Self-Regulatory Organizations; Nasdaq PHLX LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Amend Nasdaq PSX Rules 3213, 3301A, and 3301B, 79231-79235 [2020-26991]
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Federal Register / Vol. 85, No. 237 / Wednesday, December 9, 2020 / Notices
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–90558; File No. SR–Phlx–
2020–51]
Self-Regulatory Organizations; Nasdaq
PHLX LLC; Notice of Filing and
Immediate Effectiveness of Proposed
Rule Change To Amend Nasdaq PSX
Rules 3213, 3301A, and 3301B
December 3, 2020.
Pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934
(‘‘Act’’),1 and Rule 19b–4 thereunder,2
notice is hereby given that on November
20, 2020, 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
Nasdaq PSX Rules 3213, 3301A, and
3301B, as described further below.
The text of the proposed rule change
is available on the Exchange’s website at
https://listingcenter.nasdaq.com/
rulebook/phlx/rules, 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.
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A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
1. Purpose
Presently, the Exchange is making
functional enhancements and
1 15
2 17
U.S.C. 78s(b)(1).
CFR 240.19b–4.
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improvements to specific Order Types 3
and Order Attributes 4 that are currently
only available via the RASH Order entry
protocol.5 Specifically, the Exchange
will be upgrading the logic and
implementation of these Order Types
and Order Attributes so that the features
are more streamlined across the
Exchange’s Systems and order entry
protocols, and will enable the Exchange
to process these Orders more quickly
and efficiently. Additionally, this
System upgrade will pave the way for
the Exchange to enhance the OUCH
Order entry protocol 6 so that
Participants may enter such Order
Types and Order Attributes via OUCH,
in addition to the RASH Order entry
protocols.7 The Exchange plans to
implement its enhancement of the
OUCH protocol sequentially, by Order
Type and Order Attribute.
To support and prepare for these
upgrades and enhancements, the
Exchange now proposes to amend its
Rules governing Order Types and Order
Attributes, at Rules 3301A and 3301B,
respectively. In particular, the Exchange
proposes to adjust the current
functionality of the Market Maker Peg
Order 8 and Reserve Size Order
3 An ‘‘Order Type’’ is a standardized set of
instructions associated with an Order that define
how it will behave with respect to pricing,
execution, and/or posting to the Exchange Book
when submitted to the Exchange. See Rule 3301(e).
4 An ‘‘Order Attribute’’ is a further set of variable
instructions that may be associated with an Order
to further define how it will behave with respect to
pricing, execution, and/or posting to the Exchange
Book when submitted to the Exchange. See id.
5 The RASH (Routing and Special Handling)
Order entry protocol is a proprietary protocol that
allows members to enter Orders, cancel existing
Orders and receive executions. RASH allows
participants to use advanced functionality,
including discretion, random reserve, pegging and
routing. See https://nasdaqtrader.com/content/
technicalsupport/specifications/TradingProducts/
rash_sb.pdf.
6 The OUCH Order entry protocol is a proprietary
protocol that allows subscribers to quickly enter
orders into the System and receive executions.
OUCH accepts limit Orders from members, and if
there are matching Orders, they will execute. Nonmatching Orders are added to the Limit Order Book,
a database of available limit Orders, where they are
matched in price-time priority. OUCH only
provides a method for members to send Orders and
receive status updates on those Orders. See https://
www.nasdaqtrader.com/Trader.aspx?id=OUCH.
7 The Exchange designed the OUCH protocol to
enable members to enter Orders quickly into the
System. As such, the Exchange developed OUCH
with simplicity in mind, and it therefore lacks more
complex order handling capabilities. By contrast,
the Exchange specifically designed RASH to
support advanced functionality, including
discretion, random reserve, pegging and routing.
Once the System upgrades occur, then the Exchange
intends to propose further changes to its Rules to
permit participants to utilize OUCH, in addition to
RASH, to enter order types that require advanced
functionality.
8 See Rule 3301A(b)(5).
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Attribute,9 as described below, so that
they align with how the System, once
upgraded, will handle these Orders
going forward. The Exchange also
proposes to make several associated
clarifications and corrections to these
Rules, and to Rule 3213, as it prepares
to enhance its order handling processes.
The Exchange notes that the
Exchange’s affiliate, the Nasdaq Stock
Market, LLC, recently filed a proposal
for immediate effectiveness to make
changes that are similar to those
proposed herein.10
Changes to Market Maker Peg Order
A Market Maker Peg Order is an Order
Type that exists to help a Market Maker
to meet its obligation to maintain
continuous two-sided quotations (the
‘‘Two-Sided Obligation’’), as set forth in
Rule 3213(a)(2).11 The Exchange
proposes to make three changes related
to the Market Maker Peg Order.
First, the Exchange proposes to
amend Rule 3301A(b)(5) to correct the
conditions under which a Market Maker
Peg Order will be sent back to a
Participant. Rule 3301A(b)(5) currently
states that a Market Maker Peg Order
will be sent back to the Participant if: (1)
Upon entry of the Order, the limit price
of the Order is not within the
Designated Percentage; 12 or (2) after the
Order has been posted to the Exchange
Book, the Reference Price 13 shifts to
reach the Defined Limit,14 such that the
9 See
Rule 3301B(h).
Securities Exchange Act Release No. 34–
90389 (November 10, 2020), 85 FR 73304
(November 17, 2020) (SR–NASDAQ–2020–71).
11 See Rule 3213(a)(2).
12 See Rule 3301A(b)(5). The ‘‘Designated
Percentage’’ is (i) 8% for securities included in the
S&P 500® Index, Russell 1000® Index, and a pilot
list of Exchange Traded Products (‘‘Tier 1
Securities’’); (ii) 28% for all NMS stocks that are not
Tier 1 Securities with a price equal to or greater
than $1 (‘‘Tier 2 Securities’’); (iii) 30% for all NMS
stocks that are not Tier 1 Securities with a price less
than $1 (‘‘Tier 3 Securities’’), except that between
9:30 a.m. and 9:45 a.m. and between 3:35 p.m. and
the close of trading, the Designated Percentage shall
be 20% for Tier 1 Securities, 28% for Tier 2
Securities, and 30% for Tier 3 Securities. The
Designated Percentage for rights and warrants shall
be 30%. See Rule 3213(a)(2)(D). As discussed
below, the Exchange proposes to amend this
definition.
13 The ‘‘Reference Price’’ for a Market Maker Peg
Order to buy (sell) is the then-current National Best
Bid (National Best Offer) (including the Exchange),
or if no such National Best Bid or National Best
Offer, the most recent reported last-sale eligible
trade from the responsible single plan processor for
that day, or if none, the previous closing price of
the security as adjusted to reflect any corporate
actions (e.g., dividends or stock splits) in the
security. See Rule 3301A(b)(5).
14 The term ‘‘Defined Limit’’ means 9.5% for Tier
1 Securities, 29.5% for Tier 2 Securities, and 31.5%
for Tier 3 Securities, except that between 9:30 a.m.
and 9:45 a.m. and between 3:35 p.m. and the close
of trading, the Defined Limit shall be 21.5% for Tier
10 See
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Order is subject to re-pricing at the
Designated Percentage away from the
shifted Reference Price, but the limit
price of the Order would then fall
outside of the Defined Limit (which
would now be measured by the
difference between the re-priced Order
and the shifted Reference Price).15
The Exchange proposes to correct the
second of these two conditions because
it inadvertently allows for a
circumstance in which a Market Maker
Peg Order will be automatically repriced by the System to a limit price
that is outside of the Designated
Percentage but inside of the Defined
Limit. Such an outcome is inconsistent
with a Market Maker’s obligations to
price or reprice its bid (offer) quotations
not more than the Designated
Percentage away from the then National
Best Bid (Offer), as set forth in Rule
3213(a)(2).16 In order for Rule
3301A(b)(5) to be consistent with Rule
3213(a)(2), Rule 3301A(b)(5) cannot
permit the System to re-price a Market
Maker Peg Order to a limit price that is
outside of the Designated Percentage. In
any circumstance in which the Order
would be re-priced to a limit that is
outside of the Designated Percentage,
the Rule must require the System to
return the Order to the Participant. The
Exchange proposes to amend Rule
3301A(b)(5) accordingly.17
1 Securities, 29.5% for Tier 2 Securities, and 31.5%
for Tier 3 Securities. See Rule 3213(a)(2)(E).
