Self-Regulatory Organizations; Nasdaq PHLX LLC; Notice of Filing of Proposed Rule Change To Modify Phlx Options 8, Section 26, “Trading Halts, Business Continuity and Disaster Recovery”, 3217-3225 [2021-00591]

Download as PDF Federal Register / Vol. 86, No. 9 / Thursday, January 14, 2021 / Notices included on the subject line if email is used. To help us process and review your statement more efficiently, please use only one method. The Commission will post all statements on the SEC’s website at www.sec.gov. Statements also 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. (ET). All statements received will be posted without change; we do not edit personal identifying information from submissions. You should submit only information that you wish to make available publicly. FOR FURTHER INFORMATION CONTACT: Julie Z. Davis, Senior Special Counsel, Office of the Advocate for Small Business Capital Formation, at (202) 551–5407, Securities and Exchange Commission, 100 F Street NE, Washington, DC 20549–3628. 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[FR Doc. 2021–00764 Filed 1–13–21; 8:45 am] BILLING CODE P SECURITIES AND EXCHANGE COMMISSION [SEC File No. 270–422, OMB Control No. 3235–0471] Submission for OMB Review; Comment Request khammond on DSKJM1Z7X2PROD with NOTICES Upon Written Request, Copies Available From: U.S. Securities and Exchange Commission, Office of FOIA Services, 100 F Street NE, Washington, DC 20549–2736 extension of the previously approved collection of information provided for in Rule 15c1–5 (17 CFR 240.15c1–5) under the Securities Exchange Act of 1934 (15 U.S.C. 78a et seq.). Rule 15c1–5 states that any brokerdealer controlled by, controlling, or under common control with the issuer of a security that the broker-dealer is trying to sell to or buy from a customer must give the customer written notification disclosing the control relationship at or before completion of the transaction. The Commission estimates that 181 respondents provide notifications annually under Rule 15c1– 5 and that each respondent would spend approximately 10 hours per year complying with the requirements of the rule for a total burden of approximately 1,810 hours per year. There is no retention period requirement under Rule 15c1–5. This Rule does not involve the collection of confidential information. An agency may not conduct or sponsor, and a person is not required to respond to, a collection of information under the PRA unless it displays a currently valid OMB control number. The public may view background documentation for this information collection at the following website: www.reginfo.gov. Find this particular information collection by selecting ‘‘Currently under 30-day Review—Open for Public Comments’’ or by using the search function. Written comments and recommendations for the proposed information collection should be sent within 30 days of publication of this notice to (i) www.reginfo.gov/public/do/ PRAMain and (ii) David Bottom, Director/Chief Information Officer, Securities and Exchange Commission, c/ o Cynthia Roscoe, 100 F Street NE, Washington, DC 20549, or by sending an email to: PRA_Mailbox@sec.gov. Dated: January 11, 2021. J. Matthew DeLesDernier, Assistant Secretary. [FR Doc. 2021–00732 Filed 1–13–21; 8:45 am] BILLING CODE 8011–01–P Extension: Rule 15c1–5 Notice is hereby given that pursuant to the Paperwork Reduction Act of 1995 (‘PRA’’) (44 U.S.C. 3501 et seq.), the Securities and Exchange Commission (‘‘Commission’’) has submitted to the Office of Management and Budget (‘‘OMB’’) a request for approval of VerDate Sep<11>2014 20:43 Jan 13, 2021 Jkt 253001 PO 00000 SECURITIES AND EXCHANGE COMMISSION [Release No. 34–90880; File No. SR–Phlx– 2021–03] Self-Regulatory Organizations; Nasdaq PHLX LLC; Notice of Filing of Proposed Rule Change To Modify Phlx Options 8, Section 26, ‘‘Trading Halts, Business Continuity and Disaster Recovery’’ January 8, 2021. 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 January 7, 2021 Nasdaq PHLX LLC (‘‘Phlx’’ or ‘‘Exchange’’) filed with the Securities and Exchange Commission (‘‘SEC’’ or ‘‘Commission’’) the proposed rule change as described in Items I, II, and III, below, which Items have been prepared by the Exchange. The Commission is publishing this notice to solicit comments on the proposed rule change from interested persons. I. Self-Regulatory Organization’s Statement of the Terms of Substance of the Proposed Rule Change The Exchange proposes to modify Phlx Options 8, Section 26, ‘‘Trading Halts, Business Continuity and Disaster Recovery’’ to permit a Virtual Trading Crowd in the event that the Trading Floor is unavailable. 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. 1 15 2 17 Frm 00109 Fmt 4703 Sfmt 4703 3217 E:\FR\FM\14JAN1.SGM U.S.C. 78s(b)(1). CFR 240.19b–4. 14JAN1 3218 Federal Register / Vol. 86, No. 9 / Thursday, January 14, 2021 / Notices A. Self-Regulatory Organization’s Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change 1. Purpose Phlx proposes to modify Phlx Options 8, Section 26, ‘‘Trading Halts, Business Continuity and Disaster Recovery.’’ This proposal creates an additional contingency within Phlx’s Business Continuity Plan (‘‘BCP’’) to prepare for potential closure of its physical Trading Floor in light of COVID–19. Specifically, the Exchange proposes to amend Options 8, Section 26(g) to permit Phlx to operate a newly proposed Virtual Trading Crowd in the event the physical Trading Floor is unavailable. Background khammond on DSKJM1Z7X2PROD with NOTICES Currently, Options 8, Section 26(g) describes certain actions the Exchange may take as part of its BCP, if its Trading Floor became inoperable, so that it may maintain fair and orderly markets if unusual circumstances were to occur which may impact the Exchange’s ability to conduct its options floor business. Specifically, in the event of loss of the Trading Floor, if the physical location 3 designated as the ‘‘Trading Floor’’ becomes unavailable Phlx will enact its BCP and designate the Philadelphia Navy Yard as its ‘‘Back-Up Trading Floor.’’ Further, in the event that the Back-Up Trading Floor becomes unavailable or inoperable, the Exchange will only operate its electronic market and will not operate a Trading Floor. The Exchange will operate only its electronic market until the Exchange’s Trading Floor facility is operational. Open outcry trading will not be available in the interim.4 Phlx’s Trading Floor closed on March 17, 2019,5 as a result of precautions taken with respect to COVID–19.6 The Exchange continued to operate in an allelectronic configuration during this time 3 Phlx’s physical Trading Floor is located at 2929 Walnut Street, Philadelphia, PA. 4 This Rule does not preclude the Exchange from conducting business, in the event the Trading Floor and Back-Up Trading Floor are rendered inoperable, pursuant to Options 4, Section 10. Current Options 4, Section 10, Backup Trading Arrangements, outlines rules applicable to hosting Phlx at another exchange in the event Phlx is disabled. 5 See Options Trader Alert #2020–07. Phlx’s Trading Floor did not re-open until June 3, 2020. See Options Trader Alert #2020–08. 6 On March 11, 2020, the World Health Organization characterized COVID–19 as a pandemic and to slow the spread of the disease, federal and state officials implemented socialdistancing measures, placed significant limitations on large gatherings, limited travel, and closed nonessential businesses. VerDate Sep<11>2014 20:43 Jan 13, 2021 Jkt 253001 period. Since that time, Phlx has been exploring alternatives to permit open outcry trading in the event of an extended closure related to COVID–19 or potentially a second closure in 2020 and/or 2021 given the uncertainty related to the ongoing pandemic. Phlx notes that an all-electronic trading environment cannot fully replicate open outcry trading, and therefore, the Exchange continues to evaluate potential enhancements that it believes would permit trading, in the event the Trading Floor is inoperable, to more closely replicate its trading environment that exists during normal operations.7 Phlx proposes to amend Options 8, Section 26(g)(2) to provide, Back-up Trading Floor Unavailable. In the event that the Back-Up Trading Floor becomes inoperable, or the Exchange otherwise determines not to operate its BackUp Trading Floor the Exchange will operate its electronic market and may elect to enact a Virtual Trading Crowd pursuant to subsection (g)(3). Today, Options 8, Section 26(g)(2) provides that if the Back-Up Trading Floor becomes inoperable, the Exchange will only operate its electronic market and will not operate a Trading Floor. Further, the rule provides the Exchange will operate only its electronic market until the Exchange’s Trading Floor facility is operational. Open outcry trading will not be available in the interim. At this time, the Exchange desires to adopt a virtual option in the event the physical Trading Floor is unavailable, the Back-Up Trading Floor becomes inoperable or the Exchange otherwise determines not to operate the Back-Up Trading Floor.8 Specifically, Phlx’s proposal would permit certain aspects of open outcry trading, which are normally conducted in-person on the Trading Floor, to be conducted in a virtual trading crowd (‘‘Virtual Trading Crowd’’). This proposal is intended to enhance Phlx’s BCP by offering an alternative which comports with shelter-in-place and social distancing 7 Certain aspects of open outcry trading, particularly the ability for persons to negotiate pricing and to facilitate executions of larger orders in a trading crowd as well as the handling of highrisk and complicated strategies, are not easily replicated in electronic markets. 8 The proposed rule regarding the Virtual Trading Crowd is located in the Exchange’s broader rule regarding disaster recovery and business continuity, as the Exchange currently only plans to use the Virtual Trading Crowd for business continuity purposes if the physical Trading Floor becomes unavailable, the Back-Up Trading Floor becomes inoperable or the Exchange otherwise determines not to operate the Back-Up Trading Floor. If the Exchange were to determine to use the Virtual Trading Crowd in more permanent manner, it would submit a separate rule filing. PO 00000 Frm 00110 Fmt 4703 Sfmt 4703 guidelines and would provide institutional investors with a means to execute orders that are unable to meet guidelines of the electronic market.9 Specifically, this proposal would further enhance the Exchange’s trading environment when the Trading Floor is unavailable, the Back-up Trading Floor is inoperable or the Exchange otherwise determines not to operate the Back-Up Trading Floor, by permitting market participants that generally operate on the physical Trading Floor to continue to interact in a substantially similar manner as they do on the Trading Floor. Specifically, the Exchange proposes to further amend Options 7, Section 26(g) to permit it to make available an audio and video communication program to serve as a ‘‘Virtual Trading Crowd’’ if the physical Trading Floor is unavailable, the Back-Up Trading Floor becomes inoperable or the Exchange otherwise determines not to operate the Back-Up Trading Floor. The Exchange would create ‘‘Virtual Trading Crowds,’’ in each of which the Exchange will determine which options class(es) will be available for trading. This is similar to the Exchange’s authority with respect to open outcry trading on the Trading Floor.10 Phlx members will access a Virtual Trading Crowd via ‘‘zones.’’ 11 Multiple classes may trade in a single Virtual Trading Crowd available for trading in a single zone. This is similar to the physical Trading Floor today. The Exchange may determine to have only one zone or several zones as necessary to ensure a fair and orderly market. The Exchange will assign each Floor Market Maker to a zone and Floor Brokers may determine in which zone(s) they will be present. This is similar to the arrangement on the Exchange’s physical Trading Floor. Unlike Cboe, Phlx has a requirement that each trading crowd have a Floor Market Maker present.12 Phlx ensures that this requirement is met by assigning Floor Market Makers to a trading crowd.13 If a Floor Market 9 For example, there are certain aspects of trading where the rules differ electronically and on the Trading Floor. Complex Orders are traded differently electronically versus on the Trading Floor based on Exchange rules. 10 See Options 8, Section 25(l) which provides, ‘‘In the interest of fair and orderly markets, the Exchange may adopt policies affecting the location of members in the trading crowd on a crowd-bycrowd basis.’’ 11 A ‘‘zone’’ is a virtual room representing a Virtual Trading Crowd. For example, each trading crowd will have its own zoom password-protected log-in. 12 See Options 8, Section 28, ‘‘. . . An Options Floor Broker shall ascertain that at least one Floor Market Maker is present at the trading post prior to representing an order for execution. . . .’’ 13 The Exchange notes that as a result of COVID– 19, the Exchange implemented various safety E:\FR\FM\14JAN1.SGM 14JAN1 khammond on DSKJM1Z7X2PROD with NOTICES Federal Register / Vol. 86, No. 9 / Thursday, January 14, 2021 / Notices Maker hears a Floor Broker located in another trading crowd represent an order, the Floor Market Maker may attempt to trade with that order. The Exchange intends that the concept of a zone replicate a crowd on the physical Trading Floor. Phlx proposes to replicate the open outcry features on the physical Trading Floor within a Virtual Trading Crowd. The Exchange will use a communication program that has audio, video, and ‘‘chat’’ functionality.14 Floor members would log into the Virtual Trading Crowd, as described in more detail below, and would communicate trades within the conferencing feature. This will allow the same communication capabilities floor members generally have on the physical Trading Floor so that they may conduct open outcry trading in the Virtual Trading Crowd in the same manner as they do on the physical Trading Floor. All Options 8 Rules will apply to open outcry trading in the Virtual Trading Crowd, in the same manner as they apply to open outcry trading on the physical Trading Floor, except as otherwise provided for in proposed Options 8, Section 26(g)(3)(E). The proposed changes are described below. The Exchange proposes to adopt a new Options 8, Section 26(g)(3) to permit the Exchange to make available an audio and video communication program to serve as a ‘‘Virtual Trading Crowd’’ if the physical Trading Floor is not available. Proposed Options 8, Section 26(g)(3)(A) lists certain terms in the Rules related to open outcry trading on the physical Trading Floor that will be deemed to refer to corresponding terms related to trading in the Virtual Trading Crowd. Specifically, • References in the Rules to the ‘‘floor,’’ ‘‘Trading Floor,’’ and ‘‘Exchange floor’’ (and any other terms with the same meaning) will be deemed to refer to the ‘‘Virtual Trading Crowd’’; and • References in the Rules to ‘‘physical presence’’ or ‘‘on-floor’’ or ‘‘floor’’ (and any other terms with the same meaning) will be deemed to refer to ‘‘presence’’ in a Virtual Trading Crowd. The proposal does not amend or replace any aspects of Phlx’s Options Floor Based Management System (‘‘FBMS’’) or order execution protocols including socially distancing floor members by assigning spaces to all floor market participants on the physical Trading Floor. 