Self-Regulatory Organizations; Nasdaq PHLX LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Amend Rules 1000, 1014, 1034, 1068, 1080, 1087, 1090, and 1093, 72017-72023 [2019-28022]
Download as PDF
<![CDATA[
Federal Register / Vol. 84, No. 249 / Monday, December 30, 2019 / Notices
applicant to GSD and MBSD. Finally,
while the proposal would eliminate the
bring-down opinion requirement, FICC
would continue to periodically monitor
in order to identify any significant
changes in relevant non-U.S.
jurisdictions that may be of interest to
FICC.
khammond on DSKJM1Z7X2PROD with NOTICES
(B) Clearing Agency’s Statement on
Burden on Competition
FICC believes that the proposed
changes to the FICC Fee Schedules to
impose the Foreign Legal Opinion Fee
could impose a burden on competition
because it would implement a new fee
payable by a non-U.S. applicant in
connection with a membership
application to FICC, which currently
does not exist in the FICC Fee
Schedules. FICC does not believe that
any burden on competition imposed by
the changes to the FICC Fee Schedules
would be significant because the
Foreign Legal Opinion Fee is unlikely to
cause a material impact to a non-U.S.
membership applicant’s overall cost of
applying for FICC membership due to
the fact that, absent the proposal, these
applicants would have incurred the cost
of obtaining the foreign legal opinion
themselves. FICC believes that any
burden on competition that is created by
the proposed changes to the FICC Fee
Schedules would be necessary in
furtherance of the purposes of the Act 15
in order to cover costs to FICC
associated with obtaining the foreign
legal opinion that is necessary for FICC
to determine whether it would face legal
risks in connection with admitting a
foreign membership applicant. FICC
also believes that any burden that is
created by the Foreign Legal Opinion
Fee would be appropriate in furtherance
of the Act 16 because it would be capped
at the Maximum Estimated Charge and
would not be greater than the costs FICC
may incur in connection with obtaining
the applicable foreign legal opinion.
FICC believes that the elimination of
the annual bring-down requirement
could promote competition because it
would eliminate the cost of obtaining
the bring-down opinion/letter currently
incurred by direct foreign members,
potentially lowering their operating
costs.
(C) Clearing Agency’s Statement on
Comments on the Proposed Rule
Change Received From Members,
Participants, or Others
Written comments relating to the
proposed rule changes have not been
solicited or received. FICC will notify
the Commission of any written
comments received by FICC.
III. Date of Effectiveness of the
Proposed Rule Change, and Timing for
Commission Action
The foregoing rule change has become
effective pursuant to Section 19(b)(3)(A)
of the Act 17 and paragraph (f) of Rule
19b–4 thereunder.18 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.
IV. Solicitation of Comments
Interested persons are invited to
submit written data, views and
arguments concerning the foregoing,
including whether the proposed rule
change is consistent with the Act.
Comments may be submitted by any of
the following methods:
Electronic Comments
• Use the Commission’s internet
comment form (https://www.sec.gov/
rules/sro.shtml); or
• Send an email to rule-comments@
sec.gov. Please include File Number SR–
FICC–2019–006 on the subject line.
Paper Comments
• Send paper comments in triplicate
to Secretary, Securities and Exchange
Commission, 100 F Street NE,
Washington, DC 20549.
All submissions should refer to File
Number SR–FICC–2019–006. This file
number should be included on the
subject line if email is used. To help the
Commission process and review your
comments more efficiently, please use
only one method. The Commission will
post all comments on the Commission’s
internet website (https://www.sec.gov/
rules/sro.shtml). Copies of the
submission, all subsequent
amendments, all written statements
with respect to the proposed rule
change that are filed with the
Commission, and all written
communications relating to the
proposed rule change between the
Commission and any person, other than
those that may be withheld from the
public in accordance with the
provisions of 5 U.S.C. 552, will be
available for website viewing and
printing in the Commission’s Public
Reference Room, 100 F Street NE,
Washington, DC 20549 on official
business days between the hours of
10:00 a.m. and 3:00 p.m. Copies of the
filing also will be available for
inspection and copying at the principal
office of FICC and on DTCC’s website
(https://dtcc.com/legal/sec-rulefilings.aspx). 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–FICC–
2019–006 and should be submitted on
or before January 21, 2020.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.19
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2019–28087 Filed 12–27–19; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–87811; File No. SR–Phlx–
2019–56]
Self-Regulatory Organizations; Nasdaq
PHLX LLC; Notice of Filing and
Immediate Effectiveness of Proposed
Rule Change To Amend Rules 1000,
1014, 1034, 1068, 1080, 1087, 1090, and
1093
December 20, 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 December
19, 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 Exchange. The Commission is
publishing this notice to solicit
comments on the proposed rule change
from interested persons.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The Exchange proposes to amend
Rule 1000, ‘‘Applicability, Definitions
and References,’’ Rule 1014,
‘‘Obligations of Market Makers,’’ Rule
1034, ‘‘Minimum Increments,’’ Rule
1068, ‘‘Directed Orders,’’ Rule 1080,
‘‘Electronic Acceptance of Quotes and
19 17
15 15
U.S.C. 78q–1(b)(3)(I).
U.S.C. 78s(b)(3)(A).
18 17 CFR 240.19b–4(f).
16 Id.
VerDate Sep<11>2014
21:34 Dec 27, 2019
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
17 15
Jkt 250001
PO 00000
Frm 00128
Fmt 4703
1 15
Sfmt 4703
72017
E:\FR\FM\30DEN1.SGM
30DEN1
72018
Federal Register / Vol. 84, No. 249 / Monday, December 30, 2019 / Notices
Orders,’’ Rule 1087, ‘‘Price
Improvement XL (‘‘PIXL’’),’’ Rule 1090,
‘‘Mass Cancellation of Trading Interest,’’
and Rule 1093 titled ‘‘Away Markets
and Order Routing.
The text of the proposed rule change
is available on the Exchange’s website at
https://nasdaqphlx.cchwallstreet.com/,
at the principal office of the Exchange,
and at the Commission’s Public
Reference Room.
II. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
In its filing with the Commission, the
Exchange included statements
concerning the purpose of and basis for
the proposed rule change and discussed
any comments it received on the
proposed rule change. The text of these
statements may be examined at the
places specified in Item IV below. The
Exchange has prepared summaries, set
forth in sections A, B, and C below, of
the most significant aspects of such
statements.
A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
khammond on DSKJM1Z7X2PROD with NOTICES
1. Purpose
The Exchange proposes to amend
Rule 1000, ‘‘Applicability, Definitions
and References,’’ Rule 1014,
‘‘Obligations of Market Makers,’’ Rule
1034, ‘‘Minimum Increments,’’ Rule
1068, ‘‘Directed Orders,’’ Rule 1080,
‘‘Electronic Acceptance of Quotes and
Orders,’’ Rule 1087, ‘‘Price
Improvement XL (‘‘PIXL’’),’’ Rule 1090,
‘‘Mass Cancellation of Trading Interest,’’
and Rule 1093 titled ‘‘Away Markets
and Order Routing.’’ Each rule change
will be discussed below.
Applicability, Definitions and
References
The Exchange proposes to define a
‘‘bid’’ and an ‘‘offer’’ within Phlx Rule
1000(b). The Exchange proposes to state
the term ‘‘bid’’ means a quote or limit
order to buy one or more options
contracts within Rule 1000(b)(62). The
Exchange proposes to state, the term
‘‘offer’’ means a quote or limit order to
sell one or more options contracts
within Rule 1000(b)(63). The Exchange
believes that the addition of these
definitions will bring greater
transparency to the Exchange’s Rules.
Minimum Increments
The Exchange proposes to amend
Rule 1034 regarding minimum
increments. The Exchange proposes to
reorganize and update the rule. The
VerDate Sep<11>2014
20:00 Dec 27, 2019
Jkt 250001
Exchange proposes to create a
Commentary section to Rule 1034 and
relocate all exceptions to Rule 1034(a)
in the Commentary. The Exchange
would amend Rule 1034(a) to state,
except as provided in the Commentary
and then also amend the words
‘‘quoting’’ to ‘‘trading’’ and eliminate
the word ‘‘decimals.’’ The Exchange
notes that executions are considered
when determining the minimum price
variations of options which have prices
at $3.00 or higher or are priced under
$3.00. The word ‘‘quoting’’ is not as
precise as word ‘‘trading.’’ The
Exchange utilizes executions to enforce
minimum increments submitted by the
member. While the word ‘‘quoting’’ is
not incorrect, the Exchange believes
‘‘trading’’ is more understandable and is
similarly utilized by Nasdaq ISE, LLC
(‘‘ISE’’), Nasdaq GEMX, LLC (‘‘GEMX’’)
and Nasdaq MRX, LLC (‘‘MRX’’) at
Options 3, Section 3 of those Rulebooks.
Similarly, the Exchange is removing the
word ‘‘decimals’’ and similar to ISE,
GEMX and MRX at Options 3, Section
3, stating ‘‘at a price’’ because the
Exchange believes this language makes
clear the intent. These changes do not
result in a System change, rather they
represent the Exchange’s current System
operation.
The Exchange proposes to renumber
current Rule 1034(a)(i)(A) as Rule
1034(a)(1), without change. The
Exchange proposes to renumber current
Rule 1034(a)(i)(C) as Rule 1034(a)(2) and
change the words ‘‘Phlx XL II system’’
to simply the defined term ‘‘System.’’
The Exchange proposes to renumber
current Rule 1034(a)(v) as Rule
1034(a)(3) and remove the text
‘‘However’’ and instead add language to
exclude paragraph (a) similar to ISE,
GEMX and MRX Rules at Options 3,
Section 3. The Exchange proposes to
relocate current Rule 1034(a)(i)(b) as
Commentary .01 and add the title
‘‘Penny Pilot Program’’ before the rule
text. The Exchange proposes to relocate
current Rules 1034(a)(ii), (iii), and (iv)
as Commentary .02, .03 and .04,
respectively.
The Exchange believes that these rule
changes will bring greater clarity to the
Rule.