15 See Rule 3301A(b)(5).
16 Rule 3213(a)(2) states that for a Market Maker
to satisfy its Two-Sided Obligation, the Market
Maker must price bid (offer) interest not more than
the Designated Percentage away from the then
current National Best Bid (Offer) (or if there is no
National Best Bid (Offer), not more than the
Designated Percentage away from the last reported
sale from the responsible single plan processor).
Moreover, Rule 3213(a)(2) states that if the National
Best Bid (Offer) or reported sale increases
(decreases) to a level that would cause the bid
(offer) interest of the Two-Sided Obligation to be
more than the Defined Limit away from the
National Best Bid (offer) or last reported sale, or if
the bid (offer) is executed or cancelled, then the
Market Maker must enter new bid (offer) interest at
a price not more than the Designated Percentage
away from the then current National Best Bid
(Offer) or last reported sale.
17 The Exchange also proposes to amend this
condition to state that repricing will occur when the
difference between the displayed price of a Market
Maker Peg Order and the Reference Price exceeds,
rather than merely reaches, the Defined Limit.
Currently, the Rule uses the term ‘‘reaches,’’ but
this is inconsistent with the example that follows
it (‘‘In the foregoing example, if the Defined Limit
is 9.5% and the National Best Bid increases to
$10.17, such that the displayed price of the Market
Maker Peg Order would be more than 9.5% away,
the Order will be repriced to $9.36, or 8% away
from the National Best Bid.’’) (emphasis added).
The Exchange proposes to reconcile this
inconsistency in a manner that reflects the stated
example as well as the manner in which the
Exchange’s System presently applies the Rule. It
would also render the Rule consistent with Market
Maker obligations under Rule 3213.
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Second, the Exchange proposes to
amend Rule 3301A(b)(5) to no longer
allow entry of a Market Maker Peg Order
entered with an offset. The Rule
presently permits a Market Maker to
enter a Market Maker Peg Order with a
more aggressive offset than the
Designated Percentage, but not a less
aggressive offset. The Exchange has
reviewed usage of offsets with Market
Maker Peg Orders and found that no
Market Maker assigned an offset to their
Market Maker Peg Orders since January
2019. The Exchange does not believe
that there is value in keeping offsets as
an option for Market Maker Peg Orders.
Eliminating this option will also
facilitate the System upgrades and ease
the import of RASH functionality to
OUCH. Accordingly, the Exchange
proposes to delete text from Rule
3301A(b)(5)(A) that discusses offsets
and replace it with text stating that
Market Maker Peg Orders entered with
pegging offsets will not be accepted. The
Exchange also makes conforming
changes to Rule 3301A(b)(5)(B) where
the text refers to offsets.
Third, the Exchange proposes to
amend Rule 3301A(b)(5) to account for
a scenario where, after entry of a Market
Maker Peg Order whose initial
displayed price was set with reference
to the National Best Bid or Offer, the
National Best Bid or Offer shifts such
that the displayed price of the Order to
buy (sell) is equal to or greater (less
than) the National Best Bid (Offer). The
Exchange proposes to state that the
Exchange will not reprice the Market
Maker Peg Order in this scenario until
a new Reference Price is established that
is more aggressive than the displayed
price of the Order. By specifying that
the Exchange will not reprice Market
Maker Peg Orders in this scenario until
a new, more aggressive Reference Price
is established, the Exchange will ensure
that it does not engage in a potential
cycle of pegging against a Reference
Price established by the Order itself.
Change to Rule 3213
Next, the Exchange proposes to clarify
the definitions of ‘‘Designated
Percentage’’ in Rule 3213(a)(2)(D) and
‘‘Defined Limit’’ in Rule 3213(a)(2)(E),
which presently are as follows:
(D) For purposes of this Rule, the
‘‘Designated Percentage’’ shall be: (i) 8%
for securities included in the S&P 500®
Index, Russell 1000® Index, and a pilot
list of Exchange Traded Products (‘‘Tier
1 Securities’’); (ii) 28% for all NMS
stocks that are not Tier 1 Securities with
a price equal to or greater than $1 (‘‘Tier
2 Securities’’); (iii) 30% for all NMS
stocks that are not Tier 1 Securities with
a price less than $1 (‘‘Tier 3
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Securities’’), except that between 9:30
a.m. and 9:45 a.m. and between 3:35
p.m. and the close of trading, the
Designated Percentage shall be 20% for
Tier 1 Securities, 28% for Tier 2
Securities, and 30% for Tier 3
Securities. The Designated Percentage
for rights and warrants shall be 30%.
(E) For purposes of this Rule, the
‘‘Defined Limit’’ shall be 9.5% for Tier
1 Securities, 29.5% for Tier 2 Securities,
and 31.5% for Tier 3 Securities, except
that between 9:30 a.m. and 9:45 a.m.
and between 3:35 p.m. and the close of
trading, the Defined Limit shall be
21.5% for Tier 1 Securities, 29.5% for
Tier 2 Securities, and 31.5% for Tier 3
Securities.
The Exchange is concerned that these
two provisions could be misinterpreted
to suggest that prior to 9:30 a.m., the
Exchange applies a narrower Designated
Percentage and Defined Limit than it
does between 9:30 and 9:45 a.m., under
the same conditions. In fact, the
Exchange applies the same wider
Designated Percentage and Defined
Limit prior to 9:30 a.m. as it does
between 9:30 and 9:45 a.m. To avoid
confusion (and without changing
existing market maker obligations), the
Exchange therefore proposes to clarify
both of these provisions of Rule
3213(a)(2) to state that ‘‘prior to 9:45
a.m.’’ and between 3:35 p.m. and the
close of trading, the Designated
Percentage and Defined Limit (including
for Market Maker Peg Orders) shall be
as stated. Furthermore, throughout Rule
3213(a)(2)(D), in defining the term
‘‘Designated Percentage,’’ the Exchange
proposes to replace references to Tier 1,
2, and 3 NMS Securities with the
following: (i) The Designated Percentage
shall be 8% for all Tier 1 NMS Stocks
under the LULD Plan,18 28% for all Tier
2 NMS Stocks under the LULD Plan
with a price equal to or greater than $1),
and 30% for all Tier 2 NMS Stocks
under the LULD Plan with a price less
than $1, except that prior to 9:45 a.m.
and between 3:35 p.m. and the close of
trading, the Designated Percentage shall
be: (i) 20% for Tier 1 NMS Stocks under
the LULD Plan; (ii) 28% for all Tier 2
NMS Stocks under the LULD Plan with
a price equal to or greater than $1; and
(iii) 30% for all Tier 2 NMS Stocks
under the LULD Plan with a price less
than $1. Similarly, in Rule 3213(a)(2)(E),
18 Tier 1 NMS Stocks under the LULD Plan
comprise all NMS Stocks included in the S&P 500®
Index, Russell 1000® Index, and a list of Exchange
Traded Products identified as Schedule 1 to the
Plan to Address Extraordinary Market Volatility
Submitted to the Securities and Exchange
Commission Pursuant to Rule 608 of Regulation
NMS Under the Securities Exchange Act of 1934
(the ‘‘LULD Plan’’).