14 Currently available programs with this functionality include Zoom, Webex, Microsoft Teams, and others. VerDate Sep<11>2014 20:43 Jan 13, 2021 Jkt 253001 functionalities.15 Today, FBMS is designed to execute orders entered by Floor Brokers,16 including multi-leg orders up to 15 legs, after representation in the trading crowd. When a Floor Broker submits an order for execution through FBMS, the order will be executed based on market conditions at the time of execution and in accordance with Phlx rules. FBMS execution functionality checks the Order Book to ensure compliance with priority rules. Orders that do not comply with priority and trade-through rules will not be executed. All FBMS order and transaction data that would normally be available from the physical Trading Floor would continue to be captured by FBMS and the System. These compliance checks, which are crucial to ensuring compliance with Exchange rules, will continue with the Virtual Trading Crowd model. Access to the Virtual Trading Crowd will be substantially similar to access to the physical Trading Floor. Only members registered to access Phlx’s Trading Floor would be permitted to participate. The Exchange is not proposing to amend its membership requirements with respect to virtual open outcry trading. Currently, admission to the physical Trading Floor is limited to members and member organizations, Exchange employees, clerks employed by members and member organizations, Inactive Nominees, and Exchange visitors that receive authorized admission to the Trading Floor pursuant to Exchange policy, and any other persons that the Exchange authorizes admission to the Trading Floor.17 Persons and entities may apply to become a Phlx member by complying with the membership requirements noted within Phlx General 3, Membership and Access. Proposed Options 8, Section 26(g)(3)(B) provides, ‘‘Admission to the Virtual Trading Crowd is limited to members and member organizations, Clerks, Exchange 15 FBMS, an order management system, is the gateway for the electronic execution of equity, equity index and U.S. dollar-settled foreign currency option orders represented by Floor Brokers on the Exchange’s Options Floor. Floor Brokers contemporaneously upon receipt of an order and prior to the representation of such an order in the trading crowd, record all options orders represented by such Floor Broker to FBMS, which creates an electronic audit trail. The execution of orders to Phlx’s electronic trading system also occurs via FBMS. The FBMS application is available on hand-held tablets and stationary desktops. 16 The term ‘‘Floor Broker’’ means an individual who is registered with the Exchange for the purpose, while on the Options Floor, of accepting and handling options orders. See Options 8, Section 2(2). 17 See General 3, Section 1, Options 8, Sections 5–9, and Options 8, Sections 11 and 12. PO 00000 Frm 00111 Fmt 4703 Sfmt 4703 3219 employees, and any other persons the Exchange authorizes admission to the Virtual Trading Crowd.’’ The Exchange proposes to limit the number of members, per member organization, that may participate in a Virtual Trading Crowd based on the ability of Phlx to accommodate members within the remote conferencing feature in an orderly fashion. The Exchange would limit personnel in a fair and equitable manner ensuring there is fair and equal representation from each member and member organization. This proposal would allow each of the trading crowds that exist on Phlx’s physical Trading Floor to participate in this ‘‘Virtual Trading Crowd’’ in one or more separate zones as described above. While clerks may access the Virtual Trading Crowd, they may only perform the same functions for their associated member organizations in connection with open outcry trading in the Virtual Trading Crowd as they do for open outcry trading on the physical Trading Floor. The Exchange understands permitting access to Clerks to access the Virtual Trading Crowd will provide them with access to the information that they normally have access to on the physical Trading Floor, which will make it more efficient for them to perform their tasks. Also, the Exchange would not permit visitors into the Virtual Trading Crowd as the Exchange believes that allowing these types of persons to have access to the Virtual Trading Crowd is unnecessary as these persons are not essential to the functioning of the Virtual Trading Crowd. As is the case with the physical Trading Floor, the Exchange will provide access to the Virtual Trading Crowd to members the Exchange has approved to perform a Trading Floor function (including Floor Brokers and Floor Market Makers). While floor members would not be required to display badges, pursuant to Options 8, Section 39 at Regulation 3, in the Virtual Trading Crowd, as the size of the view on the communication program may not permit badges to be visible, members would be required to join the Virtual Trading Crowd in a manner that clearly identifies the member or member’s employee. Pursuant to proposed Options 3, Section 26(g)(3)(E)(8)(a), prior to speaking on remote conferencing, each member must announce themselves each time.18 As specified within 18 Members would also be visible on video, however the Exchange will still require members to announce themselves. E:\FR\FM\14JAN1.SGM 14JAN1 khammond on DSKJM1Z7X2PROD with NOTICES 3220 Federal Register / Vol. 86, No. 9 / Thursday, January 14, 2021 / Notices proposed Options 8, Section 26(g)(3)(E)(2), members must join via a computer and either (a) computer audio; (b) cell phone; or (c) hard-wired phone, as determined by Nasdaq. Phlx will send a password-protected invitation to each floor participant permitted access to the Virtual Trading Crowd. This invitation will permit each permitted participant to access the Virtual Trading Crowd in a safe and secure manner. Any floor member may access any zone within the Virtual Trading Crowd, although Floor Market Makers will be required to be present in their assigned zone if present within the Virtual Trading Crowd. Any unidentified attendee will be removed from the Virtual Trading Crowd. The Exchange will have an audit trail of the telephone numbers that have joined each remote conferencing session in order to ensure that only members join the remote conferencing feature. Every member in the Virtual Trading Crowd must provide Market Operations with a contact number where Market Operations will be able to reach them during the trading day. The contact number may not be the same number that is being used to connect to the Virtual Trading Crowd. Floor members are responsible for maintaining updated contact information. This number must be updated immediately if it changes. Nasdaq staff must be able to reach a member if there is an issue with trading.19 Nasdaq non-regulatory staff would be responsible for the operation of the remote conferencing feature, which includes monitoring members to ensure that only floor members and member’s employees are admitted into remote conferencing and are properly identified. As specified within proposed Options 3, Section 26(g)(3)(E)(1), every member and the member’s employees in the Virtual Trading Crowd must consent to video and audio recording in order to participate in the Virtual Trading Crowd. Members and members’ employees will be asked to provide this consent, as well as other consents, before being permitted to join the Virtual Trading Crowd. For example, member organizations would be required to execute an addendum to the Nasdaq Services Agreement regarding their use of the remote conferencing 19 The conferencing room would be password protected and equipped with audio, video and text capabilities. Attendance control requirements would be in place. Private chat features will not be permitted on the platform. Unknown callers would be removed from the conferencing room. Nasdaq non-regulatory staff would be in control of the conference room. VerDate Sep<11>2014 20:43 Jan 13, 2021 Jkt 253001 feature in addition to consenting to voice recording. Today, pursuant to Options 8, Section 38, floor members must register their means of communication with the Exchange.20 Pursuant to proposed Options 8, Section 26(g)(3)(E)(4), members and member organizations may use any equipment to access the Virtual Trading Crowd and do not need to register devices they use while in the Virtual Trading Crowd. Floor members and member organizations would be permitted remote access to FBMS when the Virtual Trading Floor is enacted.21 The Exchange proposes to provide within Options 8, Section 26(g)(3)(C) that, ‘‘. . . Notwithstanding Options 8, Section 28(g) and Options 8, Section 30(e), members and member organizations would be permitted remote access to the Options Floor Based Management System (‘‘FBMS’’) when the Virtual Trading Floor is enacted for the purpose of executing transactions which require exposure in open outcry.’’ Floor members must use Exchange-provided FBMS, to the extent applicable, while transacting in the Virtual Trading Crowd. As noted above, prior to using a communications device for business purposes on the Trading Floor of the Exchange, members and member organizations must register the communications device in a form and manner prescribed by the Exchange. Because individuals in the Virtual Trading Crowd will not be on the Exchange’s premises (and thus will not be using Exchange-provided bandwidth to be shared with all market participants and do not pose the same security risks), the proposed rule change will not 20 Options 8, Section 38(a) provides, ‘‘No member or member organization shall establish or maintain any private wire connection, private radio, television or wireless system, between the Exchange Trading Floor and a nonmember without application to and approval by the Exchange. Every such means of communication shall be registered with the Exchange. Notice of the discontinuance of any such means of communication shall be promptly given to the Exchange.’’ 21 At the time of the Phlx Trading Floor closure in March 2020, the Exchange permitted Floor Brokers, who otherwise had no means of trading on Phlx in an electronic environment, to utilize FBMS remotely, solely for the purpose of submitting limit orders to the electronic limit order book pursuant to Options 8, Section 28(g), or submitting a Floor Qualified Contingent Cross Order to the System pursuant to Options 8, Section 30(e). See Options Trader Alert #2020–8. Recently, the Exchange filed a proposal to amend Options 8, Section 28(g) and Options 8, Section 30(e) to continue to allow Floor Brokers the ability to submit limit orders to the electronic limit order book and Floor Qualified Contingent Cross Orders to the System via FBMS remotely, notwithstanding the existence of BCP measures. See SR–Phlx–2021– 01. This recent proposal did not permit FBMS to be utilized remotely for the purpose of executing transactions which require exposure in open outcry. PO 00000 Frm 00112 Fmt 4703 Sfmt 4703 require members and member organizations to register devices they use while in the Virtual Trading Crowd. Options 8, Section 38 will otherwise apply in the same manner to the Virtual Trading Crowd as it does to the physical Trading Floor (to the extent the context requires). This includes requirements related to audit trail and record retention, prohibition on using any device for the purpose of recording activities in the Virtual Trading Crowd or maintaining an open line of continuous communication whereby a person not located in the trading crowd may continuously monitor the activities in the trading crowd, and the prohibition on using devices to disseminate quotes or last sale reports. Surveillance staff will be present in each Virtual Trading Crowd to monitor the activity of each participant, who must be present by video, and to observe participant behavior. The Exchange will continue to surveil options transactions, as it does today, to identify transactions which are violative of Phlx Rules.22 Phlx surveils for transactions which have been executed on its market to determine if those transactions utilized information which would have been available in open outcry trading and was not yet public or otherwise ascertainable due to the execution of a transaction. The Exchange notes that in both the electronic market and on the trading floor, members and member organizations must ensure that they have procedures reasonably designed to prevent the misuse of material, nonpublic information by employees.23 Further, the Exchange proposes to provide within proposed Options 8, Section 26(g)(3)(E)(8)(g) that ‘‘A member may not permit any unauthorized other person to gain audio or video access to the Virtual Trading Crowd. A member shall not record any trading sessions,’’ to make clear that the Exchange will enforce the prohibitions of Options 8, Section 38 with respect to the remote conferencing aspects as well. Finally, the Exchange represents that it has the proper security infrastructure in place to offer FBMS remotely and securely to floor participants. Today, members on the physical Trading Floor only verbalize their interest to trade against a represented order, so not requiring bids and offers to be included in a chat conforms to current practice on the Trading Floor. However, given potential limitations of communication software (such as 22 See Phlx Options 9, Section 1; and Options 9, Section 5. See also Options 3, Section 22(d). 23 See Phlx General 9, Section 21. E:\FR\FM\14JAN1.SGM 14JAN1 khammond on DSKJM1Z7X2PROD with NOTICES Federal Register / Vol. 86, No. 9 / Thursday, January 14, 2021 / Notices limitations on how many people may be heard at the same time in a Virtual Trading Crowd or potential buffering or echoing), the Exchange believes it may be appropriate to require members to use a chat tool in the communication program to indicate their interest in participating in a trade so that the representing Floor Broker is able to know the market from the trading crowd and fairly allocate the trade pursuant to the Rules.24 The Exchange would require members to utilize the chat function if Surveillance determines that increased volume or activity in the Virtual Trading Crowd warrant mandatory use of the chat feature for members to maintain a fair and orderly market. Chats will be visible to all participants in a zone and will not be permitted directly between individual participants (i.e., the Exchange will disable direct messaging functionality within the communication program). The Exchange believes the flexibility to impose this requirement in a Virtual Trading Crowd is appropriate, as these limitations may ultimately not interfere with a Floor Broker’s ability to hear all interest (particularly in Virtual Trading Crowd) and thus the additional requirement may potentially slow down executions. Flexibility will permit the Exchange to balance system limitations with the additional burden of a new workflow step for each class, some of which have different open outcry trading environments than others. The Exchange will retain records of the chats as well as consents, and any other records related to the Virtual Trading Crowds that are subject to the Exchange’s record retention obligations under the Exchange Act. Pursuant to Options 3, Section 26(g)(3)(E)(8)(b), if a member experiences a technical issue accessing the remote conferencing, the Exchange will not be responsible for unexecuted trades. Also, pursuant to Options 3, Section 26(g)(3)(E)(8)(c), Floor Market Maker quotes will be considered firm in the event the Floor Market Maker is disconnected from the Virtual Trading Crowd and the parties have a meeting of the minds with respect to the terms of the transaction. A ‘‘Meeting of the Minds’’ means the contra-side(s) verbally confirmed participation in the trade. In the event that a Floor Market Maker is disconnected from the Virtual Trading Crowd, a Floor Market Maker quote would not be considered firm if 24 The Exchange would issue an Options Trader Alert announcing any determination to require bids and offers to be expressed in a chat within the communication program pursuant to proposed Options 8, Section 26(g)(3)(D). The Exchange will provide such notice with sufficient advance notice. VerDate Sep<11>2014 20:43 Jan 13, 2021 Jkt 253001 the quote were provided and the parties did not have a Meeting of the Minds with respect to the terms of the transaction. Today, Floor Market Maker quotes are considered firm when announced in open outcry 25 and once accepted the transaction may be effectuated within FBMS. A Floor Market Maker may declare he or she is ‘‘out’’ prior to a Meeting of the Minds occurring in open outcry and the Floor Broker submitting the trade into FBMS.26 Today, a Floor Market Maker that experiences issues with internet connection,27 makes an error or otherwise is unaware of recent news in a particular option, would be held to a quote verbalized in open outcry. In the event that the negotiation continues and the terms change, the Floor Marker Maker would not be held to the new terms without additional acceptance of those terms. In the event that the transaction is not effectuated in FBMS, the trade would not stand. To that end, the Exchange believes continuing to require quotes to remain firm once the parties have arrived at a Meeting of the Minds with respect to the terms of the transaction creates fair and equitable expectations for members trading in the Virtual Trading Crowd. Today, FLEX transactions are permitted on the Trading Floor in accordance with Options 3, Section 34. With this proposal, FLEX Trade tickets must be sent by email to the Phlx Correction Post pursuant to proposed Options 8, Section 26(g)(3)(E)(8)(d). This proposal would allow the Exchange to receive these in a timely manner. The Exchange notes within proposed Options 8, Section 26(g)(3)(E)(8)(e) that a break-out room may be utilized to declare a dispute or otherwise notify an Options Floor Official of any required notifications. The Exchange would 25 See Options 8, Section 22(c) Public Outcry— Pursuant to Options 8, Section 24 (this citation is being amended in this rule change from Section 35 to the correct Section 24) at Supplementary Material .01, bids and offers must be made in an audible tone of voice. A member shall be considered ‘‘in’’ on a bid or offer, while he remains at the post, unless he shall distinctly and audibly say ‘‘out.’’ A member bidding and offering in immediate and rapid succession shall be deemed ‘‘in’’ until he shall say ‘‘out’’ on either bid or offer. Once the trading crowd has provided a quote, it will remain in effect until: (A) A reasonable amount of time has passed, or (B) there is a significant change in the price of the underlying security, or (C) the market given in response to the request has been improved. In the case of a dispute, the term ‘‘significant change’’ will be interpreted on a caseby-case basis by an Options Exchange Official based upon the extent of the recent trading in the option and, in the case of equity and index options, in the underlying security, and any other relevant factors. 26 Id at 25. 27 The Exchange notes that today members are responsible for the operation of their own equipment while on the Trading Floor. PO 00000 Frm 00113 Fmt 4703 Sfmt 4703 3221 establish a break-out room within the remote conferencing for each dispute. This would provide an effective manner in which to communicate disputes and maintain a record of those disputes. Pursuant to proposed Options 8, Section 26(g)(3)(E)(8)(f) disruptive or unnecessary conversations or comments in the remote conferencing or on chat feature will not be permitted. This type of behavior would subject a member to disciplinary action. Today, disruptive behavior on the Trading Floor is subject to Options 8, Section 39 at Regulation 4.28 As noted above, the Exchange may determine to make the Virtual Trading Crowd available if the physical Trading Floor is unavailable, the Back-Up Trading Floor becomes inoperable or the Exchange otherwise determines not to operate the Back-Up Trading Floor. Proposed Options 8, Section 26(g)(3) provides that ‘‘The Exchange may elect to permit open outcry trading to take place in a Virtual Trading Crowd if the Trading Floor becomes unavailable, the Back-Up Trading Floor becomes inoperable or the Exchange otherwise determines not to operate the Back-Up Trading Floor.’’ These amendments to the Options 8 Rules are intended to make trading in a Virtual Trading Crowd similar to open outcry trading when open outcry trading is not available by replicating certain features of open outcry trading in the Virtual Trading Crowd. The Virtual Trading Crowd will permit open outcry trading to continue in a separate environment if the physical Trading Floor becomes unavailable, the Back-Up Trading Floor becomes inoperable or the Exchange otherwise determines not to operate the Back-Up Trading Floor. Therefore, trading opportunities that are generally only available in open outcry trading will continue to be available in the Virtual Trading Crowd. All trading in the Virtual Trading Crowd will occur in the same manner, including priority and allocation rules.29 The Exchange will make the same order types and instructions available in the Virtual Trading Crowd as it makes available on the physical Trading Floor.30 Floor Brokers will be subject to the responsibilities in each 28 Options 8, Section 39, Regulation 4(a) provides, ‘‘Members and associated persons shall not conduct themselves in a disorderly manner on the trading floor or on the premises immediately adjacent to the trading floor. Further, members, participants and associated persons shall not conduct themselves in an indecorous manner that is disruptive to the conduct of business on the trading floor, including but not limited to the use of profanity.’’ 29 See Options 8, Sections 25 and 30. 30 See Options 8, Section 32. E:\FR\FM\14JAN1.SGM 14JAN1 3222 Federal Register / Vol. 86, No. 9 / Thursday, January 14, 2021 / Notices khammond on DSKJM1Z7X2PROD with NOTICES environment.31 Additionally, members and member organizations participating in the Virtual Trading Crowd will be subject to the same regulatory requirements as they are on the physical Trading Floor.32 Orders must be systematized, and represented, and transactions reported, in connection with the Virtual Trading Crowd floor in the same manner as they are when trading on the physical Trading Floor.33 Therefore, the audit trail for open outcry trading in the Virtual Trading Crowd will capture the same information that it does for open outcry trading on the physical Trading Floor. Surveillance Phlx Surveillance staff would remotely surveil transactions in the Virtual Trading Crowd, in real-time. Specifically, there would be an Options Floor Official present in each Virtual Trading Crowd. Nasdaq Surveillance would conduct real-time surveillance for violations of Phlx rules, as is the case with physical open outcry. Floor Surveillance Procedures would be updated to account for the conferencing and chat requirements, as well as any changes to surveil a Virtual Trading Crowd. All surveillance patterns would be operable and function normally. The Exchange also proposes to renumber current Options 3, Section 26(g)(3) as (4). The Exchange notes that this proposal does not amend the manner in which fees or other pricing incentives, such as caps, apply to floor participants. Any transaction originating from open outcry on the Trading Floor is considered a floor transaction and would continue to be considered a floor transaction for purposes of the Virtual Trading Crowd. With offering FBMS remotely, the Exchange does not propose to amend the manner in which fees are assessed or rebates are paid for purposes of Options 7 pricing to Floor Brokers. The Exchange has conducted several town halls with floor members in which the Exchange presented the functionality of the Virtual Trading Crowd and has made the Virtual Trading Crowd available for testing so that the Exchange will be ready to implement it if necessary. The Exchange has received positive feedback from floor members regarding the Virtual Trading Crowd and will continue to make updates as necessary and appropriate in response to comments it receives to make the Virtual Trading Crowd replicate the open outcry trading Options 8, Sections 18 and 28. Options 8 generally. 33 See Options 8 generally. experience on the physical Trading Floor as much as possible. The Exchange believes this will provide the opportunity for as seamless a rollout as possible if circumstances cause the Exchange to make the Virtual Trading Crowd available. Technical Amendments The Exchange proposes to amend Options 8, Section 22, Execution of Options Transactions on the Trading Floor, to correct two citations in Options 8, Sections 22(b) and (c). The citations to Options 8, Section 35 should be to Options 8, Section 24. These corrections will ensure the rule text is accurate. 2. Statutory Basis The Exchange believes that its proposal is consistent with Section 6(b) of the Act,34 in general, and furthers the objectives of Section 6(b)(5) of the Act,35 in particular, in that it is designed to promote just and equitable principles of trade, to foster cooperation and coordination with persons engaged in regulating, clearing, settling, processing information with respect to, and facilitating transactions in securities, 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. In particular, the Exchange believes the proposed rule change will 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, as it will permit open outcry trading to continue in the event the Exchange’s Trading Floor is unavailable, the Back-Up Trading Floor becomes inoperable or the Exchange otherwise determines not to operate the Back-Up Trading Floor. As discussed above, there are certain features of open outcry trading that are difficult to replicate in an electronic trading environment. The Exchange has observed, and understands from various market participants, that they have had difficulty executing certain orders, such as larger orders and high-risk and complicated strategies, in an allelectronic trading configuration without the element of human interaction to negotiate pricing for these orders. The proposed rule change would provide an environment in which this interaction would be available despite the potential unavailability of the physical Trading Floor. The Exchange believes the 31 See 32 See VerDate Sep<11>2014 20:43 Jan 13, 2021 Jkt 253001 34 15 35 15 PO 00000 U.S.C. 78f(b). U.S.C. 78f(b)(5). Frm 00114 Fmt 4703 proposed rule change may facilitate continued trading of these orders if and when the physical Trading Floor is unavailable, the Back-Up Trading Floor becomes inoperable or the Exchange otherwise determines not to operate the Back-Up Trading Floor. As a result, the Exchange believes providing continuous access to open outcry trading when the physical Trading Floor is unavailable, the Back-Up Trading Floor becomes inoperable or the Exchange otherwise determines not to operate the Back-Up Trading Floor will remove impediments to a free and open market and will ultimately benefit investors, particularly those desiring to execute high-risk and complex trading strategies. The Virtual Trading Crowd would have the same capability to utilize FBMS as the primary Trading Floor today with the availability of remote FBMS.36 The Exchange also believes the proposed rule change will promote just and equitable principles of trade as open outcry trading in a Virtual Trading Crowd will occur in accordance with the same trading rules and be subject to the same regulatory requirements that apply to open outcry trading on the physical Trading Floor, all of which have previously been filed with the Commission. The proposed rule change will merely permit this open outcry trading to occur in a virtual setting rather than a physical setting (which may be appropriate for health and safety purposes). For the Virtual Trading Crowd, open outcry trading will occur while market participants operate remotely as they do when they trade electronically. Open outcry trading on a physical Trading Floor or in a Virtual Trading Crowd will be subject to the same priority and allocation rules as open trading on the physical Trading Floor, as set forth in Options 8, Sections 25 and 30. As is the case for open outcry trading on a physical Trading Floor, open outcry trading in a Virtual Trading Crowd is consistent with Section 11(a) of the Act, as Rule 5.85(a)(2)(E) (which will apply to open outcry trading in a Virtual Trading Crowd) requires members and member organizations relying on Section 11(a)(1)(G) of the Act and Rule 11a1–1(T) thereunder (the so called ‘‘G exemption rule’’) as an exemption must yield priority to any bid (offer) at the same price of Public Customer orders and broker-dealer orders resting in the Order Book, as well as any other bid (offer) that has priority over those broker-dealer orders under this Rule. 36 See Sfmt 4703 E:\FR\FM\14JAN1.SGM note 15 above. 14JAN1 khammond on DSKJM1Z7X2PROD with NOTICES Federal Register / Vol. 86, No. 9 / Thursday, January 14, 2021 / Notices The Exchange further believes the proposed rule change will 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 by permitting the Exchange to establish zones. As discussed above, the zones are intended to replicate the physical Trading Floor’s organization and will permit floor members to interact in a substantially similar way as they do on the physical Trading Floor. The zones will also encourage interaction of a reasonable number of people within the communication program. While the zones will include additional functionality that is not otherwise available on the physical Trading Floor, such as the chat functionality, the Exchange believes the creation of zones and inclusion of this functionality will create a virtual environment that promotes fair and orderly trading given the potential limitations of communication software. The Exchange will make the same order types and instructions available in a Virtual Trading Crowd as it makes available on a physical Trading Floor pursuant to Options 8, Section 32. Floor Brokers will be subject to the responsibilities set forth in Options 8, Sections 18 and 28 in a Virtual Trading Crowd, as they are on a physical Trading Floor. Additionally, members and member organizations participating in a Virtual Trading Crowd will be subject to the same regulatory requirements in a Virtual Trading Crowd as they are on a physical Trading Floor, including those set forth generally within Options 8. Orders must be systematized and represented, and transactions reported, in connection with a Virtual Trading Crowd in the same manner as they are when trading on a physical Trading Floor. The Exchange will retain records of the chats as well as consents, and any other records related to the Virtual Trading Crowd that are subject to the Exchange’s record retention obligations under the Exchange Act. Pursuant to Options 3, Section 26(g)(3)(E)(8)(c), Floor Market Maker quotes will be considered firm in the event the Floor Market Maker is disconnected from the Virtual Trading Crowd and the parties have a Meeting of the Minds with respect to the terms of the transaction. A ‘‘Meeting of the Minds’’ means the contra-side(s) verbally confirmed participation in the trade. In the event that a Floor Market Maker is disconnected from the Virtual Trading Crowd, a Floor Market Maker quote would not be considered firm if VerDate Sep<11>2014 20:43 Jan 13, 2021 Jkt 253001 the quote were provided and the parties did not have a Meeting of the Minds with respect to the terms of the transaction. Today, Floor Market Maker quotes are considered firm when announced in open outcry 37 and once accepted the transaction may be effectuated within FBMS. A Floor Market Maker may declare he or she is ‘‘out’’ prior to a Meeting of the Minds occurring in open outcry and the Floor Broker submitting the trade into FBMS.38 Today, a Floor Market Maker that experiences issues with internet connection,39 makes an error or otherwise is unaware of recent news in a particular option, would be held to a quote verbalized in open outcry. In the event that the negotiation continues and the terms change, the Floor Marker Maker would not be held to the new terms without additional acceptance of those terms. In the event that the transaction is not effectuated in FBMS, the trade would not stand. To that end, the Exchange believes continuing to require quotes to remain firm once the parties have arrived at a Meeting of the Minds with respect to the terms of the transaction is consistent with the Act as it creates fair and equitable expectations for members trading in the Virtual Trading Crowd as a Meeting of the Minds was arrived out between the parties, each of whom had an opportunity to participate in the trade. The audit trail for open outcry trading in a Virtual Trading Crowd will capture the same information that it does for open outcry trading on a physical Trading Floor. The FBMS execution checks for compliance with priority and trade-through rules remain intact. The Exchange’s proposal only seeks to replace the open outcry negotiations with a Virtual Trading Crowd. FBMS compliance checks were adopted to protect investor and the general public 37 See Options 8, Section 22(c) Public Outcry— Pursuant to Options 8, Section 35 at Supplementary Material .01, bids and offers must be made in an audible tone of voice. A member shall be considered ‘‘in’’ on a bid or offer, while he remains at the post, unless he shall distinctly and audibly say ‘‘out.’’ A member bidding and offering in immediate and rapid succession shall be deemed ‘‘in’’ until he shall say ‘‘out’’ on either bid or offer. Once the trading crowd has provided a quote, it will remain in effect until: (A) A reasonable amount of time has passed, or (B) there is a significant change in the price of the underlying security, or (C) the market given in response to the request has been improved. In the case of a dispute, the term ‘‘significant change’’ will be interpreted on a caseby-case basis by an Options Exchange Official based upon the extent of the recent trading in the option and, in the case of equity and index options, in the underlying security, and any other relevant factors. 38 Id at 25. 39 The Exchange notes that today members are responsible for the operation of their own equipment while on the Trading Floor. PO 00000 Frm 00115 Fmt 4703 Sfmt 4703 3223 by automated enforcement of priority and trade-through rules. The Exchange would continue to cancel orders that failed to meet these compliance checks, as is the case today. These compliance checks ensure that allocation rules are complied with and that the proposed execution would not cause Phlx to trade-through an away market. Surveillance staff would remotely surveil transactions in a Virtual Trading Crowd, in real-time. Specifically, there would be an Options Floor Official present in each Virtual Trading Crowd. Nasdaq Surveillance would conduct real-time surveillance for violations of Phlx rules, as is the case with physical open outcry. Floor Surveillance Procedures would be updated to account for the conferencing and chat requirements, as well as any changes to surveil a Virtual Trading Crowd. All surveillance patterns would be operable and function normally. The Exchange believes that the proposed rule change would remove impediments to and perfect the mechanism of a free and open market and a national market system because it would promote fair and orderly trading. The Exchange believes it will promote just and equitable principles of trading for all open outcry trading to occur in substantially the same manner, whether it occurs while market participants are in the same physical setting or in remote settings being connected through a technological solution. Controls and security features are proposed to ensure that the appropriate market participants are participating in trades and to minimize any disruptions. Nasdaq non-surveillance staff would be responsible for the operation of the remote conferencing feature, which includes monitoring members to ensure that only floor members and members’ employees are admitted into remote conferencing and are properly identified. Member organizations would be required to execute an addendum to the Nasdaq Services Agreement regarding their use of the remote conferencing feature in addition to consenting to voice recording. In addition, the Exchange believes the proposed rule change will not be designed to permit unfair discrimination between customers, issuers, brokers, or dealers, as all individuals authorized to act on the physical Trading Floor (both member organizations authorized at the time the physical Trading Floor becomes unavailable, the Back-Up Trading Floor becomes inoperable or the Exchange otherwise determines not to operate the Back-Up Trading Floor and any member organization that becomes authorized E:\FR\FM\14JAN1.SGM 14JAN1 khammond on DSKJM1Z7X2PROD with NOTICES 3224 Federal Register / Vol. 86, No. 9 / Thursday, January 14, 2021 / Notices after the physical Trading Floor becomes unavailable) will be provided with access to the Virtual Trading Crowd. Additionally, the proposed rule change to permit the Exchange to elect a Virtual Trading Crowd if the physical Trading Floor is unavailable will provide individuals unable to trade on the physical Trading Floor as a result of certain restrictions to participate in open outcry trading remotely. Surveillance staff will be present in each Virtual Trading Crowd to monitor the activity of each participant, who must be present by video, and to observe participant behavior. The Exchange will continue to surveil options transactions, as it does today, to identify transactions which are violative of Phlx Rules.40 Phlx surveils for transactions which have been executed on its market to determine if those transactions utilized information which would have been available in open outcry trading and was not yet public or otherwise ascertainable due to the execution of a transaction. The Exchange notes that in both the electronic market and on the trading floor, members and member organizations must ensure that they have procedures reasonably designed to prevent the misuse of material, nonpublic information by employees.41 The Exchange has conducted several town halls with floor members in which the Exchange presented the functionality of the Virtual Trading Crowd and has made the Virtual Trading Crowd available for testing so that the Exchange will be ready to implement it if necessary. The Exchange has received positive feedback from floor members regarding the Virtual Trading Crowd and will continue to make updates as necessary and appropriate in response to comments it receives to make the Virtual Trading Crowd replicate the open outcry trading experience on the physical Trading Floor as much as possible. The Exchange believes this will provide the opportunity for as seamless a rollout as possible if circumstances cause the Exchange to make the Virtual Trading Crowd available. Finally, this proposal does not amend the manner in which fees or other pricing incentives, such as caps, apply to floor participants. Any transaction originating from open outcry on the Trading Floor is considered a floor transaction. With offering FBMS remotely, the Exchange has not amended the manner in which fees are 40 See Phlx Options 9, Section 1; and Options 9, Section 5. See also Options 3, Section 22(d). 41 See Phlx General 9, Section 21. VerDate Sep<11>2014 20:43 Jan 13, 2021 Jkt 253001 assessed or rebates are paid for purposes of Options 7 pricing to floor participants. Technical Amendments The Exchange’s proposal to update citations to Options 8, Section 35 to Options 8, Section 24 are consistent with the Act as these non-substantive amendments will ensure the rule text is accurate. B. Self-Regulatory Organization’s Statement on Burden on Competition The Exchange does not believe that the proposed rule change will impose any burden on competition not necessary or appropriate in furtherance of the purposes of the Act. The Exchange does not believe that the proposed rule change will impose any burden on intra-market competition that is not necessary or appropriate in furtherance of the purposes of the Act, as all member organizations authorized by the Exchange, or that become authorized by the Exchange, to transact on the Trading Floor will receive access to the Virtual Trading Crowd. The Exchange does not believe that the proposed rule change will impose any burden on inter-market competition that is not necessary or appropriate in furtherance of the purposes of the Act, as it relates solely to the location of open outcry trading on the Exchange. The proposed rule change will merely permit open outcry trading that generally occurs while market participants are located in the same physical setting to occur while market participants are in a remote setting, connected by a technological solution (as electronic trading does). The Exchange believes that the proposed rule change will relieve any burden on, or otherwise promote, competition. The Exchange believes the proposed rule change will provide market participants with continuous access to open outcry trading when the physical Trading Floor is unavailable, the Back-Up Trading Floor becomes inoperable or the Exchange otherwise determines not to operate the Back-Up Trading Floor. The Exchange believes this may facilitate continued, competitive price negotiations and trading of orders that the Exchange understands are more difficult to execute in an all-electronic trading environment without human interaction. Additionally, the proposed rule change will provide customer orders represented for open outcry execution with access to the same pool of liquidity when the Trading Floor is unavailable to which those orders would have access when the Trading PO 00000 Frm 00116 Fmt 4703 Sfmt 4703 Floor is operating in its normal state. Maintenance of this level of liquidity at all times, even when the Trading Floor is unavailable, may promote competition by providing these customer orders with increased liquidity than may otherwise be available, and thus increased execution opportunities and price discovery. Every Floor Market Maker and Floor Broker is permitted access to FBMS. With respect to inter-market competition, the Exchange notes that each options market has a business continuity plan. Because the options markets are physically located in different regions of the United States, the conditions under which a business continuity plan is deployed may differ, based on regional differences. In addition, any options exchange with a trading floor could amend its rules to adopt similar business continuity plans that engaged similar controls. Technical Amendments The Exchange’s proposal to update citations to Options 8, Section 35 to Options 8, Section 24 do not impose an undue burden on competition as these non-substantive amendments will ensure the rule text is accurate. 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 Within 45 days of the date of publication of this notice in the Federal Register or within such longer period (i) as the Commission may designate up to 90 days of such date if it finds such longer period to be appropriate and publishes its reasons for so finding or (ii) as to which the Exchange consents, the Commission shall: (a) By order approve or disapprove such proposed rule change, or (b) institute proceedings to determine whether the proposed rule change should be 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: E:\FR\FM\14JAN1.SGM 14JAN1 Federal Register / Vol. 86, No. 9 / Thursday, January 14, 2021 / Notices 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–2021–03 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. khammond on DSKJM1Z7X2PROD with NOTICES All submissions should refer to File Number SR–Phlx–2021–03. 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–2021–03 and should be submitted on or before February 4, 2021. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.42 J. Matthew DeLesDernier, Assistant Secretary. [FR Doc. 2021–00591 Filed 1–13–21; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [SEC File No. 270–184, OMB Control No. 3235–0236] Submission for OMB Review; Comment Request Upon Written Request, Copies Available From: Securities and Exchange Commission, Office of FOIA Services, 100 F Street NE, Washington, DC 20549–2736 Extension: Form N–54C Notice is hereby given that, pursuant to the Paperwork Reduction Act of 1995 (44 U.S.C. 3501 et seq.), the Securities and Exchange Commission (the ‘‘Commission’’) has submitted to the Office of Management and Budget a request for extension of the previously approved collection of information discussed below. Certain investment companies can elect to be regulated as business development companies, as defined in section 2(a)(48) of the Investment Company Act of 1940 (‘‘Investment Company Act’’), under sections 55 through 65 of the Investment Company Act. Under section 54(a) of the Investment Company Act,1 any company defined in section 2(a)(48)(A) and (B) of the Investment Company Act may, if it meets certain enumerated eligibility requirements, elect to be subject to the provisions of Sections 55 through 65 of the Investment Company Act by filing with the Commission a notification of election. Under section 54(c) of the Investment Company Act,2 any business development company may voluntarily withdraw its election under section 54(a) of the Investment Company Act by filing a notice of withdrawal of election with the Commission. The Commission has adopted Form N–54C as the form for the notification of withdrawal of election to be subject to Sections 55 through 65 of the Investment Company Act. The purpose of Form N–54C is to notify the Commission that the business development company withdraws its election to be subject to Sections 55 through 65 of the Investment Company Act. The Commission estimates that on average approximately eight business development companies file notifications on Form N–54C each year. Each of those business development companies need only make a single filing of Form N–54C. The Commission 1 15 42 17 CFR 200.30–3(a)(12). VerDate Sep<11>2014 20:43 Jan 13, 2021 2 15 Jkt 253001 PO 00000 U.S.C. 80a–53(a). U.S.C. 80a–53(c). Frm 00117 Fmt 4703 Sfmt 4703 3225 further estimates that this information collection imposes a burden of one hour, resulting in a total annual burden of eight hours. Based on the estimated wage rate, the total cost to the business development company industry of the hour burden for complying with Form N–54C would be approximately $2,944.3 The Commission also estimates that cost burden for outside professionals associated with the filing of Form N– 54C increased to $560 because the Commission believes that filers use third-party vendors to comply with this requirement. The collection of information under Form N–54C is mandatory. The information provided by the form is not kept confidential. An agency may not conduct or sponsor, and a person is not required to respond to, a collection of information unless it displays a currently valid control number. The public may view the background documentation for this information collection at the following website, www.reginfo.gov. Comments should be directed to: (i) Desk Officer for the Securities and Exchange Commission, Office of Information and Regulatory Affairs, Office of Management and Budget, Room 10102, New Executive Office Building, Washington, DC 20503, or by sending an email to: Lindsay.M.Abate@omb.eop.gov; and (ii) David Bottom, Director/Chief Information Officer, Securities and Exchange Commission, c/o Cynthia Roscoe, 100 F Street NE, Washington, DC 20549 or send an email to: PRA_ Mailbox@sec.gov. Written comments and recommendations for the proposed information collection should be sent within 30 days of publication of this notice to www.reginfo.gov/public/do/ PRAMain. Find this particular information collection by selecting ‘‘Currently under 30-day Review—Open for Public Comments’’ or by using the search function. Dated: January 11, 2021. J. Matthew DeLesDernier, Assistant Secretary. [FR Doc. 2021–00733 Filed 1–13–21; 8:45 am] BILLING CODE 8011–01–P 3 The industry burden is calculated by multiplying the total annual hour burden to prepare Form N–54C (eight) by the estimated hourly wage rate of $368 for a compliance attorney or other business development company employee with similar duties and responsibilities. The estimated wage figure is based on published rates for compliance attorneys from the Securities Industry and Financial Markets Association’s Report on Management & Professional Earnings in the Securities Industry 2013, modified by Commission staff to account for an 1800 hour work-year and inflation, and multiplied by 5.35 to account for bonuses, firm size, employee benefits and overhead, yielding an effective hourly rate of $2,944. E:\FR\FM\14JAN1.SGM 14JAN1