Directed Orders
The Exchange proposes to remove
rule text within Rule 1068(a)(i)(A) with
respect to Directed Orders. The current
rule text provides, ‘‘The term ‘‘Directed
Order’’ means any order (other than a
stop or stop-limit order as defined in
Options 8, Section 32) to buy or sell
which has been directed to a particular
Specialist, RSQT, or SQT by an Order
Flow Provider, as defined below. To
PO 00000
Frm 00129
Fmt 4703
Sfmt 4703
qualify as a Directed Order, an order
must be delivered to the Exchange via
the System.’’ The Exchange proposes to
remove the limitation for a stop or stoplimit order. The System will allow any
order to be considered a Directed Order.
Today, Nasdaq ISE, LLC permits all
order types to be Preferenced.3
Price Improvement XL (‘‘PIXL’’)
The Exchange proposes to amend
Rule 1087 to make clear at the beginning
of the Rule which provisions apply to
Public Customer-to-Public Customer
Cross Orders. Today, Phlx Rule 1087(a) 4
and (f) 5 permit Public Customer-toPublic Customer Cross Orders to be
entered into PIXL. Today Public
Customer-to-Public Customer Cross
Orders may only be entered into PIXL.
This new sentence makes clear which
provisions govern Public Customer-toPublic Customer Cross Orders. The
Exchange proposes to capitalize the
term ‘‘Public Customer-to-Public
Customer Cross Orders’’ within Rules
1014(e) and Rule 1080(e) to conform to
the proposed defined term.
Mass Cancellation of Trading Interest
The Exchange proposes to adopt a
new Rule 1090 titled ‘‘Mass
Cancellation of Trading Interest.’’ The
Nasdaq Options Market LLC (‘‘NOM’’)
and Nasdaq BX, Inc. (‘‘BX’’) Rules at
Chapter VII, Section 11 permit
Participants on those markets to contact
market operations and manually request
3 See
Nasdaq ISE, LLC Rules at Options 2, Section
10.
4 Phlx Rule 1087(a) provides, ‘‘Auction Eligibility
Requirements. All options traded on the Exchange
are eligible for PIXL. A member (the ‘‘Initiating
Member’’) may initiate an Auction provided all of
the following are met:’’ . . . Pursuant to Rule
1087(f), the Exchange will allow a Public Customerto-Public Customer PIXL Order to trade on either
the bid or offer, if the NBBO is $0.01 wide,
provided (1) the execution price is equal to or
within the NBBO, (2) there is no resting Public
Customer at the execution price, and (3) $0.01 is the
Minimum Price Variation (MPV) of the option. The
Exchange will continue to reject a PIXL Order to
buy (sell) if the NBBO is only $0.01 wide and the
Agency order is stopped on the bid (offer) if there
is a resting order on the bid (offer).’’
5 Phlx Rule 1087(f) provides, ‘‘In lieu of the
procedures in paragraphs (a)–(b) above, an Initiating
Member may enter a PIXL Order for the account of
a Public Customer paired with an order for the
account of a Public Customer and such paired
orders will be automatically executed without a
PIXL Auction, provided there is not currently an
Auction in progress in the same series or same
strategy, in which case the orders will be rejected.
The execution price for such a PIXL Order (except
if it is a Complex Order) must be expressed in the
quoting increment applicable to the affected series.
Such an execution may not trade through the better
of the NBBO or Reference BBO or at the same price
as any resting Public Customer order. The execution
price for such a Complex Order PIXL may be in .01
increments and may not trade at a price equal to
or through the cPBBO or at the same price as a
resting Public Customer Complex Order.’’
E:\FR\FM\30DEN1.SGM
30DEN1
Federal Register / Vol. 84, No. 249 / Monday, December 30, 2019 / Notices
cancellation of interest. The Exchange
proposes to adopt a rule which also
permits members to contact market
operations and request the Exchange to
manually cancel interest. The proposed
new rule would state, ‘‘A member may
cancel any bids, offers, and orders in
any series of options by requesting Phlx
Market Operations 6 staff to effect such
cancellation as per the instructions of
the Member.’’ This new rule reflects the
Exchange’s current practice of allowing
members to contact Phlx Market
Operations and request the Exchange to
cancel any bid, offer or order in any
series of options. The Exchange would
cancel such bid, offer or order pursuant
to the member’s instruction. The
Exchange desires to memorialize the
availability of this service.
khammond on DSKJM1Z7X2PROD with NOTICES
Routing
The Exchange filed a proposal to
amend Rule 1093 7 as ‘‘Away Markets
and Order Routing’’ in April 2019.8 At
this time the Exchange proposes further
amendment to this rule to mirror
changes that were proposed to NOM’s
Rule at Chapter VI, Section 11.9 The
changes proposed herein are not
changes to the System, rather the
Exchange proposes to add other
scenarios that may be possible during
Routing and make the current rule text
more clear to provide market
participants with clear expectations
regarding orders that are marked ‘‘DNR’’
and orders that route.
Currently, Rule 1093(a) states, ‘‘When
checking the Order Book, the System
will seek to execute at the price at
which it would send the order to an
away market.’’ The Exchange proposes
to remove this sentence because the
price at which the order would route in
explained in greater detail within Rule
1093(a)(iii). Also, this sentence is
confusing because the price at which an
order would execute is dependent on
the scenario within which an order
would route. Removing this sentence
will remove any confusion related to the
price at which the order would route.
The Exchange proposes to amend rule
text within Rule 1093(a)(iii)(A) related
to DNR Orders. Today, current rule text
provides, ‘‘Any incoming order
6 The request to Market Operations is a manual
request which is made telephonically.
7 The Exchange notes that the amendments to
Rule 1093 reflect the current operation of the
System. The purpose of the amendment is to align
the rule to the specific operation of the routing
functionality on Phlx.
8 See Securities Exchange Act Release No. 85655
(April 16, 2019), 77 FR 16709 (April 22, 2019) (SR–
Phlx–2019–06).
9 See Securities Exchange Act Release No. 87030
(September 19, 2019), 84 FR 50495 (September 25,
2019) (SR–NASDAQ–2019–077).
VerDate Sep<11>2014
20:00 Dec 27, 2019
Jkt 250001
interacting with such a resting DNR
order will execute at the ABBO price,
unless the ABBO is improved to a price
which crosses the DNR’s displayed
price, in which case the incoming order
will execute at the previous ABBO
price.’’ The Exchange proposes to
amend this language to: (1) Clarify the
current scenario to more accurately
capture the order of events; and (2) add
another scenario that is not
contemplated by the current rule text.
The Exchange proposes to clarify the
current rule text to provide, ‘‘Any
incoming order interacting with such a
resting DNR Order will execute at the
ABBO price, unless (1) the ABBO is
improved to a price which crosses the
DNR Order’s already displayed price, in
which case the incoming order will
execute at the previous ABBO price as
the away market crossed a displayed
price . . .’’. This proposed new text
intends to make clear that if the
Exchange’s System is executing an
incoming order against a resting DNR
Order which is displayed, it would not
consider an updated ABBO which
crossed the displayed DNR Order. The
System would not take into account the
away market order or quote which
crossed the DNR Order’s displayed
price. The Exchange is not tradingthrough an away market in this
scenario, rather an away market is
crossing Phlx’s displayed market and
therefore that market has the obligation
not to trade-through Phlx’s displayed
price. A similar change is being made to
the last sentence of Rule
1093(a)(iii)(B)(5) for FIND Orders and
the last sentence Rule 1093(a)(iii)(C)(6)
for SRCH Orders. By way of example,
consider the following sequence of
events in the System:
9:45:00:00:00—MIAX Quote 0.95 × 1.20
9:45:00:00:10—OPRA updates MIAX
BBO 0.95 × 1.20
9:45:00:00:20—Phlx Local BBO Quote
1.00 × 1.15
9:45:00:00:30—OPRA disseminates
PHLX BBO updates: 1.10 × 1.15
9:45:00:00:35: CBOE Quote 1.00 × 1.12
9:45:00:00:45—OPRA disseminates
CBOE BBO 1.00 × 1.12
9:45:00:00:50—DNR Order: Buy 5 @
1.15 (exposes @ ABBO of 1.12,
displays 1 MPV from ABBO @ 1.11)
9:45:00:00:51—OPRA disseminates
PHLX BBO updates: 1.11 × 1.15 (1.11
being the DNR Order displaying 1
MPV from ABBO)
9:45:00:00:60—MIAX Quote updates to
1.00 × 1.10 (1.10 crosses the displayed
DNR Order price, violating locked/
crossed market rules; henceforth, we
need not protect this price)
9:45:00:00:65—OPRA disseminates
MIAX BBO 1.00 × 1.10
PO 00000
Frm 00130
Fmt 4703
Sfmt 4703
72019
9:45:00:00:75—Phlx Market Maker
Order to Sell 5 @ 1.09
9:45:00:00:76—Market Maker Order
immediately executes against DNR
Order 5 contracts @ 1.12 (1.12 being
the ‘previous’ ABBO price
disseminated by CBOE before the
receipt of the DNR Order that was
subsequently and illegally crossed by
MIAX’s 2nd quote)
9:45:00:00:77—OPRA disseminates
PHLX BBO updates: 1.10 × 1.15
(reverts back to BBO set by Phlx Local
Quote since the DNR Order has
executed)
The Exchange also proposes to add a
new scenario to the above-referenced
sentence to state, ‘‘or (2) the ABBO is
improved to a price which locks the
DNR Order’s displayed price, in which
case the incoming order will execute at
the DNR Order’s displayed price.’’ The
Exchange is adding the scenario where
the ABBO is improved to a price which
locks the DNR Order’s displayed price.
In this added scenario, the incoming
order will execute at the DNR Order’s
displayed price. The Exchange notes
that this scenario is not contained in the
current rule text. Adding this scenario is
consistent with the Act because it will
bring greater transparency to the routing
rule and inform members about this
potential outcome if a member elects to
mark their order as ‘‘DNR.’’
The Exchange also proposes to amend
the next sentence within Rule
1093(a)(iii)(A) which currently
provides, ‘‘Should the best away market
change its price to an inferior price
level, the DNR Order will automatically
re-price from its one minimum price
variation inferior to the original away
best bid/offer price to one minimum
trading increment away from the new
away best bid/offer price or its original
limit price, and expose such orders at
the ABBO to participants only if the repriced order locks or crosses the ABBO.