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in defining the term ‘‘Defined Limit,’’
the Exchange proposes to replace
references to securities subject to Rule
4120(a)(11)(A), (B), and (C) [sic] with
the following: (i) 9.5% for all Tier 1
NMS Stocks under the LULD Plan; (ii)
29.5% for all Tier 2 NMS Stocks under
the LULD Plan with a price equal to or
greater than $1; and (iii) 31.5% for all
Tier 2 NMS Stocks under the LULD Plan
with a price less than $1, except that
prior to 9:45 a.m. and between 3:35 p.m.
and the close of trading, the Defined
Limit shall be: (i) 21.5% all Tier 1 NMS
Stocks under the LULD Plan; (ii) 29.5%
for all Tier 2 NMS Stocks under the
LULD Plan with a price equal to or
greater than $1; and (iii) 31.5% for all
Tier 2 NMS Stocks under the LULD Plan
with a price less than $1. The Exchange
proposes this change because the
existing references are obsolete.
The Exchange also proposes to add to
Rule 3213(a)(2)(E) the fact that the
Defined Limit for rights and warrants
shall be 31.5%. The Exchange
mistakenly omitted the Defined Limit
for such securities from prior filings.19
Changes to Reserve Size
As set forth in Rule 3301B(h),
‘‘Reserve Size’’ is an Order Attribute
that permits a Participant to stipulate
that an Order Type that is Displayed
may have its displayed size replenished
from additional non-displayed size.20
The Exchange proposes three changes to
the rule text describing the Reserve Size
Order Attribute.
First, the Exchange proposes to
amend a paragraph of Rule 3301B(h)
which begins as follows: ‘‘Whenever a
Participant enters an Order with Reserve
Size, PSX will process the Order as two
Orders: A Displayed Order (with the
characteristics of its selected Order
Type) and a Non-Displayed Order. Upon
entry, the full size of each such Order
will be processed for potential
execution in accordance with the
parameters applicable to the Order
Type.’’ The Exchange proposes to
amend this language because it does not
describe precisely how the Exchange
processes Orders with Reserve Size. The
Exchange proposes to state instead that
whenever a Participant enters an Order
with Reserve Size, the full size of the
Order will be presented for potential
execution in compliance with
Regulation NMS and that thereafter,
unexecuted portions of the Order will
be processed as two Orders: A
Displayed Order (with the
19 See Securities Exchange Act Release No. 34–
69194 (March 20, 2013), 78 FR 18386 (March 26,
2013) (SR–Phlx–2013–24).
20 An Order with Reserve Size may be referred to
as a ‘‘Reserve Order.’’
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characteristics of its selected Order
Type) and a Non-Displayed Order. The
Exchange also proposes to delete the
following sentence: ‘‘Upon entry, the
full size of each such Order will be
processed for potential execution in
accordance with the parameters
applicable to the Order Type.’’ The
proposed re-formulation reflects that it
is possible that the Order with Reserve
Size will be executed immediately in
full and without needing to place
unexecuted portions of the Order in
reserve. Furthermore, it clarifies that the
System will present the Order for
immediate execution (provided that it
does not trade through a protected
quotation, in accordance with
Regulation NMS) without complying
with underlying characteristics of the
Order Type that might otherwise require
an adjustment to the price of the Order
before the System attempts to execute
it.21 The proposed language is
consistent with the following example
set forth in the existing rule text:
For example, a Participant might enter a
Price to Display Order with 200 shares
displayed and an additional 3,000 shares
non-displayed. Upon entry, the Order would
attempt to execute against available liquidity
on the PSX Book, up to 3,200 shares.
Thereafter, unexecuted portions of the Order
would post to the PSX Book as a Displayed
Price to Display Order and a Non-Displayed
Order; provided, however, that if the
remaining total size is less than the display
size stipulated by the Participant, the
Displayed Order will post without Reserve
Size. Thus, if 3,050 shares executed upon
entry, the Price to Display Order would post
with a size of 150 shares and no Reserve Size.
The proposed language eliminates
confusion that might otherwise arise
from perceived inconsistencies between
the above example and existing rule
text. Again, the existing rule text states
that whenever a participant enters an
Order with Reserve Size, the System
will process the Reserve Order as two
orders upon entry and also, upon entry,
the full size of an Order with Reserve
will be presented for potential execution
in accordance with the parameters
applicable to the Order Type.
When there is, in fact, an unexecuted
portion of the Order, then the Exchange
will continue to process the unexecuted
portion as two Orders: A Displayed
Order and a Non-Displayed Order.
Second, the Exchange proposes to
delete text from Rule 3301B(h) which
states that ‘‘[a] Participant may stipulate
that the Displayed Order should be
21 This clarification is needed due to the fact that
pursuant to Rule 3301A(b)(2)(A), a Price to Display
Order would automatically reprice upon entry if its
entered limit price would lock or cross a protected
quotation, = .
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79233
replenished to its original size.’’ The
Exchange proposes to delete this text
because it is redundant of text
elsewhere in the Rule that describes
how a Displayed Order with Reserve
Size replenishes.22
Third, the Exchange proposes to
amend text from Rule 3301B(h) that
allows the original and subsequent
displayed sizes of the Displayed Order
to be amounts randomly determined
based upon factors they select
(‘‘Random Reserve’’). The amendments
also state that when Participants
stipulate use of a Random Reserve, they
would select a nominal (rather than a
‘‘theoretical’’) displayed size, which is a
more precise term. Furthermore, the
amendment adds a reminder that the
actual displayed size will be randomly
determined by the System from a range
of ‘‘normal trading units.’’ Lastly, the
amendments include other changes that
do not change the substantive meaning
of the text, but simply improve its
readability.
The Exchange intends to implement
the foregoing changes during the First
Quarter of 2021. The Exchange will
issue an Equity Trader Alert at least 30
days in advance of implementing the
changes.
2. Statutory Basis
The Exchange believes that its
proposal is consistent with Section 6(b)
of the Act,23 in general, and furthers the
objectives of Section 6(b)(5) of the Act,24
in particular, in that it is designed to
promote just and equitable principles of
trade, to remove impediments to and
perfect the mechanism of a free and
open market and a national market
system, and, in general to protect
investors and the public interest.
The Exchange believes that it is
consistent with the Act to amend Rule
3301A(b)(5), which describes the Market
Maker Peg Order Type, to correct one of
the stated conditions under which a
Market Maker Peg Order will be sent
back to a Participant. As presently
stated, this condition provides for
Market Maker Peg Orders to be repriced
automatically at limit prices that are
within the Defined Limit, but outside of
the Designated Percentage, which places
22 The Exchange proposes to clarify a portion of
Rule 3301B(h) which states that if an execution
against a Displayed Order causes its size to decrease
below a normal unit of trading, another Displayed
Order will be entered at the ‘‘level’’ stipulated by
the Participant while the size of the Non-Displayed
Order will be reduced by the same amount. In
describing the entry of the new Displayed Order in
this instance, the Exchange proposes to replace the
word ‘‘level’’ with ‘‘limit price and size,’’ which is
a more precise phrase.
23 15 U.S.C. 78f(b).
24 15 U.S.C. 78f(b)(5).
