protocol offered on Phlx today for FIND, SRCH, or DNR 
orders.\69\ The current rule text of Rule 1080(b)(i) includes this 
routing strategies in the list of order types. The Exchange proposes to 
separate out these FIX-only routing strategies within proposed Rule 
1080(d) for clarity.
---------------------------------------------------------------------------

    \69\ See Phlx Rule 1080(a)(i)(A).
---------------------------------------------------------------------------

Rule 1080(f) Unbundling of Orders
    The Exchange proposes to amend the rule text within Rule 
1080(b)(iii) \70\ which concerns the unbundling of orders to simply re-
number this provision as proposed new Rule 1080(f) and remove 
references to outdated systems (AUTOM and AUTO-X).
---------------------------------------------------------------------------

    \70\ Current Rule 1080(b)(iii) provides, ``Orders may not be 
unbundled for the purposes of eligibility for AUTOM and AUTO-X, nor 
may a firm solicit a customer to unbundle an order for this purpose.
---------------------------------------------------------------------------

Rule 1080(c)
    Rule 1080(c) currently states,

    Phlx XL automatically executes eligible orders using the 
Exchange disseminated quotation (except if executed pursuant to the 
NBBO Feature in sub-paragraph (i) below) and then automatically 
routes execution reports to the originating member organization. 
AUTOM orders not eligible for AUTO-X are executed manually in 
accordance with Exchange rules. Manual execution may also occur when 
AUTO-X is not engaged, such as pursuant to sub-paragraph (iv) below. 
An order may also be executed partially by AUTO-X and partially 
manually. The terms ``Book Match'' and ``Book Sweep'' are subsumed 
under the term ``AUTO-X'' for purposes of these rules.
    In Phlx XL II, respecting situations in which the Quote Exhaust 
feature is engaged, the system will automatically execute 
transactions as set forth in Rule 1082.
    The Exchange may for any period restrict the use of AUTO-X on 
the Exchange in any option or series provided that the effectiveness 
of any such restriction shall be conditioned upon its having been 
approved by the Securities and Exchange Commission pursuant to 
Section 19(b) of the Securities Exchange Act of 1934 and the rules 
and regulations thereunder. Any such restriction on the use of AUTO-
X approved by the Exchange will be clearly communicated to Exchange 
membership and AUTOM users on the Exchange's website. Such 
restriction would not take effect until after such communication has 
been made
    The Exchange shall provide automatic executions for eligible 
customer and broker-dealer orders up to the Exchange's disseminated 
size as defined in Exchange Rule 1082 except with respect to orders 
eligible for ``Book Match.

    The Exchange proposes to delete all of the aforementioned rule 
text. The first sentence, ``Phlx XL automatically executes eligible 
orders using the Exchange disseminated quotation (except if executed 
pursuant to the NBBO Feature in sub-paragraph (i) below) and then 
automatically routes execution reports to the originating member 
organization'' while true is explained in other rules. The Exchange 
notes in Options 8, Section 25 the manner in which orders are allocated 
today at the either the NBBO or the Phlx Best Bid or Offer. The 
Exchange also

[[Page 68207]]

notes that Rule 1082 provide for the manner in which the Exchange does 
not trade-through the NBBO. This sentence is not providing the detail 
contained in those other rules.
    With respect to the next three sentences, which provide, ``AUTOM 
orders not eligible for AUTO-X are executed manually in accordance with 
Exchange rules. Manual execution may also occur when AUTO-X is not 
engaged, such as pursuant to sub-paragraph (iv) below. An order may 
also be executed partially by AUTO-X and partially manually. The terms 
``Book Match'' \71\ and ``Book Sweep'' \72\ are subsumed under the term 
``AUTO-X'' for purposes of these rules,'' the Exchange proposes to 
delete these sentences. As noted above AUTOM no longer exists so 
references to AUTOM orders are obsolete. Also, specialist manual 
handling no longer exists.\73\ The explanation of manual order handling 
is not relevant in today's System. The Exchange notes that all 
executions occur within the match engine as explained in Options 8, 
Section 25. Partial manual execution is not possible within the System. 
As all AUTO-X functionality was overridden by the initiation of Phlx XL 
fully automated technology, the references to the terms ``Book Match'' 
and ``Book Sweep'' are no longer necessary. The rule text referring to 
legacy systems should have been removed at the time that Phlx XL was 
implemented. The Exchange is proposing to remove Rule 1080(c) rules 
related to a legacy system to avoid confusion.
---------------------------------------------------------------------------

    \71\ Book Match was an automatic execution feature of the 
Exchange's systems that automatically executes inbound marketable 
orders against limit orders on the book or specialist, RSQT and/or 
SQT electronic quotes (``electronic quotes'') at the disseminated 
price where: (1) The Exchange's disseminated size includes limit 
orders on the book and/or electronic quotes at the disseminated 
price; and (2) the disseminated price is the National Best Bid or 
Offer. See Securities Exchange Act Release No. 54312 (August 14, 
2006), 71 FR 47856 (August 18, 2006) (SR-Phlx-2006-28).
    \72\ Book Sweep was an automatic execution feature of the 
Exchange's systems that, respecting non-Streaming Quote Options, 
allowed certain orders resting on the limit order book to be 
automatically executed when the bid or offer generated by the 
Exchange's system or by the specialist's proprietary quoting system 
locks (i.e., $1.00 bid, $1.00 offer) or crosses (i.e., $1.05 bid, 
$1.00 offer) the Exchange's best bid or offer in a particular series 
as established by an order on the limit order book. Orders in non-
Streaming Quote Options executed by the Book Sweep feature were 
allocated among crowd participants participating on the Wheel. Book 
Sweep is being retained for Streaming Quote Options. See Securities 
Exchange Act Release No. 54312 (August 14, 2006), 71 FR 47856 
(August 18, 2006) (SR-Phlx-2006-28).
    \73\ Manual execution by a specialist could occur in AUTOM. 
Specialist manual handling, and this rule governing order messages, 
all of which is obsolete. AUTOM and AUTO-X were replaced by Phlx XL. 
See Securities Exchange Act Release No. 50100 (July 27, 2004), 69 FR 
46612 (August 3, 2004) (SR-Phlx-2003-59). Rule 1080(c)(iv)(G) notes 
that no orders will be executed manually on Phlx XL which is the 
current System.
---------------------------------------------------------------------------

    There is a reference to Phlx XL within Rule 1080(c), ``In Phlx XL 
II, respecting situations in which the Quote Exhaust feature is 
engaged, the system will automatically execute transactions as set 
forth in Rule 1082.'' The Exchange notes that the Quote Exhaust feature 
is described within Rule 1082(a)(3) and therefore this reference in not 
necessary within Rule 1080. The aforementioned rule text is being 
deleted in its entirety.
    For similar reasons, the Exchange is removing the remainder of 
1080(c).
Rule 1080(c)(i)
    The Exchange proposes to delete Rule 1080(c)(i)(A) and (B) in their 
entirely; the rule text states:

(i) NBBO Calculation

    (A) Where an Options Exchange Official determines that quotes in 
options on the Exchange or another market or markets are subject to 
relief from the firm quote requirement set forth in the SEC Quote 
Rule, as defined in Exchange Rule 1082(a)(iii) (the ``Quote Rule''), 
customer market orders will receive an automatic execution at the 
NBBO based on the best bid or offer in markets whose quotes are not 
subject to relief from the firm quote requirement set forth in the 
Quote Rule. Such determination may be made by way of notification 
from another market that its quotes are not firm or are unreliable; 
administrative message from the Option Price Reporting Authority 
(``OPRA''); quotes received from another market designated as ``not 
firm'' using the appropriate indicator; and/or telephonic or 
electronic inquiry to, and verification from, another market that 
its quotes are not firm. AUTOM customers will be duly notified via 
electronic message from AUTOM that such quotes are excluded from the 
calculation of NBBO. The Exchange may determine to exclude quotes 
from its calculation of NBBO on a series-by-series basis or issue-
by-issue basis, or may determine to exclude all options quotes from 
an exchange, where appropriate, under the conditions set forth 
above. The Exchange shall maintain a record of each instance in 
which another exchange's quotes are excluded from the Exchange's 
calculation of NBBO, and shall notify such other exchange that its 
quotes have been so excluded. Such documentation shall include: 
Identification of the option(s) affected by such action; the date 
and time such action was taken and concluded; identification of the 
other exchange(s) whose quotes were excluded from the Exchange's 
calculation of NBBO; identification of the Options Exchange Official 
who approved such action; the reasons for which such action was 
taken; and identification of the specialist and the specialist unit. 
The Exchange will maintain these documents pursuant to the record 
retention requirements of the Securities Exchange Act of 1934 and 
the rule and regulations thereunder.
    (B) Where an Options Exchange Official determines that quotes in 
options on the Exchange or another market or markets previously 
subject to relief from the firm quote requirement set forth in the 
Quote Rule are no longer subject to such relief, such quotations 
will be included in the calculation of NBBO for such options. Such 
determination may be made by way of notification from another market 
that its quotes are firm; administrative message from the Option 
Price Reporting Authority (``OPRA''); and/or telephonic or 
electronic inquiry to, and verification from, another market that 
its quotes are firm. AUTOM customers will be duly notified via 
electronic message from AUTOM that such quotes are again included in 
the calculation of NBBO.

The SEC Quote Rule is referenced in current Rule 1082(a)(iii).\74\ The 
Exchange proposes to remove this rule text as Rule 1082 provides for 
Firm Quotations as does Rule 1019(b)(5). The Exchange describes NBBO 
Price Protection within Rule 1096(b). The Exchange notes that the 
references to AUTOM processes do not exist today.
---------------------------------------------------------------------------

    \74\ See Phlx Rule 1082(a)(iii) The term ``SEC Quote rule'' 
shall mean rule 602 of Regulation NMS under the Securities Exchange 
Act of 1934, as amended.
---------------------------------------------------------------------------

Rule 1080(c)(ii)
    The Exchange proposes to delete Rule 1080(b)(ii)(A) and (B) which 
provides,

Order Entry Firms and Users

    (A) Definitions
    (1) The term ``Order Entry Firm'' means a member organization of 
the Exchange that is able to route orders to AUTOM.
    (2) The term ``User'' means any person or firm that obtains 
access to AUTO-X through an Order Entry Firm.
    (B) Obligations of Order Entry Firms. Order Entry Firms shall:
    (1) Comply with all applicable Exchange options trading rules 
and procedures;
    (2) Provide written notice to all Users regarding the proper use 
of AUTO-X.

Rule 1080(c)(ii)(A)(1) currently defines an ``Order Entry Firm'' as a 
member organization of the Exchange that is able to route orders to 
AUTOM. The Exchange proposes to amend the definition of Order Entry 
Firm and relocate it to Rule 1000(b)(38) to provide, ``An Order Entry 
Firm or ``OEF'' is a member organization that submits orders, as agent 
or principal, on the Exchange.'' The Exchange believes that this new 
description more accurately describes these market participants. The 
Exchange notes that Rule 1080(c)(ii)(A)(2) currently defines a ``User'' 
as any person or firm that obtains access to AUTO-X through an Order 
Entry Firm. The Exchange proposes to delete this term. The term User is 
an obsolete definition intended to refer to the outdated AUTOM system.