Once priced at its original limit price, it
will remain at that price until executed
or cancelled.’’ The Exchange proposes
to amend this rule text to provide,
‘‘Should the best away market move to
an inferior price level, the DNR Order
will automatically re-price from its one
MPV inferior to the original ABBO and
display one MPV away from the new
ABBO or its original limit price, and
expose such orders at the new ABBO
only if the re-priced order locks or
crosses the new ABBO.’’ The Exchange
is amending the current rule text to
replace the phrase ‘‘change its price’’
with ‘‘move’’ and use the defined term
‘‘MPV.’’ The Exchange is further
amending this sentence to expand on
the re-pricing. In this scenario, the
E:\FR\FM\30DEN1.SGM
30DEN1
khammond on DSKJM1Z7X2PROD with NOTICES
72020
Federal Register / Vol. 84, No. 249 / Monday, December 30, 2019 / Notices
Exchange has already re-priced the DNR
Order and is re-pricing the DNR Order
again because the best away market
moved to an inferior price level. In this
situation, the DNR Order will
automatically re-price from its one MPV
inferior to the original ABBO and
display one MPV away from the new
ABBO price or its original limit price.
The DNR Order will also expose such
orders at the new ABBO, only if the repriced order locks or crosses the new
ABBO. Once booked at its original limit
price, it will remain at that price until
executed or cancelled. The Exchange
believes that this language provides
more context to the manner in which a
DNR Order will be handled by the
Exchange’s System. The Exchange
believes that this additional rule text is
consistent with the Act as the DNR
Order is exposed at the re-priced price
if the Order locked or crossed the
ABBO. Additionally, orders marked
‘‘DNR’’ would book at their original
limit price and remain on the Order
Book. Providing this additional
transparency will assist members in
determining if they want their orders
routed.
As noted above, these changes to the
DNR Orders represent current System
functionality. The Exchange also
proposes to capitalize the term ‘‘Order’’
within Rule 1093(a)(iii)(A).
With respect to FIND Orders within
Rule 1093(a)(iii)(B) as well as SRCH
Orders within Rule 1093(a)(iii)(C) the
Exchange proposes to add a scenario
that is not currently contemplated
within the Rule. Specifically, the
Exchange proposes to add a scenario
that provides, if during the Route Timer,
the ABBO markets move such that the
FIND Order or SRCH Order is no longer
marketable against the ABBO it provides
the various scenarios that may occur.
The FIND Order or SRCH Order may: (i)
Trade at the next PBBO price (or prices)
if the FIND Order SRCH Order price is
locking or crossing that price (or prices),
and/or (ii) be entered into the Order
Book at its limit price if not locking or
crossing the PBBO. A FIND Order or
SRCH Order will be included in the
displayed PBBO at its limit price, unless
the FIND Order or SRCH Order locks or
crosses the ABBO, in which case it will
be entered into the Order Book at the
ABBO price and displayed one MPV
inferior to the ABBO. Further, the
Exchange proposes a scenario where
there exists a locked ABBO when the
FIND Order or SRCH Order is entered
onto the Order Book, the FIND Order or
SRCH Order will be entered into the
Order Book at the ABBO price and
displayed one MPV inferior to the
ABBO. If during the Route Timer any
VerDate Sep<11>2014
20:00 Dec 27, 2019
Jkt 250001
new interest arrives opposite the FIND
Order or SRCH Order that is marketable
against the FIND Order or SRCH Order
such interest will trade against the FIND
Order or SRCH Order at the ABBO price
unless the ABBO is improved to a price
which crosses the FIND Order’s or
SRCH Order’s displayed price, in which
case the incoming order will execute at
the previous ABBO price as the away
market crossed a displayed price. The
above example for a DNR Order is
applicable to the FIND Order and SRCH
Order as well.
The Exchange offers the following
example when there exists a locked
ABBO at the time the FIND Order or
SRCH Order is entered into the Order
Book to demonstrate the manner in
which Phlx posts and displays a FIND
Order or SRCH Order. In this example,
assume Away Market A has displayed
its market at 1.00 × 1.20. Subsequent to
Away Market A displaying it market,
Away Market B displays its market at
.80 × 1.00. The option series is now
locked at 1.00. Next, assume Phlx
receives a FIND Order or SRCH Order at
$2.00 to buy. In this example, Phlx
would post the FIND Order or SRCH
Order into the Phlx Order Book at $1.00
to buy and display the FIND Order at
$0.95 to avoid locking the market in this
option series.
The addition of this language to the
FIND Order and SRCH Order rule text
represents current System functionality.
This scenario is not currently described
within the current routing rule with
respect to either a FIND Order or a
SRCH Order that is not marketable after
a Route Timer has commenced. The
Exchange’s rule seeks to provide
members with the specific handling of
a routable order in various scenarios
during intra-day trading. The Exchange
believes that the addition of this
scenario is consistent with the Act. The
FIND Order or SRCH Order, once it is
not marketable against the ABBO, will
trade at the next PBBO if the order is
locked or crossed. The FIND Order or
SRCH Order would book at its limit
price, provided it is not locking or
crossing the PBBO. The Exchange’s rule
must account for trade-through and will
consider potential executions for the
order consistent with routing
instructions. The proposed rule text
describes scenarios where it will be
displayed at one MPV inferior to the
ABBO or display at the locked ABBO
price, as described in the above
example. This rule text also is intended
to demonstrate that if the ABBO is
improved to a price which crosses the
FIND Order’s displayed price, the
incoming order will execute at the
previous ABBO price. The Exchange
PO 00000
Frm 00131
Fmt 4703
Sfmt 4703
believes that this rule text will bring
greater clarity to the Exchange’s Rules.
Other Amendment
The Exchange also proposes to amend
Rule 1096, Entry and Display of Orders,
to correct the citation of Rule 1099 to
Rule 1070.
2. Statutory Basis
The Exchange believes that its
proposal is consistent with Section 6(b)
of the Act,10 in general, and furthers the
objectives of Section 6(b)(5) of the Act,11
in particular, in that it is designed to
promote just and equitable principles of
trade and to protect investors and the
public interest because the Exchange is
adding more detail to its routing rule to
provide market participants with greater
transparency. The Exchange believes the
added scenarios will provide more
context to routing in general and for the
specific routing strategies for the benefit
of investors and the public interest. The
Exchange continues to offer various
choices to its market participants with
respect to routing.
Applicability, Definitions and
References
The Exchange’s proposal to define a
‘‘bid’’ and an ‘‘offer’’ within Phlx Rule
1000(b) is consistent with the Act as
these terms will bring greater
transparency to the Exchange’s Rules.
Minimum Increments
The Exchange’s proposal to amend
Rule 1034 to reorganize and update the
rule is consistent with the Act because
the change to the rule text as well as
reorganized format should make clear
the standards for minimum increments.
The amendment to Rule 1034(a) to
replace the word ‘‘quoting’’ to ‘‘trading’’
will make the rule text more precise as
executions are considered for
enforcement of minimum increments.
Removing the word ‘‘decimals’’ and
discussing price is also more precise
rule text. The Exchange also notes that
the proposed rule text conforms the
wording to similar wording within
Nasdaq ISE, LLC, Nasdaq GEMX, LLC
and Nasdaq MRX, LLC Options 3,
Section 3. These changes do not result
in a System change, rather they
represent the Exchange’s current System
operation. The remainder of the
amendments to reorganize and
renumber the Rule are non-substantive.
The Exchange believes that these
amendments will bring greater clarity to
the Rule.
10 15
11 15
E:\FR\FM\30DEN1.SGM
U.S.C. 78f(b).
U.S.C. 78f(b)(5).
30DEN1
Federal Register / Vol. 84, No. 249 / Monday, December 30, 2019 / Notices
Directed Orders
The Exchange’s proposal to remove
rule text within Rule 1068(a)(i)(A) will
make clear that, today, both stop and
stop-limit orders can be directed to a
particular Specialist, RSQT, or SQT by
an Order Flow Provider. The rule text
limitation is not accurate because the
System permits a stop and stop-limit
order to be directed. Removing the
limitation and allowing all order types
to be directed allows members greater
flexibility in choosing how to submit
their orders. The Exchange notes that
this amendment is consistent with the
Act because the Exchange is not limiting
the use of the stop order as a Directed
Order. Today, Nasdaq ISE, LLC permits
all order types to be Preferenced.12
Price Improvement XL (‘‘PIXL’’)
The Exchange’s proposal to amend
Rule 1087 to point out at the top of the
Rule which provisions apply to Public
Customer-to-Public Customer Cross
Orders will make the Rule clear. Today,
Phlx Rule 1087(a) 13 and (f) 14 permit
Public Customer-to-Public Customer
Cross Orders to be entered into PIXL.
This amendment is consistent with the
Act because market participants will be
more aware of which provisions govern
Public Customer-to-Public Customer
Cross Orders.
Mass Cancellation of Trading Interest
The Exchange’s proposal to
memorialize the Mass Cancellation of
12 See
Nasdaq ISE, LLC Options 2, Section 10.
Rule 1087(a) provides, ‘‘Auction
Eligibility Requirements. All options traded on the
Exchange are eligible for PIXL. A member (the
‘‘Initiating Member’’) may initiate an Auction
provided all of the following are met:’’. . . Pursuant
to Rule 1087(f), the Exchange will allow a Public
Customer-to-Public Customer PIXL Order to trade
on either the bid or offer, if the NBBO is $0.01 wide,
provided (1) the execution price is equal to or
within the NBBO, (2) there is no resting Public
Customer at the execution price, and (3) $0.01 is the
Minimum Price Variation (MPV) of the option. The
Exchange will continue to reject a PIXL Order to
buy (sell) if the NBBO is only $0.01 wide and the
Agency order is stopped on the bid (offer) if there
is a resting order on the bid (offer).’’
14 Phlx Rule 1087(f) provides, ‘‘In lieu of the
procedures in paragraphs (a)–(b) above, an Initiating
Member may enter a PIXL Order for the account of
a Public Customer paired with an order for the
account of a Public Customer and such paired
orders will be automatically executed without a
PIXL Auction, provided there is not currently an
Auction in progress in the same series or same
strategy, in which case the orders will be rejected.