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them in conflict with Rule 3213(a)(2),
which requires Market Makers to price
and re-price bid and offer interest at the
Designated Percentage. It is just and in
the interests of the investors and the
public for the Exchange to correct Rule
3301A(b)(5) to ensure that Market Maker
Peg Orders operate in a manner that
helps rather than hinders Market
Makers from complying with Rule 3213.
It is also consistent with the Act for
the Exchange to amend Rule
3301A(b)(5) to clarify that repricing will
occur when the difference between the
displayed price of a Market Maker Peg
Order and the Reference Price
‘‘exceeds,’’ rather than merely
‘‘reaches,’’ the Defined Limit, as the
Rule states presently. The proposed
change would ensure that the Rule text
is internally consistent, as the example
set forth in the text suggests that the
Rule should be read to mean exceeds. It
would also render the Rule consistent
with Market Maker obligations under
Rule 3213. The Exchange believes that
it is in the interest of investors and the
public to eliminate such
inconsistencies.
Meanwhile, the Exchange believes
that it is consistent with the Act to
eliminate the option for Participants to
enter offsets from the Market Maker Peg
Orders. The proposal is consistent with
the Act because Market Makers do not
actively employ such offsets. As noted
above, the Exchange has reviewed usage
of offsets with Market Maker Peg Orders
and found that no Market Maker has
assigned an offset with their Market
Maker Peg Orders since January 2019.
Moreover, elimination of the option to
enter offsets would simplify the
Exchange’s efforts to improve
processing.
The Exchange believes that it is
consistent with the Act to clarify Rule
3301A(b)(5) so that it specifies how the
System will react when, after entry of a
Market Maker Peg Order whose initial
displayed price was set with reference
to the National Best Bid or Offer, the
National Best Bid or Offer shifts such
that the displayed price of the Order to
buy (sell) is equal to or greater (less)
than the National Best Bid (National
Best Offer). Specifically, the Exchange
believes that it is just and in the
interests of investors to specify that the
Exchange will not reprice Market Maker
Peg Orders in this scenario until a new,
more aggressive Reference Price is
established, because doing so ensures
that the Exchange will not engage in a
potential cycle of pegging against a
Reference Price established by the Order
itself.
The Exchange’s proposal to amend
the definitions of ‘‘Designated
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Percentage’’ and ‘‘Defined Limit,’’ as set
forth in Rule 3213(a)(2)(D) and (E), is
consistent with the Act because the
amendment is necessary to correct
obsolete references and to avoid
confusion about which particular
percentage or limit will apply to orders
prior to 9:30 a.m. The proposal clarifies
the Rule by stating expressly that the
same sets of bands that apply between
9:30–9:45 a.m. and between 3:35 p.m.
and the close of trading also apply prior
to 9:30 a.m. The proposal also specifies
a Defined Limit for rights and warrants,
which was mistakenly omitted from
prior filings and which relates to the
Designated Percentage for rights and
warrants, which is set forth already at
Rule 3213(a)(2)(D).
It is also consistent with the Act to
amend Rule 3301B(h) to clarify that
when a Participant enters an Order with
Reserve Size, the full size of the Order
will first be presented for potential
execution in compliance with
Regulation NMS, and only if there is an
unexecuted portion of the Order will it
be processed as a Displayed Order and
a Non-Displayed Order. This
clarification describes the behavior of
the System more precisely than the
existing Rule language. It also reflects
the possibility that the Order with
Reserve Size will be executed
immediately in full and without
needing to place unexecuted portions of
the Order in reserve. Furthermore, it
eliminates inconsistency between rule
text which presently suggests that the
System will process the Order with
Reserve Size for potential immediate
execution consistent with the
characteristics of its underlying Order
Type, and an example in the rule text
in which the Exchange provides that the
System will process the Order for
potential immediate execution
regardless of the parameters applicable
to the Order Type. The proposed
amendment will resolve this
inconsistency by making clear that the
System will present an order for
potential immediate execution
regardless of the characteristics of the
underlying Order Type, with the caveat
that the Order will not trade-through a
protected quotation as required by
Regulation NMS.
It is consistent with the Act to amend
Rule 3301B(h) to state that when
participants stipulate use of a Random
Reserve, they would select a
‘‘nominal’’—rather than a ‘‘theoretical’’
displayed size. The proposed term
‘‘nominal’’ is more precise than the
existing Rule text. Improving the
precision of the Exchange’s Rules
improves the ability of the public and
investors to comprehend them and
PO 00000
Frm 00073
Fmt 4703
Sfmt 4703
account for and comply with them. For
similar reasons, proposed nonsubstantive amendments to other text in
Rule 3301B(h) are consistent with the
Act because they would improve the
readability of the Rule.
Finally, the Exchange believes that
various proposed non-substantive
clarifications and corrections to the text
of the Rule will improve its readability,
which is in the interests of market
participants and investors, and would
promote a more orderly market.
B. Self-Regulatory Organization’s
Statement on Burden on Competition
The Exchange does not believe that its
proposed rule changes will impose any
burden on competition not necessary or
appropriate in furtherance of the
purposes of the Act. As a general
principle, the proposed changes are
reflective of the significant competition
among exchanges and non-exchange
venues for order flow. In this regard,
proposed changes that facilitate
enhancements to the Exchange’s System
and order entry protocols as well as
those that clarify and correct the
Exchange’s Rules regarding its Order
Types and Attributes, are procompetitive because they bolster the
efficiency, integrity, and overall
attractiveness of the Exchange in an
absolute sense and relative to its peers.
Moreover, none of the proposed
changes will burden intra-market
competition among various Exchange
Participants. Proposed changes to the
Market Maker Peg Order Type, at Rule
3301A(b)(5), and to Rule 3213, will
apply equally to all Market Makers.
Market Makers will experience no
competitive impact from proposals to
eliminate their ability to use offsets with
Market Maker Peg Orders because
Market Makers do not actually utilize
offsets. Likewise, Market Makers will
feel no competitive effects from
proposed corrections and clarifications
to the manner in which the Exchange
prices and re-prices their Market Maker
Peg Orders, except that the changes will
benefit Market Makers by ensuring that
the Exchange always processes those
Orders in a manner that complies with
their Market Maker pricing obligations
under Rule 3213. Proposed
clarifications to the Reserve Order
Attribute Rule, at Rule 3301B(h), will
have no substantive impact on
participants.
Proposed changes to Rule 3213 are
intended to correct inadvertent errors
and should have no competitive impact
on Market Makers. Proposed
clarifications and amendments to the
Reserve Order Attribute Rule, at Rule
3301B(h), are intended to improve the
E:\FR\FM\09DEN1.SGM
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Federal Register / Vol. 85, No. 237 / Wednesday, December 9, 2020 / Notices
precision and readability of the Rule
text and will not have any competitive
impact on participants.
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 25 and Rule 19b–
4(f)(6) thereunder.26
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 rule-comments@
sec.gov. Please include File Number SR–
Phlx–2020–51 on the subject line.
Commission, 100 F Street NE,
Washington, DC 20549–1090.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.27
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020–26991 Filed 12–8–20; 8:45 am]
Paper Comments
• Send paper comments in triplicate
to Secretary, Securities and Exchange
25 15
jbell on DSKJLSW7X2PROD with NOTICES
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.
26 17
VerDate Sep<11>2014
16:16 Dec 08, 2020
Jkt 253001
SECURITIES AND EXCHANGE
COMMISSION
All submissions should refer to File
Number SR–Phlx–2020–51. 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–2020–51 and should
be submitted on or before December 30,
2020.