[[Page 68208]]

The Exchange uses the terms ``member'' and ``member organization'' in 
its rules to apply to entities and persons that may access the System. 
The Exchange only permits members and member organizations to access it 
System.
    The Exchange currently provides for obligations of Order Entry 
Firms within current Rule 1080(c)(ii)(B). The rule text provides that 
``Obligations of Order Entry Firms. Order Entry Firms shall: (1) Comply 
with all applicable Exchange options trading rules and procedures; (2) 
Provide written notice to all Users regarding the proper use of AUTO-
X.'' The Exchange proposes to delete Rule 1080(c)(ii)(B) and eliminate 
the requirement that Order Entry Firms \75\ comply with all applicable 
Exchange options trading rules and procedures and provide written 
notice to all Users regarding the proper use of AUTO-X. The Exchange 
notes that all members and member organizations are subject to its 
rules. An Order Entry Firm would be required to be a member or member 
organization to access the System. The AUTO-X procedures are irrelevant 
and therefore this sentence is being deleted. AUTO-X no longer exists, 
it was part of AUTOM as explained herein.
---------------------------------------------------------------------------

    \75\ See Rule 1080(c)(ii)(A)(1).
---------------------------------------------------------------------------

Rule 1080(c)(iii)
    The Exchange proposes to delete the rule text at Rule 
1080(c)(iii)(A) and (B), titled ``Quotations Interacting with Limit 
Orders on the Book'' which provides,

    (A) Respecting options traded on the Phlx XL system, when the 
bid or offer generated by the Exchange's Auto-Quote system, SQF (as 
defined in Commentary .01(b)(i) of this Rule), or by an SQT or RSQT 
(as defined in Rule 1014(b)(ii)) matches or crosses the Exchange's 
best bid or offer in a particular series as established by an order 
on the limit order book, orders on the limit order book in that 
series will be automatically executed and automatically allocated in 
accordance with Exchange rules. If Book Sweep is not engaged at the 
time the Auto-Quote, SQF, RSQT or SQT bid or offer matches or 
crosses the Exchange's best bid or offer represented by a limit 
order on the book, the specialist, RSQT, or SQT may manually 
initiate the Book Sweep feature.
    (B) Respecting options traded on the Phlx XL II system, Market 
Sweep will replace Book Sweep order processing. A Market Sweep is 
composed of one or more single-sided quotes submitted by a Phlx XL 
II participant to automatically execute at multiple order price 
levels and a single quote price level. A Market Sweep will execute 
against both quotes and orders, but when a quote level is exhausted, 
the system will cancel the balance of the Market Sweep back to the 
entering party to allow quotes to be updated. Market Sweeps are 
processed on an immediate-or-cancel basis, may not be routed, may be 
entered only at a single price, and may not trade through away 
markets.

    The Exchange proposes to delete this rule text within Rule 
1080(c)(iii)(A) because it reflects an outdated Auto-Quote system which 
no longer exists. The functionality described in subparagraph (iii)(A) 
no longer exists, including Auto-Quote \76\ and the Book Sweep feature, 
as previously mentioned. These features initially existed within Phlx 
XL. Phlx XL was later replaced by Phlx XL II in 2009.\77\ With respect 
to Rule 1080(c)(iii)(B), the Exchange notes that the Phlx XL 
functionality described herein was renamed ``Market Sweep.'' The Market 
Sweep description within current Rule 1080(c)(iii)(B) describes an IOC 
order. Today, ROTs and Specialists may enter IOC orders through SQF. 
This functionality is already included as part of the SQF functionality 
and also the IOC description is proposed within new Rule 1080(c)(2). 
The Exchange therefore proposes the deletion of Rule 1080(c)(iii)(B).
---------------------------------------------------------------------------

    \76\ Auto-Quote was the Exchange's electronic options pricing 
system, which enabled specialists, Streaming Quote Traders 
(``SQTs'') and Remote Streaming Quote Traders (``RSQTs''), to 
automatically monitor and instantly update and submit electronic 
quotations for equity option and index option contracts. Auto-Quote 
was eliminated in 2007. See Securities Exchange Act Release No. 
55498 (March 20, 2007, 72 FR 14318 (March 27, 2007) (SR-Phlx-2007-
15) (Notice of Filing and Immediate Effectiveness of Proposed Rule 
Change To Delete the Exchange's Auto-Quote Options Pricing 
Functionality). This filing inadvertently did not remove all 
references to Auto-Quote.
    \77\ See Securities Exchange Act Release No. 59995 (May 28, 
2009), 74 FR 26750 (June 3, 2009) (SR-Phlx-2009-32).
---------------------------------------------------------------------------

Rule 1080(c)(iv)
    The Exchange proposes to delete Rule 1080(c)(iv) which provides,

    Except as otherwise provided in this Rule, in the following 
circumstances, an order otherwise eligible for automatic execution 
will instead be manually handled by the specialist:
    (A) RESERVED;
    (B) Respecting options traded on Phlx XL, the AUTOM System is 
not open for trading when the order is received (which is known as a 
pre-market order);
    (C) Respecting options traded on Phlx XL, the disseminated 
market is produced during an opening or other rotation;
    (D) Respecting options traded on Phlx XL, when the Exchange's 
best bid or offer is represented by a limit order on the book 
(except with respect to orders eligible for ``Book Sweep'' as 
described in Rule 1080(c)(iii) above, and ``Book Match'' as 
described in Rule 1080(g)(ii) below);
    (E) Respecting options traded on Phlx XL, if the Exchange's bid 
or offer is not the NBBO; and
    (F) Reserved.
    (G) Respecting options traded on the Phlx XL II system, no 
orders will be executed manually.
    The Exchange's systems are designed and programmed to identify 
the conditions that cause inbound orders to be ineligible for 
automatic execution. Once it is established that inbound orders are 
ineligible for automatic execution, Exchange staff has the ability 
to determine which of the above conditions occurred.

    The Exchange proposes to delete Rule 1080(c)(iv) because it refers 
to the possibility of executions being manually handled by the 
specialist, which cannot occur anymore, as described above.\78\ Rule 
1080(c)(iv)(A) is currently reserved, and is being deleted. Rule 
1080(c)(iv)(B) describes AUTOM, which is now obsolete and proposed to 
be deleted. Phlx Rule 1017 describes the timeframe interest will be 
accepted for the Opening Process. Similarly, Rule 1080(c)(iv)(C) 
describes a process for opening and reopening which is described in 
Phlx Rule 1017; the rule text is not necessary. A trading halt will 
result in a reopening pursuant to Rule 1017. Rule 1080(c)(iv)(D) and 
(E) is proposed to be deleted because it is not a possibility for 
manual handling today. As noted in Rule 1080(c)(iv)(G) no orders are 
handled manually on Phlx XL, which the Exchange is simply referring to 
as System. The Exchange also proposes to delete Rule 1080(c)(iv)(F) 
which is reserved.
---------------------------------------------------------------------------

    \78\ Manual execution by a specialist could occur in AUTOM. 
Specialist manual handling, and this rule governing order messages, 
all of which is obsolete. AUTOM and AUTO-X were replaced by Phlx XL. 
See Securities Exchange Act Release No. 50100 (July 27, 2004), 69 FR 
46612 (August 3, 2004) (SR-Phlx-2003-59). Rule 1080(c)(iv)(G) notes 
that no orders will be executed manually on Phlx XL which is the 
current System.
---------------------------------------------------------------------------

Rule 1080(c)(v) and vi
    The Exchange proposes to delete Rule 1080(c)(v) which provides,

    Respecting options traded on Phlx XL, in situations in which the 
Exchange receives a market order that is not eligible for automatic 
execution because of any of the conditions described in Rule 
1080(c)(iv), such market order, if not already executed manually by 
the specialist, will nonetheless be executed automatically when: (A) 
A limit order resting on the limit order book or a quotation that 
was not priced at the NBBO at the time such market order was 
received, becomes priced at the NBBO; or (B) an inbound limit order 
or quotation priced at or better than the NBBO is received before 
the specialist has manually executed such market order. In each 
case, the AUTOM System will automatically execute the market order 
against such resting limit order or quotation, or against such 
inbound limit order or quotation, at or better than the NBBO price.

The Exchange proposes to delete the rule text at Rule 1080(c)(v) 
because it

[[Page 68209]]

references obsolete functionality related to AUTOM and specialist 
manual handling. Phlx XL II contained no such functionality and 
replaced specialist manual handling with automated functionality.
    The Exchange also proposes to delete Rule 1080(b)(vi) which is 
currently reserved.
Rule 1080(d), Hours
    The Exchange proposes to delete Rule 1080(d), ``Hours.'' AUTOM is 
no longer a relevant system. The Exchange's trading hours for quotes is 
provided for in Rule 1019(b)(4) \79\ and the trading hours for orders 
is provided for in Rule 1093(a)(2).\80\ The Exchange does not believe 
that this information is necessary.
---------------------------------------------------------------------------

    \79\ The System accepts quotes for the Opening Process as 
specified in Rule 1017.
    \80\ The System accepts orders beginning at a time specified by 
the Exchange and communicated on the Exchange's website.
---------------------------------------------------------------------------

Rule 1080(e), Extraordinary Circumstances
    The Exchange proposes to delete Rule 1080(e). ``Extraordinary 
Circumstances,'' which provides,

    Respecting options traded on the Phlx XL system, in the event 
extraordinary circumstances with respect to a particular class of 
options exist, an Options Exchange Official may determine to 
disengage AUTO-X with respect to that option, in accordance with 
Exchange procedures. Five minutes subsequent to the disengagement of 
AUTO-X for extraordinary circumstances (and every 15 minutes 
thereafter as long as AUTO-X is disengaged), the requesting 
specialist or his/her designee, an Options Exchange Official, and a 
designated regulatory staff person, shall re-evaluate the 
circumstances to determine if the extraordinary circumstances still 
exist. AUTO-X will be re-engaged when either: (i) The specialist or 
his/her designee determines that the conditions supporting the 
extraordinary circumstances no longer exist, at which time the 
specialist or his/her designee shall inform the regulatory staff 
that the extraordinary circumstances no longer exist and that the 
specialist is re-engaging AUTO-X; or (ii) when an Options Exchange 
Official and the designated regulatory staff person determine that 
the conditions supporting the extraordinary circumstances no longer 
exist. In the event extraordinary conditions exist floor-wide, an 
Options Exchange Official may determine to disengage the AUTO-X 
feature floor-wide. Five minutes subsequent to a floor-wide 
disengagement of AUTO-X for extraordinary circumstances (and every 
15 minutes thereafter as long as AUTO-X is disengaged), an Options 
Exchange Official and a designated regulatory staff person shall re-
evaluate the circumstances to determine if the extraordinary 
circumstances still exist. AUTO-X will be re-engaged when either: 
(1) The specialist determines that the conditions supporting the 
extraordinary circumstances no longer exist for their particular 
class of options at which time the specialist or his/her designee 
will inform regulatory staff that the extraordinary circumstances no 
longer exist for their particular class of options and that the 
specialist is re-engaging AUTO-X; or (2) when an Options Exchange 
Official and the designated regulatory staff person determine that 
the extraordinary circumstances no longer exist. The NBBO Feature is 
always disengaged when AUTO-X is disengaged. Extraordinary 
circumstances include market occurrences and system malfunctions 
that impact a specialist's ability to accurately price and 
disseminate option quotations in a timely manner. Such occurrences 
include fast market conditions such as volatility, order imbalances, 
volume surges or significant price variances in the underlying 
security in the case of equity options or in the underlying currency 
in the case of U.S. dollar-settled foreign currency options; 
internal system malfunctions including the Exchange's Auto-Quote 
system; or malfunctions of external systems such as specialized 
quote feed, or delays in the dissemination of quotes from the Option 
Price Reporting Authority; or other similar occurrences. The 
Exchange shall document any action taken to disengage AUTO-X 
pursuant to this Rule 1080(e), and shall notify all AUTOM Users of 
each instance in which AUTO-X is disengaged due to extraordinary 
circumstances. Such documentation shall include: Identification of 
the option(s) affected by such action (except in a case of floor-
wide disengagement); the date and time such action was taken and 
concluded; identification of the Options Exchange Official who 
approved such action, the reasons for which such action was taken; 
identification of the specialist and the specialist Unit (or in the 
case of floor-wide disengagement, identification of the Exchange 
designee); and identification of the regulatory staff person 
monitoring the situation. The Exchange will maintain these documents 
pursuant to the record retention requirements of the Securities 
Exchange Act of 1934 and the rules and regulations thereunder.
    (i) The Exchange's Emergency Committee, pursuant to Rule 98, may 
take other action respecting AUTOM in extraordinary circumstances.

