Self-Regulatory Organizations; Nasdaq PHLX LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Amend Equity 4, Rules 3301A and 3301B, 38147-38151 [2021-15186]
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Federal Register / Vol. 86, No. 135 / Monday, July 19, 2021 / Notices
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post all comments on the Commission’s
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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
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those that may be withheld from the
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provisions of 5 U.S.C. 552, will be
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should refer to File Number SR–DTC–
2021–013 and should be submitted on
or before August 9, 2021.
2021, Nasdaq PHLX LLC (‘‘Phlx’’ or
‘‘Exchange’’) filed with the Securities
and Exchange Commission
(‘‘Commission’’) the proposed rule
change as described in Items I and II
below, which Items have been prepared
by the Exchange. The Commission is
publishing this notice to solicit
comments on the proposed rule change
from interested persons.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.33
J. Matthew DeLesDernier,
Assistant Secretary.
A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
[FR Doc. 2021–15187 Filed 7–16–21; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–92377; File No. SR–Phlx–
2021–40]
Self-Regulatory Organizations; Nasdaq
PHLX LLC; Notice of Filing and
Immediate Effectiveness of Proposed
Rule Change To Amend Equity 4,
Rules 3301A and 3301B
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July 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 July 2,
33 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
1 15
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I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The Exchange proposes to amend
Equity 4, Rule 3301B, as described
further below.
The text of the proposed rule change
is available on the Exchange’s website at
https://listingcenter.nasdaq.com/
rulebook/phlx/rules, at the principal
office of the Exchange, and at the
Commission’s Public Reference Room.
II. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
In its filing with the Commission, the
Exchange included statements
concerning the purpose of and basis for
the proposed rule change and discussed
any comments it received on the
proposed rule change. The text of these
statements may be examined at the
places specified in Item IV below. The
Exchange has prepared summaries, set
forth in sections A, B, and C below, of
the most significant aspects of such
statements.
1. Purpose
Presently, the Exchange is making
functional enhancements and
improvements to specific Order
Attributes 3 that are currently only
available via the RASH Order entry
protocol.4 Specifically, the Exchange
will be upgrading the logic and
implementation of these Order Types
and Order Attributes so that the features
3 An ‘‘Order Attribute’’ is a set of variable
instructions that may be associated with an Order
to further define how it will behave with respect to
pricing, execution, and/or posting to the Exchange
Book when submitted to the System. See Equity 1,
Section 1(b)(7).
4 The RASH (Routing and Special Handling)
Order entry protocol is a proprietary protocol that
allows members to enter Orders, cancel existing
Orders and receive executions. RASH allows
participants to use advanced functionality,
including discretion, random reserve, pegging and
routing. See https://nasdaqtrader.com/content/
technicalsupport/specifications/TradingProducts/
rash_sb.pdf.
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are more streamlined across the
Exchange Systems and order entry
protocols, and will enable the Exchange
to process these Orders more quickly
and efficiently. Additionally, this
System upgrade will pave the way for
the Exchange to enhance the OUCH
Order entry protocol 5 so that
Participants may enter such Order
Types and Order Attributes via OUCH,
in addition to the RASH Order entry
protocols.6 The Exchange plans to
implement its enhancement of the
OUCH protocol sequentially, by Order
Type and Order Attribute.7
To support and prepare for these
upgrades and enhancements, the
Exchange recently submitted two rule
filings to the Commission that amended
its rules pertaining to, among other
things, Market Maker Peg Orders and
Orders with Reserve Size.8 The
Exchange now proposes to further
amend its Rules governing Order
Attributes, at Rule 3301B. In particular,
the Exchange proposes to adjust the
current functionality of the Pegging 9
and Trade Now Attributes,10 as
described below, so that they align with
how the System, once upgraded, will
handle these Order Attributes going
forward. The Exchange also proposes to
amend the Midpoint Peg Post-Only
Order Type, at Rule 3301A, to
accommodate changes to the Trade Now
Attribute.
5 The OUCH Order entry protocol is a proprietary
protocol that allows subscribers to quickly enter
orders into the System and receive executions.
OUCH accepts limit Orders from members, and if
there are matching Orders, they will execute. Nonmatching Orders are added to the Limit Order Book,
a database of available limit Orders, where they are
matched in price-time priority. OUCH only
provides a method for members to send Orders and
receive status updates on those Orders. See https://
www.nasdaqtrader.com/Trader.aspx?id=OUCH.