BILLING CODE 8011–01–P
[Release No. 34–90556; File No. SR–
NYSEArca–2020–101]
Self-Regulatory Organizations; NYSE
Arca, Inc.; Notice of Filing and
Immediate Effectiveness of Proposed
Rule Change To Streamline the NYSE
Arca Equities Fees and Charges
December 3, 2020
Pursuant to Section 19(b)(1) 1 of the
Securities Exchange Act of 1934
(‘‘Act’’),2 and Rule 19b–4 thereunder,3
notice is hereby given that on November
23, 2020, NYSE Arca, Inc. (‘‘NYSE
Arca’’ or ‘‘Exchange’’) filed with the
Securities and Exchange Commission
(‘‘Commission’’) the proposed rule
change as described in Items I, II, and
III below, which Items have been
prepared by the 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 streamline
the NYSE Arca Equities Fees and
Charges (‘‘Fee Schedule’’) by deleting
redundant rule text from Tier 1, Tier 2
and Tier 3 pricing tiers. The Exchange
proposes to implement the fee changes
effective November 23, 2020. The
proposed rule change is available on the
Exchange’s website at www.nyse.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
self-regulatory organization 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 those 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 parts of such
statements.
1 15
U.S.C. 78s(b)(1).
U.S.C. 78a.
3 17 CFR 240.19b–4.
2 15
27 17
PO 00000
CFR 200.30–3(a)(12).
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79235
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]]>Agencies
[Federal Register Volume 85, Number 237 (Wednesday, December 9, 2020)]
[Notices]
[Pages 79231-79235]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-26991]
[[Page 79231]]
=======================================================================
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-90558; File No. SR-Phlx-2020-51]
Self-Regulatory Organizations; Nasdaq PHLX LLC; Notice of Filing
and Immediate Effectiveness of Proposed Rule Change To Amend Nasdaq PSX
Rules 3213, 3301A, and 3301B
December 3, 2020.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that
on November 20, 2020, 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 Nasdaq PSX Rules 3213, 3301A, and
3301B, as described further below.
The text of the proposed rule change is available on the Exchange's
website at https://listingcenter.nasdaq.com/rulebook/phlx/rules, 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
Presently, the Exchange is making functional enhancements and
improvements to specific Order Types \3\ and Order Attributes \4\ that
are currently only available via the RASH Order entry protocol.\5\
Specifically, the Exchange will be upgrading the logic and
implementation of these Order Types and Order Attributes so that the
features are more streamlined across the Exchange's Systems and order
entry protocols, and will enable the Exchange to process these Orders
more quickly and efficiently. Additionally, this System upgrade will
pave the way for the Exchange to enhance the OUCH Order entry protocol
\6\ so that Participants may enter such Order Types and Order
Attributes via OUCH, in addition to the RASH Order entry protocols.\7\
The Exchange plans to implement its enhancement of the OUCH protocol
sequentially, by Order Type and Order Attribute.
---------------------------------------------------------------------------
\3\ An ``Order Type'' is a standardized set of instructions
associated with an Order that define how it will behave with respect
to pricing, execution, and/or posting to the Exchange Book when
submitted to the Exchange. See Rule 3301(e).
\4\ An ``Order Attribute'' is a further set of variable
instructions that may be associated with an Order to further define
how it will behave with respect to pricing, execution, and/or
posting to the Exchange Book when submitted to the Exchange. See id.
\5\ The RASH (Routing and Special Handling) Order entry protocol
is a proprietary protocol that allows members to enter Orders,
cancel existing Orders and receive executions. RASH allows
participants to use advanced functionality, including discretion,
random reserve, pegging and routing. See https://nasdaqtrader.com/content/technicalsupport/specifications/TradingProducts/rash_sb.pdf.
\6\ The OUCH Order entry protocol is a proprietary protocol that
allows subscribers to quickly enter orders into the System and
receive executions. OUCH accepts limit Orders from members, and if
there are matching Orders, they will execute. Non-matching Orders
are added to the Limit Order Book, a database of available limit
Orders, where they are matched in price-time priority. OUCH only
provides a method for members to send Orders and receive status
updates on those Orders. See https://www.nasdaqtrader.com/Trader.aspx?id=OUCH.
\7\ The Exchange designed the OUCH protocol to enable members to
enter Orders quickly into the System. As such, the Exchange
developed OUCH with simplicity in mind, and it therefore lacks more
complex order handling capabilities. By contrast, the Exchange
specifically designed RASH to support advanced functionality,
including discretion, random reserve, pegging and routing. Once the
System upgrades occur, then the Exchange intends to propose further
changes to its Rules to permit participants to utilize OUCH, in
addition to RASH, to enter order types that require advanced
functionality.
---------------------------------------------------------------------------
To support and prepare for these upgrades and enhancements, the
Exchange now proposes to amend its Rules governing Order Types and
Order Attributes, at Rules 3301A and 3301B, respectively. In
particular, the Exchange proposes to adjust the current functionality
of the Market Maker Peg Order \8\ and Reserve Size Order Attribute,\9\
as described below, so that they align with how the System, once
upgraded, will handle these Orders going forward. The Exchange also
proposes to make several associated clarifications and corrections to
these Rules, and to Rule 3213, as it prepares to enhance its order
handling processes.
---------------------------------------------------------------------------
\8\ See Rule 3301A(b)(5).
\9\ See Rule 3301B(h).
---------------------------------------------------------------------------
The Exchange notes that the Exchange's affiliate, the Nasdaq Stock
Market, LLC, recently filed a proposal for immediate effectiveness to
make changes that are similar to those proposed herein.\10\
---------------------------------------------------------------------------
\10\ See Securities Exchange Act Release No. 34-90389 (November
10, 2020), 85 FR 73304 (November 17, 2020) (SR-NASDAQ-2020-71).
---------------------------------------------------------------------------
Changes to Market Maker Peg Order
A Market Maker Peg Order is an Order Type that exists to help a
Market Maker to meet its obligation to maintain continuous two-sided
quotations (the ``Two-Sided Obligation''), as set forth in Rule
3213(a)(2).\11\ The Exchange proposes to make three changes related to
the Market Maker Peg Order.
---------------------------------------------------------------------------
\11\ See Rule 3213(a)(2).
---------------------------------------------------------------------------
First, the Exchange proposes to amend Rule 3301A(b)(5) to correct
the conditions under which a Market Maker Peg Order will be sent back
to a Participant. Rule 3301A(b)(5) currently states that a Market Maker
Peg Order will be sent back to the Participant if: (1) Upon entry of
the Order, the limit price of the Order is not within the Designated
Percentage; \12\ or (2) after the Order has been posted to the Exchange
Book, the Reference Price \13\ shifts to reach the Defined Limit,\14\
such that the
[[Page 79232]]
Order is subject to re-pricing at the Designated Percentage away from
the shifted Reference Price, but the limit price of the Order would
then fall outside of the Defined Limit (which would now be measured by
the difference between the re-priced Order and the shifted Reference
Price).\15\
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\12\ See Rule 3301A(b)(5). The ``Designated Percentage'' is (i)
8% for securities included in the S&P 500[supreg] Index, Russell
1000[supreg] Index, and a pilot list of Exchange Traded Products
(``Tier 1 Securities''); (ii) 28% for all NMS stocks that are not
Tier 1 Securities with a price equal to or greater than $1 (``Tier 2
Securities''); (iii) 30% for all NMS stocks that are not Tier 1
Securities with a price less than $1 (``Tier 3 Securities''), except
that between 9:30 a.m. and 9:45 a.m. and between 3:35 p.m. and the
close of trading, the Designated Percentage shall be 20% for Tier 1
Securities, 28% for Tier 2 Securities, and 30% for Tier 3
Securities. The Designated Percentage for rights and warrants shall
be 30%. See Rule 3213(a)(2)(D). As discussed below, the Exchange
proposes to amend this definition.