Agencies

[Federal Register Volume 86, Number 9 (Thursday, January 14, 2021)]
[Notices]
[Pages 3217-3225]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2021-00591]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-90880; File No. SR-Phlx-2021-03]


Self-Regulatory Organizations; Nasdaq PHLX LLC; Notice of Filing 
of Proposed Rule Change To Modify Phlx Options 8, Section 26, ``Trading 
Halts, Business Continuity and Disaster Recovery''

January 8, 2021.
    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 January 7, 2021 Nasdaq PHLX LLC (``Phlx'' or ``Exchange'') filed 
with the Securities and Exchange Commission (``SEC'' or ``Commission'') 
the proposed rule change as described in Items I, II, and III, below, 
which Items have been prepared by the Exchange. The Commission is 
publishing this notice to solicit comments on the proposed rule change 
from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to modify Phlx Options 8, Section 26, 
``Trading Halts, Business Continuity and Disaster Recovery'' to permit 
a Virtual Trading Crowd in the event that the Trading Floor is 
unavailable.
    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.

[[Page 3218]]

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

1. Purpose
    Phlx proposes to modify Phlx Options 8, Section 26, ``Trading 
Halts, Business Continuity and Disaster Recovery.'' This proposal 
creates an additional contingency within Phlx's Business Continuity 
Plan (``BCP'') to prepare for potential closure of its physical Trading 
Floor in light of COVID-19. Specifically, the Exchange proposes to 
amend Options 8, Section 26(g) to permit Phlx to operate a newly 
proposed Virtual Trading Crowd in the event the physical Trading Floor 
is unavailable.
Background
    Currently, Options 8, Section 26(g) describes certain actions the 
Exchange may take as part of its BCP, if its Trading Floor became 
inoperable, so that it may maintain fair and orderly markets if unusual 
circumstances were to occur which may impact the Exchange's ability to 
conduct its options floor business. Specifically, in the event of loss 
of the Trading Floor, if the physical location \3\ designated as the 
``Trading Floor'' becomes unavailable Phlx will enact its BCP and 
designate the Philadelphia Navy Yard as its ``Back-Up Trading Floor.'' 
Further, in the event that the Back-Up Trading Floor becomes 
unavailable or inoperable, the Exchange will only operate its 
electronic market and will not operate a Trading Floor. The Exchange 
will operate only its electronic market until the Exchange's Trading 
Floor facility is operational. Open outcry trading will not be 
available in the interim.\4\
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    \3\ Phlx's physical Trading Floor is located at 2929 Walnut 
Street, Philadelphia, PA.
    \4\ This Rule does not preclude the Exchange from conducting 
business, in the event the Trading Floor and Back-Up Trading Floor 
are rendered inoperable, pursuant to Options 4, Section 10. Current 
Options 4, Section 10, Backup Trading Arrangements, outlines rules 
applicable to hosting Phlx at another exchange in the event Phlx is 
disabled.
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    Phlx's Trading Floor closed on March 17, 2019,\5\ as a result of 
precautions taken with respect to COVID-19.\6\ The Exchange continued 
to operate in an all-electronic configuration during this time period. 
Since that time, Phlx has been exploring alternatives to permit open 
outcry trading in the event of an extended closure related to COVID-19 
or potentially a second closure in 2020 and/or 2021 given the 
uncertainty related to the ongoing pandemic. Phlx notes that an all-
electronic trading environment cannot fully replicate open outcry 
trading, and therefore, the Exchange continues to evaluate potential 
enhancements that it believes would permit trading, in the event the 
Trading Floor is inoperable, to more closely replicate its trading 
environment that exists during normal operations.\7\
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    \5\ See Options Trader Alert #2020-07. Phlx's Trading Floor did 
not re-open until June 3, 2020. See Options Trader Alert #2020-08.
    \6\ On March 11, 2020, the World Health Organization 
characterized COVID-19 as a pandemic and to slow the spread of the 
disease, federal and state officials implemented social-distancing 
measures, placed significant limitations on large gatherings, 
limited travel, and closed non-essential businesses.
    \7\ Certain aspects of open outcry trading, particularly the 
ability for persons to negotiate pricing and to facilitate 
executions of larger orders in a trading crowd as well as the 
handling of high-risk and complicated strategies, are not easily 
replicated in electronic markets.
---------------------------------------------------------------------------

    Phlx proposes to amend Options 8, Section 26(g)(2) to provide,

    Back-up Trading Floor Unavailable. In the event that the Back-Up 
Trading Floor becomes inoperable, or the Exchange otherwise 
determines not to operate its Back-Up Trading Floor the Exchange 
will operate its electronic market and may elect to enact a Virtual 
Trading Crowd pursuant to subsection (g)(3).

    Today, Options 8, Section 26(g)(2) provides that if the Back-Up 
Trading Floor becomes inoperable, the Exchange will only operate its 
electronic market and will not operate a Trading Floor. Further, the 
rule provides the Exchange will operate only its electronic market 
until the Exchange's Trading Floor facility is operational. Open outcry 
trading will not be available in the interim.
    At this time, the Exchange desires to adopt a virtual option in the 
event the physical Trading Floor is unavailable, the Back-Up Trading 
Floor becomes inoperable or the Exchange otherwise determines not to 
operate the Back-Up Trading Floor.\8\ Specifically, Phlx's proposal 
would permit certain aspects of open outcry trading, which are normally 
conducted in-person on the Trading Floor, to be conducted in a virtual 
trading crowd (``Virtual Trading Crowd''). This proposal is intended to 
enhance Phlx's BCP by offering an alternative which comports with 
shelter-in-place and social distancing guidelines and would provide 
institutional investors with a means to execute orders that are unable 
to meet guidelines of the electronic market.\9\ Specifically, this 
proposal would further enhance the Exchange's trading environment when 
the Trading Floor is unavailable, the Back-up Trading Floor is 
inoperable or the Exchange otherwise determines not to operate the 
Back-Up Trading Floor, by permitting market participants that generally 
operate on the physical Trading Floor to continue to interact in a 
substantially similar manner as they do on the Trading Floor. 
Specifically, the Exchange proposes to further amend Options 7, Section 
26(g) to permit it to make available an audio and video communication 
program to serve as a ``Virtual Trading Crowd'' if the physical Trading 
Floor is unavailable, the Back-Up Trading Floor becomes inoperable or 
the Exchange otherwise determines not to operate the Back-Up Trading 
Floor. The Exchange would create ``Virtual Trading Crowds,'' in each of 
which the Exchange will determine which options class(es) will be 
available for trading. This is similar to the Exchange's authority with 
respect to open outcry trading on the Trading Floor.\10\ Phlx members 
will access a Virtual Trading Crowd via ``zones.'' \11\ Multiple 
classes may trade in a single Virtual Trading Crowd available for 
trading in a single zone. This is similar to the physical Trading Floor 
today. The Exchange may determine to have only one zone or several 
zones as necessary to ensure a fair and orderly market. The Exchange 
will assign each Floor Market Maker to a zone and Floor Brokers may 
determine in which zone(s) they will be present. This is similar to the 
arrangement on the Exchange's physical Trading Floor. Unlike Cboe, Phlx 
has a requirement that each trading crowd have a Floor Market Maker 
present.\12\ Phlx ensures that this requirement is met by assigning 
Floor Market Makers to a trading crowd.\13\ If a Floor Market

[[Page 3219]]

Maker hears a Floor Broker located in another trading crowd represent 
an order, the Floor Market Maker may attempt to trade with that order. 
The Exchange intends that the concept of a zone replicate a crowd on 
the physical Trading Floor.
---------------------------------------------------------------------------

    \8\ The proposed rule regarding the Virtual Trading Crowd is 
located in the Exchange's broader rule regarding disaster recovery 
and business continuity, as the Exchange currently only plans to use 
the Virtual Trading Crowd for business continuity purposes if the 
physical Trading Floor becomes unavailable, the Back-Up Trading 
Floor becomes inoperable or the Exchange otherwise determines not to 
operate the Back-Up Trading Floor. If the Exchange were to determine 
to use the Virtual Trading Crowd in more permanent manner, it would 
submit a separate rule filing.
    \9\ For example, there are certain aspects of trading where the 
rules differ electronically and on the Trading Floor. Complex Orders 
are traded differently electronically versus on the Trading Floor 
based on Exchange rules.
    \10\ See Options 8, Section 25(l) which provides, ``In the 
interest of fair and orderly markets, the Exchange may adopt 
policies affecting the location of members in the trading crowd on a 
crowd-by-crowd basis.''
    \11\ A ``zone'' is a virtual room representing a Virtual Trading 
Crowd. For example, each trading crowd will have its own zoom 
password-protected log-in.
    \12\ See Options 8, Section 28, ``. . . An Options Floor Broker 
shall ascertain that at least one Floor Market Maker is present at 
the trading post prior to representing an order for execution. . . 
.''
    \13\ The Exchange notes that as a result of COVID-19, the 
Exchange implemented various safety protocols including socially 
distancing floor members by assigning spaces to all floor market 
participants on the physical Trading Floor.
---------------------------------------------------------------------------

    Phlx proposes to replicate the open outcry features on the physical 
Trading Floor within a Virtual Trading Crowd. The Exchange will use a 
communication program that has audio, video, and ``chat'' 
functionality.\14\ Floor members would log into the Virtual Trading 
Crowd, as described in more detail below, and would communicate trades 
within the conferencing feature. This will allow the same communication 
capabilities floor members generally have on the physical Trading Floor 
so that they may conduct open outcry trading in the Virtual Trading 
Crowd in the same manner as they do on the physical Trading Floor.
---------------------------------------------------------------------------

    \14\ Currently available programs with this functionality 
include Zoom, Webex, Microsoft Teams, and others.
---------------------------------------------------------------------------