The execution price for such a PIXL Order (except
if it is a Complex Order) must be expressed in the
quoting increment applicable to the affected series.
Such an execution may not trade through the better
of the NBBO or Reference BBO or at the same price
as any resting Public Customer order. The execution
price for such a Complex Order PIXL may be in .01
increments and may not trade at a price equal to
or through the cPBBO or at the same price as a
resting Public Customer Complex Order.’’
khammond on DSKJM1Z7X2PROD with NOTICES
13 Phlx
VerDate Sep<11>2014
20:00 Dec 27, 2019
Jkt 250001
Trading Interest rule within Options 3,
Section 19 is consistent with the Act
because permitting Members to contact
Market Operations as a manual
alternative to automated functionality
which similarly allows Members to
cancel interest provides Members
experiencing their own system issues
with a means to manage risk. Today,
Members are able to cancel interest, in
an automated fashion through
protocols 15 and the Kill Switch.16 This
is a voluntary services offered to all
members.
The Exchange notes that offering this
service, which permits members to
cancel interest, will not diminish a
Registered Options Trader’s obligation
with respect to providing two-sided
quotations and this rule is not
inconsistent with other firm quote
obligations of the Registered Options
Trader. Upon the request of a member,
Phlx Market Operations will manually
input a mass cancellation message into
the System consistent with the
member’s instruction to cancel trading
interest. Once the mass cancellation
message is entered into the System by
Phlx Market Operations, the message
will be accepted by the System in the
order of receipt in the queue such that
the interest that was already accepted
into the System will be processed prior
to the mass cancellation message. In
addition, mass cancellation messages
entered into the System by Phlx Market
Operations are handled by the System
through the same queuing mechanism
that a quote or order message is handled
by the System. The Exchange notes its
processing of a mass cancellation
message inputted by Phlx Market
Operations and handled by the System
is consistent with firm quote and order
handling rules.
As noted above, NOM and BX Rules
at Chapter VII, Section 11 allow NOM
and BX Participants to also contact
market operations and request
cancellations of interest. This new rule
reflects the Exchange’s current practice.
Routing
The Exchange’s proposal to remove
the following sentence from Rule
1093(a), ‘‘When checking the Order
Book, the System will seek to execute at
the price at which it would send the
order to an away market,’’ is consistent
with the Act because this sentence is
vague. The price at which an order
would execute is dependent on the
scenario within which an order would
route. Removing this sentence will
15 See Options 3 at Supplementary Material .03 to
Section 7.
16 See Rule 1073.
PO 00000
Frm 00132
Fmt 4703
Sfmt 4703
72021
remove any confusion related to the
price at which the order would route.
The proposed rule would also add
additional detail about the scenarios
under which an order would route
away.
The Exchange’s proposal to amend
the sentence within Rule 1093(a)(iii)(A)
related to DNR Orders which provides,
‘‘Any incoming order interacting with
such a resting DNR order will execute
at the ABBO price, unless the ABBO is
improved to a price which crosses the
DNR’s displayed price, in which case
the incoming order will execute at the
previous ABBO price,’’ is consistent
with the Act. The Exchange proposes to
amend this rule text to clarify the
current rule text and add another
scenario that is not currently within the
rule text. The Exchange proposes to
state, ‘‘Any incoming order interacting
with such a resting DNR order will
execute at the ABBO price, unless (1)
prior to execution, while the incoming
order is matched with the resting DNR
Order, the ABBO is improved to a price
which crosses the DNR’s displayed
price, in which case the incoming order
will execute at the ABBO price which
was available upon arrival of the
incoming order which matched with the
DNR Order; or (2) the ABBO is
improved to a price which locks the
DNR’s displayed price, in which case
the incoming order will execute at the
DNR’s displayed price.’’ The System
would not take into account the away
market order or quote which crossed the
DNR’s displayed price. The Exchange is
not trading-through an away market in
this scenario, rather an away market is
crossing Phlx’s displayed market and
therefore that market has the obligation
not to trade-through Phlx’s displayed
price.
The Exchange is also adding a
scenario where the ABBO is improved
to a price which locks the DNR’s
displayed price. In this added scenario,
the incoming order will execute at the
DNR’s displayed price. The Exchange
notes that this scenario is not contained
in the current rule text. Adding this
scenario is consistent with the Act
because it will bring greater
transparency to the routing rule and
inform members about this potential
outcome if a member elects to mark
their order as DNR. Additionally,
amending a sentence 17 within Rule
17 The current sentence within Rule
1093(a)(iii)(A) states, ‘‘Should the best away market
change its price to an inferior price level, the DNR
Order will automatically re-price from its one
minimum price variation inferior to the original
away best bid/offer price to one minimum trading
increment away from the new away best bid/offer
E:\FR\FM\30DEN1.SGM
Continued
30DEN1
khammond on DSKJM1Z7X2PROD with NOTICES
72022
Federal Register / Vol. 84, No. 249 / Monday, December 30, 2019 / Notices
1093(a)(iii)(A) to provide, ‘‘Should the
best away market move to an inferior
price level, the DNR Order will
automatically re-price from its one MPV
inferior to the original ABBO and
display one MPV away from the new
ABBO or its original limit price, and
expose such orders at the new ABBO
only if the re-priced order locks or
crosses the new ABBO’’ is consistent
with the Act because the additional
language expands on the current repricing that exists today. The Exchange
believes that this language provides
more context to the manner in which a
DNR Order will be handled by the
Exchange’s System. The Exchange
believes that this additional rule text is
consistent with the Act as the DNR
Order would re-price again from its one
MPV inferior to the original ABBO
because the best away market moved to
an inferior price level. The DNR Order
would display one MPV away from the
new ABBO price or its original limit
price. Also, the DNR Order would
expose such orders at the new ABBO,
only if the re-priced order locks or
crosses the new ABBO. Once booked at
its original limit price, it will remain on
the Order Book at that price until
executed or cancelled. Providing this
additional transparency will assist
members in determining if they want
their orders routed.
With respect to FIND Orders within
Rule 1093(a)(iii)(B) as well as SRCH
Orders within Rule 1093(a)(iii)(C) the
amendments are consistent with the Act
as they propose a scenario that is not
currently within the Rules. The
Exchange proposes to add a scenario
that provides, if during the Route Timer,
the ABBO markets move such that the
FIND Order or SRCH Order is no longer
marketable against the ABBO it provides
the various scenarios that may occur.
Also, if there exists a locked ABBO
when the FIND Order or SRCH Order is
entered onto the Order Book and if
during the Route Timer any new interest
arrives opposite the FIND Order or
SRCH Order that is marketable against
the FIND Order or SRCH Order.
Scenarios are provided for each of these
situations within the new rule text. The
new text seeks to clearly provide a
member with the specific handling of a
routable order for various scenarios
during intra-day trading. The Exchange
believes that the addition of these
scenarios is consistent with the Act as
the order, which was marked routable as
either a FIND Order or SRCH Order,
once it is not marketable against the
price or its original limit price, and expose such
orders at the ABBO to participants only if the repriced order locks or crosses the ABBO.’’
VerDate Sep<11>2014
20:00 Dec 27, 2019
Jkt 250001
ABBO, will either trade at the next
PBBO, if the order locks or crosses the
FIND Order or SRCH Order, or it would
be booked at its limit price, providing it
is not locking or crossing the PBBO. The
Exchange’s rule must account for tradethrough and will consider potential
executions for an order consistent with
routing instructions. The Exchange
believes that this rule text will bring
greater clarity to the Exchange’s Rules.
The amendments to Phlx Rule 1093
represent current System functionality.
These rules are similar to current rule
text on NOM at Chapter VI, Section
11.18
B. Self-Regulatory Organization’s
Statement on Burden on Competition
The Exchange does not believe that
the proposed rule change will impose
any burden on competition not
necessary or appropriate in furtherance
of the purposes of the Act.
Applicability, Definitions and
References
The Exchange’s proposal to define a
‘‘bid’’ and an ‘‘offer’’ within Phlx Rule
1000(b) does not impose an undue
burden on competition, rather these
terms will bring greater transparency to
the Exchange’s Rules.
Minimum Increments
The Exchange’s proposal to amend
Rule 1034 to reorganize and update the
rule does not impose an undue burden
on competition because all market
participants are subject to Rule 1034.
The language will properly reflect that
the standard for submitting orders with
minimum increments into the System.
The remainder of the amendments to
reorganize and renumber the Rule are
non-substantive.
Directed Orders
The Exchange’s proposal to remove
rule text within Rule 1068(a)(i)(A) does
not impose an undue burden on
competition as Stop Order and StopLimit Orders may be Directed Orders
similar to all other order types.
Removing the limitation and allowing
all order types to be directed allows
members greater flexibility in choosing
how to submit their orders.
Price Improvement XL (‘‘PIXL’’)
The Exchange’s proposal to amend
Rule 1087 to point out at the top of the
Rule which provisions apply to Public
Customer-to-Public Customer Cross
Orders does not impose an undue
burden on competition. This rule
18 See Securities Exchange Act Release No. 87030
(September 19, 2019), 84 FR 50495 (September 25,
2019) (SR–NASDAQ–2019–077).
PO 00000
Frm 00133
Fmt 4703
Sfmt 4703
change will make market participants
more aware of which provisions govern
Public Customer-to-Public Customer
Cross Orders.
Mass Cancellation of Trading Interest
The Exchange’s proposal to
memorialize the Mass Cancellation of
Trading Interest rule within Rule 1090
does not impose an undue burden on
competition because all members may
utilize this service. This new rule
reflects the Exchange’s current practice.
Routing
The Exchange believes that adding
greater detail to its rules concerning
routing of orders does not impose an
undue burden on competition, rather it
provides greater transparency as to the
potential outcomes when utilizing
different routing strategies. Further, the
Exchange notes that market participants
may elect not to route their orders. The
Exchange continues to offer various
options to its market participants with
respect to routing.