6 The Exchange designed the OUCH protocol to
enable members to enter Orders quickly into the
System. As such, the Exchange developed OUCH
with simplicity in mind, and it therefore lacks more
complex order handling capabilities. By contrast,
the Exchange specifically designed RASH to
support advanced functionality, including
discretion, random reserve, pegging and routing.
Once the System upgrades occur, then the Exchange
intends to propose further changes to its Rules to
permit participants to utilize OUCH, in addition to
RASH, to enter order types that require advanced
functionality.
7 The Exchange notes that its sister exchange, The
Nasdaq Stock Market, LLC (‘‘Nasdaq’’), has already
filed similar proposed rule changes with the
Commission. See Securities Exchange Act Release
No. 34–92180 (June 15, 2021), 86 FR 33420 (June
24, 2021) (SR–NASDAQ–2021–044).
8 See Securities Exchange Act Release No. 34–
91263 (March 5, 2021), 86 FR 13950 (March 11,
2021) (SR–Phlx–2021–11); Securities Exchange Act
Release No. 34–90558 (December 3, 2020), 85 FR
79231 (December 9, 2020) (SR–Phlx–2020–51).
9 See Rule 3301B(d).
10 See Rule 3301B(l).
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Changes to Pegging Order Attribute
First, the Exchange proposes to
amend Rule 3301B(d), which governs
the Pegging Order Attribute. The
Exchange offers three types of Pegging:
Primary Pegging, Market Pegging, and
Midpoint Pegging.11 The Rule presently
provides that if, at the time of entry,
there is no price to which a Pegged
Order can be pegged, the Order will be
rejected, provided, however, that a
Displayed Order that has Market
Pegging, or an Order with a Non-Display
Attribute that has Primary Pegging or
Market Pegging, will be accepted at its
limit price. The Exchange proposes to
replace this text by stating that if, at the
time of entry, there is no price to which
a Pegged Order, that has not been
assigned a Routing Order Attribute, can
be pegged or pegging would lead to a
price at which the Order cannot be
posted, then the Order will not be
immediately available on the Exchange
Book and will be entered once there is
a permissible price.12 The Exchange
proposes this change so as to enhance
the manner in which the Exchange
presently handles Pegged Orders in this
scenario. Rather than reject such Orders
outright, and require customers to
continuously reenter the Orders
thereafter until a pegging price emerges,
which may cost them queue priority, the
Exchange believes that it would be more
efficient and customer-friendly to
simply hold a Pegged Order until a
permissible pegging price emerges.13
A similar rationale applies to the
Exchange’s proposal to cease accepting
certain Market or Primary Pegged
11 See Rule 3301B(d) (defining ‘‘Primary Pegging’’
as pegging with reference to the inside quotation on
the same side of the market, ‘‘Market Pegging’’ as
pegging with reference to the inside quotation on
the opposite side of the market, and ‘‘Midpoint
Pegging’’ as pegging with reference to the midpoint
between the inside bid and the inside offer).
12 This change is applicable to Primary, Market
and Midpoint Pegging Orders entered via RASH/
FIX; OUCH/FLITE Midpoint Pegging behavior is not
affected by this change. The Exchange also proposes
to amend existing language in this provision which
states that ‘‘if the Inside Bid and Inside Offer are
crossed or if there is no Inside Bid and/or Inside
Offer, the Order will not be accepted.’’ The
proposed amendment would specify that this
language applies only to Orders with Midpoint
Pegging entered through OUCH or FLITE. The
proposed changes to pegged orders entered through
RASH or FIX will allow the Exchange to handle the
Order more consistent with the customer intended
instruction, and are necessary to facilitate
forthcoming System enhancements.
13 Meanwhile, the Exchange proposes to amend
the Rule to state that if a Pegged Order is assigned
a Routing Order Attribute, and a permissible
pegging price is not available upon entry, then the
Order will continue to be rejected. The Exchange
proposes to retain existing practice for Pegged
Orders with Routing Order Attributes because the
Exchange is not yet prepared to make similar
changes to such Orders, although it contemplates
doing so in the near future.
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Orders at their limit prices if no pegging
price is available. Because participants
presumably prefer for their orders to
post at the pegging price, the Exchange
believes that participants would prefer
for the Exchange to hold such orders
until a permissible pegging price
emerges, rather than post the orders at
their limit prices.14 15
The Exchange proposes similar
changes to the paragraph of Rule
3301B(d) that applies to Pegged Orders
entered through RASH or FIX that
posted to the Exchange Book. The text
presently provides that if the price to
which an Order is pegged is not
available, the Order will be rejected.