    All Options 8 Rules will apply to open outcry trading in the 
Virtual Trading Crowd, in the same manner as they apply to open outcry 
trading on the physical Trading Floor, except as otherwise provided for 
in proposed Options 8, Section 26(g)(3)(E). The proposed changes are 
described below. The Exchange proposes to adopt a new Options 8, 
Section 26(g)(3) to permit the Exchange to make available an audio and 
video communication program to serve as a ``Virtual Trading Crowd'' if 
the physical Trading Floor is not available.
    Proposed Options 8, Section 26(g)(3)(A) lists certain terms in the 
Rules related to open outcry trading on the physical Trading Floor that 
will be deemed to refer to corresponding terms related to trading in 
the Virtual Trading Crowd. Specifically,
     References in the Rules to the ``floor,'' ``Trading 
Floor,'' and ``Exchange floor'' (and any other terms with the same 
meaning) will be deemed to refer to the ``Virtual Trading Crowd''; and
     References in the Rules to ``physical presence'' or ``on-
floor'' or ``floor'' (and any other terms with the same meaning) will 
be deemed to refer to ``presence'' in a Virtual Trading Crowd.
    The proposal does not amend or replace any aspects of Phlx's 
Options Floor Based Management System (``FBMS'') or order execution 
functionalities.\15\ Today, FBMS is designed to execute orders entered 
by Floor Brokers,\16\ including multi-leg orders up to 15 legs, after 
representation in the trading crowd. When a Floor Broker submits an 
order for execution through FBMS, the order will be executed based on 
market conditions at the time of execution and in accordance with Phlx 
rules. FBMS execution functionality checks the Order Book to ensure 
compliance with priority rules. Orders that do not comply with priority 
and trade-through rules will not be executed. All FBMS order and 
transaction data that would normally be available from the physical 
Trading Floor would continue to be captured by FBMS and the System. 
These compliance checks, which are crucial to ensuring compliance with 
Exchange rules, will continue with the Virtual Trading Crowd model.
---------------------------------------------------------------------------

    \15\ FBMS, an order management system, is the gateway for the 
electronic execution of equity, equity index and U.S. dollar-settled 
foreign currency option orders represented by Floor Brokers on the 
Exchange's Options Floor. Floor Brokers contemporaneously upon 
receipt of an order and prior to the representation of such an order 
in the trading crowd, record all options orders represented by such 
Floor Broker to FBMS, which creates an electronic audit trail. The 
execution of orders to Phlx's electronic trading system also occurs 
via FBMS. The FBMS application is available on hand-held tablets and 
stationary desktops.
    \16\ The term ``Floor Broker'' means an individual who is 
registered with the Exchange for the purpose, while on the Options 
Floor, of accepting and handling options orders. See Options 8, 
Section 2(2).
---------------------------------------------------------------------------

    Access to the Virtual Trading Crowd will be substantially similar 
to access to the physical Trading Floor. Only members registered to 
access Phlx's Trading Floor would be permitted to participate. The 
Exchange is not proposing to amend its membership requirements with 
respect to virtual open outcry trading. Currently, admission to the 
physical Trading Floor is limited to members and member organizations, 
Exchange employees, clerks employed by members and member 
organizations, Inactive Nominees, and Exchange visitors that receive 
authorized admission to the Trading Floor pursuant to Exchange policy, 
and any other persons that the Exchange authorizes admission to the 
Trading Floor.\17\ Persons and entities may apply to become a Phlx 
member by complying with the membership requirements noted within Phlx 
General 3, Membership and Access. Proposed Options 8, Section 
26(g)(3)(B) provides, ``Admission to the Virtual Trading Crowd is 
limited to members and member organizations, Clerks, Exchange 
employees, and any other persons the Exchange authorizes admission to 
the Virtual Trading Crowd.''
---------------------------------------------------------------------------

    \17\ See General 3, Section 1, Options 8, Sections 5-9, and 
Options 8, Sections 11 and 12.
---------------------------------------------------------------------------

    The Exchange proposes to limit the number of members, per member 
organization, that may participate in a Virtual Trading Crowd based on 
the ability of Phlx to accommodate members within the remote 
conferencing feature in an orderly fashion. The Exchange would limit 
personnel in a fair and equitable manner ensuring there is fair and 
equal representation from each member and member organization. This 
proposal would allow each of the trading crowds that exist on Phlx's 
physical Trading Floor to participate in this ``Virtual Trading Crowd'' 
in one or more separate zones as described above.
    While clerks may access the Virtual Trading Crowd, they may only 
perform the same functions for their associated member organizations in 
connection with open outcry trading in the Virtual Trading Crowd as 
they do for open outcry trading on the physical Trading Floor. The 
Exchange understands permitting access to Clerks to access the Virtual 
Trading Crowd will provide them with access to the information that 
they normally have access to on the physical Trading Floor, which will 
make it more efficient for them to perform their tasks. Also, the 
Exchange would not permit visitors into the Virtual Trading Crowd as 
the Exchange believes that allowing these types of persons to have 
access to the Virtual Trading Crowd is unnecessary as these persons are 
not essential to the functioning of the Virtual Trading Crowd. As is 
the case with the physical Trading Floor, the Exchange will provide 
access to the Virtual Trading Crowd to members the Exchange has 
approved to perform a Trading Floor function (including Floor Brokers 
and Floor Market Makers).
    While floor members would not be required to display badges, 
pursuant to Options 8, Section 39 at Regulation 3, in the Virtual 
Trading Crowd, as the size of the view on the communication program may 
not permit badges to be visible, members would be required to join the 
Virtual Trading Crowd in a manner that clearly identifies the member or 
member's employee.
    Pursuant to proposed Options 3, Section 26(g)(3)(E)(8)(a), prior to 
speaking on remote conferencing, each member must announce themselves 
each time.\18\ As specified within

[[Page 3220]]

proposed Options 8, Section 26(g)(3)(E)(2), members must join via a 
computer and either (a) computer audio; (b) cell phone; or (c) hard-
wired phone, as determined by Nasdaq. Phlx will send a password-
protected invitation to each floor participant permitted access to the 
Virtual Trading Crowd. This invitation will permit each permitted 
participant to access the Virtual Trading Crowd in a safe and secure 
manner. Any floor member may access any zone within the Virtual Trading 
Crowd, although Floor Market Makers will be required to be present in 
their assigned zone if present within the Virtual Trading Crowd. Any 
unidentified attendee will be removed from the Virtual Trading Crowd. 
The Exchange will have an audit trail of the telephone numbers that 
have joined each remote conferencing session in order to ensure that 
only members join the remote conferencing feature. Every member in the 
Virtual Trading Crowd must provide Market Operations with a contact 
number where Market Operations will be able to reach them during the 
trading day. The contact number may not be the same number that is 
being used to connect to the Virtual Trading Crowd. Floor members are 
responsible for maintaining updated contact information. This number 
must be updated immediately if it changes. Nasdaq staff must be able to 
reach a member if there is an issue with trading.\19\ Nasdaq non-
regulatory staff would be responsible for the operation of the remote 
conferencing feature, which includes monitoring members to ensure that 
only floor members and member's employees are admitted into remote 
conferencing and are properly identified.
---------------------------------------------------------------------------

    \18\ Members would also be visible on video, however the 
Exchange will still require members to announce themselves.
    \19\ The conferencing room would be password protected and 
equipped with audio, video and text capabilities. Attendance control 
requirements would be in place. Private chat features will not be 
permitted on the platform. Unknown callers would be removed from the 
conferencing room. Nasdaq non-regulatory staff would be in control 
of the conference room.
---------------------------------------------------------------------------

    As specified within proposed Options 3, Section 26(g)(3)(E)(1), 
every member and the member's employees in the Virtual Trading Crowd 
must consent to video and audio recording in order to participate in 
the Virtual Trading Crowd. Members and members' employees will be asked 
to provide this consent, as well as other consents, before being 
permitted to join the Virtual Trading Crowd. For example, member 
organizations would be required to execute an addendum to the Nasdaq 
Services Agreement regarding their use of the remote conferencing 
feature in addition to consenting to voice recording.
    Today, pursuant to Options 8, Section 38, floor members must 
register their means of communication with the Exchange.\20\ Pursuant 
to proposed Options 8, Section 26(g)(3)(E)(4), members and member 
organizations may use any equipment to access the Virtual Trading Crowd 
and do not need to register devices they use while in the Virtual 
Trading Crowd. Floor members and member organizations would be 
permitted remote access to FBMS when the Virtual Trading Floor is 
enacted.\21\ The Exchange proposes to provide within Options 8, Section 
26(g)(3)(C) that, ``. . . Notwithstanding Options 8, Section 28(g) and 
Options 8, Section 30(e), members and member organizations would be 
permitted remote access to the Options Floor Based Management System 
(``FBMS'') when the Virtual Trading Floor is enacted for the purpose of 
executing transactions which require exposure in open outcry.'' Floor 
members must use Exchange-provided FBMS, to the extent applicable, 
while transacting in the Virtual Trading Crowd. As noted above, prior 
to using a communications device for business purposes on the Trading 
Floor of the Exchange, members and member organizations must register 
the communications device in a form and manner prescribed by the 
Exchange. Because individuals in the Virtual Trading Crowd will not be 
on the Exchange's premises (and thus will not be using Exchange-
provided bandwidth to be shared with all market participants and do not 
pose the same security risks), the proposed rule change will not 
require members and member organizations to register devices they use 
while in the Virtual Trading Crowd. Options 8, Section 38 will 
otherwise apply in the same manner to the Virtual Trading Crowd as it 
does to the physical Trading Floor (to the extent the context 
requires). This includes requirements related to audit trail and record 
retention, prohibition on using any device for the purpose of recording 
activities in the Virtual Trading Crowd or maintaining an open line of 
continuous communication whereby a person not located in the trading 
crowd may continuously monitor the activities in the trading crowd, and 
the prohibition on using devices to disseminate quotes or last sale 
reports. Surveillance staff will be present in each Virtual Trading 
Crowd to monitor the activity of each participant, who must be present 
by video, and to observe participant behavior. The Exchange will 
continue to surveil options transactions, as it does today, to identify 
transactions which are violative of Phlx Rules.\22\ Phlx surveils for 
transactions which have been executed on its market to determine if 
those transactions utilized information which would have been available 
in open outcry trading and was not yet public or otherwise 
ascertainable due to the execution of a transaction. The Exchange notes 
that in both the electronic market and on the trading floor, members 
and member organizations must ensure that they have procedures 
reasonably designed to prevent the misuse of material, non-public 
information by employees.\23\ Further, the Exchange proposes to provide 
within proposed Options 8, Section 26(g)(3)(E)(8)(g) that ``A member 
may not permit any unauthorized other person to gain audio or video 
access to the Virtual Trading Crowd. A member shall not record any 
trading sessions,'' to make clear that the Exchange will enforce the 
prohibitions of Options 8, Section 38 with respect to the remote 
conferencing aspects as well. Finally, the Exchange represents that it 
has the proper security infrastructure in place to offer FBMS remotely 
and securely to floor participants.
---------------------------------------------------------------------------

    \20\ Options 8, Section 38(a) provides, ``No member or member 
organization shall establish or maintain any private wire 
connection, private radio, television or wireless system, between 
the Exchange Trading Floor and a nonmember without application to 
and approval by the Exchange. Every such means of communication 
shall be registered with the Exchange. Notice of the discontinuance 
of any such means of communication shall be promptly given to the 
Exchange.''
    \21\ At the time of the Phlx Trading Floor closure in March 
2020, the Exchange permitted Floor Brokers, who otherwise had no 
means of trading on Phlx in an electronic environment, to utilize 
FBMS remotely, solely for the purpose of submitting limit orders to 
the electronic limit order book pursuant to Options 8, Section 
28(g), or submitting a Floor Qualified Contingent Cross Order to the 
System pursuant to Options 8, Section 30(e). See Options Trader 
Alert #2020-8.
    Recently, the Exchange filed a proposal to amend Options 8, 
Section 28(g) and Options 8, Section 30(e) to continue to allow 
Floor Brokers the ability to submit limit orders to the electronic 
limit order book and Floor Qualified Contingent Cross Orders to the 
System via FBMS remotely, notwithstanding the existence of BCP 
measures. See SR-Phlx-2021-01. This recent proposal did not permit 
FBMS to be utilized remotely for the purpose of executing 
transactions which require exposure in open outcry.
    \22\ See Phlx Options 9, Section 1; and Options 9, Section 5. 
See also Options 3, Section 22(d).
    \23\ See Phlx General 9, Section 21.
---------------------------------------------------------------------------

    Today, members on the physical Trading Floor only verbalize their 
interest to trade against a represented order, so not requiring bids 
and offers to be included in a chat conforms to current practice on the 
Trading Floor. However, given potential limitations of communication 
software (such as