    Rule 1080(e), Extraordinary Circumstances, is proposed to be 
deleted because it refers to the obsolete functionality of Phlx XL and 
AUTO-X (AUTO-X was part of AUTOM and is no longer in existence). This 
also involves the deletion of subparagraph (i), because the Emergency 
Committee no longer exists; \81\ emergencies related to the System or 
trading floor are handled pursuant to various other provisions.\82\
---------------------------------------------------------------------------

    \81\ See Securities Exchange Act Release No. 71906 (April 8, 
2014), 79 FR 20949 (April 14, 2014) (SR-Phlx-2014-20).
    \82\ See By-Law Article VII, Section 7-5, Authority to Take 
Action Under Emergency or Extraordinary Market Conditions.
---------------------------------------------------------------------------

Rule 1080(f) Specialist Obligations
    The Exchange proposes to delete Rule 1080(f), ``Specialist 
Obligations,'' which provides,

    Specialist Obligations--Respecting options traded on Phlx XL, a 
specialist must accept eligible orders delivered through AUTOM. A 
specialist must comply with the obligations of Rule 1014, as well as 
other Exchange rules, in the handling of AUTOM orders.
    (i) RESERVED.
    (ii) A specialist must respond promptly to all messages 
communicated through AUTOM, including order entry, execution and 
cancellation and replacement of orders as well as administrative 
messages.
    (iii) A specialist is responsible for the remainder of an AUTOM 
order where a partial execution occurred.
    (iv) A specialist is responsible for the visibility to the 
trading crowd of both the screens displaying incoming AUTO-X orders 
as well as bids/offers for the at-the-money strike prices in 
displayed options.
    (v) To ensure proper notification to AUTOM users, a specialist 
must promptly notify the Surveillance Post of any AUTOM-related 
Options Exchange Official approval in order for such approval to be 
valid.

    Rule 1080(f), Specialist Obligations, is proposed to be deleted 
because it refers to obligations that were once applicable to trading 
on Phlx XL and AUTOM, both of which are obsolete, as discussed above. 
Specialist obligations are noted within Phlx Rule 1020, ``Registration 
and Functions of Options Specialists'' as well as Rule 1014, 
``Obligations of Market Makers.''
Rule 1080(g), Contra-Party Participation
    The Exchange proposes to delete Rule 1080(g), ``Contra-Party 
Participation,'' which provides,

    Contra-Party Participation--Respecting options traded on the 
Phlx XL system:
    (A) Book Match--For purposes of this sub-paragraph, the contra-
side to automatically executed inbound marketable orders shall be a 
limit order on the book or specialist, RSQT and/or SQT electronic 
quotes (``electronic quotes'') at the disseminated price where: (1) 
The Exchange's disseminated size includes limit orders on the book 
and/or electronic quotes at the disseminated price; and (2) the 
disseminated price is the National Best Bid or Offer. This feature 
is called Book Match. However, respecting options trading on the 
Phlx XL II system, the contra-side to automatically executed inbound 
marketable orders can also be a sweep, pursuant to Rule 1082.

    The Exchange proposes to delete Rule 1080(g), Contra-Party 
Participation, because Book Match is obsolete. As noted in the last 
sentence of the text, with Phlx XL, Rule 1082(a)(ii)(B)(3)(c) discusses 
new interest in the opposite side of the market.

[[Page 68210]]

Rule 1080(h), Responsibility for AUTOM Orders
    The Exchange proposes to delete Rule 1080(h), Responsibility for 
AUTOM Orders, which provides,

    Responsibility for AUTOM Orders--Respecting options traded on 
Phlx XL, a member organization who initiates the transmission of an 
order message to the floor (the ``initiating member'') through AUTOM 
is responsible for that order message up to the point that a legible 
and properly formatted copy of the order message is received on the 
trading floor by the specialist unit. Thereafter, the specialist who 
is registered in the option specified in the order message is 
responsible for the contents of the order message received and is 
responsible for the order until one of the following occurs: (i) An 
execution report for the entire amount of the order is properly 
sent; (ii) a cancellation acknowledgement is properly sent; or (iii) 
an order properly expires.
    For the convenience of members using AUTOM, the Exchange 
provides an AUTOM Service Desk to assist on the trading floor in the 
operation of AUTOM. In accordance with Exchange By-Law Article VI, 
Section 6-3, the Exchange shall not be liable for any loss, expenses 
or damage resulting from or claimed to have resulted from the acts, 
errors or omissions of its agents, employees or members in 
connection with AUTOM, or the AUTOM System.
    The Exchange proposes to delete Rule 1080(h), Responsibility for 
AUTOM Orders, because Phlx XL and AUTOM are obsolete, as discussed 
above. In addition, the specialist no longer handles or submits orders 
on behalf of others, such that references to the receipt of order 
messages are also obsolete. The Exchange is also deleting reference to 
its AUTOM Service Desk; various operations personnel work in support of 
the trading floor but the Exchange does not believe their functions 
need to be described in a rule. By-Law Article VI, Section 6-3 applies 
to limit liability regardless of whether it is listed in this rule.
    The Exchange proposes to delete Rule 1080(i), (m), and (n) which 
are currently reserved. The Exchange also proposes to delete the 
following extraneous sentence: ``Such orders will be automatically 
placed on the limit order book in price-time priority.''
Commentary .01
    The Exchange proposes to delete Commentary .01 to Rule 1080 which 
provides,

    .01 Reserved
    (b) If options trading systems throttle quotations for at least 
three minutes, the Chairperson of the Board of Directors or his 
designee may, for capacity management purposes, mandate that the 
specialized quote feed be set to update quotations based on a 
certain minimum movement in the underlying security or the 
underlying foreign currency for: (i) All options; (ii) index options 
only; or (iii) certain specified options, taking into account 
certain factors that may include, but are not limited to, the price 
of the underlying security, volatility in the underlying security or 
the underlying foreign currency, or whether there has been any 
trading volume over the last two trading days. Such mandated minimum 
setting may continue for a period of 15 minutes, and may be 
continued every 15 minutes thereafter, provided that the Exchange's 
options trading systems are throttling quotations at the end of each 
such 15-minute period.

The Exchange notes that the language contained in Commentary .01 to 
Rule 1080 refers to legacy functionality that existed prior to the INET 
transition and does not reflect current functionality. Today, the 
System automatically throttles and provides equal access to the Order 
Book across all interfaces.
Commentary .02
    The Exchange proposes to delete Commentary .02 which provides,

    The Electronic Order Book is the Exchange's automated limit 
order book, which automatically routes all unexecuted AUTOM orders 
to the book and displays orders real-time in order of price/time 
priority.
    (a)(i) Except as provided in sub-paragraph (a)(ii) below, the 
AUTOM System will immediately display the full price and size of any 
limit order that establishes the Exchange's disseminated price or 
increases the size of the Exchange's disseminated bid or offer.
    (ii) The AUTOM System will not display:
    (A) An order executed upon receipt;
    (B) An order where the customer who placed it requests that it 
not be displayed, and upon representation of such order in the 
trading crowd the Floor Broker announces in public outcry the 
information concerning the order that would be displayed if the 
order were subject to being displayed;
    (C) A customer limit order for which, immediately upon receipt, 
a related order for the principal account of the specialist, 
reflecting the terms of the customer order, is routed to another 
options exchange;
    (D) Orders received before or during a trading rotation, 
however, such limit orders will be displayed immediately upon 
conclusion of the applicable rotation if they represent the 
Exchange's best bid or offer;
    (E) The following order types as defined in Rule 1066: 
Contingency Orders; One-Cancels-the-Other Orders; Hedge Orders 
(e.g., spreads, straddles, combination orders); Synthetic Options;
    (F) Immediate or Cancel (``IOC'') orders.
    (b) Limit orders may only be placed on the limit order book by: 
(i) An ROT via electronic interface with AUTOM pursuant to Rule 
1014, Commentary .18; (ii) a Floor Broker using the Options Floor 
Broker Management System (as described in Commentary .06 below); or 
(iii) the AUTOM System for eligible customer and off-floor broker-
dealer limit orders.
    (c) A limit order to be executed manually by the specialist 
pursuant to Rule 1080(c)(iv) will be displayed automatically by the 
AUTOM System until such limit order is executed or cancelled. If 
such limit order is partially executed, the AUTOM System will 
automatically display the actual number of contracts remaining in 
such limit order.

As explained herein, AUTOM is an outdated system. The Exchange notes 
its order types within Phlx Rules 1080(b) and Options 8, Section 32, 
including Limit Orders. Other rules govern trading on the floor, 
including, but not limited to Options 8, Sections 25, 29 and 30. Also, 
as discussed above, specialist manual execution no longer exists.
Commentary .03
    The Exchange proposes to delete Commentary .03 to Rule 1080 which 
provides,

    ``Intermarket Sweep Order'' or ``ISO'' is a limit order that is 
designated as an ISO in the manner prescribed by the Exchange and is 
executed within the system by Participants at multiple price levels 
without respect to Protected Quotations of other Eligible Exchanges 
as defined in Rule 1083. ISOs are immediately executable within the 
Phlx XL II system or cancelled, and shall not be eligible for 
routing as set out in Rule 1080.
    Simultaneously with the routing of an ISO to the Phlx XL II 
system, one or more additional limit orders, as necessary, are 
routed by the entering party to execute against the full displayed 
size of any Protected Bid or Offer (as defined in Rule 1083(n)) in 
the case of a limit order to sell or buy with a price that is 
superior to the limit price of the limit order identified as an ISO. 
These additional routed orders must be identified as ISOs.

The Exchange relocated an updated description of ISO Orders to proposed 
Rule 1080(b)(3). The Exchange notes that it removed references to Phlx 
XL and added greater detail about ISO in the PIXL Auction and during 
the Opening Process. Rule 1083 contains more information with respect 
to ISO Orders which is referenced within the rule.
Commentary .04 and .05
    The Exchange proposed the deletion of these commentaries within the 
discussion of Rule 1080(b) as these commentaries related to text within 
that section.
Rule 1000, Applicability, Definitions and References
    The Exchange proposes to amend Rule 1000(b)(40) which is currently 
reserved, to define the term ``Away Best Bid or Offer'' or ``ABBO'' to 
mean the displayed National Best Bid or Offer not including the 
Exchange's Best Bid or Offer. The Exchange believes that this term will 
bring greater clarity to the

[[Page 68211]]