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) of the Act 19 and Rule 19b–
4(f)(6) thereunder.20
A proposed rule change filed under
Rule 19b–4(f)(6) 21 normally does not
become operative prior to 30 days after
the date of the filing. However, Rule
19b–4(f)(6)(iii) 22 permits the
Commission to designate a shorter time
if such action is consistent with the
protection of investors and the public
interest. The Exchange has asked the
19 15
U.S.C. 78s(b)(3)(A).
CFR 240.19b–4(f)(6). In addition, Rule 19b–
4(f)(6)(iii) requires a self-regulatory organization to
give the Commission written notice of its intent to
file the proposed rule change, along with a brief
description and text of the proposed rule change,
at least five business days prior to the date of filing
of the proposed rule change, or such shorter time
as designated by the Commission. The Exchange
has satisfied this requirement.
21 17 CFR 240.19b–4(f)(6).
22 17 CFR 240.19b–4(f)(6)(iii).
20 17
E:\FR\FM\30DEN1.SGM
30DEN1
khammond on DSKJM1Z7X2PROD with NOTICES
Federal Register / Vol. 84, No. 249 / Monday, December 30, 2019 / Notices
Commission to waive the 30-day
operative delay so that the proposed
rule change may become effective and
operative immediately upon filing. The
Commission believes that waiving the
30-day operative delay is consistent
with the protection of investors and the
public interest, as it will allow the
Exchange to immediately provide
members with greater information and
transparency on mass cancellation
procedures and order routing strategies
available on the Exchange. For this
reason, the Commission hereby waives
the 30-day operative delay and
designates the proposed rule change as
operative upon filing.23
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
change should be approved or
disapproved.
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–2019–56 and should
be submitted on or before January 21,
2020.
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:
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.24
J. Matthew DeLesDernier,
Assistant Secretary.
Electronic Comments
• Use the Commission’s internet
comment form (https://www.sec.gov/
rules/sro.shtml); or
• Send an email to rule-comments@
sec.gov. Please include File Number SR–
Phlx–2019–56 on the subject line.
SECURITIES AND EXCHANGE
COMMISSION
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–2019–56. This file
number should be included on the
subject line if email is used. To help the
Commission process and review your
comments more efficiently, please use
only one method. The Commission will
post all comments on the Commission’s
internet website (https://www.sec.gov/
rules/sro.shtml). Copies of the
23 For purposes only of waiving the 30-day
operative delay, the Commission has also
considered the proposed rule’s impact on
efficiency, competition, and capital formation. See
15 U.S.C. 78c(f).
VerDate Sep<11>2014
20:00 Dec 27, 2019
Jkt 250001
[FR Doc. 2019–28022 Filed 12–27–19; 8:45 am]
BILLING CODE 8011–01–P
[Release No. 34–87843; File No. SR–ISE–
2019–32]
Self-Regulatory Organizations; Nasdaq
ISE, LLC; Notice of Filing and
Immediate Effectiveness of Proposed
Rule Change To Adopt a Mass
Cancellation Rule and Amend Other
Sections of the Rulebook
December 23, 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 December
9, 2019, Nasdaq ISE, LLC (‘‘ISE’’ or
‘‘Exchange’’) filed with the Securities
and Exchange Commission (‘‘SEC’’ or
‘‘Commission’’) the proposed rule
change as described in Items I and II
below, which Items have been prepared
by the Exchange. The Commission is
publishing this notice to solicit
24 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
1 15
PO 00000
Frm 00134
Fmt 4703
Sfmt 4703
72023
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 adopt a
new rule at Options 3, Section 19 titled
‘‘Mass Cancellation of Trading Interest.’’
The Exchange also proposes to amend
definitions within General 1, Section 1,
adopt a new definition for ‘‘Away Best
Bid or Offer’’ within Options 1, Section
1, and update rule citations in various
other rules.
The text of the proposed rule change
is available on the Exchange’s website at
https://ise.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 adopt a
new rule at Options 3, Section 19 titled
‘‘Mass Cancellation of Trading Interest.’’
The Exchange also proposes to amend
definitions within General 1, Section 1,
adopt a new definition for ‘‘Away Best
Bid or Offer within Options 1, Section
1, and update rule citations in various
other rules.
Mass Cancellation of Trading Interest
The Exchange proposes to adopt a
new rule at Options 3, Section 19 titled
‘‘Mass Cancellation of Trading Interest.’’
The Nasdaq Options Market LLC
(‘‘NOM’’) and Nasdaq BX, Inc. (‘‘BX’’)
rules at Chapter VII, Section 11 permit
Participants on those markets to contact
market operations and manually request
cancellation of interest. The Exchange
proposes to adopt a rule which also
permits Members to contact market
operations and request the Exchange to
manually cancel interest. The proposed
new rule would state, ‘‘A Member may
E:\FR\FM\30DEN1.SGM
30DEN1
]]>Agencies
[Federal Register Volume 84, Number 249 (Monday, December 30, 2019)]
[Notices]
[Pages 72017-72023]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-28022]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-87811; File No. SR-Phlx-2019-56]
Self-Regulatory Organizations; Nasdaq PHLX LLC; Notice of Filing
and Immediate Effectiveness of Proposed Rule Change To Amend Rules
1000, 1014, 1034, 1068, 1080, 1087, 1090, and 1093
December 20, 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 December 19, 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 Exchange. The Commission is publishing this
notice to solicit comments on the proposed rule change from interested
persons.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------
I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange proposes to amend Rule 1000, ``Applicability,
Definitions and References,'' Rule 1014, ``Obligations of Market
Makers,'' Rule 1034, ``Minimum Increments,'' Rule 1068, ``Directed
Orders,'' Rule 1080, ``Electronic Acceptance of Quotes and
[[Page 72018]]
Orders,'' Rule 1087, ``Price Improvement XL (``PIXL''),'' Rule 1090,
``Mass Cancellation of Trading Interest,'' and Rule 1093 titled ``Away
Markets and Order Routing.
The text of the proposed rule change is available on the Exchange's
website at https://nasdaqphlx.cchwallstreet.com/, at the principal
office of the Exchange, and at the Commission's Public Reference Room.
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, the Exchange included statements
concerning the purpose of and basis for the proposed rule change and
discussed any comments it received on the proposed rule change. The
text of these statements may be examined at the places specified in
Item IV below. The Exchange has prepared summaries, set forth in
sections A, B, and C below, of the most significant aspects of such
statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
The Exchange proposes to amend Rule 1000, ``Applicability,
Definitions and References,'' Rule 1014, ``Obligations of Market
Makers,'' Rule 1034, ``Minimum Increments,'' Rule 1068, ``Directed
Orders,'' Rule 1080, ``Electronic Acceptance of Quotes and Orders,''
Rule 1087, ``Price Improvement XL (``PIXL''),'' Rule 1090, ``Mass
Cancellation of Trading Interest,'' and Rule 1093 titled ``Away Markets
and Order Routing.'' Each rule change will be discussed below.
Applicability, Definitions and References
The Exchange proposes to define a ``bid'' and an ``offer'' within
Phlx Rule 1000(b). The Exchange proposes to state the term ``bid''
means a quote or limit order to buy one or more options contracts
within Rule 1000(b)(62). The Exchange proposes to state, the term
``offer'' means a quote or limit order to sell one or more options
contracts within Rule 1000(b)(63). The Exchange believes that the
addition of these definitions will bring greater transparency to the
Exchange's Rules.
Minimum Increments
The Exchange proposes to amend Rule 1034 regarding minimum
increments. The Exchange proposes to reorganize and update the rule.
The Exchange proposes to create a Commentary section to Rule 1034 and
relocate all exceptions to Rule 1034(a) in the Commentary. The Exchange
would amend Rule 1034(a) to state, except as provided in the Commentary
and then also amend the words ``quoting'' to ``trading'' and eliminate
the word ``decimals.'' The Exchange notes that executions are
considered when determining the minimum price variations of options
which have prices at $3.00 or higher or are priced under $3.00. The
word ``quoting'' is not as precise as word ``trading.'' The Exchange
utilizes executions to enforce minimum increments submitted by the
member. While the word ``quoting'' is not incorrect, the Exchange
believes ``trading'' is more understandable and is similarly utilized
by Nasdaq ISE, LLC (``ISE''), Nasdaq GEMX, LLC (``GEMX'') and Nasdaq
MRX, LLC (``MRX'') at Options 3, Section 3 of those Rulebooks.
Similarly, the Exchange is removing the word ``decimals'' and similar
to ISE, GEMX and MRX at Options 3, Section 3, stating ``at a price''
because the Exchange believes this language makes clear the intent.
These changes do not result in a System change, rather they represent
the Exchange's current System operation.
The Exchange proposes to renumber current Rule 1034(a)(i)(A) as
Rule 1034(a)(1), without change. The Exchange proposes to renumber
current Rule 1034(a)(i)(C) as Rule 1034(a)(2) and change the words
``Phlx XL II system'' to simply the defined term ``System.'' The
Exchange proposes to renumber current Rule 1034(a)(v) as Rule
1034(a)(3) and remove the text ``However'' and instead add language to
exclude paragraph (a) similar to ISE, GEMX and MRX Rules at Options 3,
Section 3. The Exchange proposes to relocate current Rule 1034(a)(i)(b)
as Commentary .01 and add the title ``Penny Pilot Program'' before the
rule text. The Exchange proposes to relocate current Rules 1034(a)(ii),
(iii), and (iv) as Commentary .02, .03 and .04, respectively.
The Exchange believes that these rule changes will bring greater
clarity to the Rule.
Directed Orders
The Exchange proposes to remove rule text within Rule 1068(a)(i)(A)
with respect to Directed Orders. The current rule text provides, ``The
term ``Directed Order'' means any order (other than a stop or stop-
limit order as defined in Options 8, Section 32) to buy or sell which
has been directed to a particular Specialist, RSQT, or SQT by an Order
Flow Provider, as defined below. To qualify as a Directed Order, an
order must be delivered to the Exchange via the System.'' The Exchange
proposes to remove the limitation for a stop or stop-limit order. The
System will allow any order to be considered a Directed Order. Today,
Nasdaq ISE, LLC permits all order types to be Preferenced.\3\
---------------------------------------------------------------------------
\3\ See Nasdaq ISE, LLC Rules at Options 2, Section 10.
