Self-Regulatory Organizations; Nasdaq Phlx LLC; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Modify Phlx Options 8, Section 28, “Responsibilities of Floor Brokers” and Section 30, “Crossing, Facilitation and Solicited Orders”, 6389-6393 [2021-01129]

Download as PDF Federal Register / Vol. 86, No. 12 / Thursday, January 21, 2021 / Notices III. Date of Effectiveness of the Proposed Rule Change and Timing for Commission Action The foregoing rule change has become effective pursuant to Section 19(b)(3)(A) of the Act 19 and paragraph (f) of Rule 19b–4 20 thereunder. At any time within 60 days of the filing of the proposed rule change, the Commission summarily may temporarily suspend such rule change if it appears to the Commission that such action is necessary or appropriate in the public interest, for the protection of investors, or otherwise in furtherance of the purposes of the Act. If the Commission takes such action, the Commission will institute proceedings to determine whether the proposed rule change should be approved or disapproved. IV. Solicitation of Comments Interested persons are invited to submit written data, views, and arguments concerning the foregoing, including whether the proposed rule change is consistent with the Act. Comments may be submitted by any of the following methods: jbell on DSKJLSW7X2PROD with 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– CboeBZX–2021–005 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–CboeBZX–2021–005. 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–CboeBZX–2021–005 and should be submitted on or before February 11, 2021. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.21 J. Matthew DeLesDernier, Assistant Secretary. [FR Doc. 2021–01131 Filed 1–19–21; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–90909; File No. SR–Phlx– 2021–02] Self-Regulatory Organizations; Nasdaq Phlx LLC; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Modify Phlx Options 8, Section 28, ‘‘Responsibilities of Floor Brokers’’ and Section 30, ‘‘Crossing, Facilitation and Solicited Orders’’ January 13, 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 4, 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 and II below, which Items have been prepared by the Exchange. The Commission is publishing this notice to solicit comments on the proposed rule change from interested persons. I. Self-Regulatory Organization’s Statement of the Terms of Substance of the Proposed Rule Change The Exchange proposes to modify Phlx Options 8, Section 28, ‘‘Responsibilities of Floor Brokers’’ and Section 30, ‘‘Crossing, Facilitation and Solicited Orders.’’ 21 17 CFR 200.30–3(a)(12). U.S.C.78s(b)(1). 2 17 CFR 240.19b–4. 19 15 U.S.C. 78s(b)(3)(A). 20 17 CFR 240.19b–4(f). VerDate Sep<11>2014 20:44 Jan 19, 2021 1 15 Jkt 253001 PO 00000 Frm 00101 Fmt 4703 Sfmt 4703 6389 The text of the proposed rule change is available on the Exchange’s website at https://listingcenter.nasdaq.com/ rulebook/phlx/rules, at the principal office of the Exchange, and at the Commission’s Public Reference Room. II. Self-Regulatory Organization’s Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change In its filing with the Commission, the Exchange included statements concerning the purpose of, and basis for, the proposed rule change and discussed any comments it received on the proposed rule change. The text of these statements may be examined at the places specified in Item IV below. The Exchange has prepared summaries, set forth in Sections A, B, and C below, of the most significant aspects of such statements. A. Self-Regulatory Organization’s Statement of the Purpose of, and the Statutory Basis for, the Proposed Rule Change 1. Purpose Phlx proposes to amend its Trading Floor rules at Options 8, Section 28, ‘‘Responsibilities of Floor Brokers’’ and Section 30, ‘‘Crossing, Facilitation and Solicited Orders’’ to permit Floor Brokers 3 to utilize the Options Floor Based Management System (‘‘FBMS’’),4 remotely,5 to enter certain orders that do not require exposure in open outcry. This proposal is intended to provide greater accessibility to Floor Brokers for the portion of their business which does not require the physical infrastructure afforded by the Trading Floor and allow member organizations to more efficiently staff their operations. Background Today, Phlx Rules provide a Business Continuity and Disaster Recovery Plan for its Trading Floor (‘‘BCP’’) which is 3 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). 4 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. 5 Utilizing FBMS while not physically present on the Trading Floor would be considered remote access. E:\FR\FM\21JAN1.SGM 21JAN1 6390 Federal Register / Vol. 86, No. 12 / Thursday, January 21, 2021 / Notices described within Options 8, Section 26(g).6 The Exchange may activate its business continuity and disaster recovery plans to maintain fair and orderly markets in the event of a System failure, disaster, or other unusual circumstance that may threaten the ability to conduct business on the Exchange. On March 17, 2019,7 Phlx suspended open outcry trading as a result of precautions taken with respect to COVID–19. The Trading Floor reopened on June 3, 2020.8 During that period from March 17, 2019 to June 3, 2020, open outcry trading was unavailable. 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).9 Submitting a limit order to the electronic limit order book does not require exposure of that order in open outcry trading as the order is immediately exposed on the electronic limit order book. Similarly, a Floor Qualified Contingent Cross Order submitted to the System does not require exposure in open outcry as this order type is immediately executed upon entry to the System, provided the order complies with the provisions of Options 8, Section 30(e) and therefore a Floor Broker was not required to be present on the Trading Floor to transact these order types. Floor Brokers were not permitted to transact other order types within Options 3, Section 32 through FBMS during the floor closure. Phlx Surveillance staff surveilled Floor Qualified Contingent Cross Orders submitted through FBMS in real-time. jbell on DSKJLSW7X2PROD with NOTICES 6 Options 8, Section 26(g) provides: (1) Loss of Trading Floor. If the physical location designated as the ‘‘Trading Floor’’ becomes unavailable, Phlx will enact its Business Continuity Plan and designate the Philadelphia Navy Yard as its ‘‘Back-Up Trading Floor.’’ (2) Back-up Trading Floor Unavailable. In the event that the Back-Up Trading Floor becomes 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. (3) Other Back-Up Trading Arrangements. 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. 7 See Options Trader Alert #2020–07. 8 See Options Trader Alert #2020–13. 9 See Options Trader Alert #2020–8. VerDate Sep<11>2014 20:44 Jan 19, 2021 Jkt 253001 Electronic limit orders must comply with automated System entry checks for compliance with Exchange rules. When the Trading Floor reopened on June 3, 2020, the Exchange permitted each Trading Floor member organization to be represented on the Trading Floor. However, due to the social distancing measures that were put in place to comply with Commonwealth of Pennsylvania health standards as well as Nasdaq’s safety measures designed to prevent the spread of COVID–19, not all members and employees associated with a Phlx member organization were able to return to the Trading Floor. Floor Brokers were permitted to continue remotely submitting the aforementioned orders through FBMS, due to the Exchange’s inability to allow all Floor Members access to the physical Trading Floor. Proposal At this time, the Exchange proposes 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. Floor Brokers may continue to submit limit orders to the electronic limit order book and Floor Qualified Contingent Cross Orders to the System while on the Trading Floor. Prior to permitting Floor Brokers to access FBMS remotely for the limited purpose of submitting limit orders to the electronic limit order book and Floor Qualified Contingent Cross Orders to the System, the Exchange permitted Floor Brokers to submit limit orders to the electronic limit order book and Floor Qualified Contingent Cross Orders to the System utilizing FBMS while on the Trading Floor.10 Phlx Options 8 Trading Rules apply to members and member organizations engaging in to transact options transactions while physically located on the Trading Floor, including trading crowds.11 The Options 8 Trading Rules do not permit options transactions to be submitted to the Trading Floor through FBMS remotely by Floor Brokers.12 Today, Phlx utilizes its Business Continuity Plan to permit Floor Brokers to access the Exchange’s System remotely, through FBMS, for the limited purpose of submitting limit orders to the electronic limit order book and Floor 10 See Options 8, Section 28(g) and 30(e). Options 8, Section 1(a). 