Exchange's rules. The Exchange proposes to delete Rule 1000(b)(49) to 
remove the definition of ``Agency Order,'' as it is no longer using 
this categorization of orders, as discussed above.
Rule 1014, Obligations and Restrictions Applicable to Specialists and 
Registered Options Traders
    The Exchange explained above the proposed addition of rule text to 
Rule 1014(e), which is currently reserved, to explain what types of 
orders a ROT or Specialist may not enter.
Rule 1017
    The term ``All-or-None'' is being capitalized within Rule 1017(b). 
The description of the Opening Sweep in Rule 1017(b)(i) is being 
deleted, and a cross-reference to the new definition for Opening Sweep, 
in 1080(b)(6), is being added within the rule.
Rule 1078, All-or-None
    As noted above, the Exchange is relocating the text of this rule 
into Rule 1080(b)(5) and reserving this rule.
Rule 1098, Complex Orders on the System
    The Exchange proposes to update Rule 1098 to note that certain 
order types are described in proposed Rule 1080(b) and (c). The 
Exchange is removing the descriptions of order types within Rule 
1098(b)(v) and instead referencing back to Rule 1080. The order types 
entered as complex orders do not differ in description from those 
entered on the simple market. This proposal will conform order types 
across the electronic market, as well as the floor, with the proposed 
changes to Options 8, Section 32. The Exchange is adding Directed 
Orders to Rule 1098(b)(v) as Directed Orders are proposed to be added 
to Rule 1080(b).
    The Exchange also proposes to amend Rule 1098(d)(B), 1098(e)(iv) 
and 1098(f)(ii) to redefine certain sweeps as ``orders'' instead of 
``quotations.'' Specifically, similar to the amendment for Opening 
Sweeps defined above, the Exchange is proposing to amend the references 
to COOP Sweep, COLA Sweep and CBOOK Sweep to describe them as a ``one-
sided electronic order entered by a Specialist or ROT through SQF'' 
instead of ``a one-sided electronic quotation.'' Phlx traditionally has 
referred to all interest within the SQF protocol as quote interest. 
There is no systemic change as a result of this amendment. The Exchange 
is simply re-categorizing these ``quotes'' as ``orders'' as they are 
identical to IOC orders. The Exchange proposes to amend the references 
to ``quotation'' to ``order'' to make clear the type of interest that 
is being entered. Further, the Exchange proposes to make clear that 
these sweeps may only be entered by a Specialist or ROT through 
SQF.\83\ This is the case today.
---------------------------------------------------------------------------

    \83\ Market Makers on Phlx include Specialists and ROTs. See 
note 3.
---------------------------------------------------------------------------

    The Exchange offers ROTs and Specialists the ability to 
expeditiously submit IOC orders through SQF, without having to utilize 
the FIX protocol. This allows ROTs and Specialists to manage risk 
utilizing a single protocol, SQF. Unlike other market participants, 
ROTs and Specialists are required to provide liquidity to the market 
and are subject to certain obligations, including a requirement to 
provide continuous two-sided quotes on a daily basis.\84\ ROTs and 
Specialists utilize IOCs (today sweeps) to trade out of accumulated 
positions and manage their risk when providing liquidity on the 
Exchange. Proper risk management, including using these IOCs to offload 
risk, is vital for ROTs and Specialists, and allows them to maintain 
tight markets and meet their quoting and other obligations to the 
market. The Exchange believes that unlike other market participants, 
ROTs and Specialists have obligations and risks, which are mitigated by 
providing these market participants with the ability to increase their 
efficiency in submitting such orders and thereby allow them to maintain 
quality markets to the benefit of all market participants that trade on 
the Exchange. The Exchange notes that other exchanges offer similar 
capabilities to market makers.\85\ Furthermore, other exchanges do not 
offer order protections on order submitted through a quoting protocol. 
MIAX's Price Protection on Non-Market Maker Orders is not available for 
orders submitted by a Market Maker.\86\ The Price Protection on Non-
Market Maker Orders prevents an order from being executed at a price 
beyond the price designated in the order's price protection 
instructions, and is a similar protection to the Exchange's Limit Order 
Price Protection. The Exchange similarly believes that it is consistent 
with the Act to not apply certain protections to Market Maker 
Immediate-or-Cancel Orders submitted through SQF.
---------------------------------------------------------------------------

    \84\ See Phlx Rule 1081.
    \85\ Miami International Securities Exchange LLC (``MIAX'') 
utilizes its MIAX Express Interface (MEI), a quoting interface, for 
market makers to enter immediate-or-cancel orders.
    \86\ See MIAX Rule 515(c)(1).
---------------------------------------------------------------------------

    ROTs and Specialists handle a large amount of risk when quoting on 
the Exchange and in addition to the risk protections required by the 
Exchange, ROTs and Specialists utilize their own risk management 
parameters when entering orders, minimizing the likelihood of a ROTs 
and Specialist order resulting from an error from being entered. The 
Exchange believes that ROTs and Specialists, unlike other market 
participants, have the ability to manage their risk when submitting IOC 
Orders through SQF and should be permitted to elect this method of 
order entry to obtain efficiency and speed of order entry, particularly 
in light of the continuous quoting obligations the Exchange imposes on 
these participants.
Options 8, Section 32
    The Exchange is proposing to amend Options 8, Section 32 to add an 
``(a)'' before the rule text. The Exchange proposes to amend the ``a'' 
and ``b'' before Market Order \87\ and Limit Order \88\ to a ``1'' and 
``2'' respectively.
---------------------------------------------------------------------------

    \87\ Market Order. A market order is an order to buy or sell a 
stated number of option contracts and is to be executed at the best 
price obtainable when the order reaches the post.
    \88\ Limit Order. A limit order is an order to buy or sell a 
stated number of option contracts at a specified price, or better.
---------------------------------------------------------------------------

    Options 8, Section 32 governs the trading floor while Rule 1080 
governs electronic trading. A member enters orders through FBMS, 
directly into the System shall be governed by Rule 1080 with respect to 
order types. The Exchange proposes to re-letter Contingency Order from 
``c'' to ``b.'' The Exchange proposes to replace the current All or 
None Order \89\ description within Options 8, Section 32(b)(3) with the 
rule text currently within Rule 1078 with the exception of the 
description of the Acceptable Trade Range Protection, which is not 
applied when submitting orders in open outcry.
---------------------------------------------------------------------------

    \89\ All or None Order. An all-or-none order is a market or 
limit order which is to be executed in its entirety or not at all.
---------------------------------------------------------------------------

    The Exchange proposes to add a new Options 8, Section 32(c) which 
provides, ``Time in Force or ``TIF.'' The term ``Time in Force'' shall 
mean the period of time that the System will hold an order for 
potential execution, and shall include:''. This sentence will provide 
more contextual information. The Exchange will renumber the Immediate 
or Cancel Order from Options 8, Section 32(b)(5) to new Options 8, 
Section 32(c)(1). The Exchange proposes to add two additional TIFs, 
``Day'' and ``Good Til Cancelled'' at proposed new Options 8, Section 
32(c)(2) and (3). The Exchange proposes to utilize the descriptions 
proposed within new Rule 1080(c)(1)

[[Page 68212]]

and (4). The Exchange proposes to add a description for Floor Qualified 
Contingent Cross Orders within new proposed Options 8, Section 32(e). 
The description is copied from Rule 1064(e) with a title, ``Floor 
Qualified Contingent Cross Order or Floor QCC Order.'' \90\ The 
Exchange proposes to re-letter the remainder of the rule.
---------------------------------------------------------------------------

    \90\ The Exchange proposes, ``A Floor Qualified Contingent Cross 
Order is comprised of an originating order to buy or sell at least 
1,000 contracts, as provided in Options 8, Section 30(e), that is 
identified as being part of a qualified contingent trade, as that 
term is defined in subsection Options 8, Section 30(e)(3), coupled 
with a contra-side order or orders totaling an equal number of 
contracts.''
---------------------------------------------------------------------------

Options 8, OFPA A-3
    The Exchange proposes to add a cross-reference to the definition of 
All-or-None Orders in proposed new Rule 1080(b)(5) within Options Floor 
Procedure Advice A-3.
    The Exchange notes that other revisions are being made to Options 
8, Section 32(b)(3) that were made in a prior rule change \91\ and 
inadvertently removed by a subsequent rule change. The subsequent rule 
change did not capture the amended text.\92\ The Exchange is 
reinstating the changes that were made in SR-Phlx-2019-03 within this 
rule change.
---------------------------------------------------------------------------

    \91\ See Securities Exchange Act Release No. 85262 (March 7, 
2019), 84 FR 9192 (SR-Phlx-2019-03).
    \92\ See Securities Exchange Act Release No. 85740 (April 29, 
2019), 84 FR 19136 (SR-Phlx-2019-17).
---------------------------------------------------------------------------

2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act,\93\ in general, and furthers the objectives of Section 
6(b)(5) of the Act,\94\ 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 Rule 1080 to amend the order types 
descriptions and eliminate references and descriptions of outdated 
functionality.
---------------------------------------------------------------------------

    \93\ 15 U.S.C. 78f(b).
    \94\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

Order Types
    The Exchange's proposal to remove the distinction between ``agency 
and ``proprietary'' is consistent with the Act because this distinction 
is not necessary to describe the types of orders available on Phlx. The 
Exchange notes that while that distinction may have been applicable at 
one point in time with respect to entering orders, it is not suitable 
to limit the entry of certain orders on that basis. Phlx captures 
capacity of market participants when they submit orders to the System. 
Further, the Exchange notes within proposed Rule 1080(b) any 
limitations that impact a market participant's ability to submit an 
order. Finally, proposed Rule 1014(e) will provide limitations for ROTs 
and Specialists submitting orders.
    The Exchange notes that today no other options market segregates 
the submission of order types by whether the order is an agency or 
proprietary order. Rather, Phlx's proposal as well as rules of other 
options exchanges impose limitations on the types of orders that may be 
entered by ROTs and Specialists as described further herein, as well as 
other limitations related to market ROTs and Specialists makers 
entering orders.\95\ While the Exchange is eliminating the references 
to ``agency'' and proprietary'' orders, the Exchange notes that there 
is no impact to market participants or systemic change that results 
from the elimination of these terms. The list of order types presented 
below reflect current practice. The Exchange is not changing the manner 
in which orders are being submitted to the Exchange. The Exchange 
believes that by defining the rules, similar to other options markets, 
it will bring greater transparency to the Exchange's Rules and permit 
an ease of reference when comparing rulebooks. The Exchange notes that 
this proposal will not amend the System except for the changes 
described below where the Exchange is noting a change is proposed. 
Other functionalities offered by Phlx remains unchanged with this 
proposal.
---------------------------------------------------------------------------

    \95\ See ISE, GEMX and MRX Options 3, Section 7, Miami 
International Securities Exchange, LLC Rule 515 and Cboe Exchange, 
Inc. Rule 5.6.
---------------------------------------------------------------------------

    The Exchange's proposal to replace the current rule text regarding 
order types within Rule 1080(b) with a list of current order types will 
bring greater transparency to the Exchange's Rules. Today, Rule 
1080(b)(i) lists certain order types that have not been available on 
Phlx since Phlx replatformed its technology to INET in 2009. 
Specifically, the Exchange believes that eliminating order types that 
are not available, which include ``or better,'' ``simple cancel to 
reduce size (cancel leaves),'' ``cancel to change price'' and 
``possible duplicate orders,'' is consistent with the Act because the 
revised rule will make clear the order types that are available and 
will clarify the rules. The Exchange notes that these order types have 
not been available for some time. The Exchange believes market 
participants are aware of the current order types that are accepted by 
the System because they review the Exchange's specifications. Proposed 
Rule 1080(b) would make clear what order types are available and 
provide a description of each order type.
    Current Options 8, Section 32 describes the order types available 
for trading on the Trading Floor of the Exchange. The order types 
available within Phlx are the same regardless of whether the order is 
entered electronically or through the Options Floor Broker Management 
System.\96\ Additionally, these order types may be entered in either 
the simple or complex order books. For these reasons, the Exchange is 
simultaneously updating the descriptions of the order types into 
Options 8, Section 32, and Rules 1080 and 1098 to ensure conformity 
among these rules. The description of Market Order within proposed Rule 
1080(b)(1) is substantially similar to the description of Options 8 
Section 32(a). The description of a Limit Order within proposed 
1080(b)(2) is identical to the description within Options 8, Section 
32(b). The ISO description within proposed Rule 1080(b)(3) refers to 
current Rule 1083 and references the current behavior within PIXL 
pursuant to Rule 1087. Finally, ISO behavior for the Opening Process is 
referenced within Rule 1017. The Exchange believes that describing the 
behavior of the ISO Order within Rule 1080(b) is consistent with the 
Act because this functionality exists today and is being centralized 
within one description for ease of reference for members. The Stop 
Order description proposed within Rule 1080(b)(4) is being modified 
from the definition within Options 8, Section 32(c)(1) but the Exchange 
believes the description is substantially similar.
---------------------------------------------------------------------------