---------------------------------------------------------------------------
Price Improvement XL (``PIXL'')
The Exchange proposes to amend Rule 1087 to make clear at the
beginning of the Rule which provisions apply to Public Customer-to-
Public Customer Cross Orders. Today, Phlx Rule 1087(a) \4\ and (f) \5\
permit Public Customer-to-Public Customer Cross Orders to be entered
into PIXL. Today Public Customer-to-Public Customer Cross Orders may
only be entered into PIXL. This new sentence makes clear which
provisions govern Public Customer-to-Public Customer Cross Orders. The
Exchange proposes to capitalize the term ``Public Customer-to-Public
Customer Cross Orders'' within Rules 1014(e) and Rule 1080(e) to
conform to the proposed defined term.
---------------------------------------------------------------------------
\4\ Phlx Rule 1087(a) provides, ``Auction Eligibility
Requirements. All options traded on the Exchange are eligible for
PIXL. A member (the ``Initiating Member'') may initiate an Auction
provided all of the following are met:'' . . . Pursuant to Rule
1087(f), the Exchange will allow a Public Customer-to-Public
Customer PIXL Order to trade on either the bid or offer, if the NBBO
is $0.01 wide, provided (1) the execution price is equal to or
within the NBBO, (2) there is no resting Public Customer at the
execution price, and (3) $0.01 is the Minimum Price Variation (MPV)
of the option. The Exchange will continue to reject a PIXL Order to
buy (sell) if the NBBO is only $0.01 wide and the Agency order is
stopped on the bid (offer) if there is a resting order on the bid
(offer).''
\5\ Phlx Rule 1087(f) provides, ``In lieu of the procedures in
paragraphs (a)-(b) above, an Initiating Member may enter a PIXL
Order for the account of a Public Customer paired with an order for
the account of a Public Customer and such paired orders will be
automatically executed without a PIXL Auction, provided there is not
currently an Auction in progress in the same series or same
strategy, in which case the orders will be rejected. The execution
price for such a PIXL Order (except if it is a Complex Order) must
be expressed in the quoting increment applicable to the affected
series. Such an execution may not trade through the better of the
NBBO or Reference BBO or at the same price as any resting Public
Customer order. The execution price for such a Complex Order PIXL
may be in .01 increments and may not trade at a price equal to or
through the cPBBO or at the same price as a resting Public Customer
Complex Order.''
---------------------------------------------------------------------------
Mass Cancellation of Trading Interest
The Exchange proposes to adopt a new Rule 1090 titled ``Mass
Cancellation of Trading Interest.'' The Nasdaq Options Market LLC
(``NOM'') and Nasdaq BX, Inc. (``BX'') Rules at Chapter VII, Section 11
permit Participants on those markets to contact market operations and
manually request
[[Page 72019]]
cancellation of interest. The Exchange proposes to adopt a rule which
also permits members to contact market operations and request the
Exchange to manually cancel interest. The proposed new rule would
state, ``A member may cancel any bids, offers, and orders in any series
of options by requesting Phlx Market Operations \6\ staff to effect
such cancellation as per the instructions of the Member.'' This new
rule reflects the Exchange's current practice of allowing members to
contact Phlx Market Operations and request the Exchange to cancel any
bid, offer or order in any series of options. The Exchange would cancel
such bid, offer or order pursuant to the member's instruction. The
Exchange desires to memorialize the availability of this service.
---------------------------------------------------------------------------
\6\ The request to Market Operations is a manual request which
is made telephonically.
---------------------------------------------------------------------------
Routing
The Exchange filed a proposal to amend Rule 1093 \7\ as ``Away
Markets and Order Routing'' in April 2019.\8\ At this time the Exchange
proposes further amendment to this rule to mirror changes that were
proposed to NOM's Rule at Chapter VI, Section 11.\9\ The changes
proposed herein are not changes to the System, rather the Exchange
proposes to add other scenarios that may be possible during Routing and
make the current rule text more clear to provide market participants
with clear expectations regarding orders that are marked ``DNR'' and
orders that route.
---------------------------------------------------------------------------
\7\ The Exchange notes that the amendments to Rule 1093 reflect
the current operation of the System. The purpose of the amendment is
to align the rule to the specific operation of the routing
functionality on Phlx.
\8\ See Securities Exchange Act Release No. 85655 (April 16,
2019), 77 FR 16709 (April 22, 2019) (SR-Phlx-2019-06).
\9\ See Securities Exchange Act Release No. 87030 (September 19,
2019), 84 FR 50495 (September 25, 2019) (SR-NASDAQ-2019-077).
---------------------------------------------------------------------------
Currently, Rule 1093(a) states, ``When checking the Order Book, the
System will seek to execute at the price at which it would send the
order to an away market.'' The Exchange proposes to remove this
sentence because the price at which the order would route in explained
in greater detail within Rule 1093(a)(iii). Also, this sentence is
confusing because the price at which an order would execute is
dependent on the scenario within which an order would route. Removing
this sentence will remove any confusion related to the price at which
the order would route.
The Exchange proposes to amend rule text within Rule
1093(a)(iii)(A) related to DNR Orders. Today, current rule text
provides, ``Any incoming order interacting with such a resting DNR
order will execute at the ABBO price, unless the ABBO is improved to a
price which crosses the DNR's displayed price, in which case the
incoming order will execute at the previous ABBO price.'' The Exchange
proposes to amend this language to: (1) Clarify the current scenario to
more accurately capture the order of events; and (2) add another
scenario that is not contemplated by the current rule text.
The Exchange proposes to clarify the current rule text to provide,
``Any incoming order interacting with such a resting DNR Order will
execute at the ABBO price, unless (1) the ABBO is improved to a price
which crosses the DNR Order's already displayed price, in which case
the incoming order will execute at the previous ABBO price as the away
market crossed a displayed price . . .''. This proposed new text
intends to make clear that if the Exchange's System is executing an
incoming order against a resting DNR Order which is displayed, it would
not consider an updated ABBO which crossed the displayed DNR Order. The
System would not take into account the away market order or quote which
crossed the DNR Order's displayed price. The Exchange is not trading-
through an away market in this scenario, rather an away market is
crossing Phlx's displayed market and therefore that market has the
obligation not to trade-through Phlx's displayed price. A similar
change is being made to the last sentence of Rule 1093(a)(iii)(B)(5)
for FIND Orders and the last sentence Rule 1093(a)(iii)(C)(6) for SRCH
Orders. By way of example, consider the following sequence of events in
the System:
9:45:00:00:00--MIAX Quote 0.95 x 1.20
9:45:00:00:10--OPRA updates MIAX BBO 0.95 x 1.20
9:45:00:00:20--Phlx Local BBO Quote 1.00 x 1.15
9:45:00:00:30--OPRA disseminates PHLX BBO updates: 1.10 x 1.15
9:45:00:00:35: CBOE Quote 1.00 x 1.12
9:45:00:00:45--OPRA disseminates CBOE BBO 1.00 x 1.12
9:45:00:00:50--DNR Order: Buy 5 @ 1.15 (exposes @ ABBO of 1.12,
displays 1 MPV from ABBO @ 1.11)
9:45:00:00:51--OPRA disseminates PHLX BBO updates: 1.11 x 1.15 (1.11
being the DNR Order displaying 1 MPV from ABBO)
9:45:00:00:60--MIAX Quote updates to 1.00 x 1.10 (1.10 crosses the
displayed DNR Order price, violating locked/crossed market rules;
henceforth, we need not protect this price)
9:45:00:00:65--OPRA disseminates MIAX BBO 1.00 x 1.10
9:45:00:00:75--Phlx Market Maker Order to Sell 5 @ 1.09
9:45:00:00:76--Market Maker Order immediately executes against DNR
Order 5 contracts @ 1.12 (1.12 being the `previous' ABBO price
disseminated by CBOE before the receipt of the DNR Order that was
subsequently and illegally crossed by MIAX's 2nd quote)
9:45:00:00:77--OPRA disseminates PHLX BBO updates: 1.10 x 1.15 (reverts
back to BBO set by Phlx Local Quote since the DNR Order has executed)
The Exchange also proposes to add a new scenario to the above-
referenced sentence to state, ``or (2) the ABBO is improved to a price
which locks the DNR Order's displayed price, in which case the incoming
order will execute at the DNR Order's displayed price.'' The Exchange
is adding the scenario where the ABBO is improved to a price which
locks the DNR Order's displayed price. In this added scenario, the
incoming order will execute at the DNR Order's displayed price. The
Exchange notes that this scenario is not contained in the current rule
text. Adding this scenario is consistent with the Act because it will
bring greater transparency to the routing rule and inform members about
this potential outcome if a member elects to mark their order as
``DNR.''
The Exchange also proposes to amend the next sentence within Rule
1093(a)(iii)(A) which currently provides, ``Should the best away market
change its price to an inferior price level, the DNR Order will
automatically re-price from its one minimum price variation inferior to
the original away best bid/offer price to one minimum trading increment
away from the new away best bid/offer price or its original limit
price, and expose such orders at the ABBO to participants only if the
re-priced order locks or crosses the ABBO. Once priced at its original
limit price, it will remain at that price until executed or
cancelled.'' The Exchange proposes to amend this rule text to provide,
``Should the best away market move to an inferior price level, the DNR
Order will automatically re-price from its one MPV inferior to the
original ABBO and display one MPV away from the new ABBO or its
original limit price, and expose such orders at the new ABBO only if
the re-priced order locks or crosses the new ABBO.'' The Exchange is
amending the current rule text to replace the phrase ``change its
price'' with ``move'' and use the defined term ``MPV.'' The Exchange is
further amending this sentence to expand on the re-pricing. In this
scenario, the
[[Page 72020]]
Exchange has already re-priced the DNR Order and is re-pricing the DNR
Order again because the best away market moved to an inferior price
level. In this situation, the DNR Order will automatically re-price
from its one MPV inferior to the original ABBO and display one MPV away
from the new ABBO price or its original limit price. The DNR Order will
also expose such orders at the new ABBO, only if the re-priced order
locks or crosses the new ABBO. Once booked at its original limit price,
it will remain at that price until executed or cancelled. The Exchange
believes that this language provides more context to the manner in
which a DNR Order will be handled by the Exchange's System. The
Exchange believes that this additional rule text is consistent with the
Act as the DNR Order is exposed at the re-priced price if the Order
locked or crossed the ABBO. Additionally, orders marked ``DNR'' would
book at their original limit price and remain on the Order Book.