\13\ The ``Reference Price'' for a Market Maker Peg Order to buy
(sell) is the then-current National Best Bid (National Best Offer)
(including the Exchange), or if no such National Best Bid or
National Best Offer, the most recent reported last-sale eligible
trade from the responsible single plan processor for that day, or if
none, the previous closing price of the security as adjusted to
reflect any corporate actions (e.g., dividends or stock splits) in
the security. See Rule 3301A(b)(5).
\14\ The term ``Defined Limit'' means 9.5% for Tier 1
Securities, 29.5% for Tier 2 Securities, and 31.5% for Tier 3
Securities, except that between 9:30 a.m. and 9:45 a.m. and between
3:35 p.m. and the close of trading, the Defined Limit shall be 21.5%
for Tier 1 Securities, 29.5% for Tier 2 Securities, and 31.5% for
Tier 3 Securities. See Rule 3213(a)(2)(E).
\15\ See Rule 3301A(b)(5).
---------------------------------------------------------------------------
The Exchange proposes to correct the second of these two conditions
because it inadvertently allows for a circumstance in which a Market
Maker Peg Order will be automatically re-priced by the System to a
limit price that is outside of the Designated Percentage but inside of
the Defined Limit. Such an outcome is inconsistent with a Market
Maker's obligations to price or reprice its bid (offer) quotations not
more than the Designated Percentage away from the then National Best
Bid (Offer), as set forth in Rule 3213(a)(2).\16\ In order for Rule
3301A(b)(5) to be consistent with Rule 3213(a)(2), Rule 3301A(b)(5)
cannot permit the System to re-price a Market Maker Peg Order to a
limit price that is outside of the Designated Percentage. In any
circumstance in which the Order would be re-priced to a limit that is
outside of the Designated Percentage, the Rule must require the System
to return the Order to the Participant. The Exchange proposes to amend
Rule 3301A(b)(5) accordingly.\17\
---------------------------------------------------------------------------
\16\ Rule 3213(a)(2) states that for a Market Maker to satisfy
its Two-Sided Obligation, the Market Maker must price bid (offer)
interest not more than the Designated Percentage away from the then
current National Best Bid (Offer) (or if there is no National Best
Bid (Offer), not more than the Designated Percentage away from the
last reported sale from the responsible single plan processor).
Moreover, Rule 3213(a)(2) states that if the National Best Bid
(Offer) or reported sale increases (decreases) to a level that would
cause the bid (offer) interest of the Two-Sided Obligation to be
more than the Defined Limit away from the National Best Bid (offer)
or last reported sale, or if the bid (offer) is executed or
cancelled, then the Market Maker must enter new bid (offer) interest
at a price not more than the Designated Percentage away from the
then current National Best Bid (Offer) or last reported sale.
\17\ The Exchange also proposes to amend this condition to state
that repricing will occur when the difference between the displayed
price of a Market Maker Peg Order and the Reference Price exceeds,
rather than merely reaches, the Defined Limit. Currently, the Rule
uses the term ``reaches,'' but this is inconsistent with the example
that follows it (``In the foregoing example, if the Defined Limit is
9.5% and the National Best Bid increases to $10.17, such that the
displayed price of the Market Maker Peg Order would be more than
9.5% away, the Order will be repriced to $9.36, or 8% away from the
National Best Bid.'') (emphasis added). The Exchange proposes to
reconcile this inconsistency in a manner that reflects the stated
example as well as the manner in which the Exchange's System
presently applies the Rule. It would also render the Rule consistent
with Market Maker obligations under Rule 3213.
---------------------------------------------------------------------------
Second, the Exchange proposes to amend Rule 3301A(b)(5) to no
longer allow entry of a Market Maker Peg Order entered with an offset.
The Rule presently permits a Market Maker to enter a Market Maker Peg
Order with a more aggressive offset than the Designated Percentage, but
not a less aggressive offset. The Exchange has reviewed usage of
offsets with Market Maker Peg Orders and found that no Market Maker
assigned an offset to their Market Maker Peg Orders since January 2019.
The Exchange does not believe that there is value in keeping offsets as
an option for Market Maker Peg Orders. Eliminating this option will
also facilitate the System upgrades and ease the import of RASH
functionality to OUCH. Accordingly, the Exchange proposes to delete
text from Rule 3301A(b)(5)(A) that discusses offsets and replace it
with text stating that Market Maker Peg Orders entered with pegging
offsets will not be accepted. The Exchange also makes conforming
changes to Rule 3301A(b)(5)(B) where the text refers to offsets.
Third, the Exchange proposes to amend Rule 3301A(b)(5) to account
for a scenario where, after entry of a Market Maker Peg Order whose
initial displayed price was set with reference to the National Best Bid
or Offer, the National Best Bid or Offer shifts such that the displayed
price of the Order to buy (sell) is equal to or greater (less than) the
National Best Bid (Offer). The Exchange proposes to state that the
Exchange will not reprice the Market Maker Peg Order in this scenario
until a new Reference Price is established that is more aggressive than
the displayed price of the Order. By specifying that the Exchange will
not reprice Market Maker Peg Orders in this scenario until a new, more
aggressive Reference Price is established, the Exchange will ensure
that it does not engage in a potential cycle of pegging against a
Reference Price established by the Order itself.
Change to Rule 3213
Next, the Exchange proposes to clarify the definitions of
``Designated Percentage'' in Rule 3213(a)(2)(D) and ``Defined Limit''
in Rule 3213(a)(2)(E), which presently are as follows:
(D) For purposes of this Rule, the ``Designated Percentage'' shall
be: (i) 8% for securities included in the S&P 500[supreg] Index,
Russell 1000[supreg] Index, and a pilot list of Exchange Traded
Products (``Tier 1 Securities''); (ii) 28% for all NMS stocks that are
not Tier 1 Securities with a price equal to or greater than $1 (``Tier
2 Securities''); (iii) 30% for all NMS stocks that are not Tier 1
Securities with a price less than $1 (``Tier 3 Securities''), except
that between 9:30 a.m. and 9:45 a.m. and between 3:35 p.m. and the
close of trading, the Designated Percentage shall be 20% for Tier 1
Securities, 28% for Tier 2 Securities, and 30% for Tier 3 Securities.
The Designated Percentage for rights and warrants shall be 30%.
(E) For purposes of this Rule, the ``Defined Limit'' shall be 9.5%
for Tier 1 Securities, 29.5% for Tier 2 Securities, and 31.5% for Tier
3 Securities, except that between 9:30 a.m. and 9:45 a.m. and between
3:35 p.m. and the close of trading, the Defined Limit shall be 21.5%
for Tier 1 Securities, 29.5% for Tier 2 Securities, and 31.5% for Tier
3 Securities.
The Exchange is concerned that these two provisions could be
misinterpreted to suggest that prior to 9:30 a.m., the Exchange applies
a narrower Designated Percentage and Defined Limit than it does between
9:30 and 9:45 a.m., under the same conditions. In fact, the Exchange
applies the same wider Designated Percentage and Defined Limit prior to
9:30 a.m. as it does between 9:30 and 9:45 a.m. To avoid confusion (and
without changing existing market maker obligations), the Exchange
therefore proposes to clarify both of these provisions of Rule
3213(a)(2) to state that ``prior to 9:45 a.m.'' and between 3:35 p.m.
and the close of trading, the Designated Percentage and Defined Limit
(including for Market Maker Peg Orders) shall be as stated.