    \96\ Options Floor Based Management System or (``FBMS'') is a 
component of the System designed to enable members and/or their 
employees to enter, route and report transactions stemming from 
options orders received on the Exchange. The FBMS also is designed 
to establish an electronic audit trail for options orders 
negotiated, represented and executed by members on the Exchange, to 
the extent permissible under Rule 1000(f), such that the audit trail 
provides an accurate, time-sequenced record of electronic and other 
orders, quotations and transactions on the Exchange, beginning with 
the receipt of an order by the Exchange, and further documenting the 
life of the order through the process of execution, partial 
execution, or cancellation of that order. The features of FBMS are 
described in Rules 1063(e) and 1085. In addition, a non-member or 
member may utilize an FBMS FIX interface to create and send an order 
into FBMS to be represented by a Floor Broker for execution. See 
Phlx Rule 1080(a)(i)(C).
---------------------------------------------------------------------------

    Adding a description for Non-Displayed Contingency Orders within 
Rule 1080(b)(5) will enhance the Rulebook and allow the Exchange to 
readily refer to these categories of orders within its rules. In 
addition, this description will apprise members of the order types on 
Phlx that are Non-Displayed in one location within the

[[Page 68213]]

Rulebook. The All-or-None description within proposed Rule 1080(b)(6) 
is identical to Rule 1078.
    The Opening Sweep description is being revised to describe this 
order type as an order and not a quote. The Exchange notes that the 
categorization of the Opening Sweep is not a substantial change to the 
manner in which the order type functions. The System is not being 
amended. The Opening Sweep is currently described within Rule 
1017(b)(i).\97\ Current Rule 1080(b)(i) notes the Exchange offers an 
opening-only-market order and a limit on opening order. The Exchange is 
amending the definition of Opening Sweep within Rule 1017(b)(i) by 
removing the language and simply referring to proposed Rule 1080(b)(6). 
Phlx traditionally has referred to all interest within the SQF protocol 
as quote interest. The Exchange proposes to amend the references to 
``quotation'' to ``order'' to make clear the type of interest that is 
being entered. The Opening Sweep is an IOC Order that only may be 
entered into the Opening Process. Further, the Exchange proposes to 
make clear that an Opening Sweep may only be entered by a Specialist or 
ROT as this order type is submitted through the SQF protocol.\98\ Other 
market participants tag orders for the Opening Process by placing a TIF 
of ``OPG'' on the order as explained below. The Exchange notes that all 
members may submit interest into the Opening Process. The Exchange 
believes that this rule change is consistent with the Act because the 
categorization has no impact on the functionality on the manner in 
which members utilize the Opening Sweep functionality. From the member 
prospective there is no functional change. The Exchange believes that 
this amendment will conform the categorization of this order type to 
that of order types that are Immediate-or-Cancel Orders despite the 
protocol. The Exchange's proposal to add two new sentences to the 
Opening Sweep description which provide, ``This order type is not 
subject to any protections listed in Rule 1099, except for Automated 
Quotation Adjustments. The Opening Sweep will only participate in the 
Opening Process pursuant to Rule 1017 and will be cancelled upon the 
open if not executed'' are consistent with the Act. Automated Quotation 
Adjustments protections applies to quotes entered into SQF but would 
not apply to an Opening Sweep which is an order entered into SQF. The 
Exchange notes that the second sentence is not new as Opening Sweeps 
are described within Rule 1017 today and apply only during the Opening 
Process. Both of sentences bring greater transparency to this rule.
---------------------------------------------------------------------------

    \97\ Rule 1017(b)(i) provides, ``An Opening Sweep is a one-sided 
electronic quotation submitted for execution against eligible 
interest in the system during the Opening Process.''
    \98\ See Phlx Rule 1080(a)(i)(B) notes that (B) ``Specialized 
Quote Feed'' or ``SQF'' is an interface that allows Specialists, 
SQTs and RSQTs may submit Immediate-or-Cancel Orders through SQF.
---------------------------------------------------------------------------

    The Exchange offers ROTs and Specialists the ability to 
expeditiously submit IOC orders through SQF, without having to utilize 
the FIX protocol. This allows ROTs and Specialists to manage risk 
utilizing a single protocol, SQF. Unlike other market participants, 
ROTs and Specialists are required to provide liquidity to the market 
and are subject to certain obligations, including a requirement to 
provide continuous two-sided quotes on a daily basis.\99\ ROTs and 
Specialists utilize IOCs (today sweeps) to trade out of accumulated 
positions and manage their risk when providing liquidity on the 
Exchange. Proper risk management, including using these IOCs to offload 
risk, is vital for ROTs and Specialists, and allows them to maintain 
tight markets and meet their quoting and other obligations to the 
market. The Exchange believes that unlike other market participants, 
ROTs and Specialists have obligations and risks, which are mitigated by 
providing these market participants with the ability to increase their 
efficiency in submitting such orders and thereby allow them to maintain 
quality markets to the benefit of all market participants that trade on 
the Exchange. The Exchange notes that other exchanges offer similar 
capabilities to market makers.\100\ Furthermore, other exchanges do not 
other order protections on order submitted through a quoting protocol. 
MIAX's Price Protection on Non-Market Maker Orders is not available for 
orders submitted by a Market Maker.\101\ The Price Protection on Non-
Market Maker Orders prevents an order from being executed at a price 
beyond the price designated in the order's price protection 
instructions, and is a similar protection to the Exchange's Limit Order 
Price Protection. The Exchange similarly believes that it is consistent 
with the Act to not apply certain protections to Market Maker 
Immediate-or-Cancel Orders submitted through SQF.
---------------------------------------------------------------------------

    \99\ Specialists have quoting obligations during the Opening 
Process as specified in Rule 1017(d) and ROTs and Specialists have 
intra-day quoting obligations as specified in Rule 1093.
    \100\ Miami International Securities Exchange LLC (``MIAX'') 
utilizes its MIAX Express Interface (MEI), a quoting interface, for 
market makers to enter immediate-or-cancel orders.
    \101\ See MIAX Rule 515(c)(1).
---------------------------------------------------------------------------

    ROTs and Specialists handle a large amount of risk when quoting on 
the Exchange and in addition to the risk protections required by the 
Exchange, ROTs and Specialists utilize their own risk management 
parameters when entering orders, minimizing the likelihood of a ROTs 
and Specialist order resulting from an error from being entered. The 
Exchange believes that ROTs and Specialists, unlike other market 
participants, have the ability to manage their risk when submitting IOC 
Orders through SQF and should be permitted to elect this method of 
order entry to obtain efficiency and speed of order entry, particularly 
in light of the continuous quoting obligations the Exchange imposes on 
these participants.
    The Exchange's proposal to describe the Cancel-Replacement Order 
within proposed Rule 1080(b)(7) is similar to the order type currently 
described within Options 8, Section 32(c)(7). The Exchange is amending 
this description in a manner that is similar to Options 8, Section 
32(7) except the Exchange is adding additional rule text that is not 
currently described within the existing Rules. The Exchange proposes to 
make clear when a loss of priority would occur when submitting a 
Cancel-Replacement Order. The Exchange believes that memorializing the 
current System practice in which the System determines how to 
prioritize a Cancel-Replacement Order is consistent with the Act 
because when an order is routable, the System would need to re-check 
the order to determine if it is marketable and therefore routable. Phlx 
Rule 1093 describes routing functionality.
    With respect to QCC Orders, PIXL Orders, Legging Orders and 
Directed Orders, the Exchange's proposal to note the rule where a 
detailed explanation of the Order Type may be found will add greater 
transparency to the Exchange's Rules. The Exchange's proposal to 
include all order types within proposed Rule 1080(b) is consistent with 
the Act and the protection of investors and the general public because 
it will provide members with a complete list of order types thereby 
adding greater transparency to the Exchange's Rules.
    The Exchange's proposal to add TIFs to proposed Rule 1080(c) will 
also enhance the Exchange's Rulebook by including these order types to 
the proposed set of Rules and providing additional transparency. The 
Exchange proposes to add at Rule 1080(c)(1) a description of a Day 
Order. The Exchange's proposed description of a Day Order memorializes 
the manner in

[[Page 68214]]

which the System currently treats a TIF of ``Day.'' Exchange members 
today are familiar with a Day Order which is described in the 
specifications. The Exchange believes that this description is 
consistent with the Act in that the TIF of Day simply clarifies that an 
order with a TIF of day will be cancelled at the end of the day if not 
executed and serves to provide greater clarity to the Exchange's Rules. 
The Exchange's proposal to describe an IOC Order at proposed Rule 
1080(c)(2) similar to Options 8 Section 32(c)(8) except that the 
Exchange also proposes to note that the IOC Order may be a Market 
Order. This is not the case for Market Orders on the trading floor as a 
price is required to be specified in the trading crowd. Today, Market 
Orders may be marked with a TIF of ``IOC'', this is not a System 
change. The Exchange is also proposing to include new rule text to 
further describe that in an electronic market the types of protocols 
that may be utilized on Phlx to submit IOC Orders. Further the Exchange 
proposes to note that IOC orders submitted through SQF are not subject 
to the order protections within Phlx Rule 1099, except for Automated 
Quotation Adjustments.
    The Exchange notes that SQF is utilized by ROTs and Specialists. 
These market participants are required to provide liquidity to the 
market and are subject to certain obligations, including requirements 
to provide two-sided quotes on a daily basis.\102\ ROTs and Specialists 
use IOC Orders to trade out of accumulated positions and manage their 
risk when providing liquidity on the Exchange. Proper risk management, 
including using IOC Order to offload risk, is vital for these market 
participants, and allows them to maintain tight markets and meet their 
quoting obligations to the market. ROTs and Specialists handle a large 
amount of risk when quoting and in addition to the risk protections 
required by the Exchange, ROTs and Specialists utilize their own risk 
management parameters when entering orders, minimizing the likelihood 
of a ROT or Specialist order resulting from an error from being 
entered. The Exchange believes that ROTs and Specialists, unlike other 
market participants, have the ability to manage their risk when 
submitting IOC Orders through SQF and should be permitted to elect this 
method of order entry to obtain efficiency and speed of order entry, 
particularly in light of the quoting obligations the Exchange imposes 
on these participants. The Exchange noted in a another rule change that 
market makers on Phlx may enter Immediate-or-Cancel Orders through SQF 
and are similarly not subject to certain risk protections.\103\
---------------------------------------------------------------------------

    \102\ See Phlx Rule 1091.
    \103\ See Securities Exchange Act Release No. 81034 (June 27, 
2017), 82 FR 30923 (July 3, 2017) (SR-ISE-2017-58). See also 
Securities and Exchange Release No. 76295 (October 29, 2015), 80 FR 
68338 at 68339 (November 4, 2015) (SR-Phlx-2015-83) (Phlx noted in 
footnote 8 that while SQF permits the receipt of quotes, sweeps are 
not included for purposes of the Percentage Based risk protection in 
Rule 1095(i)). Phlx Rule 1080(c)(iii)(B) provides that, ``Market 
Sweeps are processed on an immediate-or-cancel basis, may not be 
routed, may be entered only at a single price, and may not trade 
through away markets.''
---------------------------------------------------------------------------