12 See note 3 above, by definition Floor Brokers accept and handle options orders while on the Options Floor. 11 See PO 00000 Frm 00102 Fmt 4703 Sfmt 4703 Qualified Contingent Cross Orders to the System. Due to the social distancing measures that were put in place to comply with Commonwealth of Pennsylvania health standards as well as Nasdaq’s safety measures designed to prevent the spread of COVID–19, not all members and employees associated with a Phlx member organization were able to return to the Trading Floor. This proposal would create an exception to the Options 8 Rules for a limited purpose. Today, Options 8, Section 28(g) permits a Floor Broker who wishes to place a limit order on the electronic limit order book to submit such a limit order electronically through FBMS. This capability exists to enable Floor Brokers to access electronic liquidity and/or to clear priority orders on the limit order book prior to transacting an order in the trading crowd through FBMS.13 Placing limit orders on the order book does not require exposure in open outcry. The Exchange desires to permit Floor Brokers, by rule, the ability to continue to remotely submit limit orders to the electronic limit order book on a permanent basis. This would specifically allow Floor Brokers the ability to clear resting Customers orders from the limit order book for their customers in the event that a Customer order had priority on the limit order book that would otherwise prevent a Floor Qualified Contingent Cross Order from being entered in compliance with Options 8, Section 30(e). Today, Options 8, Section 30(e) permits Floor Qualified Contingent Cross Orders to be submitted to the System by Floor Brokers on the Floor via FBMS. These orders are not required to be exposed in open outcry. In 2011, Phlx established a Floor Qualified 13 See Securities Exchange Act Release No. 68960 (February 20, 2013), 78 FR 13132, 13134 (February 26, 2013) (SR–Phlx–2013–09) (Notice of Filing of Proposed Rule Change To Enhance the Functionality Offered on Its Options Floor Broker Management System (‘‘FBMS’’) by, Among Other Things, Automating Functions Currently Performed by Floor Brokers). This filing provided the following explanation, ‘‘For example, if a Floor Broker enters a two-sided order through the new FBMS and there is an order on the book at a price that prevents the Floor Broker’s order from executing, FBMS will indicate to the Floor Broker how many contracts need to be satisfied before the Floor Broker’s order can execute at the agreed-upon price. If the Floor Broker agrees to satisfy that order, consistent with the order placed in his care, he can cause FBMS to send a portion of one of his orders to Phlx XL to trade against the order on the book, thereby clearing it and permitting the remainder of the Floor Broker’s order to trade. This functionality is optional in the sense that the Floor Broker can decide not to trade against the book, consistent with order instructions he has been given, and therefore not execute his two-sided order at that particular price.’’ Phlx XL refers to the electronic order book. E:\FR\FM\21JAN1.SGM 21JAN1 Federal Register / Vol. 86, No. 12 / Thursday, January 21, 2021 / Notices jbell on DSKJLSW7X2PROD with NOTICES Contingent Cross Order.14 The proposal specifically provided that ‘‘. . . PHLX proposes to amend Rule 1064 to provide that a PHLX member effectuating a trade on the floor of the Exchange pursuant to the Regulation NMS Qualified Contingent Trade Exemption to Rule 611(a) (‘‘QCT Exemption’’) can cross the options legs of the trade on PHLX as a Floor QCC Order immediately upon entry and without order exposure if no Customer Orders exist on the Exchange’s order book at the same price. Floor QCC Orders will be electronically entered by a Floor Broker on the floor of the Exchange using the Floor Broker Management System and the execution will then be executed electronically. Only Floor Brokers will be permitted to enter Floor QCC Orders.’’ 15 The proposal specifically provided for a Floor Qualified Contingent Cross Order to be entered by Floor Brokers through FBMS while on the Trading Floor without order exposure. The filing further provides that ‘‘. . . it would be incorrect to say that the Floor QCC Order differs from the electronic QCC Order due to the Options Floor Broker’s presence on the Floor.’’ 16 The Exchange’s proposal seeks to continue to permit Floor Brokers to enter both limit orders to the electronic limit order book and Floor Qualified Contingent Cross Orders to the System through FBMS, albeit remotely, without amending the manner in which these orders, which require no order exposure, are handled by FBMS or the System. The Exchange believes that permitting Floor Brokers the ability to utilize FBMS remotely, for the limited purposes of submitting limit orders to the electronic limit order book and Floor Qualified Contingent Cross Order to the System, would allow Floor Brokers to conduct the portion of their business which does not require the infrastructure afforded by the Trading Floor remotely and, therefore, allow member organizations flexibility to more efficiently staff their operations. The ability to service certain orders, such as limit orders and Floor Qualified Contingent Cross Orders, which do not require open outcry exposure, is a relevant part of a Floor Broker’s business. The Exchange is proposing to expand the ability of a member organization to conduct this limited portion of the Floor Broker business model to assist firms in being 14 See Securities Exchange Act Release No. 64415 (May 5, 2011), 76 FR 27732 (May 12, 2011) (SR– Phlx–2011–56) (Notice of Filing of Proposed Rule Change To Establish a Qualified Contingent Cross Order for Execution on the Floor of the Exchange). 15 Id at 27732 and 27733. 16 Id at 27733. VerDate Sep<11>2014 20:44 Jan 19, 2021 Jkt 253001 able to continuously operate this portion of their business, notwithstanding any closures or halts of the Trading Floor. Every Floor Broker must be registered with the Exchange pursuant to Options 8, Section 6 and would be assessed applicable fees provided for within Options 7. The Exchange notes that this proposal does not amend the manner in which fees or other pricing incentives, such as caps, apply to Floor Brokers. 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 Brokers. A limit order entered to the limit order book via FBMS was subject to electronic fees and rebates prior to the introduction of remote FBMS and that remains the case with the introduction of remote FBMS. These transactions are submitted to the electronic order book directly and are assessed the same fees and rebates as other limit orders submitted to the electronic order book. Also, the Exchange does not distinguish the manner in which it assesses pricing for Floor Qualified Contingent Cross Orders or electronic Qualified Contingent Cross Orders. The pricing is the same regardless of the manner in which the Qualified Contingent Cross Order was submitted. The Exchange proposes to add a sentence to Options 7, Section 1 to define a floor transaction to add clarity to the manner in which floor based pricing is assessed. The Exchange proposes to add the following definition to Options 7, Section 1, ‘‘A ‘floor transaction’ is a transaction that is effected in open outcry on the Exchange’s Trading Floor.’’ Finally, the Exchange represents that it has the proper security infrastructure in place to offer FBMS remotely and securely to Floor Brokers. Technical Amendment The Exchange proposes a technical amendment to Options 8, Section 1(a) to add the word ‘‘System’’ to the end of ‘‘Options Floor Based Management’’ within the first sentence to conform the manner in which the Exchange utilizes this term within Options 8. 2. Statutory Basis The Exchange believes that its proposal is consistent with Section 6(b) of the Act,17 in general, and furthers the objectives of Section 6(b)(5) of the Act,18 in particular, in that it is designed to 17 15 18 15 PO 00000 U.S.C. 78f(b). U.S.C. 78f(b)(5). Frm 00103 Fmt 4703 6391 promote just and equitable principles of trade, to remove impediments to and perfect the mechanism of a free and open market and a national market system, and, in general to protect investors and the public interest. The Exchange’s proposal to permit Floor Brokers the ability to utilize FBMS remotely, for the limited purposes of submitting limit orders to the electronic limit order book and Floor Qualified Contingent Cross Order to the System, is consistent with the Act. This proposal would allow member organizations to utilize their Floor Brokers, who may be located off the Trading Floor to conduct certain aspects of their business that do not require open outcry, remotely. Every Floor Broker would continue to be required to be registered with the Exchange pursuant to Options 8, Section 6 and would be assessed applicable fees provided for within Options 7. Prior to permitting Floor Brokers to access FBMS remotely for the limited purpose of submitting limit orders to the electronic limit order book and Floor Qualified Contingent Cross Orders to the System, the Exchange permitted Floor Brokers to submit limit orders to the electronic limit order book and Floor Qualified Contingent Cross Order to the System utilizing FBMS while on the Trading Floor.19 Phlx Options 8 Trading Rules require members and member organizations to transact options transactions while physically located on the Trading Floor, including trading crowds.20 The Options 8 Trading Rules do not permit options transactions to be submitted to the Trading Floor through FBMS remotely by Floor Brokers.21 This proposal would create an exception to the Options 8 Rules to allow Floor Brokers to submit limit orders and Floor Qualified Contingent Cross Orders remotely through FBMS. Today, Options 8, Section 28(g) permits a Floor Broker who wishes to place a limit order on the electronic limit order book to submit such a limit order electronically through the FBMS. This capability exists to enable Floor Brokers to access electronic liquidity and/or to clear a priority orders on the limit order book prior to transacting an order in the trading crowd with the help of the FBMS.22 Placing limit orders on 19 See Options 8, Section 28(g) and 30(e). Options 8, Section 1(a). 21 See note 3 above, by definition Floor Brokers accept and handle options orders while on the Options Floor. 22 See Securities Exchange Act Release No. 68960 (February 20, 2013), 78 FR 13132, 13134 (February 26, 2013) (SR–Phlx–2013–09) (Notice of Filing of 20 See Continued Sfmt 4703 E:\FR\FM\21JAN1.SGM 21JAN1 6392 Federal Register / Vol. 86, No. 12 / Thursday, January 21, 2021 / Notices jbell on DSKJLSW7X2PROD with NOTICES the Order Book does not require exposure in open outcry. The Exchange desires to continue to grant this capability remotely to allow Floor Brokers the ability to continue to clear Customer orders on the limit order book for their customers in the event that a Customer order had priority on the limit order book and prevents a Floor Qualified Contingent Cross Order from being entered. Today, Options 8, Section 30(e) permits Floor Qualified Contingent Cross Orders to be submitted to the System by Floor Brokers on the Floor via FBMS. These orders are not required to be exposed in open outcry. In 2011, Phlx established a Floor Qualified Contingent Cross Order.23 The proposal specifically provided for a Floor Qualified Contingent Cross Order to be entered by Floor Brokers through FBMS while on the Trading Floor without order exposure. The Exchange’s proposal seeks to continue to permit Floor Brokers to enter both limit orders to the electronic limit order book and Floor Qualified Contingent Cross Orders to the System through FBMS, albeit remotely, without amending the manner in which these orders, which require no order exposure, are handled by FBMS or the System. Floor Brokers are an essential part of the Trading Floor and their business is largely dependent on access to the physical Trading Floor and the ability of market participants to expose orders in open outcry. Floor Brokers service multiple customer segments and several subsets of order flow. Their largest customers are bank trading desks, interdealer brokerage desks, liquidity providers, and hedge funds. Each of these client types direct certain orders Proposed Rule Change To Enhance the Functionality Offered on Its Options Floor Broker Management System (‘‘FBMS’’) by, Among Other Things, Automating Functions Currently Performed by Floor Brokers). This filing provided, ‘‘For example, if a Floor Broker enters a two-sided order through the new FBMS and there is an order on the book at a price that prevents the Floor Broker’s order from executing, FBMS will indicate to the Floor Broker how many contracts need to be satisfied before the Floor Broker’s order can execute at the agreed-upon price. If the Floor Broker agrees to satisfy that order, consistent with the order placed in his care, he can cause FBMS to send a portion of one of his orders to Phlx XL to trade against the order on the book, thereby clearing it and permitting the remainder of the Floor Broker’s order to trade. This functionality is optional in the sense that the Floor Broker can decide not to trade against the book, consistent with order instructions he has been given, and therefore not execute his two-sided order at that particular price.’’ 23 See Securities Exchange Act Release No. 64415 (May 5, 2011), 76 FR 27732 (May 12, 2011) (SR– Phlx–2011–56) (Notice of Filing of Proposed Rule Change To Establish a Qualified Contingent Cross Order for Execution on the Floor of the Exchange). VerDate Sep<11>2014 20:44 Jan 19, 2021 Jkt 253001 to Floor Brokers. Banks and interdealers primarily utilize Floor Brokers for manual handling of stock-tied Floor Qualified Contingent Cross Orders, complicated order structures with abnormal ratios (beyond 3:1 allowable electronically) and ‘‘cash spreads,’’ where a notional trade value is negotiated and relayed to the trading crowd for participation. Banks also look to facilitate larger bank customer orders that exhibit considerable real-time risk. While Floor Brokers represent the bank side of these transactions, Floor Market Makers provide additional liquidity and efficiently perform the price discovery process through manual handling and exposure. Inter-dealers will also utilize Floor Brokers for price discovery and additional sourcing of liquidity for larger orders where they need assistance. Finally, complicated strategy transactions are often represented by Floor Brokers. End-users are more inclined to use their services due to their expertise in order handling and knowledge of the trading ecosystem. Notwithstanding the importance of Floor Brokers on the Exchange’s Trading Floor, the ability to service other orders, such as limit orders and Floor Qualified Contingent Cross Orders, which do not require open outcry exposure, is a relevant part of a Floor Broker’s business. The Exchange is proposing to expand the ability of a member organization to conduct this limited portion of the Floor Broker business model to assist firms in being able to continuously operate this portion of their business, notwithstanding any closures or halts of the Trading Floor. The Exchange notes that a closure of the Trading Floor renders the Floor Broker business, which is largely reliant on open outcry trading, inoperable. The Exchange believes that this proposal is designed to protect investors and the public interest as a form of risk mitigation as the proposal would allow the portion of the Floor Broker business, which is not dependent on open outcry, to continue regardless of the status of the Trading Floor. Further, the proposal would allow member organizations to more efficiently staff their operations. For example, member organizations may utilize staff in other locations as the remote access removes the dependency on physical presence on the Trading Floor. This proposal does not amend the manner in which fees or other pricing incentives, such as caps, apply to Floor Brokers. 