Furthermore, throughout Rule 3213(a)(2)(D), in defining the term
``Designated Percentage,'' the Exchange proposes to replace references
to Tier 1, 2, and 3 NMS Securities with the following: (i) The
Designated Percentage shall be 8% for all Tier 1 NMS Stocks under the
LULD Plan,\18\ 28% for all Tier 2 NMS Stocks under the LULD Plan with a
price equal to or greater than $1), and 30% for all Tier 2 NMS Stocks
under the LULD Plan with a price less than $1, except that prior to
9:45 a.m. and between 3:35 p.m. and the close of trading, the
Designated Percentage shall be: (i) 20% for Tier 1 NMS Stocks under the
LULD Plan; (ii) 28% for all Tier 2 NMS Stocks under the LULD Plan with
a price equal to or greater than $1; and (iii) 30% for all Tier 2 NMS
Stocks under the LULD Plan with a price less than $1. Similarly, in
Rule 3213(a)(2)(E),
[[Page 79233]]
in defining the term ``Defined Limit,'' the Exchange proposes to
replace references to securities subject to Rule 4120(a)(11)(A), (B),
and (C) [sic] with the following: (i) 9.5% for all Tier 1 NMS Stocks
under the LULD Plan; (ii) 29.5% for all Tier 2 NMS Stocks under the
LULD Plan with a price equal to or greater than $1; and (iii) 31.5% for
all Tier 2 NMS Stocks under the LULD Plan with a price less than $1,
except that prior to 9:45 a.m. and between 3:35 p.m. and the close of
trading, the Defined Limit shall be: (i) 21.5% all Tier 1 NMS Stocks
under the LULD Plan; (ii) 29.5% for all Tier 2 NMS Stocks under the
LULD Plan with a price equal to or greater than $1; and (iii) 31.5% for
all Tier 2 NMS Stocks under the LULD Plan with a price less than $1.
The Exchange proposes this change because the existing references are
obsolete.
---------------------------------------------------------------------------
\18\ Tier 1 NMS Stocks under the LULD Plan comprise all NMS
Stocks included in the S&P 500[supreg] Index, Russell 1000[supreg]
Index, and a list of Exchange Traded Products identified as Schedule
1 to the Plan to Address Extraordinary Market Volatility Submitted
to the Securities and Exchange Commission Pursuant to Rule 608 of
Regulation NMS Under the Securities Exchange Act of 1934 (the ``LULD
Plan'').
---------------------------------------------------------------------------
The Exchange also proposes to add to Rule 3213(a)(2)(E) the fact
that the Defined Limit for rights and warrants shall be 31.5%. The
Exchange mistakenly omitted the Defined Limit for such securities from
prior filings.\19\
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\19\ See Securities Exchange Act Release No. 34-69194 (March 20,
2013), 78 FR 18386 (March 26, 2013) (SR-Phlx-2013-24).
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Changes to Reserve Size
As set forth in Rule 3301B(h), ``Reserve Size'' is an Order
Attribute that permits a Participant to stipulate that an Order Type
that is Displayed may have its displayed size replenished from
additional non-displayed size.\20\ The Exchange proposes three changes
to the rule text describing the Reserve Size Order Attribute.
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\20\ An Order with Reserve Size may be referred to as a
``Reserve Order.''
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First, the Exchange proposes to amend a paragraph of Rule 3301B(h)
which begins as follows: ``Whenever a Participant enters an Order with
Reserve Size, PSX will process the Order as two Orders: A Displayed
Order (with the characteristics of its selected Order Type) and a Non-
Displayed Order. Upon entry, the full size of each such Order will be
processed for potential execution in accordance with the parameters
applicable to the Order Type.'' The Exchange proposes to amend this
language because it does not describe precisely how the Exchange
processes Orders with Reserve Size. The Exchange proposes to state
instead that whenever a Participant enters an Order with Reserve Size,
the full size of the Order will be presented for potential execution in
compliance with Regulation NMS and that thereafter, unexecuted portions
of the Order will be processed as two Orders: A Displayed Order (with
the characteristics of its selected Order Type) and a Non-Displayed
Order. The Exchange also proposes to delete the following sentence:
``Upon entry, the full size of each such Order will be processed for
potential execution in accordance with the parameters applicable to the
Order Type.'' The proposed re-formulation reflects that it is possible
that the Order with Reserve Size will be executed immediately in full
and without needing to place unexecuted portions of the Order in
reserve. Furthermore, it clarifies that the System will present the
Order for immediate execution (provided that it does not trade through
a protected quotation, in accordance with Regulation NMS) without
complying with underlying characteristics of the Order Type that might
otherwise require an adjustment to the price of the Order before the
System attempts to execute it.\21\ The proposed language is consistent
with the following example set forth in the existing rule text:
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\21\ This clarification is needed due to the fact that pursuant
to Rule 3301A(b)(2)(A), a Price to Display Order would automatically
reprice upon entry if its entered limit price would lock or cross a
protected quotation, = .
For example, a Participant might enter a Price to Display Order
with 200 shares displayed and an additional 3,000 shares non-
displayed. Upon entry, the Order would attempt to execute against
available liquidity on the PSX Book, up to 3,200 shares. Thereafter,
unexecuted portions of the Order would post to the PSX Book as a
Displayed Price to Display Order and a Non-Displayed Order;
provided, however, that if the remaining total size is less than the
display size stipulated by the Participant, the Displayed Order will
post without Reserve Size. Thus, if 3,050 shares executed upon
entry, the Price to Display Order would post with a size of 150
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shares and no Reserve Size.
The proposed language eliminates confusion that might otherwise arise
from perceived inconsistencies between the above example and existing
rule text. Again, the existing rule text states that whenever a
participant enters an Order with Reserve Size, the System will process
the Reserve Order as two orders upon entry and also, upon entry, the
full size of an Order with Reserve will be presented for potential
execution in accordance with the parameters applicable to the Order
Type.
When there is, in fact, an unexecuted portion of the Order, then
the Exchange will continue to process the unexecuted portion as two
Orders: A Displayed Order and a Non-Displayed Order.
Second, the Exchange proposes to delete text from Rule 3301B(h)
which states that ``[a] Participant may stipulate that the Displayed
Order should be replenished to its original size.'' The Exchange
proposes to delete this text because it is redundant of text elsewhere
in the Rule that describes how a Displayed Order with Reserve Size
replenishes.\22\
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\22\ The Exchange proposes to clarify a portion of Rule 3301B(h)
which states that if an execution against a Displayed Order causes
its size to decrease below a normal unit of trading, another
Displayed Order will be entered at the ``level'' stipulated by the
Participant while the size of the Non-Displayed Order will be
reduced by the same amount. In describing the entry of the new
Displayed Order in this instance, the Exchange proposes to replace
the word ``level'' with ``limit price and size,'' which is a more
precise phrase.
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Third, the Exchange proposes to amend text from Rule 3301B(h) that
allows the original and subsequent displayed sizes of the Displayed
Order to be amounts randomly determined based upon factors they select
(``Random Reserve''). The amendments also state that when Participants
stipulate use of a Random Reserve, they would select a nominal (rather
than a ``theoretical'') displayed size, which is a more precise term.
Furthermore, the amendment adds a reminder that the actual displayed
size will be randomly determined by the System from a range of ``normal
trading units.'' Lastly, the amendments include other changes that do
not change the substantive meaning of the text, but simply improve its
readability.
The Exchange intends to implement the foregoing changes during the
First Quarter of 2021. The Exchange will issue an Equity Trader Alert
at least 30 days in advance of implementing the changes.
2. Statutory Basis
The Exchange believes that its proposal is consistent with Section
6(b) of the Act,\23\ in general, and furthers the objectives of Section
6(b)(5) of the Act,\24\ in particular, in that it is designed to
promote just and equitable principles of trade, to remove impediments
to and perfect the mechanism of a free and open market and a national
market system, and, in general to protect investors and the public
interest.