    The Exchange's proposal to define an order with a TIF of ``Opening 
Only'' within Rule 1080(c)(3) as an IOC Order that can be entered 
during the Opening Process is consistent with the Act. The limitation 
of order protections within the Opening Process is noted within Rule 
1099. The Exchange notes that this TIF exists today but is being 
renamed. Today, orders that are entered as IOC by a ROT or Specialist 
through SQF \104\ are subject to the protections listed in Rule 
1099,\105\ except for Order Price Protection and Market Order Spread 
Protection. The Order Price Protection and Market Order Spread 
Protection, while available for orders, are not available on SQF. The 
Exchange's proposal to note these exceptions within this rule is 
consistent with the Act because it brings greater transparency with 
respect to the availability of order protections. The Exchange notes 
ROTs and Specialists utilize IOC Orders to trade out of accumulated 
positions and manage their risk when providing liquidity on the 
Exchange. Proper risk management, including using these IOC Orders to 
offload risk, is vital for ROTs and Specialists, and allows them to 
maintain tight markets and meet their quoting and other obligations to 
the market. The Exchange believes that allowing ROTs and Specialists to 
submit IOC Orders though their preferred protocol increases their 
efficiency in submitting such orders and thereby allow them to maintain 
quality markets to the benefit of all market participants that trade on 
the Exchange. Further, unlike other market participants, ROTs and 
Specialists provide liquidity to the market place and have 
obligations.\106\ The Exchange believes not offering Order Price 
Protection and Market Order Spread Protection for IOC Orders entered 
through SQF is consistent with the Act because ROTs and Specialists 
have more sophisticated infrastructures than other market participants 
and are able to manage their risk, particularly with respect to 
quoting, using tools that are not available to other market 
participants.\107\
---------------------------------------------------------------------------

    \104\ See Rule 1080(a)(i)(B).
    \105\ Phlx Rule 1099 is titled, ``Risk Protections.''
    \106\ Specialists have quoting obligations during the Opening 
Process as specified in Rule 1017(d) and ROTs and Specialists have 
intra-day quoting obligations as specified in Rule 1093.
    \107\ ROTs and Specialists quotes are subject to various 
protections listed in Rule 1099(c). These additional quoting 
protections permit ROTs and Specialists to manage their exposure at 
the Exchange. Other market participants would not be subject to 
these risk protections because they do not submit quotes on Phlx and 
do not utilize SQF.
---------------------------------------------------------------------------

    Finally, the Exchange's proposal to memorialize a GTC Order within 
proposed Rule 1080(c)(4) is consistent with the Act and will provide a 
description for a GTC Order that does not exist today. The TIF is noted 
within current Rule 1080(b)(i) without a description. Similar to a Day 
Order, the Exchange believes that it is consistent with the Act to 
describe a GTC Order, which is eligible as an order until cancelled, 
within Rule 1080(c) to provide members with greater transparency as to 
the TIFs which are available on Phlx.
    The Exchange's proposal to note the various routing strategies 
within Rule 1080(d) is consistent with the Act because it will also add 
greater transparency to the Exchange's rules. These routing strategies 
are already described within Rule 1093 and will add greater 
transparency to this rule. The Exchange is simply relocating the 
restrictions that are applicable today to Off-Floor Broker Dealers to 
new Rule 1080(e) without any substantive changes.
    The order types description within proposed Rule 1080(b) should 
promote just and equitable principles of trade and perfect the 
mechanisms of a free and open market and the national market system by 
providing greater clarity concerning certain aspects of the System's 
operations. The order types proposed within Rule 1080(b) do not add any 
new functionality, rather, they provide descriptions for each available 
order type currently offered by the Exchange. The proposed rules 
provide additional detail related to functionality for certain order 
types and the handling of orders which offers greater transparency with 
respect to the Exchange's order type functionality.
    Proposed Rule 1014(e) would permit ROTs and Specialists to enter 
orders in both their assigned and unassigned options, but it would also 
limit a ROT or Specialist to not exceed 25 percent of the total number 
of all contracts executed by the ROT or Specialist in unassigned 
options in any calendar quarter. This limitation is similar to

[[Page 68215]]

limitations on other options markets.\108\ Today, ROTs and Specialists 
on Phlx may not enter orders in non-appointed option series.\109\ The 
Exchange's proposal to permit a ROT or Specialist to enter a limited 
amount of orders is consistent with the Act because ROTs and 
Specialists may enter orders for purposes of providing liquidity on the 
Exchange in certain circumstances. Further, the Exchange still proposes 
to limit ROTs and Specialists. The Exchange is excluding order types 
that today may not be entered by a Specialist or ROT today. Today, 
Specialists and ROTs may not enter All-or-None Orders, and public 
customer-to-public customer cross orders subject to Rule 1087(a) and 
(f), which orders may only be entered by a Public Customer. The 
Exchange proposes to prohibit SQTs and RSQTs from entering Market 
Orders and Stop Orders as well because the Exchange requires SQTs and 
RSQTs to ``maintain a two-sided market in those options in which the 
electronic ROT is registered to trade, in a manner that enhances the 
depth, liquidity and competitiveness of the market'' pursuant to Phlx 
Rule 1081(a)(i). The Exchange believes that permitting SQTs and RSQTs 
to enter Market Orders does not achieve this objective as Market Orders 
are designed to remove liquidity from the Order Book. Further, the 
Exchange does believes that Stop Orders similarly are designed to 
remove liquidity from the Order Book and are non-displayed order types 
until they are triggered which does not benefit the role of an SQT or 
RSQT in displaying liquidity on the Order Book. Finally, Directed 
Orders may not be entered by Specialists and ROTs today pursuant to 
Rule 1068.
---------------------------------------------------------------------------

    \108\ See ISE, GEMX and MRX Options 2, Section 6, NOM Rules at 
Chapter VII, Section 6(e), and BX Rules at Options 2, Section 5(e). 
Further, NYSE Arca, Inc. (``NYSE Arca'') and NYSE American LLC 
(``NYSE American'') do not limit the types of orders that can be 
entered by market makers. See NYSE Arca Rule 6.37B-O and NYSE 
American Rule 925.2NY.
    \109\ Phlx Rule 1014(b)(ii), SQTs and RSQTs may only trade in a 
market making capacity in classes of options in which the SQT is 
assigned.
---------------------------------------------------------------------------

    The Exchange believes its proposal is consistent with the Act. No 
longer limiting the amount of orders that may be executed by ROTs and 
Specialists to simply appointed classes will allow market making 
participants to enter more orders than they are permitted to enter 
today. The current restriction imposed by Commentary .01 to Rule 1014 
to execute at least 50% of the trading activity in any quarter is only 
possible today in assigned options series and therefore is not very 
restrictive. Allowing ROTs and Specialists to enter order in assigned 
series is in addition to their current obligations to quote intra-
day.\110\ In order to meet those obligations ROTs and Specialists will 
need to stay focused on adding liquidity to Phlx. Further, permitting 
ROTs and Specialists to enter orders in non-appointed classes provided 
they do not exceed 25% of the total number of contracts executed in any 
quarter is consistent with the Act because the proposed rule will allow 
ROTs and Specialists to continue to provide liquidity on Phlx, as is 
the case today, while not restricting their business activity in a 
manner that is no other market participants is restricted to transact. 
Phlx's proposal will allow market making participants the same 
flexibility as exists today on other options markets.
---------------------------------------------------------------------------

    \110\ See Phlx Rule 1081.
---------------------------------------------------------------------------

    The Exchange's proposal to amend current Rule 1080(b)(i)(B) and (C) 
to remove the current size limitation of 10 contracts pursuant to which 
certain orders must be entered as IOC by ROTs and Specialists is 
consistent with the Act because the Exchange believes that this 
limitation is no longer necessary given the evolution of the market 
place and further that it hinders non-SQT ROTs and Specialists 
unnecessarily. No other options market has similar limitations 
today.\111\ The 10 contract limitation was put in place to restrict 
participants, whose primary role was to provide liquidity, from using 
orders of small size to avoid providing liquidity using quotes which 
were historically required to be of a size of 10 contracts or more. 
Proposed Rule 1080(b) does not impose any limit and serves to promote 
just and equitable principles of trade by not limiting ROTs and 
Specialists, who today are the only market participants with such a 
restriction.
---------------------------------------------------------------------------

    \111\ See note 32 above.
---------------------------------------------------------------------------

    Similar to the rule change proposed for Opening Sweeps within 
proposed Rule 1080(b)(6) the Exchange proposes to amend Rule 1098 to 
amend the descriptions of COOP Sweeps, COLA Sweeps and CBOOK Sweeps to 
change the description of these IOC Orders from a quote to an order. 
The Exchange's proposal to describe these sweeps as one-sided orders 
entered by a Specialist or ROT through SQF instead of as one-sided 
quotations will make clear the type of interest that these sweeps are 
for purposes of order entry. Phlx traditionally has referred to all 
interest within the SQF protocol as quote interest but this 
classification is not correct when distinguishing interest as either a 
quote or order. Today these sweeps are considered order interest, so no 
change is being made to the manner in the System accepts or processes 
these sweeps. The Exchange believes its proposal is consistent with the 
Act because the proposal will align sweeps in the proper category of 
interest as order interest to avoid confusion and protect investors and 
the general public.
Outdated Systems
    The Exchange proposes to remove references to obsolete 
functionality within Rule 1080(c)-(h). There are multiple references to 
legacy systems and terms related to those Systems. The AUTOM order 
delivery system grew over the years into the current fully automated 
Phlx options trading system XL II. AUTOM and AUTO-X were replaced by 
the Phlx XL System, such that references to both terms refer to Phlx 
XL.\112\ Also, specialist manual handling no longer exists.\113\ The 
explanation of manual order handling is not relevant in today's System. 
The Exchange notes that all executions occur within the match engine as 
provided for within Options 8, Section 25. Partial manual execution is 
not possible within the current System. Rule 1080(c)(iv)(G) provides 
that no orders are handled manually on Phlx XL, which the Exchange is 
simply referring to as System. As all AUTO-X functionality was 
overridden by the initiation of Phlx XL fully automated technology, the 
references to the terms ``Book Match'' and ``Book Sweep'' are no longer 
necessary. The rule text referring to legacy systems should have been 
removed at the time that Phlx XL was implemented. The functionality 
described in Rule 1080(c) (iii)(A) no longer exists, including Auto-
Quote \114\ and the Book Sweep feature, as previously mentioned. These 
features initially existed within Phlx XL. Phlx XL was later replaced 
by Phlx XL II in

[[Page 68216]]

2009.\115\ Rule 1080(e), Extraordinary Circumstances, is proposed to be 
deleted, because it refers to the obsolete functionality of Phlx XL and 
AUTO-X (AUTO-X was part of AUTOM and is no longer in existence). This 
also involves the deletion of subparagraph (i), because the Emergency 
Committee no longer exists; \116\ emergencies related to the System or 
trading floor are handled pursuant to various other provisions.\117\ 
The Exchange believes that removing obsolete rule text and 
functionality will protect investors and the public interest because it 
will avoid confusion within the rules.
---------------------------------------------------------------------------

    \112\ See Securities Exchange Act 72152 (May 12, 2014), 79 FR 
28561 (May 16, 2014) (SR-Phlx-2014-32).
    \113\ Manual execution by a specialist could occur in AUTOM. 
Specialist manual handling, and this rule governing order messages, 
all of which is obsolete. AUTOM and AUTO-X were replaced by Phlx XL. 
See Securities Exchange Act Release No. 50100 (July 27, 2004), 69 FR 
46612 (August 3, 2004) (SR-Phlx-2003-59). Rule 1080(c)(iv)(G) notes 
that no orders will be executed manually on Phlx XL which is the 
current System.
    \114\ Auto-Quote was the Exchange's electronic options pricing 
system, which enabled specialists, Streaming Quote Traders 
(``SQTs'') and Remote Streaming Quote Traders (``RSQTs''), to 
automatically monitor and instantly update and submit electronic 
quotations for equity option and index option contracts. Auto-Quote 
was eliminated in 2007. See Securities Exchange Act Release No. 
55498 (March 20, 2007, 72 FR 14318 (March 27, 2007) (SR-Phlx-2007-
15).
    \115\ See Securities Exchange Act Release No. 59995 (May 28, 
2009), 74 FR 26750 (June 3, 2009) (SR-Phlx-2009-32).
    \116\ See Securities Exchange Act Release No. 71906 (April 8, 
2014), 79 FR 20949 (April 14, 2014) (SR-Phlx-2014-20).
    \117\ See By-Law Article VII, Section 7-5, Authority to Take 
Action Under Emergency or Extraordinary Market Conditions.
---------------------------------------------------------------------------