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 PO 00000 Frm 00104 Fmt 4703 Sfmt 4703 fees are assessed or rebates are paid for purposes of Options 7 pricing to Floor Brokers. A limit order entered to the limit order book via FBMS was subject to electronic fees and rebates prior to the introduction of remote FBMS and that remains the case with the introduction of remote FBMS. These transactions are submitted to the electronic order book directly and are assessed the same fees and rebates as other limit orders submitted to the electronic order book. Also, the Exchange does not distinguish the manner in which it assesses pricing for Floor Qualified Contingent Cross Orders or electronic Qualified Contingent Cross Orders. The pricing is the same regardless of the manner in which the Qualified Contingent Cross Order was submitted. Phlx Surveillance staff surveilled Floor Qualified Contingent Cross Orders submitted through FBMS in real-time. Electronic limit orders must comply with automated System entry checks for compliance with Exchange rules. Finally, the Exchange represents that it has the proper security infrastructure in place to offer FBMS remotely and securely to Floor Brokers. Technical Amendment The Exchange’s proposal to amend Options 8, Section 1(a) to add the word ‘‘System’’ to the end of ‘‘Options Floor Based Management’’ within the first sentence is consistent with the Act as this term conforms the manner in which the Exchange utilizes the term ‘‘Options Floor Based Management System’’ throughout Options 8. 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’s proposal to permit Floor Brokers the ability to utilize FBMS remotely, for the limited purposes of submitting limit orders to the electronic limit order book and Floor Qualified Contingent Cross Order to the System, does not impose an undue burden on competition. A Floor Broker, unlike a Market Maker, is mostly dependent on the infrastructure provided by a Trading Floor in order to operate its business model. Market Makers on the other hand may transact their business in either of the two models provide by Phlx, the Trading Floor or electronic model. Market Makers have the infrastructure to continue to conduct their business, even in the event of the closure of the Trading Floor, while Floor Brokers are mostly reliant on open E:\FR\FM\21JAN1.SGM 21JAN1 Federal Register / Vol. 86, No. 12 / Thursday, January 21, 2021 / Notices 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–2021–02 and should be submitted on or before February 11, 2021. outcry trading and this portion of their business is inoperable if open outcry is unavailable. The Exchange’s proposal seeks to provide greater accessibility to Floor Brokers for the portion of their business which does not require the infrastructure afforded by the Trading Floor while not amending the manner in which those orders are handled by either FBMS or the System. This proposal is competitive in that it allows Floor Brokers the ability to participate more continuously and efficiently on Phlx. All Floor Brokers have access to FBMS and therefore would be able to remotely submit limit orders to the electronic limit order book and Floor Qualified Contingent Cross Orders to the System as well as continue to submit these types of orders while on the Trading Floor. Further, the Exchange believes that this proposal, which would allow member organizations to utilize their Floor Brokers, who may be located in other locations, to more efficiently staff their operations and also to conduct their business, even in the event of a closure of the Trading Floor. Finally, this proposal does not amend the manner in which fees or other pricing incentives, such as caps, apply to Floor Brokers. prior to 30 days from the date on which it was filed, or such shorter time as the Commission may designate, if consistent with the protection of investors and the public interest, the proposed rule change has become effective pursuant to Section 19(b)(3)(A) of the Act and Rule 19b–4(f)(6)(iii) thereunder.26 At any time within 60 days of the filing of such proposed rule change, the Commission summarily may temporarily suspend such rule change if it appears to the Commission that such action is necessary or appropriate in the public interest, for the protection of investors, or otherwise in furtherance of the purposes of the Act. If the Commission takes such action, the Commission shall institute proceedings under Section 19(b)(2)(B) 27 of the Act to determine whether the proposed rule change should be approved or disapproved. Electronic Comments [FR Doc. 2021–01129 Filed 1–19–21; 8:45 am] Technical Amendment The Exchange’s proposal to amend Options 8, Section 1(a) to add the word ‘‘System’’ to the end of ‘‘Options Floor Based Management’’ within the first sentence does not impose an undue burden on competition as this term conforms the manner in which the Exchange utilizes the term ‘‘Options Floor Based Management System’’ throughout Options 8. • 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–2021–02 on the subject line. BILLING CODE 8011–01–P 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. jbell on DSKJLSW7X2PROD with NOTICES 6393 III. Date of Effectiveness of the Proposed Rule Change and Timing for Commission Action The Exchange has filed the proposed rule change pursuant to Section 19(b)(3)(A)(iii) of the Act 24 and Rule 19b–4(f)(6) thereunder.25 Because the proposed rule change does not: (i) Significantly affect the protection of investors or the public interest; (ii) impose any significant burden on competition; and (iii) become operative 24 15 U.S.C. 78s(b)(3)(A)(iii). 25 17 CFR 240.19b–4(f)(6). VerDate Sep<11>2014 20:44 Jan 19, 2021 Jkt 253001 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: 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–2021–02. 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 26 17 CFR 240.19b–4(f)(6). In addition, Rule 19b– 4(f)(6) requires a self-regulatory organization to give the Commission written notice of its intent to file the proposed rule change at least five business days prior to the date of filing of the proposed rule change, or such shorter time as designated by the Commission. The Exchange has satisfied this requirement. 27 15 U.S.C. 78s(b)(2)(B). PO 00000 Frm 00105 Fmt 4703 Sfmt 4703 For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.28 J. Matthew DeLesDernier, Assistant Secretary. SECURITIES AND EXCHANGE COMMISSION [Release No. 34–90914; File No. SR– CboeEDGX–2021–003] Self-Regulatory Organizations; Cboe EDGX Exchange, Inc.; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Amend the Fee Schedule To Expand the Existing Financial Product Distribution Program To Provide for a Derived Data Platform Service January 13, 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 4, 2021, Cboe EDGX Exchange, Inc. (‘‘Exchange’’ or ‘‘EDGX’’) filed with the Securities and Exchange Commission (‘‘Commission’’) the proposed rule change as described in Items I, II, and III below, which Items have been prepared by the Exchange. The Commission is publishing this notice to 28 17 CFR 200.30–3(a)(12). U.S.C. 78s(b)(1). 2 17 CFR 240.19b–4. 1 15 E:\FR\FM\21JAN1.SGM 21JAN1