The Exchange proposes instead to state
that if the price to which an Order is
pegged becomes unavailable or pegging
would lead to a price at which the Order
cannot be posted,16 then the Exchange
will remove the Order from the
Exchange Book and re-enter it once
there is a permissible price. Again, the
Exchange proposes this change to
enhance and make the System more
efficient by providing for the Exchange
to re-post the Pegged Orders rather than
rejecting them when there is no
permissible pegging price and requiring
participants to re-enter them once a
valid price becomes available.17 The
14 When a Pegged Order lacks a pegging price or
a permissible pegging price, the System will not
wait indefinitely for a pegging price or a
permissible pegging price to become available.
Instead, the System will cancel the Order if no
permissible pegging price becomes available within
one second after Order entry or after the Order was
removed due to the lack of a permissible pegging
price and no longer available on the Book. The
Exchange may, in the exercise of its discretion,
modify the length of this maximum time period by
posting advance notice of the applicable new time
period on its website.
15 In this paragraph of Rule 3301B(d), the
Exchange again proposes to state that it will
continue to reject a Pegged Order entered through
RASH or FIX when a permissible pegging price is
unavailable, if the Pegged Order is assigned a
Routing Order Attribute. The Exchange will
continue to accept certain Market and Primary
Pegged Orders at their limit price where they have
Routing Order Attributes. The Exchange proposes to
retain existing practice for Pegged Orders with
Routing Order Attributes because the Exchange is
not yet prepared to make similar changes to such
Orders, although it contemplates doing so in the
near future.
16 An example of a scenario where pegging would
lead to a price at which an Order cannot be posted
is as follows. Assume that the NBBO is $0.0002 ×
$0.0003. A Primary Pegged Order to buy is entered
with a passive offset amount of $0.0003. This would
result in the Order being made unavailable by the
Exchange as ¥$0.0001 is not a permissible price.
Currently, the Exchange accepts such Orders at its
limit price, and will post the Orders to the
Exchange Book in accordance with the parameters
that apply to the underlying Order Type.
17 The Exchange proposes to apply a similar time
limitation to the holding period prescribed above.
Similarly, for an Order with Midpoint Pegging, if
the Inside Bid and Inside Offer become crossed, or
there is no Inside Bid or Inside Offer, the System
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Exchange notes that the proposed
change will not apply to Pegged Orders
with Routing Attributes assigned to
them; the existing Rule functionality
will continue to apply to those Orders.
Rule 3301B(d) also subjects Pegging
Orders to collars, meaning that any
portion of a Pegging Order that would 18
execute, either on the Exchange or when
routed to another market center, at a
price of more than $0.25 or 5 percent
worse than the NBBO at the time when
the order reaches the System, whichever
is greater, will be cancelled. Although
the Rule states that it applies this collar
to Orders with Primary and Market
Pegging, the Exchange has always
intended for the collar to also apply to
Orders with Midpoint Pegging, and in
practice, it does so. The failure of the
Rule to reflect the application of the
collar to Midpoint Pegged Orders was
an unintended omission. The Exchange
now proposes to revise Rule 3301B(d) to
correct this omission.
Changes to the Trade Now Order
Attribute
Additionally, the Exchange proposes
to amend its rules governing the Trade
Now Attribute, at Rule 3301B(l).
Pursuant to Rule 3301B(l), Trade Now is
an Order Attribute that allows a resting
Order that becomes locked by an
incoming Displayed Order to execute
against a locking or crossing Order as a
liquidity taker. The Exchange proposes
to amend Trade Now in several respects.
First, the Exchange proposes to
incorporate so-called ‘‘Midpoint Trade
Now’’ functionality into the Trade Now
Attribute, similar what Nasdaq did in a
recent corresponding rule filing.19 This
will cancel the Order if no permissible price
becomes available within one second after the
Order was removed and no longer available on the
Exchange Book (the Exchange may, in the exercise
of its discretion modify the length of this one
second time period by posting advance notice of the
applicable time period on its website). For an Order
with Midpoint Pegging with a Routing Attribute,
the new one second time period will be applicable.
18 Additionally, the Exchange proposes to replace
the word ‘‘would’’ with ‘‘could’’ in this provision,
so as to clarify that collars apply in circumstances
in which Pegged Orders might execute, but do not
necessarily do so. An example of a circumstance in
which such Orders do not execute is as follows.