[[Page 3221]]

limitations on how many people may be heard at the same time in a 
Virtual Trading Crowd or potential buffering or echoing), the Exchange 
believes it may be appropriate to require members to use a chat tool in 
the communication program to indicate their interest in participating 
in a trade so that the representing Floor Broker is able to know the 
market from the trading crowd and fairly allocate the trade pursuant to 
the Rules.\24\ The Exchange would require members to utilize the chat 
function if Surveillance determines that increased volume or activity 
in the Virtual Trading Crowd warrant mandatory use of the chat feature 
for members to maintain a fair and orderly market. Chats will be 
visible to all participants in a zone and will not be permitted 
directly between individual participants (i.e., the Exchange will 
disable direct messaging functionality within the communication 
program). The Exchange believes the flexibility to impose this 
requirement in a Virtual Trading Crowd is appropriate, as these 
limitations may ultimately not interfere with a Floor Broker's ability 
to hear all interest (particularly in Virtual Trading Crowd) and thus 
the additional requirement may potentially slow down executions. 
Flexibility will permit the Exchange to balance system limitations with 
the additional burden of a new workflow step for each class, some of 
which have different open outcry trading environments than others.
---------------------------------------------------------------------------

    \24\ The Exchange would issue an Options Trader Alert announcing 
any determination to require bids and offers to be expressed in a 
chat within the communication program pursuant to proposed Options 
8, Section 26(g)(3)(D). The Exchange will provide such notice with 
sufficient advance notice.
---------------------------------------------------------------------------

    The Exchange will retain records of the chats as well as consents, 
and any other records related to the Virtual Trading Crowds that are 
subject to the Exchange's record retention obligations under the 
Exchange Act.
    Pursuant to Options 3, Section 26(g)(3)(E)(8)(b), if a member 
experiences a technical issue accessing the remote conferencing, the 
Exchange will not be responsible for unexecuted trades. Also, pursuant 
to Options 3, Section 26(g)(3)(E)(8)(c), Floor Market Maker quotes will 
be considered firm in the event the Floor Market Maker is disconnected 
from the Virtual Trading Crowd and the parties have a meeting of the 
minds with respect to the terms of the transaction. A ``Meeting of the 
Minds'' means the contra-side(s) verbally confirmed participation in 
the trade. In the event that a Floor Market Maker is disconnected from 
the Virtual Trading Crowd, a Floor Market Maker quote would not be 
considered firm if the quote were provided and the parties did not have 
a Meeting of the Minds with respect to the terms of the transaction.
    Today, Floor Market Maker quotes are considered firm when announced 
in open outcry \25\ and once accepted the transaction may be 
effectuated within FBMS. A Floor Market Maker may declare he or she is 
``out'' prior to a Meeting of the Minds occurring in open outcry and 
the Floor Broker submitting the trade into FBMS.\26\ Today, a Floor 
Market Maker that experiences issues with internet connection,\27\ 
makes an error or otherwise is unaware of recent news in a particular 
option, would be held to a quote verbalized in open outcry. In the 
event that the negotiation continues and the terms change, the Floor 
Marker Maker would not be held to the new terms without additional 
acceptance of those terms. In the event that the transaction is not 
effectuated in FBMS, the trade would not stand. To that end, the 
Exchange believes continuing to require quotes to remain firm once the 
parties have arrived at a Meeting of the Minds with respect to the 
terms of the transaction creates fair and equitable expectations for 
members trading in the Virtual Trading Crowd.
---------------------------------------------------------------------------

    \25\ See Options 8, Section 22(c) Public Outcry--Pursuant to 
Options 8, Section 24 (this citation is being amended in this rule 
change from Section 35 to the correct Section 24) at Supplementary 
Material .01, bids and offers must be made in an audible tone of 
voice. A member shall be considered ``in'' on a bid or offer, while 
he remains at the post, unless he shall distinctly and audibly say 
``out.'' A member bidding and offering in immediate and rapid 
succession shall be deemed ``in'' until he shall say ``out'' on 
either bid or offer. Once the trading crowd has provided a quote, it 
will remain in effect until: (A) A reasonable amount of time has 
passed, or (B) there is a significant change in the price of the 
underlying security, or (C) the market given in response to the 
request has been improved. In the case of a dispute, the term 
``significant change'' will be interpreted on a case-by-case basis 
by an Options Exchange Official based upon the extent of the recent 
trading in the option and, in the case of equity and index options, 
in the underlying security, and any other relevant factors.
    \26\ Id at 25.
    \27\ The Exchange notes that today members are responsible for 
the operation of their own equipment while on the Trading Floor.
---------------------------------------------------------------------------

    Today, FLEX transactions are permitted on the Trading Floor in 
accordance with Options 3, Section 34. With this proposal, FLEX Trade 
tickets must be sent by email to the Phlx Correction Post pursuant to 
proposed Options 8, Section 26(g)(3)(E)(8)(d). This proposal would 
allow the Exchange to receive these in a timely manner.
    The Exchange notes within proposed Options 8, Section 
26(g)(3)(E)(8)(e) that a break-out room may be utilized to declare a 
dispute or otherwise notify an Options Floor Official of any required 
notifications. The Exchange would establish a break-out room within the 
remote conferencing for each dispute. This would provide an effective 
manner in which to communicate disputes and maintain a record of those 
disputes.
    Pursuant to proposed Options 8, Section 26(g)(3)(E)(8)(f) 
disruptive or unnecessary conversations or comments in the remote 
conferencing or on chat feature will not be permitted. This type of 
behavior would subject a member to disciplinary action. Today, 
disruptive behavior on the Trading Floor is subject to Options 8, 
Section 39 at Regulation 4.\28\
---------------------------------------------------------------------------

    \28\ Options 8, Section 39, Regulation 4(a) provides, ``Members 
and associated persons shall not conduct themselves in a disorderly 
manner on the trading floor or on the premises immediately adjacent 
to the trading floor. Further, members, participants and associated 
persons shall not conduct themselves in an indecorous manner that is 
disruptive to the conduct of business on the trading floor, 
including but not limited to the use of profanity.''
---------------------------------------------------------------------------

    As noted above, the Exchange may determine to make the Virtual 
Trading Crowd available if the physical Trading Floor is unavailable, 
the Back-Up Trading Floor becomes inoperable or the Exchange otherwise 
determines not to operate the Back-Up Trading Floor. Proposed Options 
8, Section 26(g)(3) provides that ``The Exchange may elect to permit 
open outcry trading to take place in a Virtual Trading Crowd if the 
Trading Floor becomes unavailable, the Back-Up Trading Floor becomes 
inoperable or the Exchange otherwise determines not to operate the 
Back-Up Trading Floor.'' These amendments to the Options 8 Rules are 
intended to make trading in a Virtual Trading Crowd similar to open 
outcry trading when open outcry trading is not available by replicating 
certain features of open outcry trading in the Virtual Trading Crowd. 
The Virtual Trading Crowd will permit open outcry trading to continue 
in a separate environment if the physical Trading Floor becomes 
unavailable, the Back-Up Trading Floor becomes inoperable or the 
Exchange otherwise determines not to operate the Back-Up Trading Floor. 
Therefore, trading opportunities that are generally only available in 
open outcry trading will continue to be available in the Virtual 
Trading Crowd.
    All trading in the Virtual Trading Crowd will occur in the same 
manner, including priority and allocation rules.\29\ The Exchange will 
make the same order types and instructions available in the Virtual 
Trading Crowd as it makes available on the physical Trading Floor.\30\ 
Floor Brokers will be subject to the responsibilities in each

[[Page 3222]]

environment.\31\ Additionally, members and member organizations 
participating in the Virtual Trading Crowd will be subject to the same 
regulatory requirements as they are on the physical Trading Floor.\32\ 
Orders must be systematized, and represented, and transactions 
reported, in connection with the Virtual Trading Crowd floor in the 
same manner as they are when trading on the physical Trading Floor.\33\ 
Therefore, the audit trail for open outcry trading in the Virtual 
Trading Crowd will capture the same information that it does for open 
outcry trading on the physical Trading Floor.
---------------------------------------------------------------------------

    \29\ See Options 8, Sections 25 and 30.
    \30\ See Options 8, Section 32.
    \31\ See Options 8, Sections 18 and 28.
    \32\ See Options 8 generally.
    \33\ See Options 8 generally.
---------------------------------------------------------------------------

Surveillance
    Phlx Surveillance staff would remotely surveil transactions in the 
Virtual Trading Crowd, in real-time. Specifically, there would be an 
Options Floor Official present in each Virtual Trading Crowd. Nasdaq 
Surveillance would conduct real-time surveillance for violations of 
Phlx rules, as is the case with physical open outcry. Floor 
Surveillance Procedures would be updated to account for the 
conferencing and chat requirements, as well as any changes to surveil a 
Virtual Trading Crowd. All surveillance patterns would be operable and 
function normally.
    The Exchange also proposes to re-number current Options 3, Section 
26(g)(3) as (4). The Exchange notes that this proposal does not amend 
the manner in which fees or other pricing incentives, such as caps, 
apply to floor participants. Any transaction originating from open 
outcry on the Trading Floor is considered a floor transaction and would 
continue to be considered a floor transaction for purposes of the 
Virtual Trading Crowd. With offering FBMS remotely, the Exchange does 
not propose to amend the manner in which fees are assessed or rebates 
are paid for purposes of Options 7 pricing to Floor Brokers.
    The Exchange has conducted several town halls with floor members in 
which the Exchange presented the functionality of the Virtual Trading 
Crowd and has made the Virtual Trading Crowd available for testing so 
that the Exchange will be ready to implement it if necessary. The 
Exchange has received positive feedback from floor members regarding 
the Virtual Trading Crowd and will continue to make updates as 
necessary and appropriate in response to comments it receives to make 
the Virtual Trading Crowd replicate the open outcry trading experience 
on the physical Trading Floor as much as possible. The Exchange 
believes this will provide the opportunity for as seamless a rollout as 
possible if circumstances cause the Exchange to make the Virtual 
Trading Crowd available.
Technical Amendments
    The Exchange proposes to amend Options 8, Section 22, Execution of 
Options Transactions on the Trading Floor, to correct two citations in 
Options 8, Sections 22(b) and (c). The citations to Options 8, Section 
35 should be to Options 8, Section 24. These corrections will ensure 
the rule text is accurate.
2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act,\34\ in general, and furthers the objectives of Section 
6(b)(5) of the Act,\35\ in particular, in that it is designed to 
promote just and equitable principles of trade, to foster cooperation 
and coordination with persons engaged in regulating, clearing, 
settling, processing information with respect to, and facilitating 
transactions in securities, 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.
---------------------------------------------------------------------------

    \34\ 15 U.S.C. 78f(b).
    \35\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

    In particular, the Exchange believes the proposed rule change will 
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, as it will permit open outcry 
trading to continue in the event the Exchange's Trading Floor is 
unavailable, the Back-Up Trading Floor becomes inoperable or the 
Exchange otherwise determines not to operate the Back-Up Trading Floor. 
As discussed above, there are certain features of open outcry trading 
that are difficult to replicate in an electronic trading environment. 
The Exchange has observed, and understands from various market 
participants, that they have had difficulty executing certain orders, 
such as larger orders and high-risk and complicated strategies, in an 
all-electronic trading configuration without the element of human 
interaction to negotiate pricing for these orders. The proposed rule 
change would provide an environment in which this interaction would be 
available despite the potential unavailability of the physical Trading 
Floor. The Exchange believes the proposed rule change may facilitate 
continued trading of these orders if and when the physical Trading 
Floor is unavailable, the Back-Up Trading Floor becomes inoperable or 
the Exchange otherwise determines not to operate the Back-Up Trading 
Floor. As a result, the Exchange believes providing continuous access 
to open outcry trading when the physical Trading Floor is unavailable, 
the Back-Up Trading Floor becomes inoperable or the Exchange otherwise 
determines not to operate the Back-Up Trading Floor will remove 
impediments to a free and open market and will ultimately benefit 
investors, particularly those desiring to execute high-risk and complex 
trading strategies.
    The Virtual Trading Crowd would have the same capability to utilize 
FBMS as the primary Trading Floor today with the availability of remote 
FBMS.\36\ The Exchange also believes the proposed rule change will 
promote just and equitable principles of trade as open outcry trading 
in a Virtual Trading Crowd will occur in accordance with the same 
trading rules and be subject to the same regulatory requirements that 
apply to open outcry trading on the physical Trading Floor, all of 
which have previously been filed with the Commission. The proposed rule 
change will merely permit this open outcry trading to occur in a 
virtual setting rather than a physical setting (which may be 
appropriate for health and safety purposes). For the Virtual Trading 
Crowd, open outcry trading will occur while market participants operate 
remotely as they do when they trade electronically. Open outcry trading 
on a physical Trading Floor or in a Virtual Trading Crowd will be 
subject to the same priority and allocation rules as open trading on 
the physical Trading Floor, as set forth in Options 8, Sections 25 and 
30.
---------------------------------------------------------------------------

    \36\ See note 15 above.
---------------------------------------------------------------------------

    As is the case for open outcry trading on a physical Trading Floor, 
open outcry trading in a Virtual Trading Crowd is consistent with 
Section 11(a) of the Act, as Rule 5.85(a)(2)(E) (which will apply to 
open outcry trading in a Virtual Trading Crowd) requires members and 
member organizations relying on Section 11(a)(1)(G) of the Act and Rule 
11a1-1(T) thereunder (the so called ``G exemption rule'') as an 
exemption must yield priority to any bid (offer) at the same price of 
Public Customer orders and broker-dealer orders resting in the Order 
Book, as well as any other bid (offer) that has priority over those 
broker-dealer orders under this Rule.