Agencies

[Federal Register Volume 86, Number 12 (Thursday, January 21, 2021)]
[Notices]
[Pages 6389-6393]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2021-01129]


-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-90909; File No. SR-Phlx-2021-02]


Self-Regulatory Organizations; Nasdaq Phlx LLC; Notice of Filing 
and Immediate Effectiveness of a Proposed Rule Change To Modify Phlx 
Options 8, Section 28, ``Responsibilities of Floor Brokers'' and 
Section 30, ``Crossing, Facilitation and Solicited Orders''

January 13, 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 4, 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 and II 
below, which Items have been prepared by the Exchange. The Commission 
is publishing this notice to solicit comments on the proposed rule 
change from interested persons.
---------------------------------------------------------------------------

    \1\ 15 U.S.C.78s(b)(1).
    \2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------

I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to modify Phlx Options 8, Section 28, 
``Responsibilities of Floor Brokers'' and Section 30, ``Crossing, 
Facilitation and Solicited Orders.''
    The text of the proposed rule change is available on the Exchange's 
website at https://listingcenter.nasdaq.com/rulebook/phlx/rules, at the 
principal office of the Exchange, and at the Commission's Public 
Reference Room.

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

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

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

1. Purpose
    Phlx proposes to amend its Trading Floor rules at Options 8, 
Section 28, ``Responsibilities of Floor Brokers'' and Section 30, 
``Crossing, Facilitation and Solicited Orders'' to permit Floor Brokers 
\3\ to utilize the Options Floor Based Management System (``FBMS''),\4\ 
remotely,\5\ to enter certain orders that do not require exposure in 
open outcry. This proposal is intended to provide greater accessibility 
to Floor Brokers for the portion of their business which does not 
require the physical infrastructure afforded by the Trading Floor and 
allow member organizations to more efficiently staff their operations.
---------------------------------------------------------------------------

    \3\ 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).
    \4\ 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.
    \5\ Utilizing FBMS while not physically present on the Trading 
Floor would be considered remote access.
---------------------------------------------------------------------------

Background
    Today, Phlx Rules provide a Business Continuity and Disaster 
Recovery Plan for its Trading Floor (``BCP'') which is

[[Page 6390]]

described within Options 8, Section 26(g).\6\ The Exchange may activate 
its business continuity and disaster recovery plans to maintain fair 
and orderly markets in the event of a System failure, disaster, or 
other unusual circumstance that may threaten the ability to conduct 
business on the Exchange. On March 17, 2019,\7\ Phlx suspended open 
outcry trading as a result of precautions taken with respect to COVID-
19. The Trading Floor re-opened on June 3, 2020.\8\ During that period 
from March 17, 2019 to June 3, 2020, open outcry trading was 
unavailable.
---------------------------------------------------------------------------

    \6\ Options 8, Section 26(g) provides:
    (1) Loss of Trading Floor. If the physical location designated 
as the ``Trading Floor'' becomes unavailable, Phlx will enact its 
Business Continuity Plan and designate the Philadelphia Navy Yard as 
its ``Back-Up Trading Floor.''
    (2) Back-up Trading Floor Unavailable. In the event that the 
Back-Up Trading Floor becomes 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.
    (3) Other Back-Up Trading Arrangements. 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.
    \7\ See Options Trader Alert #2020-07.
    \8\ See Options Trader Alert #2020-13.
---------------------------------------------------------------------------

    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).\9\ Submitting a limit order to the electronic limit 
order book does not require exposure of that order in open outcry 
trading as the order is immediately exposed on the electronic limit 
order book. Similarly, a Floor Qualified Contingent Cross Order 
submitted to the System does not require exposure in open outcry as 
this order type is immediately executed upon entry to the System, 
provided the order complies with the provisions of Options 8, Section 
30(e) and therefore a Floor Broker was not required to be present on 
the Trading Floor to transact these order types. Floor Brokers were not 
permitted to transact other order types within Options 3, Section 32 
through FBMS during the floor closure. Phlx Surveillance staff 
surveilled Floor Qualified Contingent Cross Orders submitted through 
FBMS in real-time. Electronic limit orders must comply with automated 
System entry checks for compliance with Exchange rules.
---------------------------------------------------------------------------

    \9\ See Options Trader Alert #2020-8.
---------------------------------------------------------------------------

    When the Trading Floor reopened on June 3, 2020, the Exchange 
permitted each Trading Floor member organization to be represented on 
the Trading Floor. However, due to the social distancing measures that 
were put in place to comply with Commonwealth of Pennsylvania health 
standards as well as Nasdaq's safety measures designed to prevent the 
spread of COVID-19, not all members and employees associated with a 
Phlx member organization were able to return to the Trading Floor. 
Floor Brokers were permitted to continue remotely submitting the 
aforementioned orders through FBMS, due to the Exchange's inability to 
allow all Floor Members access to the physical Trading Floor.
Proposal
    At this time, the Exchange proposes 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. Floor Brokers 
may continue to submit limit orders to the electronic limit order book 
and Floor Qualified Contingent Cross Orders to the System while on the 
Trading Floor.
    Prior to permitting Floor Brokers to access FBMS remotely for the 
limited purpose of submitting limit orders to the electronic limit 
order book and Floor Qualified Contingent Cross Orders to the System, 
the Exchange permitted Floor Brokers to submit limit orders to the 
electronic limit order book and Floor Qualified Contingent Cross Orders 
to the System utilizing FBMS while on the Trading Floor.\10\ Phlx 
Options 8 Trading Rules apply to members and member organizations 
engaging in to transact options transactions while physically located 
on the Trading Floor, including trading crowds.\11\ The Options 8 
Trading Rules do not permit options transactions to be submitted to the 
Trading Floor through FBMS remotely by Floor Brokers.\12\ Today, Phlx 
utilizes its Business Continuity Plan to permit Floor Brokers to access 
the Exchange's System remotely, through FBMS, for the limited purpose 
of submitting limit orders to the electronic limit order book and Floor 
Qualified Contingent Cross Orders to the System.
---------------------------------------------------------------------------