Providing this additional transparency will assist members in
determining if they want their orders routed.
As noted above, these changes to the DNR Orders represent current
System functionality. The Exchange also proposes to capitalize the term
``Order'' within Rule 1093(a)(iii)(A).
With respect to FIND Orders within Rule 1093(a)(iii)(B) as well as
SRCH Orders within Rule 1093(a)(iii)(C) the Exchange proposes to add a
scenario that is not currently contemplated within the Rule.
Specifically, the Exchange proposes to add a scenario that provides, if
during the Route Timer, the ABBO markets move such that the FIND Order
or SRCH Order is no longer marketable against the ABBO it provides the
various scenarios that may occur. The FIND Order or SRCH Order may: (i)
Trade at the next PBBO price (or prices) if the FIND Order SRCH Order
price is locking or crossing that price (or prices), and/or (ii) be
entered into the Order Book at its limit price if not locking or
crossing the PBBO. A FIND Order or SRCH Order will be included in the
displayed PBBO at its limit price, unless the FIND Order or SRCH Order
locks or crosses the ABBO, in which case it will be entered into the
Order Book at the ABBO price and displayed one MPV inferior to the
ABBO. Further, the Exchange proposes a scenario where there exists a
locked ABBO when the FIND Order or SRCH Order is entered onto the Order
Book, the FIND Order or SRCH Order will be entered into the Order Book
at the ABBO price and displayed one MPV inferior to the ABBO. If during
the Route Timer any new interest arrives opposite the FIND Order or
SRCH Order that is marketable against the FIND Order or SRCH Order such
interest will trade against the FIND Order or SRCH Order at the ABBO
price unless the ABBO is improved to a price which crosses the FIND
Order's or SRCH Order's displayed price, in which case the incoming
order will execute at the previous ABBO price as the away market
crossed a displayed price. The above example for a DNR Order is
applicable to the FIND Order and SRCH Order as well.
The Exchange offers the following example when there exists a
locked ABBO at the time the FIND Order or SRCH Order is entered into
the Order Book to demonstrate the manner in which Phlx posts and
displays a FIND Order or SRCH Order. In this example, assume Away
Market A has displayed its market at 1.00 x 1.20. Subsequent to Away
Market A displaying it market, Away Market B displays its market at .80
x 1.00. The option series is now locked at 1.00. Next, assume Phlx
receives a FIND Order or SRCH Order at $2.00 to buy. In this example,
Phlx would post the FIND Order or SRCH Order into the Phlx Order Book
at $1.00 to buy and display the FIND Order at $0.95 to avoid locking
the market in this option series.
The addition of this language to the FIND Order and SRCH Order rule
text represents current System functionality. This scenario is not
currently described within the current routing rule with respect to
either a FIND Order or a SRCH Order that is not marketable after a
Route Timer has commenced. The Exchange's rule seeks to provide members
with the specific handling of a routable order in various scenarios
during intra-day trading. The Exchange believes that the addition of
this scenario is consistent with the Act. The FIND Order or SRCH Order,
once it is not marketable against the ABBO, will trade at the next PBBO
if the order is locked or crossed. The FIND Order or SRCH Order would
book at its limit price, provided it is not locking or crossing the
PBBO. The Exchange's rule must account for trade-through and will
consider potential executions for the order consistent with routing
instructions. The proposed rule text describes scenarios where it will
be displayed at one MPV inferior to the ABBO or display at the locked
ABBO price, as described in the above example. This rule text also is
intended to demonstrate that if the ABBO is improved to a price which
crosses the FIND Order's displayed price, the incoming order will
execute at the previous ABBO price. The Exchange believes that this
rule text will bring greater clarity to the Exchange's Rules.
Other Amendment
The Exchange also proposes to amend Rule 1096, Entry and Display of
Orders, to correct the citation of Rule 1099 to Rule 1070.
2. Statutory Basis
The Exchange believes that its proposal is consistent with Section
6(b) of the Act,\10\ in general, and furthers the objectives of Section
6(b)(5) of the Act,\11\ in particular, in that it is designed to
promote just and equitable principles of trade and to protect investors
and the public interest because the Exchange is adding more detail to
its routing rule to provide market participants with greater
transparency. The Exchange believes the added scenarios will provide
more context to routing in general and for the specific routing
strategies for the benefit of investors and the public interest. The
Exchange continues to offer various choices to its market participants
with respect to routing.
---------------------------------------------------------------------------
\10\ 15 U.S.C. 78f(b).
\11\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------
Applicability, Definitions and References
The Exchange's proposal to define a ``bid'' and an ``offer'' within
Phlx Rule 1000(b) is consistent with the Act as these terms will bring
greater transparency to the Exchange's Rules.
Minimum Increments
The Exchange's proposal to amend Rule 1034 to reorganize and update
the rule is consistent with the Act because the change to the rule text
as well as reorganized format should make clear the standards for
minimum increments. The amendment to Rule 1034(a) to replace the word
``quoting'' to ``trading'' will make the rule text more precise as
executions are considered for enforcement of minimum increments.
Removing the word ``decimals'' and discussing price is also more
precise rule text. The Exchange also notes that the proposed rule text
conforms the wording to similar wording within Nasdaq ISE, LLC, Nasdaq
GEMX, LLC and Nasdaq MRX, LLC Options 3, Section 3. These changes do
not result in a System change, rather they represent the Exchange's
current System operation. The remainder of the amendments to reorganize
and renumber the Rule are non-substantive. The Exchange believes that
these amendments will bring greater clarity to the Rule.
[[Page 72021]]
Directed Orders
The Exchange's proposal to remove rule text within Rule
1068(a)(i)(A) will make clear that, today, both stop and stop-limit
orders can be directed to a particular Specialist, RSQT, or SQT by an
Order Flow Provider. The rule text limitation is not accurate because
the System permits a stop and stop-limit order to be directed. Removing
the limitation and allowing all order types to be directed allows
members greater flexibility in choosing how to submit their orders. The
Exchange notes that this amendment is consistent with the Act because
the Exchange is not limiting the use of the stop order as a Directed
Order. Today, Nasdaq ISE, LLC permits all order types to be
Preferenced.\12\
---------------------------------------------------------------------------
\12\ See Nasdaq ISE, LLC Options 2, Section 10.
---------------------------------------------------------------------------
Price Improvement XL (``PIXL'')
The Exchange's proposal to amend Rule 1087 to point out at the top
of the Rule which provisions apply to Public Customer-to-Public
Customer Cross Orders will make the Rule clear. Today, Phlx Rule
1087(a) \13\ and (f) \14\ permit Public Customer-to-Public Customer
Cross Orders to be entered into PIXL. This amendment is consistent with
the Act because market participants will be more aware of which
provisions govern Public Customer-to-Public Customer Cross Orders.
---------------------------------------------------------------------------
\13\ Phlx Rule 1087(a) provides, ``Auction Eligibility
Requirements. All options traded on the Exchange are eligible for
PIXL. A member (the ``Initiating Member'') may initiate an Auction
provided all of the following are met:''. . . Pursuant to Rule
1087(f), the Exchange will allow a Public Customer-to-Public
Customer PIXL Order to trade on either the bid or offer, if the NBBO
is $0.01 wide, provided (1) the execution price is equal to or
within the NBBO, (2) there is no resting Public Customer at the
execution price, and (3) $0.01 is the Minimum Price Variation (MPV)
of the option. The Exchange will continue to reject a PIXL Order to
buy (sell) if the NBBO is only $0.01 wide and the Agency order is
stopped on the bid (offer) if there is a resting order on the bid
(offer).''
\14\ Phlx Rule 1087(f) provides, ``In lieu of the procedures in
paragraphs (a)-(b) above, an Initiating Member may enter a PIXL
Order for the account of a Public Customer paired with an order for
the account of a Public Customer and such paired orders will be
automatically executed without a PIXL Auction, provided there is not
currently an Auction in progress in the same series or same
strategy, in which case the orders will be rejected. The execution
price for such a PIXL Order (except if it is a Complex Order) must
be expressed in the quoting increment applicable to the affected
series. Such an execution may not trade through the better of the
NBBO or Reference BBO or at the same price as any resting Public
Customer order. The execution price for such a Complex Order PIXL
may be in .01 increments and may not trade at a price equal to or
through the cPBBO or at the same price as a resting Public Customer
Complex Order.''
---------------------------------------------------------------------------
Mass Cancellation of Trading Interest
The Exchange's proposal to memorialize the Mass Cancellation of
Trading Interest rule within Options 3, Section 19 is consistent with
the Act because permitting Members to contact Market Operations as a
manual alternative to automated functionality which similarly allows
Members to cancel interest provides Members experiencing their own
system issues with a means to manage risk. Today, Members are able to
cancel interest, in an automated fashion through protocols \15\ and the
Kill Switch.\16\ This is a voluntary services offered to all members.
---------------------------------------------------------------------------
\15\ See Options 3 at Supplementary Material .03 to Section 7.
\16\ See Rule 1073.
---------------------------------------------------------------------------
The Exchange notes that offering this service, which permits
members to cancel interest, will not diminish a Registered Options
Trader's obligation with respect to providing two-sided quotations and
this rule is not inconsistent with other firm quote obligations of the
Registered Options Trader. Upon the request of a member, Phlx Market
Operations will manually input a mass cancellation message into the
System consistent with the member's instruction to cancel trading
interest. Once the mass cancellation message is entered into the System
by Phlx Market Operations, the message will be accepted by the System
in the order of receipt in the queue such that the interest that was
already accepted into the System will be processed prior to the mass
cancellation message. In addition, mass cancellation messages entered
into the System by Phlx Market Operations are handled by the System
through the same queuing mechanism that a quote or order message is
handled by the System. The Exchange notes its processing of a mass
cancellation message inputted by Phlx Market Operations and handled by
the System is consistent with firm quote and order handling rules.
As noted above, NOM and BX Rules at Chapter VII, Section 11 allow
NOM and BX Participants to also contact market operations and request
cancellations of interest. This new rule reflects the Exchange's
current practice.