    Additionally, certain redundant rule text is being removed. With 
respect to Rule 1080(c)(iii)(B), the Exchange notes that the Phlx XL 
functionality described herein was renamed ``Market Sweep.'' Today this 
functionality is referred to within the Specialized Quote Feed 
functionality within Rule 1080(a)(i)(B) and will also be referred to 
within proposed Rule 1080(c)(2)(B) which describes IOC Orders. The 
Exchange notes that the Quote Exhaust feature is described within Rule 
1082(a)(3) and therefore this reference in not necessary within Rule 
1082. The SEC Quote Rule is referenced in current Rule 
1082(a)(iii).\118\ Rule 1080(c)(ii)(A)(1) defines an ``Order Entry 
Firm'' as a member organization of the Exchange that is able to route 
orders to AUTOM. The term Order Entry Firm is not necessary to describe 
order types or other functionality. Rule 1080(c)(ii)(A)(2) defines a 
``User'' as any person or firm that obtains access to AUTO-X through an 
Order Entry Firm. The term User is an obsolete definition intended to 
refer to the outdated AUTOM system. The Exchange uses the terms member 
and member organization in its rules to apply to entities and persons 
that may access the System. The Exchange only permits members and 
member organizations to access it System. Rule 1080(f), Specialist 
Obligations, is proposed to be deleted because it refers to obligations 
that were once applicable to trading on Phlx XL and AUTOM, both of 
which are obsolete, as discussed above. Specialist obligations are 
noted within Phlx Rule 1020, ``Registration and Functions of Options 
Specialists'' as well as Rule 1014, ``Obligations of Market Makers.'' 
The Exchange proposes to delete Rule 1080(g), Contra-Party 
Participation, because Book Match is obsolete. As noted in the last 
sentence of the text, with Phlx XL, Rule 1082(a)(ii)(B)(3)(c) discusses 
new interest in the opposite side of the market. Removing obsolete and 
redundant rule text will bring greater clarity to the Exchange's rules. 
With respect to Commentary .01(b) of Rule 1080, the Exchange notes that 
it does not throttle as described in this rule text. The Exchange notes 
that the language contained in Commentary .01 to Rule 1080 refers to 
legacy functionality that existed prior to the INET transition and does 
not reflect current functionality. Today, the System automatically 
throttles and provides equal access to the Order Book across all 
interfaces.
---------------------------------------------------------------------------

    \118\ See Phlx Rule 1082(a)(iii) The term ``SEC Quote rule'' 
shall mean rule 602 of Regulation NMS under the Securities Exchange 
Act of 1934, as amended.
---------------------------------------------------------------------------

Rule 1000
    The Exchange's proposal to memorialize the defined term ``Order 
Entry Firm'' within proposed Rule 1000(b)(38) will permit the term to 
be utilized throughout the Rulebook.
    The Exchange's proposal to amend Rule 1000(b)(40) which is 
currently reserved, to define the term ``Away Best Bid or Offer'' or 
``ABBO'' to mean the displayed National Best Bid or Offer not including 
the Exchange's Best Bid or Offer will add greater clarity to the 
Exchange's rules.
    The Exchange's proposal to remove the term ``Agency Order'' from 
Rule 1000(b)(49) is consistent with the Act because this term is not 
necessary or utilized elsewhere in the Rulebook other than without Rule 
1080(b). The Exchange is revising Rule 1080(b) such that this term is 
no longer required.
Rule 1017
    The Exchange's proposal to capitalize the term ``All-Or-None'' and 
revise the defined term ``Opening Sweep'' to refer to Rule 1080(b)(6) 
are non-substantive amendments.
Rule 1078
    The Exchange's proposal to delete Rule 1078 is non-substantive.
Rule 1098
    The Exchange's proposal to cross-reference proposed Rule 1080(c) 
refer to the defined terms within Rule 1080(b) is consistent with the 
Act because as noted herein both simple and complex orders are similar 
for the order types defined within proposed Rule 1080(b). This 
amendment merely continues to conform those terms.
Options 8, Section 32
    The Exchange's proposal to re-number/re-letter Options 8, Section 
32 is non-substantive. The Exchange's proposal to amend proposed Rule 
1080(b)(3) to add further information to the All-or-None Order to align 
the rule with proposed Rule 1080(b)(5), except with respect to the last 
sentence of proposed Rule 1080(b)(5) which does not apply with respect 
to Floor Trading is consistent with the Act. The additional clarity 
will serve to align the rules and bring greater transparency to the 
distinctions between electronic and Floor Trading where those 
distinctions exist.
    Adding a new TIF section to proposed Options 8, Section 32(c) 
similar to proposed Rule 1080(c) will align those rules. Memorializing 
a Day Order and a GTC Order will also make clear that those TIFs are 
available today on the Trading Floor. Those TIFs are available today 
and are not included within Options 8, Section 32.
    Finally, the Exchange seeks to memorialize the Floor QCC Order 
which is described within Options 8, Section 30(e) within Options 8, 
Section 32 to bring greater transparency to the order types available 
on the Trading Floor. This amendment is non-substantive as this order 
type exists today.
    The Exchange notes that this proposal does not amend the System or 
the manner in which Floor Trading members may submit orders to the 
Trading Floor.
Options 8, Section 39
    The Exchange proposes to amend the All-or-None Order to refer to 
Rule 1080(b)(5). As described herein, the remaining changes are 
intended to conform the rule to a prior rule change that was 
inadvertently amended.\119\
---------------------------------------------------------------------------

    \119\ The Exchange notes that other revisions are being made to 
Options 8, Section 32(b)(3) that were made in a prior rule change. 
See Securities Exchange Act Release No. 85262 (March 7, 2019), 84 FR 
9192 (SR-Phlx-2019-03) and were inadvertently revered in a 
subsequent filing that did not capture the amended text. See 
Securities Exchange Act Release No. 85740 (April 29, 2019), 84 FR 
19136 (SR-Phlx-2019-17). The Exchange is reinstating the changes 
that were made in SR-Phlx-2019-03.
---------------------------------------------------------------------------

Technical Amendments
    The Exchange's proposal to update the cross-references, remove 
reserved sections and re-number/re-letter its rules will bring greater 
organization to the Rulebook.

B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange does not believe that the proposed rule change will 
impose

[[Page 68217]]

any burden on competition not necessary or appropriate in furtherance 
of the purposes of the Act.
Order Types
    The Exchange's proposal to remove the distinction between 
``agency'' and ``proprietary'' will apply uniformly to all market 
participants in that it will not cause an undue burden on competition. 
The change will not impact the manner in which member submit orders 
into the System. The Exchange is not changing the manner in which 
orders are being submitted to the Exchange. The Exchange notes that 
today no other options market segregates the submission of order types 
by whether the order is an agency or proprietary order.
    The Exchange's proposal to replace the current rule text regarding 
order types within Rule 1080(b) with a list of current order types will 
not impose an undue burden on competition, rather it will bring greater 
transparency to the Exchange's Rules. The order types listed within 
Rule 1080 are available to all market participants except that All-or-
None Orders are available only to customers as provided today within 
Rule 1078. Current Options 8, Section 32 describes the order types 
available for trading on the Trading Floor of the Exchange. The order 
types available within Phlx are the same regardless of whether the 
order is entered electronically or through the Options Floor Broker 
Management System.\120\ Additionally, these order types may be entered 
in either the simple or complex Order Book. For these reasons, the 
Exchange is simultaneously updating the descriptions of the order types 
into Options 8, Section 32, 1080 and 1098 to ensure conformity among 
these rules.
---------------------------------------------------------------------------

    \120\ See note 96 above.
---------------------------------------------------------------------------

    Eliminating the rule text for the following order types, ``or 
better,'' ``simple cancel to reduce size (cancel leaves),'' ``cancel to 
change price'' and ``possible duplicate orders,'' does not create an 
undue burden on competition because the Exchange does not offer these 
order types to any market participant today. The Exchange notes that it 
believes market participants are aware of the current order types that 
are accepted by the System. Currently, the rule provides a list of 
order types within Options 8, Section 32 which describe the order types 
for trading on the floor of the Exchange. The order types available 
within Phlx are the same regardless of whether the order is entered 
electronically or through the Options Floor Broker Management System. 
Additionally, these order types may be entered in either the simple or 
complex order books.
    Further, the Exchange is defining terms within Rule 1080(b) which 
are already defined in the Rulebook, in some cases, for ease of 
reference.\121\ The new descriptions of order types will provide 
greater clarity regarding the operation of the System. The order types 
within Rule 1080(b) do not add any new functionality but instead re-
organize the Exchange's order type rules to provide additional detail 
regarding the order type functionality currently offered by the 
Exchange.
---------------------------------------------------------------------------

    \121\ Opening Sweep is defined in Rule 1017(b)(i). QCC Order is 
defined within Rule 1080(o). The PIXL Order is defined within Rule 
1087. All-or-None Orders are defined within Rule 1078. A Legging 
Order is defined within Rule 1098(f)(iii)(C). Directed Orders if 
defined with Rule 1068. Do No Route Orders are defined within Rule 
1093.
---------------------------------------------------------------------------

    The description of Market Order within proposed Rule 1080(b)(1) is 
substantially similar to the description of Options 8 Section 32(a). 
The description of a Limit Order within proposed 1080(b)(2) is 
identical to the description within Options 8, Section 32(b). The ISO 
description within proposed Rule 1080(b)(3) refers to current Rule 1083 
and references the current behavior within PIXL pursuant to Rule 1087. 
Finally, ISO behavior for the Opening Process is referenced within Rule 
1017. The Exchange believes that describing the behavior of the ISO 
Order within Rule 1080(b) does not impose an undue burden on 
competition because this functionality exists today and is being 
centralized within one description for ease of reference for members. 
The Stop Order description proposed within Rule 1080(b)(4) is being 
modified from the definition within Options 8, Section 32(c)(1) but the 
Exchange believes the description is substantially similar.
    Adding a description for Non-Displayed Contingency Orders within 
Rule 1080(b)(5) will enhance the Rulebook and allow the Exchange to 
readily refer to these categories of orders within its rules. The All-
or-None Order description within proposed Rule 1080(b)(6) is identical 
to Rule 1078.
    The Opening Sweep description is being revised to describe this 
order type as an order and not a quote. The Exchange does not believe 
this change imposes an undue burden on competition because an Opening 
Sweep may only be entered by a Specialist or ROT as this order type is 
submitted through the SQF protocol.\122\ Other market participants tag 
orders for the Opening Process by placing a TIF of ``OPG'' on the order 
as explained below. The Exchange notes that all members may submit 
interest into the Opening Process. Further, the categorization has no 
impact on the functionality on the manner in which members utilize the 
Opening Sweep functionality.
---------------------------------------------------------------------------

    \122\ See Phlx Rule 1080(a)(i)(B) notes that (B) ``Specialized 
Quote Feed'' or ``SQF'' is an interface that allows Specialists, 
SQTs and RSQTs may submit Immediate-or-Cancel Orders through SQF.
---------------------------------------------------------------------------