    \10\ See Options 8, Section 28(g) and 30(e).
    \11\ See Options 8, Section 1(a).
    \12\ See note 3 above, by definition Floor Brokers accept and 
handle options orders while on the Options Floor.
---------------------------------------------------------------------------

    Due to the social distancing measures that were put in place to 
comply with Commonwealth of Pennsylvania health standards as well as 
Nasdaq's safety measures designed to prevent the spread of COVID-19, 
not all members and employees associated with a Phlx member 
organization were able to return to the Trading Floor. This proposal 
would create an exception to the Options 8 Rules for a limited purpose.
    Today, Options 8, Section 28(g) permits a Floor Broker who wishes 
to place a limit order on the electronic limit order book to submit 
such a limit order electronically through FBMS. This capability exists 
to enable Floor Brokers to access electronic liquidity and/or to clear 
priority orders on the limit order book prior to transacting an order 
in the trading crowd through FBMS.\13\ Placing limit orders on the 
order book does not require exposure in open outcry. The Exchange 
desires to permit Floor Brokers, by rule, the ability to continue to 
remotely submit limit orders to the electronic limit order book on a 
permanent basis. This would specifically allow Floor Brokers the 
ability to clear resting Customers orders from the limit order book for 
their customers in the event that a Customer order had priority on the 
limit order book that would otherwise prevent a Floor Qualified 
Contingent Cross Order from being entered in compliance with Options 8, 
Section 30(e).
---------------------------------------------------------------------------

    \13\ See Securities Exchange Act Release No. 68960 (February 20, 
2013), 78 FR 13132, 13134 (February 26, 2013) (SR-Phlx-2013-09) 
(Notice of Filing of Proposed Rule Change To Enhance the 
Functionality Offered on Its Options Floor Broker Management System 
(``FBMS'') by, Among Other Things, Automating Functions Currently 
Performed by Floor Brokers). This filing provided the following 
explanation, ``For example, if a Floor Broker enters a two-sided 
order through the new FBMS and there is an order on the book at a 
price that prevents the Floor Broker's order from executing, FBMS 
will indicate to the Floor Broker how many contracts need to be 
satisfied before the Floor Broker's order can execute at the agreed-
upon price. If the Floor Broker agrees to satisfy that order, 
consistent with the order placed in his care, he can cause FBMS to 
send a portion of one of his orders to Phlx XL to trade against the 
order on the book, thereby clearing it and permitting the remainder 
of the Floor Broker's order to trade. This functionality is optional 
in the sense that the Floor Broker can decide not to trade against 
the book, consistent with order instructions he has been given, and 
therefore not execute his two-sided order at that particular 
price.'' Phlx XL refers to the electronic order book.
---------------------------------------------------------------------------

    Today, Options 8, Section 30(e) permits Floor Qualified Contingent 
Cross Orders to be submitted to the System by Floor Brokers on the 
Floor via FBMS. These orders are not required to be exposed in open 
outcry. In 2011, Phlx established a Floor Qualified

[[Page 6391]]

Contingent Cross Order.\14\ The proposal specifically provided that ``. 
. . PHLX proposes to amend Rule 1064 to provide that a PHLX member 
effectuating a trade on the floor of the Exchange pursuant to the 
Regulation NMS Qualified Contingent Trade Exemption to Rule 611(a) 
(``QCT Exemption'') can cross the options legs of the trade on PHLX as 
a Floor QCC Order immediately upon entry and without order exposure if 
no Customer Orders exist on the Exchange's order book at the same 
price. Floor QCC Orders will be electronically entered by a Floor 
Broker on the floor of the Exchange using the Floor Broker Management 
System and the execution will then be executed electronically. Only 
Floor Brokers will be permitted to enter Floor QCC Orders.'' \15\ The 
proposal specifically provided for a Floor Qualified Contingent Cross 
Order to be entered by Floor Brokers through FBMS while on the Trading 
Floor without order exposure. The filing further provides that ``. . . 
it would be incorrect to say that the Floor QCC Order differs from the 
electronic QCC Order due to the Options Floor Broker's presence on the 
Floor.'' \16\
---------------------------------------------------------------------------

    \14\ See Securities Exchange Act Release No. 64415 (May 5, 
2011), 76 FR 27732 (May 12, 2011) (SR-Phlx-2011-56) (Notice of 
Filing of Proposed Rule Change To Establish a Qualified Contingent 
Cross Order for Execution on the Floor of the Exchange).
    \15\ Id at 27732 and 27733.
    \16\ Id at 27733.
---------------------------------------------------------------------------

    The Exchange's proposal seeks to continue to permit Floor Brokers 
to enter both limit orders to the electronic limit order book and Floor 
Qualified Contingent Cross Orders to the System through FBMS, albeit 
remotely, without amending the manner in which these orders, which 
require no order exposure, are handled by FBMS or the System.
    The Exchange believes that permitting Floor Brokers the ability to 
utilize FBMS remotely, for the limited purposes of submitting limit 
orders to the electronic limit order book and Floor Qualified 
Contingent Cross Order to the System, would allow Floor Brokers to 
conduct the portion of their business which does not require the 
infrastructure afforded by the Trading Floor remotely and, therefore, 
allow member organizations flexibility to more efficiently staff their 
operations. The ability to service certain orders, such as limit orders 
and Floor Qualified Contingent Cross Orders, which do not require open 
outcry exposure, is a relevant part of a Floor Broker's business. The 
Exchange is proposing to expand the ability of a member organization to 
conduct this limited portion of the Floor Broker business model to 
assist firms in being able to continuously operate this portion of 
their business, notwithstanding any closures or halts of the Trading 
Floor. Every Floor Broker must be registered with the Exchange pursuant 
to Options 8, Section 6 and would be assessed applicable fees provided 
for within Options 7. The Exchange notes that this proposal does not 
amend the manner in which fees or other pricing incentives, such as 
caps, apply to Floor Brokers. 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 Brokers. A limit order entered to the limit order book 
via FBMS was subject to electronic fees and rebates prior to the 
introduction of remote FBMS and that remains the case with the 
introduction of remote FBMS. These transactions are submitted to the 
electronic order book directly and are assessed the same fees and 
rebates as other limit orders submitted to the electronic order book. 
Also, the Exchange does not distinguish the manner in which it assesses 
pricing for Floor Qualified Contingent Cross Orders or electronic 
Qualified Contingent Cross Orders. The pricing is the same regardless 
of the manner in which the Qualified Contingent Cross Order was 
submitted. The Exchange proposes to add a sentence to Options 7, 
Section 1 to define a floor transaction to add clarity to the manner in 
which floor based pricing is assessed. The Exchange proposes to add the 
following definition to Options 7, Section 1, ``A `floor transaction' 
is a transaction that is effected in open outcry on the Exchange's 
Trading Floor.''
    Finally, the Exchange represents that it has the proper security 
infrastructure in place to offer FBMS remotely and securely to Floor 
Brokers.
Technical Amendment
    The Exchange proposes a technical amendment to Options 8, Section 
1(a) to add the word ``System'' to the end of ``Options Floor Based 
Management'' within the first sentence to conform the manner in which 
the Exchange utilizes this term within Options 8.
2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act,\17\ in general, and furthers the objectives of Section 
6(b)(5) of the Act,\18\ in particular, in that it is designed to 
promote just and equitable principles of trade, to remove impediments 
to and perfect the mechanism of a free and open market and a national 
market system, and, in general to protect investors and the public 
interest.
---------------------------------------------------------------------------