Routing
The Exchange's proposal to remove the following sentence from Rule
1093(a), ``When checking the Order Book, the System will seek to
execute at the price at which it would send the order to an away
market,'' is consistent with the Act because this sentence is vague.
The price at which an order would execute is dependent on the scenario
within which an order would route. Removing this sentence will remove
any confusion related to the price at which the order would route. The
proposed rule would also add additional detail about the scenarios
under which an order would route away.
The Exchange's proposal to amend the sentence within Rule
1093(a)(iii)(A) related to DNR Orders which provides, ``Any incoming
order interacting with such a resting DNR order will execute at the
ABBO price, unless the ABBO is improved to a price which crosses the
DNR's displayed price, in which case the incoming order will execute at
the previous ABBO price,'' is consistent with the Act. The Exchange
proposes to amend this rule text to clarify the current rule text and
add another scenario that is not currently within the rule text. The
Exchange proposes to state, ``Any incoming order interacting with such
a resting DNR order will execute at the ABBO price, unless (1) prior to
execution, while the incoming order is matched with the resting DNR
Order, the ABBO is improved to a price which crosses the DNR's
displayed price, in which case the incoming order will execute at the
ABBO price which was available upon arrival of the incoming order which
matched with the DNR Order; or (2) the ABBO is improved to a price
which locks the DNR's displayed price, in which case the incoming order
will execute at the DNR's displayed price.'' The System would not take
into account the away market order or quote which crossed the DNR's
displayed price. The Exchange is not trading-through an away market in
this scenario, rather an away market is crossing Phlx's displayed
market and therefore that market has the obligation not to trade-
through Phlx's displayed price.
The Exchange is also adding a scenario where the ABBO is improved
to a price which locks the DNR's displayed price. In this added
scenario, the incoming order will execute at the DNR's displayed price.
The Exchange notes that this scenario is not contained in the current
rule text. Adding this scenario is consistent with the Act because it
will bring greater transparency to the routing rule and inform members
about this potential outcome if a member elects to mark their order as
DNR. Additionally, amending a sentence \17\ within Rule
[[Page 72022]]
1093(a)(iii)(A) to provide, ``Should the best away market move to an
inferior price level, the DNR Order will automatically re-price from
its one MPV inferior to the original ABBO and display one MPV away from
the new ABBO or its original limit price, and expose such orders at the
new ABBO only if the re-priced order locks or crosses the new ABBO'' is
consistent with the Act because the additional language expands on the
current re-pricing that exists today. The Exchange believes that this
language provides more context to the manner in which a DNR Order will
be handled by the Exchange's System. The Exchange believes that this
additional rule text is consistent with the Act as the DNR Order would
re-price again from its one MPV inferior to the original ABBO because
the best away market moved to an inferior price level. The DNR Order
would display one MPV away from the new ABBO price or its original
limit price. Also, the DNR Order would expose such orders at the new
ABBO, only if the re-priced order locks or crosses the new ABBO. Once
booked at its original limit price, it will remain on the Order Book at
that price until executed or cancelled. Providing this additional
transparency will assist members in determining if they want their
orders routed.
---------------------------------------------------------------------------
\17\ The current sentence within Rule 1093(a)(iii)(A) states,
``Should the best away market change its price to an inferior price
level, the DNR Order will automatically re-price from its one
minimum price variation inferior to the original away best bid/offer
price to one minimum trading increment away from the new away best
bid/offer price or its original limit price, and expose such orders
at the ABBO to participants only if the re-priced order locks or
crosses the ABBO.''
---------------------------------------------------------------------------
With respect to FIND Orders within Rule 1093(a)(iii)(B) as well as
SRCH Orders within Rule 1093(a)(iii)(C) the amendments are consistent
with the Act as they propose a scenario that is not currently within
the Rules. The Exchange proposes to add a scenario that provides, if
during the Route Timer, the ABBO markets move such that the FIND Order
or SRCH Order is no longer marketable against the ABBO it provides the
various scenarios that may occur. Also, if there exists a locked ABBO
when the FIND Order or SRCH Order is entered onto the Order Book and if
during the Route Timer any new interest arrives opposite the FIND Order
or SRCH Order that is marketable against the FIND Order or SRCH Order.
Scenarios are provided for each of these situations within the new rule
text. The new text seeks to clearly provide a member with the specific
handling of a routable order for various scenarios during intra-day
trading. The Exchange believes that the addition of these scenarios is
consistent with the Act as the order, which was marked routable as
either a FIND Order or SRCH Order, once it is not marketable against
the ABBO, will either trade at the next PBBO, if the order locks or
crosses the FIND Order or SRCH Order, or it would be booked at its
limit price, providing it is not locking or crossing the PBBO. The
Exchange's rule must account for trade-through and will consider
potential executions for an order consistent with routing instructions.
The Exchange believes that this rule text will bring greater clarity to
the Exchange's Rules.
The amendments to Phlx Rule 1093 represent current System
functionality. These rules are similar to current rule text on NOM at
Chapter VI, Section 11.\18\
---------------------------------------------------------------------------
\18\ See Securities Exchange Act Release No. 87030 (September
19, 2019), 84 FR 50495 (September 25, 2019) (SR-NASDAQ-2019-077).
---------------------------------------------------------------------------
B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the proposed rule change will
impose any burden on competition not necessary or appropriate in
furtherance of the purposes of the Act.
Applicability, Definitions and References
The Exchange's proposal to define a ``bid'' and an ``offer'' within
Phlx Rule 1000(b) does not impose an undue burden on competition,
rather these terms will bring greater transparency to the Exchange's
Rules.
Minimum Increments
The Exchange's proposal to amend Rule 1034 to reorganize and update
the rule does not impose an undue burden on competition because all
market participants are subject to Rule 1034. The language will
properly reflect that the standard for submitting orders with minimum
increments into the System. The remainder of the amendments to
reorganize and renumber the Rule are non-substantive.
Directed Orders
The Exchange's proposal to remove rule text within Rule
1068(a)(i)(A) does not impose an undue burden on competition as Stop
Order and Stop-Limit Orders may be Directed Orders similar to all other
order types. Removing the limitation and allowing all order types to be
directed allows members greater flexibility in choosing how to submit
their orders.
Price Improvement XL (``PIXL'')
The Exchange's proposal to amend Rule 1087 to point out at the top
of the Rule which provisions apply to Public Customer-to-Public
Customer Cross Orders does not impose an undue burden on competition.
This rule change will make market participants more aware of which
provisions govern Public Customer-to-Public Customer Cross Orders.
Mass Cancellation of Trading Interest
The Exchange's proposal to memorialize the Mass Cancellation of
Trading Interest rule within Rule 1090 does not impose an undue burden
on competition because all members may utilize this service. This new
rule reflects the Exchange's current practice.
Routing
The Exchange believes that adding greater detail to its rules
concerning routing of orders does not impose an undue burden on
competition, rather it provides greater transparency as to the
potential outcomes when utilizing different routing strategies.
Further, the Exchange notes that market participants may elect not to
route their orders. The Exchange continues to offer various options to
its market participants with respect to routing.
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) of the Act \19\ and Rule 19b-
4(f)(6) thereunder.\20\
---------------------------------------------------------------------------
\19\ 15 U.S.C. 78s(b)(3)(A).
\20\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)(iii)
requires a self-regulatory organization to give the Commission
written notice of its intent to file the proposed rule change, along
with a brief description and text of the proposed rule change, at
least five business days prior to the date of filing of the proposed
rule change, or such shorter time as designated by the Commission.
The Exchange has satisfied this requirement.
---------------------------------------------------------------------------
A proposed rule change filed under Rule 19b-4(f)(6) \21\ normally
does not become operative prior to 30 days after the date of the
filing. However, Rule 19b-4(f)(6)(iii) \22\ permits the Commission to
designate a shorter time if such action is consistent with the
protection of investors and the public interest. The Exchange has asked
the
[[Page 72023]]
Commission to waive the 30-day operative delay so that the proposed
rule change may become effective and operative immediately upon filing.
The Commission believes that waiving the 30-day operative delay is
consistent with the protection of investors and the public interest, as
it will allow the Exchange to immediately provide members with greater
information and transparency on mass cancellation procedures and order
routing strategies available on the Exchange. For this reason, the
Commission hereby waives the 30-day operative delay and designates the
proposed rule change as operative upon filing.\23\
---------------------------------------------------------------------------
\21\ 17 CFR 240.19b-4(f)(6).
\22\ 17 CFR 240.19b-4(f)(6)(iii).
\23\ For purposes only of waiving the 30-day operative delay,
the Commission has also considered the proposed rule's impact on
efficiency, competition, and capital formation. See 15 U.S.C.
78c(f).
---------------------------------------------------------------------------
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 change should be approved or
disapproved.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
Electronic Comments
Use the Commission's internet comment form (https://www.sec.gov/rules/sro.shtml); or
Send an email to [email protected]. Please include
File Number SR-Phlx-2019-56 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-2019-56. This file
number should be included on the subject line if email is used. To help
the Commission process and review your comments more efficiently,
please use only one method. The Commission will post all comments on
the Commission's internet website (https://www.sec.gov/rules/sro.shtml).
Copies of the submission, all subsequent amendments, all written
statements with respect to the proposed rule change that are filed with
the Commission, and all written communications relating to the proposed
rule change between the Commission and any person, other than those
that may be withheld from the public in accordance with the provisions
of 5 U.S.C. 552, will be available for website viewing and printing in
the Commission's Public Reference Room, 100 F Street, NE, Washington,
DC 20549, on official business days between the hours of 10:00 a.m. and
3:00 p.m. Copies of the filing also will be available for inspection
and copying at the principal office of the Exchange. All comments
received will be posted without change. Persons submitting comments are
cautioned that we do not redact or edit personal identifying
information from comment submissions. You should submit only
information that you wish to make available publicly. All submissions
should refer to File Number SR-Phlx-2019-56 and should be submitted on
or before January 21, 2020.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\24\
---------------------------------------------------------------------------
\24\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2019-28022 Filed 12-27-19; 8:45 am]
BILLING CODE 8011-01-P