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\23\ 15 U.S.C. 78f(b).
\24\ 15 U.S.C. 78f(b)(5).
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The Exchange believes that it is consistent with the Act to amend
Rule 3301A(b)(5), which describes the Market Maker Peg Order Type, to
correct one of the stated conditions under which a Market Maker Peg
Order will be sent back to a Participant. As presently stated, this
condition provides for Market Maker Peg Orders to be repriced
automatically at limit prices that are within the Defined Limit, but
outside of the Designated Percentage, which places
[[Page 79234]]
them in conflict with Rule 3213(a)(2), which requires Market Makers to
price and re-price bid and offer interest at the Designated Percentage.
It is just and in the interests of the investors and the public for the
Exchange to correct Rule 3301A(b)(5) to ensure that Market Maker Peg
Orders operate in a manner that helps rather than hinders Market Makers
from complying with Rule 3213.
It is also consistent with the Act for the Exchange to amend Rule
3301A(b)(5) to clarify that repricing will occur when the difference
between the displayed price of a Market Maker Peg Order and the
Reference Price ``exceeds,'' rather than merely ``reaches,'' the
Defined Limit, as the Rule states presently. The proposed change would
ensure that the Rule text is internally consistent, as the example set
forth in the text suggests that the Rule should be read to mean
exceeds. It would also render the Rule consistent with Market Maker
obligations under Rule 3213. The Exchange believes that it is in the
interest of investors and the public to eliminate such inconsistencies.
Meanwhile, the Exchange believes that it is consistent with the Act
to eliminate the option for Participants to enter offsets from the
Market Maker Peg Orders. The proposal is consistent with the Act
because Market Makers do not actively employ such offsets. As noted
above, the Exchange has reviewed usage of offsets with Market Maker Peg
Orders and found that no Market Maker has assigned an offset with their
Market Maker Peg Orders since January 2019. Moreover, elimination of
the option to enter offsets would simplify the Exchange's efforts to
improve processing.
The Exchange believes that it is consistent with the Act to clarify
Rule 3301A(b)(5) so that it specifies how the System will react when,
after entry of a Market Maker Peg Order whose initial displayed price
was set with reference to the National Best Bid or Offer, the National
Best Bid or Offer shifts such that the displayed price of the Order to
buy (sell) is equal to or greater (less) than the National Best Bid
(National Best Offer). Specifically, the Exchange believes that it is
just and in the interests of investors to specify that the Exchange
will not reprice Market Maker Peg Orders in this scenario until a new,
more aggressive Reference Price is established, because doing so
ensures that the Exchange will not engage in a potential cycle of
pegging against a Reference Price established by the Order itself.
The Exchange's proposal to amend the definitions of ``Designated
Percentage'' and ``Defined Limit,'' as set forth in Rule 3213(a)(2)(D)
and (E), is consistent with the Act because the amendment is necessary
to correct obsolete references and to avoid confusion about which
particular percentage or limit will apply to orders prior to 9:30 a.m.
The proposal clarifies the Rule by stating expressly that the same sets
of bands that apply between 9:30-9:45 a.m. and between 3:35 p.m. and
the close of trading also apply prior to 9:30 a.m. The proposal also
specifies a Defined Limit for rights and warrants, which was mistakenly
omitted from prior filings and which relates to the Designated
Percentage for rights and warrants, which is set forth already at Rule
3213(a)(2)(D).
It is also consistent with the Act to amend Rule 3301B(h) to
clarify that when a Participant enters an Order with Reserve Size, the
full size of the Order will first be presented for potential execution
in compliance with Regulation NMS, and only if there is an unexecuted
portion of the Order will it be processed as a Displayed Order and a
Non-Displayed Order. This clarification describes the behavior of the
System more precisely than the existing Rule language. It also reflects
the possibility that the Order with Reserve Size will be executed
immediately in full and without needing to place unexecuted portions of
the Order in reserve. Furthermore, it eliminates inconsistency between
rule text which presently suggests that the System will process the
Order with Reserve Size for potential immediate execution consistent
with the characteristics of its underlying Order Type, and an example
in the rule text in which the Exchange provides that the System will
process the Order for potential immediate execution regardless of the
parameters applicable to the Order Type. The proposed amendment will
resolve this inconsistency by making clear that the System will present
an order for potential immediate execution regardless of the
characteristics of the underlying Order Type, with the caveat that the
Order will not trade-through a protected quotation as required by
Regulation NMS.
It is consistent with the Act to amend Rule 3301B(h) to state that
when participants stipulate use of a Random Reserve, they would select
a ``nominal''--rather than a ``theoretical'' displayed size. The
proposed term ``nominal'' is more precise than the existing Rule text.
Improving the precision of the Exchange's Rules improves the ability of
the public and investors to comprehend them and account for and comply
with them. For similar reasons, proposed non-substantive amendments to
other text in Rule 3301B(h) are consistent with the Act because they
would improve the readability of the Rule.
Finally, the Exchange believes that various proposed non-
substantive clarifications and corrections to the text of the Rule will
improve its readability, which is in the interests of market
participants and investors, and would promote a more orderly market.
B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that its proposed rule changes will
impose any burden on competition not necessary or appropriate in
furtherance of the purposes of the Act. As a general principle, the
proposed changes are reflective of the significant competition among
exchanges and non-exchange venues for order flow. In this regard,
proposed changes that facilitate enhancements to the Exchange's System
and order entry protocols as well as those that clarify and correct the
Exchange's Rules regarding its Order Types and Attributes, are pro-
competitive because they bolster the efficiency, integrity, and overall
attractiveness of the Exchange in an absolute sense and relative to its
peers.
Moreover, none of the proposed changes will burden intra-market
competition among various Exchange Participants. Proposed changes to
the Market Maker Peg Order Type, at Rule 3301A(b)(5), and to Rule 3213,
will apply equally to all Market Makers. Market Makers will experience
no competitive impact from proposals to eliminate their ability to use
offsets with Market Maker Peg Orders because Market Makers do not
actually utilize offsets. Likewise, Market Makers will feel no
competitive effects from proposed corrections and clarifications to the
manner in which the Exchange prices and re-prices their Market Maker
Peg Orders, except that the changes will benefit Market Makers by
ensuring that the Exchange always processes those Orders in a manner
that complies with their Market Maker pricing obligations under Rule
3213. Proposed clarifications to the Reserve Order Attribute Rule, at
Rule 3301B(h), will have no substantive impact on participants.
Proposed changes to Rule 3213 are intended to correct inadvertent
errors and should have no competitive impact on Market Makers. Proposed
clarifications and amendments to the Reserve Order Attribute Rule, at
Rule 3301B(h), are intended to improve the
[[Page 79235]]
precision and readability of the Rule text and will not have any
competitive impact on participants.
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 \25\ and Rule 19b-
4(f)(6) thereunder.\26\
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\25\ 15 U.S.C. 78s(b)(3)(A).
\26\ 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.
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At any time within 60 days of the filing of the proposed rule
change, the Commission summarily may temporarily suspend such rule
change if it appears to the Commission that such action is necessary or
appropriate in the public interest, for the protection of investors, or
otherwise in furtherance of the purposes of the Act. If the Commission
takes such action, the Commission shall institute proceedings to
determine whether the proposed rule 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-2020-51 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-2020-51. 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-2020-51 and should be submitted on
or before December 30, 2020.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\27\
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\27\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-26991 Filed 12-8-20; 8:45 am]
BILLING CODE 8011-01-P