    \17\ 15 U.S.C. 78f(b).
    \18\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

    The Exchange's proposal to permit Floor Brokers the ability to 
utilize FBMS remotely, for the limited purposes of submitting limit 
orders to the electronic limit order book and Floor Qualified 
Contingent Cross Order to the System, is consistent with the Act. This 
proposal would allow member organizations to utilize their Floor 
Brokers, who may be located off the Trading Floor to conduct certain 
aspects of their business that do not require open outcry, remotely. 
Every Floor Broker would continue to be required to be registered with 
the Exchange pursuant to Options 8, Section 6 and would be assessed 
applicable fees provided for within Options 7.
    Prior to permitting Floor Brokers to access FBMS remotely for the 
limited purpose of submitting limit orders to the electronic limit 
order book and Floor Qualified Contingent Cross Orders to the System, 
the Exchange permitted Floor Brokers to submit limit orders to the 
electronic limit order book and Floor Qualified Contingent Cross Order 
to the System utilizing FBMS while on the Trading Floor.\19\ Phlx 
Options 8 Trading Rules require members and member organizations to 
transact options transactions while physically located on the Trading 
Floor, including trading crowds.\20\ The Options 8 Trading Rules do not 
permit options transactions to be submitted to the Trading Floor 
through FBMS remotely by Floor Brokers.\21\ This proposal would create 
an exception to the Options 8 Rules to allow Floor Brokers to submit 
limit orders and Floor Qualified Contingent Cross Orders remotely 
through FBMS.
---------------------------------------------------------------------------

    \19\ See Options 8, Section 28(g) and 30(e).
    \20\ See Options 8, Section 1(a).
    \21\ See note 3 above, by definition Floor Brokers accept and 
handle options orders while on the Options Floor.
---------------------------------------------------------------------------

    Today, Options 8, Section 28(g) permits a Floor Broker who wishes 
to place a limit order on the electronic limit order book to submit 
such a limit order electronically through the FBMS. This capability 
exists to enable Floor Brokers to access electronic liquidity and/or to 
clear a priority orders on the limit order book prior to transacting an 
order in the trading crowd with the help of the FBMS.\22\ Placing limit 
orders on

[[Page 6392]]

the Order Book does not require exposure in open outcry. The Exchange 
desires to continue to grant this capability remotely to allow Floor 
Brokers the ability to continue to clear Customer orders on the limit 
order book for their customers in the event that a Customer order had 
priority on the limit order book and prevents a Floor Qualified 
Contingent Cross Order from being entered.
---------------------------------------------------------------------------

    \22\ See Securities Exchange Act Release No. 68960 (February 20, 
2013), 78 FR 13132, 13134 (February 26, 2013) (SR-Phlx-2013-09) 
(Notice of Filing of Proposed Rule Change To Enhance the 
Functionality Offered on Its Options Floor Broker Management System 
(``FBMS'') by, Among Other Things, Automating Functions Currently 
Performed by Floor Brokers). This filing provided, ``For example, if 
a Floor Broker enters a two-sided order through the new FBMS and 
there is an order on the book at a price that prevents the Floor 
Broker's order from executing, FBMS will indicate to the Floor 
Broker how many contracts need to be satisfied before the Floor 
Broker's order can execute at the agreed-upon price. If the Floor 
Broker agrees to satisfy that order, consistent with the order 
placed in his care, he can cause FBMS to send a portion of one of 
his orders to Phlx XL to trade against the order on the book, 
thereby clearing it and permitting the remainder of the Floor 
Broker's order to trade. This functionality is optional in the sense 
that the Floor Broker can decide not to trade against the book, 
consistent with order instructions he has been given, and therefore 
not execute his two-sided order at that particular price.''
---------------------------------------------------------------------------

    Today, Options 8, Section 30(e) permits Floor Qualified Contingent 
Cross Orders to be submitted to the System by Floor Brokers on the 
Floor via FBMS. These orders are not required to be exposed in open 
outcry. In 2011, Phlx established a Floor Qualified Contingent Cross 
Order.\23\ The proposal specifically provided for a Floor Qualified 
Contingent Cross Order to be entered by Floor Brokers through FBMS 
while on the Trading Floor without order exposure.
---------------------------------------------------------------------------

    \23\ See Securities Exchange Act Release No. 64415 (May 5, 
2011), 76 FR 27732 (May 12, 2011) (SR-Phlx-2011-56) (Notice of 
Filing of Proposed Rule Change To Establish a Qualified Contingent 
Cross Order for Execution on the Floor of the Exchange).
---------------------------------------------------------------------------