[[Page 3223]]

    The Exchange further believes the proposed rule change will 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 by permitting the Exchange to establish zones. As 
discussed above, the zones are intended to replicate the physical 
Trading Floor's organization and will permit floor members to interact 
in a substantially similar way as they do on the physical Trading 
Floor. The zones will also encourage interaction of a reasonable number 
of people within the communication program. While the zones will 
include additional functionality that is not otherwise available on the 
physical Trading Floor, such as the chat functionality, the Exchange 
believes the creation of zones and inclusion of this functionality will 
create a virtual environment that promotes fair and orderly trading 
given the potential limitations of communication software.
    The Exchange will make the same order types and instructions 
available in a Virtual Trading Crowd as it makes available on a 
physical Trading Floor pursuant to Options 8, Section 32. Floor Brokers 
will be subject to the responsibilities set forth in Options 8, 
Sections 18 and 28 in a Virtual Trading Crowd, as they are on a 
physical Trading Floor. Additionally, members and member organizations 
participating in a Virtual Trading Crowd will be subject to the same 
regulatory requirements in a Virtual Trading Crowd as they are on a 
physical Trading Floor, including those set forth generally within 
Options 8. Orders must be systematized and represented, and 
transactions reported, in connection with a Virtual Trading Crowd in 
the same manner as they are when trading on a physical Trading Floor. 
The Exchange will retain records of the chats as well as consents, and 
any other records related to the Virtual Trading Crowd that are subject 
to the Exchange's record retention obligations under the Exchange Act.
    Pursuant to Options 3, Section 26(g)(3)(E)(8)(c), Floor Market 
Maker quotes will be considered firm in the event the Floor Market 
Maker is disconnected from the Virtual Trading Crowd and the parties 
have a Meeting of the Minds with respect to the terms of the 
transaction. A ``Meeting of the Minds'' means the contra-side(s) 
verbally confirmed participation in the trade. In the event that a 
Floor Market Maker is disconnected from the Virtual Trading Crowd, a 
Floor Market Maker quote would not be considered firm if the quote were 
provided and the parties did not have a Meeting of the Minds with 
respect to the terms of the transaction. Today, Floor Market Maker 
quotes are considered firm when announced in open outcry \37\ and once 
accepted the transaction may be effectuated within FBMS. A Floor Market 
Maker may declare he or she is ``out'' prior to a Meeting of the Minds 
occurring in open outcry and the Floor Broker submitting the trade into 
FBMS.\38\ Today, a Floor Market Maker that experiences issues with 
internet connection,\39\ makes an error or otherwise is unaware of 
recent news in a particular option, would be held to a quote verbalized 
in open outcry. In the event that the negotiation continues and the 
terms change, the Floor Marker Maker would not be held to the new terms 
without additional acceptance of those terms. In the event that the 
transaction is not effectuated in FBMS, the trade would not stand. To 
that end, the Exchange believes continuing to require quotes to remain 
firm once the parties have arrived at a Meeting of the Minds with 
respect to the terms of the transaction is consistent with the Act as 
it creates fair and equitable expectations for members trading in the 
Virtual Trading Crowd as a Meeting of the Minds was arrived out between 
the parties, each of whom had an opportunity to participate in the 
trade.
---------------------------------------------------------------------------

    \37\ See Options 8, Section 22(c) Public Outcry--Pursuant to 
Options 8, Section 35 at Supplementary Material .01, bids and offers 
must be made in an audible tone of voice. A member shall be 
considered ``in'' on a bid or offer, while he remains at the post, 
unless he shall distinctly and audibly say ``out.'' A member bidding 
and offering in immediate and rapid succession shall be deemed 
``in'' until he shall say ``out'' on either bid or offer. Once the 
trading crowd has provided a quote, it will remain in effect until: 
(A) A reasonable amount of time has passed, or (B) there is a 
significant change in the price of the underlying security, or (C) 
the market given in response to the request has been improved. In 
the case of a dispute, the term ``significant change'' will be 
interpreted on a case-by-case basis by an Options Exchange Official 
based upon the extent of the recent trading in the option and, in 
the case of equity and index options, in the underlying security, 
and any other relevant factors.
    \38\ Id at 25.
    \39\ The Exchange notes that today members are responsible for 
the operation of their own equipment while on the Trading Floor.
---------------------------------------------------------------------------

    The audit trail for open outcry trading in a Virtual Trading Crowd 
will capture the same information that it does for open outcry trading 
on a physical Trading Floor. The FBMS execution checks for compliance 
with priority and trade-through rules remain intact. The Exchange's 
proposal only seeks to replace the open outcry negotiations with a 
Virtual Trading Crowd. FBMS compliance checks were adopted to protect 
investor and the general public by automated enforcement of priority 
and trade-through rules. The Exchange would continue to cancel orders 
that failed to meet these compliance checks, as is the case today. 
These compliance checks ensure that allocation rules are complied with 
and that the proposed execution would not cause Phlx to trade-through 
an away market. Surveillance staff would remotely surveil transactions 
in a Virtual Trading Crowd, in real-time. Specifically, there would be 
an Options Floor Official present in each Virtual Trading Crowd. Nasdaq 
Surveillance would conduct real-time surveillance for violations of 
Phlx rules, as is the case with physical open outcry. Floor 
Surveillance Procedures would be updated to account for the 
conferencing and chat requirements, as well as any changes to surveil a 
Virtual Trading Crowd. All surveillance patterns would be operable and 
function normally. The Exchange believes that the proposed rule change 
would remove impediments to and perfect the mechanism of a free and 
open market and a national market system because it would promote fair 
and orderly trading. The Exchange believes it will promote just and 
equitable principles of trading for all open outcry trading to occur in 
substantially the same manner, whether it occurs while market 
participants are in the same physical setting or in remote settings 
being connected through a technological solution.
    Controls and security features are proposed to ensure that the 
appropriate market participants are participating in trades and to 
minimize any disruptions. Nasdaq non-surveillance staff would be 
responsible for the operation of the remote conferencing feature, which 
includes monitoring members to ensure that only floor members and 
members' employees are admitted into remote conferencing and are 
properly identified. Member organizations would be required to execute 
an addendum to the Nasdaq Services Agreement regarding their use of the 
remote conferencing feature in addition to consenting to voice 
recording.
    In addition, the Exchange believes the proposed rule change will 
not be designed to permit unfair discrimination between customers, 
issuers, brokers, or dealers, as all individuals authorized to act on 
the physical Trading Floor (both member organizations authorized at the 
time the physical Trading Floor becomes unavailable, the Back-Up 
Trading Floor becomes inoperable or the Exchange otherwise determines 
not to operate the Back-Up Trading Floor and any member organization 
that becomes authorized

[[Page 3224]]

after the physical Trading Floor becomes unavailable) will be provided 
with access to the Virtual Trading Crowd. Additionally, the proposed 
rule change to permit the Exchange to elect a Virtual Trading Crowd if 
the physical Trading Floor is unavailable will provide individuals 
unable to trade on the physical Trading Floor as a result of certain 
restrictions to participate in open outcry trading remotely.
    Surveillance staff will be present in each Virtual Trading Crowd to 
monitor the activity of each participant, who must be present by video, 
and to observe participant behavior. The Exchange will continue to 
surveil options transactions, as it does today, to identify 
transactions which are violative of Phlx Rules.\40\ Phlx surveils for 
transactions which have been executed on its market to determine if 
those transactions utilized information which would have been available 
in open outcry trading and was not yet public or otherwise 
ascertainable due to the execution of a transaction. The Exchange notes 
that in both the electronic market and on the trading floor, members 
and member organizations must ensure that they have procedures 
reasonably designed to prevent the misuse of material, non-public 
information by employees.\41\
---------------------------------------------------------------------------

    \40\ See Phlx Options 9, Section 1; and Options 9, Section 5. 
See also Options 3, Section 22(d).
    \41\ See Phlx General 9, Section 21.
---------------------------------------------------------------------------

    The Exchange has conducted several town halls with floor members in 
which the Exchange presented the functionality of the Virtual Trading 
Crowd and has made the Virtual Trading Crowd available for testing so 
that the Exchange will be ready to implement it if necessary. The 
Exchange has received positive feedback from floor members regarding 
the Virtual Trading Crowd and will continue to make updates as 
necessary and appropriate in response to comments it receives to make 
the Virtual Trading Crowd replicate the open outcry trading experience 
on the physical Trading Floor as much as possible. The Exchange 
believes this will provide the opportunity for as seamless a rollout as 
possible if circumstances cause the Exchange to make the Virtual 
Trading Crowd available.
    Finally, this proposal does not amend the manner in which fees or 
other pricing incentives, such as caps, apply to floor participants. 
Any transaction originating from open outcry on the Trading Floor is 
considered a floor transaction. With offering FBMS remotely, the 
Exchange has not amended the manner in which fees are assessed or 
rebates are paid for purposes of Options 7 pricing to floor 
participants.
Technical Amendments
    The Exchange's proposal to update citations to Options 8, Section 
35 to Options 8, Section 24 are consistent with the Act as these non-
substantive amendments will ensure the rule text is accurate.

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

    The Exchange does not believe that the proposed rule change will 
impose any burden on competition not necessary or appropriate in 
furtherance of the purposes of the Act. The Exchange does not believe 
that the proposed rule change will impose any burden on intra-market 
competition that is not necessary or appropriate in furtherance of the 
purposes of the Act, as all member organizations authorized by the 
Exchange, or that become authorized by the Exchange, to transact on the 
Trading Floor will receive access to the Virtual Trading Crowd.
    The Exchange does not believe that the proposed rule change will 
impose any burden on inter-market competition that is not necessary or 
appropriate in furtherance of the purposes of the Act, as it relates 
solely to the location of open outcry trading on the Exchange. The 
proposed rule change will merely permit open outcry trading that 
generally occurs while market participants are located in the same 
physical setting to occur while market participants are in a remote 
setting, connected by a technological solution (as electronic trading 
does).
    The Exchange believes that the proposed rule change will relieve 
any burden on, or otherwise promote, competition. The Exchange believes 
the proposed rule change will provide market participants with 
continuous access to open outcry trading when the physical Trading 
Floor is unavailable, the Back-Up Trading Floor becomes inoperable or 
the Exchange otherwise determines not to operate the Back-Up Trading 
Floor. The Exchange believes this may facilitate continued, competitive 
price negotiations and trading of orders that the Exchange understands 
are more difficult to execute in an all-electronic trading environment 
without human interaction. Additionally, the proposed rule change will 
provide customer orders represented for open outcry execution with 
access to the same pool of liquidity when the Trading Floor is 
unavailable to which those orders would have access when the Trading 
Floor is operating in its normal state. Maintenance of this level of 
liquidity at all times, even when the Trading Floor is unavailable, may 
promote competition by providing these customer orders with increased 
liquidity than may otherwise be available, and thus increased execution 
opportunities and price discovery. Every Floor Market Maker and Floor 
Broker is permitted access to FBMS.
    With respect to inter-market competition, the Exchange notes that 
each options market has a business continuity plan. Because the options 
markets are physically located in different regions of the United 
States, the conditions under which a business continuity plan is 
deployed may differ, based on regional differences. In addition, any 
options exchange with a trading floor could amend its rules to adopt 
similar business continuity plans that engaged similar controls.
Technical Amendments
    The Exchange's proposal to update citations to Options 8, Section 
35 to Options 8, Section 24 do not impose an undue burden on 
competition as these non-substantive amendments will ensure the rule 
text is accurate.

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

    Within 45 days of the date of publication of this notice in the 
Federal Register or within such longer period (i) as the Commission may 
designate up to 90 days of such date if it finds such longer period to 
be appropriate and publishes its reasons for so finding or (ii) as to 
which the Exchange consents, the Commission shall: (a) By order approve 
or disapprove such proposed rule change, or (b) institute proceedings 
to determine whether the proposed rule change should be 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:

[[Page 3225]]

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-2021-03 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-2021-03. 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-2021-03 and should be submitted on 
or before February 4, 2021.
---------------------------------------------------------------------------

    \42\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\42\
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2021-00591 Filed 1-13-21; 8:45 am]
BILLING CODE 8011-01-P
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