    The Exchange's proposal to describe the Cancel-Replacement Order 
within proposed Rule 1080(b)(7) is similar to the order type currently 
described within Options 8, Section 32(c)(7). The Exchange's proposal 
to add rule text that is not currently described within the existing 
Rules to make clear when a loss of priority would occur when submitting 
a Cancel-Replacement Order does not impose an undue burden on 
competition.
    The Exchange's proposal to add TIFs to proposed Rule 1080(c) will 
enhance the Exchange's Rulebook by including these order types to the 
proposed set of Rules and providing additional transparency. The 
Exchange proposal to add at Rule 1080(c)(1) of a Day Order does not 
impose an undue burden on competition, rather it memorializes the 
manner in which the System currently treats a TIF of ``Day'' thereby 
adding transparency. The Exchange's proposal to describe an IOC Order 
at proposed Rule 1080(c)(2) similar to Options 8 Section 32(c)(8), with 
the addition of Market Order, and include new rule text to further 
describe that in an electronic market the types of protocols that may 
be utilized on Phlx to submit IOC Orders does not impose an undue 
burden on competition. Further the Exchange proposes to note that IOC 
orders submitted through SQF are not subject to the order protections 
within Phlx Rule 1099, except for Automated Quotation Adjustments. The 
Exchange notes that SQF is utilized by ROTs and Specialists, which 
market participants are required to provide liquidity to the market and 
are subject to certain obligations, including requirements to provide 
two-sided quotes on a daily basis.\123\ ROTs and Specialists utilize 
their own risk management parameters when entering orders, minimizing 
the likelihood of a ROT or Specialist order resulting from an error 
from being entered. The Exchange believes that ROTs and Specialists, 
unlike other market participants, have the ability to manage their risk 
when submitting IOC Orders through SQF and should be permitted to elect 
this method of order entry to obtain efficiency and speed of order 
entry, particularly in light of the

[[Page 68218]]

quoting obligations the Exchange imposes on these participants.
---------------------------------------------------------------------------

    \123\ See Phlx Rule 1091.
---------------------------------------------------------------------------

    The Exchange's proposal to define an order with a TIF of ``Opening 
Only'' within Rule 1080(c)(3) as an IOC Order that can be entered 
during the Opening Process and note as new language to this order type 
that this order type is not subject to the risk protection within Rule 
1099, except for Automated Quotation Adjustment does not impose an 
undue burden on competition as the limitation of order protections 
within the Opening Process is noted within Rule 1099. The Exchange 
notes that this TIF exists today but is being renamed. Finally, the 
Exchange's proposal to memorialize a GTC Order within proposed Rule 
1080(c)(4) will provide a description for a GTC Order that does not 
exist today. The TIF is noted within current Rule 1080(b)(i) without a 
description. This amendment will provide members with greater 
transparency as to the TIFs which are available on Phlx.
    The Exchange's proposal to note the various routing strategies 
within Rule 1080(d) will also add greater transparency to the 
Exchange's rules. These routing strategies are already described within 
Rule 1093 and will add greater transparency to this rule. The Exchange 
is simply relocating the restrictions that are applicable today to Off-
Floor Broker Dealers to new Rule 1080(e) without any substantive 
changes.
    The Exchange's proposal at Rule 1014(e) would permit ROTs and 
Specialists to enter orders in their assigned and unassigned options 
series, but limit a ROT or Specialist to not exceed 25 percent of the 
total number of all contracts executed by the ROT or Specialist in 
their unassigned options series in any calendar quarter, does not 
impose an undue burden on competition, rather it provides ROTs and 
Specialists with the ability to enter orders subject to the same 
limitation that exists today on other options markets.\124\ Today, ROTs 
and Specialists on Phlx may not enter orders in non-appointed option 
series \125\ and further the Exchange requires, pursuant to Commentary 
.01 to Rule 1014 that at least 50% of the trading activity in any 
quarter (measured in terms of contract volume) of an ROT (other than an 
RSQT) shall ordinarily be in classes of options to which he is 
assigned. Proposed Rule 1014(e) does not impose an undue burden on 
competition because unlike other market participants, ROTs and 
Specialists continue to have obligations to quote intra-day \126\ and 
in order to meet those obligations they will need to stay focused on 
adding liquidity to Phlx. The Exchange believes that liquidity will not 
be impacted on Phlx because the Exchange is permitting ROTs and 
Specialists to enter more orders in appointed classes because ROTs and 
Specialists may enter orders in non-appointed classes provided they do 
not exceed 25% of the total number of contracts executed in any 
quarter. The proposal will allow ROTs and Specialists to continue to 
provide liquidity on Phlx, as is the case today, while not restricting 
their business activity in a manner that is no other market 
participants is restricted to transact.
---------------------------------------------------------------------------

    \124\ See note 109 above.
    \125\ Phlx Rule 1014(b)(ii), SQTs and RSQTs may only trade in a 
market making capacity in classes of options in which the SQT is 
assigned.
    \126\ See Phlx Rule 1081.
---------------------------------------------------------------------------

    The Exchange's proposal to remove a size limitation of 10 contracts 
within current Rule 1080(b)(i)(B) and (C) pursuant to which certain 
orders must be entered as IOC by ROTs and Specialists does not impose 
an undue burden on competition, rather the Exchange believes the 
provision unnecessarily hinders non-SQT ROTs and Specialists. ROTs and 
Specialists are the only market participants with such a restriction. 
The limitation is no longer necessary given the evolution of the market 
place. No other options market has similar limitations today.\127\ The 
10 contract limitation was put in place to restrict participants, whose 
primary role was to provide liquidity, from using orders of small size 
to avoid providing liquidity using quotes which were historically 
required to be of a size of 10 contracts or more.
---------------------------------------------------------------------------

    \127\ See note 32 above.
---------------------------------------------------------------------------

    The Exchange's proposal to make clear that Opening Sweeps within 
Rule 1080(b)(6), COOP Sweeps, COLA Sweeps and CBOOK Sweeps within Rule 
1098 are in fact orders and not quotations will bring greater clarity 
to the Exchange's rules. The Exchange's proposal to describe these 
sweeps as one-sided orders entered by a Specialist or ROT through SQF 
instead of as one-sided quotations will make clear the type of interest 
that these sweeps are for purposes of order entry. Phlx traditionally 
has referred to all interest within the SQF protocol as quote interest 
but this classification is not correct when distinguishing interest as 
either a quote or order. The Exchange believes its proposal does not 
impose any burden on competition because sweeps are orders today and 
would be uniformly considered orders for all ROTs and Specialists. All 
market participants may enter interest during the Opening Process. The 
Exchange notes that the amending these sweep descriptions will align 
sweeps in the proper category of interest as order interest to avoid 
confusion.
    The Exchange's proposal to note the various routing strategies 
within Rule 1080, and relocate the restrictions that are applicable 
today to Off-Floor Broker Dealers to new Rule 1080(e) do not impose an 
undue burden on competition, rather these changes add greater clarity 
to the Exchange's Rules.
Outdated Systems
    Removing references to obsolete functionality within Rule 1080(c)-
(h) does not impose an undue burden on competition, rather it brings 
greater clarity to the Exchange's rules. Today, no market participant 
has access to the functionality which is proposed to be deleted. 
Removing the obsolete functionality will make clear what is offered on 
the Exchange. In addition, removing redundant text which is already 
described elsewhere in the Rulebook will bring greater clarity to the 
Rulebook. Removing obsolete and redundant rule text will bring greater 
clarity to the Exchange's rules. With respect to Commentary .01(b) of 
Rule 1080, the Exchange notes that it does not throttle as described in 
this rule text. The Exchange notes that the language contained in 
Commentary .01 to Rule 1080 refers to legacy functionality that existed 
prior to the INET transition and does not reflect current 
functionality. Today, the System automatically throttles and provides 
equal access to the Order Book across all interfaces.
Rule 1000
    The Exchange's proposal to memorialize the defined term ``Order 
Entry Firm'' within proposed Rule 1000(b)(38) will permit the term to 
be utilized throughout the Rulebook.
    The Exchange's proposal to amend Rule 1000(b)(40) which is 
currently reserved, to define the term ``Away Best Bid or Offer'' or 
``ABBO'' to mean the displayed National Best Bid or Offer not including 
the Exchange's Best Bid or Offer will add greater clarity to the 
Exchange's rules.
    The Exchange's proposal to remove the term ``Agency Order'' from 
Rule 1000(b)(40) is consistent with the Act because this term is not 
necessary or utilized elsewhere in the Rulebook other than without Rule 
1080(b). The Exchange is revising Rule 1080(b) such that this term is 
no longer required.

[[Page 68219]]

Rule 1098
    The Exchange's proposal to cross-reference proposed Rule 1080(c) 
refer to the defined terms within Rule 1080(b) does not impose an undue 
burden on competition because as noted herein both simple and complex 
orders are similar for the order types defined within proposed Rule 
1080(b). This amendment merely continues to conform those terms.
Options 8, Section 32
    The Exchange's proposal to re-number/re-letter Options 8, Section 
32 is non-substantive. The Exchange's proposal to amend proposed Rule 
1080(b)(3) to add further information to the All-or-None Order to align 
the rule with proposed Rule 1080(b)(5), except with respect to the last 
sentence of proposed Rule 1080(b)(5) which does not apply with respect 
to Floor Trading does not impose an undue burden on competition, rather 
the amendment adds clarity to the Rule and brings greater transparency 
to the distinctions between electronic and Floor Trading where those 
distinctions exist.
    Adding a new TIF section to proposed Options 8, Section 32(c) 
similar to proposed Rule 1080(c) will align those rules. Memorializing 
a Day Order and a GTC Order will also make clear that those TIFs are 
available today on the Trading Floor. Those TIFs are available today 
and are not included within Options 8, Section 32.
    Finally, the Exchange seeks to memorialize the Floor QCC Order 
which is described within Options 8, Section 30(e) within Options 8, 
Section 32 to bring greater transparency to the order types available 
on the Trading Floor. This amendment is non-substantive as this order 
type exists today. The Exchange notes that this proposal does not amend 
the System or the manner in which Floor Trading members may submit 
orders to the Trading Floor.
Options 8, Section 39
    The Exchange proposes to amend the All-or-None Order to refer to 
Rule 1080(b)(5). As described herein, the remaining changes are 
intended to conform the rule to a prior rule change that was 
inadvertently amended.\128\
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    \128\ The Exchange notes that other revisions are being made to 
Options 8, Section 32(b)(3) that were made in a prior rule change. 
See Securities Exchange Act Release No. 85262 (March 7, 2019), 84 FR 
9192 (SR-Phlx-2019-03) and were inadvertently revered in a 
subsequent filing that did not capture the amended text. See 
Securities Exchange Act Release No. 85740 (April 29, 2019), 84 FR 
19136 (SR-Phlx-2019-17). The Exchange is reinstating the changes 
that were made in SR-Phlx-2019-03.
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Technical Amendments
    The Exchange's proposal to update the cross-references, remove 
reserved sections and re-number/re-letter its rules will bring greater 
organization to the Rulebook.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants, or Others

    No written comments were either solicited or received.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    Because the foregoing proposed rule change does not: (i) 
Significantly affect the protection of investors or the public 
interest; (ii) impose any significant burden on competition; and (iii) 
become operative for 30 days from the date on which it was filed, or 
such shorter time as the Commission may designate, it has become 
effective pursuant to Section 19(b)(3)(A)(iii) of the Act \129\ and 
subparagraph (f)(6) of Rule 19b-4 thereunder.\130\
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    \129\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \130\ 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 (http://www.sec.gov/rules/sro.shtml); or
     Send an email to [email protected]. Please include 
File Number SR-Phlx-2019-52 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-2019-52. 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 (http://www.sec.gov/rules/sro.shtml). 
Copies of the submission, all subsequent amendments, all written 
statements with respect to the proposed rule change that are filed with 
the Commission, and all written communications relating to the proposed 
rule change between the Commission and any person, other than those 
that may be withheld from the public in accordance with the provisions 
of 5 U.S.C. 552, will be available for 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-2019-52 and should be submitted on 
or before January 3, 2020.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\131\
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    \131\ 17 CFR 200.30-3(a)(12).
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Jill M. Peterson,
Assistant Secretary.
[FR Doc. 2019-26841 Filed 12-12-19; 8:45 am]
 BILLING CODE 8011-01-P