    The Exchange's proposal seeks to continue to permit Floor Brokers 
to enter both limit orders to the electronic limit order book and Floor 
Qualified Contingent Cross Orders to the System through FBMS, albeit 
remotely, without amending the manner in which these orders, which 
require no order exposure, are handled by FBMS or the System.
    Floor Brokers are an essential part of the Trading Floor and their 
business is largely dependent on access to the physical Trading Floor 
and the ability of market participants to expose orders in open outcry. 
Floor Brokers service multiple customer segments and several subsets of 
order flow. Their largest customers are bank trading desks, inter-
dealer brokerage desks, liquidity providers, and hedge funds. Each of 
these client types direct certain orders to Floor Brokers. Banks and 
inter-dealers primarily utilize Floor Brokers for manual handling of 
stock-tied Floor Qualified Contingent Cross Orders, complicated order 
structures with abnormal ratios (beyond 3:1 allowable electronically) 
and ``cash spreads,'' where a notional trade value is negotiated and 
relayed to the trading crowd for participation. Banks also look to 
facilitate larger bank customer orders that exhibit considerable real-
time risk. While Floor Brokers represent the bank side of these 
transactions, Floor Market Makers provide additional liquidity and 
efficiently perform the price discovery process through manual handling 
and exposure. Inter-dealers will also utilize Floor Brokers for price 
discovery and additional sourcing of liquidity for larger orders where 
they need assistance. Finally, complicated strategy transactions are 
often represented by Floor Brokers. End-users are more inclined to use 
their services due to their expertise in order handling and knowledge 
of the trading ecosystem.
    Notwithstanding the importance of Floor Brokers on the Exchange's 
Trading Floor, the ability to service other orders, such as limit 
orders and Floor Qualified Contingent Cross Orders, which do not 
require open outcry exposure, is a relevant part of a Floor Broker's 
business. The Exchange is proposing to expand the ability of a member 
organization to conduct this limited portion of the Floor Broker 
business model to assist firms in being able to continuously operate 
this portion of their business, notwithstanding any closures or halts 
of the Trading Floor.
    The Exchange notes that a closure of the Trading Floor renders the 
Floor Broker business, which is largely reliant on open outcry trading, 
inoperable. The Exchange believes that this proposal is designed to 
protect investors and the public interest as a form of risk mitigation 
as the proposal would allow the portion of the Floor Broker business, 
which is not dependent on open outcry, to continue regardless of the 
status of the Trading Floor. Further, the proposal would allow member 
organizations to more efficiently staff their operations. For example, 
member organizations may utilize staff in other locations as the remote 
access removes the dependency on physical presence on the Trading 
Floor.
    This proposal does not amend the manner in which fees or other 
pricing incentives, such as caps, apply to Floor Brokers. 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 Brokers. A 
limit order entered to the limit order book via FBMS was subject to 
electronic fees and rebates prior to the introduction of remote FBMS 
and that remains the case with the introduction of remote FBMS. These 
transactions are submitted to the electronic order book directly and 
are assessed the same fees and rebates as other limit orders submitted 
to the electronic order book. Also, the Exchange does not distinguish 
the manner in which it assesses pricing for Floor Qualified Contingent 
Cross Orders or electronic Qualified Contingent Cross Orders. The 
pricing is the same regardless of the manner in which the Qualified 
Contingent Cross Order was submitted. Phlx Surveillance staff 
surveilled Floor Qualified Contingent Cross Orders submitted through 
FBMS in real-time. Electronic limit orders must comply with automated 
System entry checks for compliance with Exchange rules. Finally, the 
Exchange represents that it has the proper security infrastructure in 
place to offer FBMS remotely and securely to Floor Brokers.
Technical Amendment
    The Exchange's proposal to amend Options 8, Section 1(a) to add the 
word ``System'' to the end of ``Options Floor Based Management'' within 
the first sentence is consistent with the Act as this term conforms the 
manner in which the Exchange utilizes the term ``Options Floor Based 
Management System'' throughout Options 8.

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's proposal to permit Floor Brokers the ability to 
utilize FBMS remotely, for the limited purposes of submitting limit 
orders to the electronic limit order book and Floor Qualified 
Contingent Cross Order to the System, does not impose an undue burden 
on competition. A Floor Broker, unlike a Market Maker, is mostly 
dependent on the infrastructure provided by a Trading Floor in order to 
operate its business model. Market Makers on the other hand may 
transact their business in either of the two models provide by Phlx, 
the Trading Floor or electronic model. Market Makers have the 
infrastructure to continue to conduct their business, even in the event 
of the closure of the Trading Floor, while Floor Brokers are mostly 
reliant on open

[[Page 6393]]

outcry trading and this portion of their business is inoperable if open 
outcry is unavailable.
    The Exchange's proposal seeks to provide greater accessibility to 
Floor Brokers for the portion of their business which does not require 
the infrastructure afforded by the Trading Floor while not amending the 
manner in which those orders are handled by either FBMS or the System. 
This proposal is competitive in that it allows Floor Brokers the 
ability to participate more continuously and efficiently on Phlx. All 
Floor Brokers have access to FBMS and therefore would be able to 
remotely submit limit orders to the electronic limit order book and 
Floor Qualified Contingent Cross Orders to the System as well as 
continue to submit these types of orders while on the Trading Floor. 
Further, the Exchange believes that this proposal, which would allow 
member organizations to utilize their Floor Brokers, who may be located 
in other locations, to more efficiently staff their operations and also 
to conduct their business, even in the event of a closure of the 
Trading Floor.
    Finally, this proposal does not amend the manner in which fees or 
other pricing incentives, such as caps, apply to Floor Brokers.
Technical Amendment
    The Exchange's proposal to amend Options 8, Section 1(a) to add the 
word ``System'' to the end of ``Options Floor Based Management'' within 
the first sentence does not impose an undue burden on competition as 
this term conforms the manner in which the Exchange utilizes the term 
``Options Floor Based Management System'' throughout Options 8.

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

    The Exchange has filed the proposed rule change pursuant to Section 
19(b)(3)(A)(iii) of the Act \24\ and Rule 19b-4(f)(6) thereunder.\25\ 
Because the proposed rule change does not: (i) Significantly affect the 
protection of investors or the public interest; (ii) impose any 
significant burden on competition; and (iii) become operative prior to 
30 days from the date on which it was filed, or such shorter time as 
the Commission may designate, if consistent with the protection of 
investors and the public interest, the proposed rule change has become 
effective pursuant to Section 19(b)(3)(A) of the Act and Rule 19b-
4(f)(6)(iii) thereunder.\26\
---------------------------------------------------------------------------

    \24\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \25\ 17 CFR 240.19b-4(f)(6).
    \26\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6) 
requires a self-regulatory organization to give the Commission 
written notice of its intent to file the proposed rule change at 
least five business days prior to the date of filing of the proposed 
rule change, or such shorter time as designated by the Commission. 
The Exchange has satisfied this requirement.
---------------------------------------------------------------------------

    At any time within 60 days of the filing of such proposed rule 
change, the Commission summarily may temporarily suspend such rule 
change if it appears to the Commission that such action is necessary or 
appropriate in the public interest, for the protection of investors, or 
otherwise in furtherance of the purposes of the Act. If the Commission 
takes such action, the Commission shall institute proceedings under 
Section 19(b)(2)(B) \27\ of the Act to determine whether the proposed 
rule change should be approved or disapproved.
---------------------------------------------------------------------------

    \27\ 15 U.S.C. 78s(b)(2)(B).
---------------------------------------------------------------------------

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether the proposed rule 
change is consistent with the Act. Comments may be submitted by any of 
the following methods:

Electronic Comments

     Use the Commission's internet comment form (https://www.sec.gov/rules/sro.shtml); or
     Send an email to [email protected]. Please include 
File Number SR-Phlx-2021-02 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-2021-02. 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-2021-02 and should be submitted on 
or before February 11, 2021.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\28\
---------------------------------------------------------------------------

    \28\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2021-01129 Filed 1-19-21; 8:45 am]
BILLING CODE 8011-01-P
This site is protected by reCAPTCHA and the Google Privacy Policy and Terms of Service apply.