Assume that the NBBO is $10.00 × $10.01. A Market
Pegged Order to buy posts at $10.01. The NBBO
then updates to $10.00 × $11.00. Because re-pricing
and posting the Market Pegged Order would result
in the Order being available on the Book and
executable at $11.00 (outside of the collars), the
Order will be canceled.
19 See Securities Exchange Act Release No. 34–
92180 (June 15, 2021), 86 FR 33420 (June 24, 2021)
(SR–NASDAQ–2021–044). The Exchange notes that
prior to SR–NASDAQ–2021–044, Midpoint Trade
Now was a distinct Order Attribute in the Nasdaq
rulebook, first introduced in 2018. See Securities
Exchange Act Release No. 34–84621 (November 19,
2018), 83 FR 60514 (November 26, 2018) (SR–
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functionality would allow a resting
Order that becomes locked at its nondisplayed price by an incoming
Midpoint Peg Post-Only Order to
execute against a locking or crossing
Order as a liquidity taker. This
functionality will allow market
participants to have their Orders
executed as a taker of liquidity should
that Order become locked at its nondisplayed price by a contra-side
incoming Midpoint Peg Post-Only
Order. This functionality will therefore
promote an efficient and orderly market
by allowing Orders in this scenario to
execute and resolve a locked market.
Similarly, allowing a subsequent Order
to execute against a locking Midpoint
Peg Post-Only Order if the resting Order
that is locked by the Midpoint Peg PostOnly Order has not enabled the Trade
Now functionality will also promote an
efficient and orderly market by allowing
the incoming Order in that scenario to
execute and resolve an instance where
Orders with a non-displayed price on
both the buy and sell side of the market
are priced equally but not executing
against each other.
Next, the Exchange proposes to
amend Rule 3301B(l) by streamlining
and simplifying the instructions that
participants must enter to address the
handling of their orders in various
locking or crossing scenarios.20
Specifically, rather than require a
participant to manually send a Trade
Now instruction whenever an Order
entered through OUCH or FLITE
becomes locked, the proposed amended
Rule will allow for a participant to
enable Trade Now functionality on a
port-level basis for all Order entry
protocols and for all Order Types that
support Trade Now, as well as on an
order-by-order basis, for the NonDisplayed Order Type, when entered
through OUCH or FLITE.21 For Orders
entered through RASH or FIX, Trade
Now will be available on an order-byorder basis for all Order Types that
support Trade Now. The proposal will
not extend Trade Now functionality to
new Order Types.22 However, the
NASDAQ–2018–090). SR–NASDAQ–2021–044
incorporated Midpoint Trade Now into Trade Now.
20 An example of a crossing scenario is as follows.
A non-displayed Order to buy rests on the Book at
$0.9995. Thereafter, a Post Only Order to sell is
entered at $0.9994, which would post on the Book
and display at $0.9994, thereby crossing the nondisplayed Order as the price improvement
requirements were not met.
21 This proposed change in functionality for
OUCH and FLITE is enabled by the migration of
Trade Now to the Exchange’s matching System.
22 The Exchange proposes to add language to Rule
3301B(l) to state that Trade Now allows a resting
Order that becomes locked ‘‘or crossed, as
applicable at its non-displayed price’’ by the
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Exchange notes that it proposes
conforming changes to the Midpoint Peg
Post-Only Order Type, at Rule 3301A,
which already includes Trade Now, to
accommodate the adoption of Midpoint
Trade Now functionality.
The Exchange intends to implement
the foregoing changes during the Third
Quarter of 2021. The Exchange will
issue an Equity Trader Alert at least 7
days in advance of implementing the
changes.
2. Statutory Basis
The Exchange believes that its
proposal is consistent with Section 6(b)
of the Act,23 in general, and furthers the
objectives of Section 6(b)(5) of the Act,24
in particular, in that it is designed to
promote just and equitable principles of
trade, to remove impediments to and
perfect the mechanism of a free and
open market and a national market
system, and, in general to protect
investors and the public interest.
The Exchange believes that its
proposed amendments to the Pegging
Order Attribute, at Rule 3301B(d), are
consistent with the Act. The proposals
to eliminate the functionality that
provides for the System to reject certain
Pegged Orders that lack a permissible
pegging price, or to post the Orders at
their limit price, are consistent with the
Act because they eliminate unwarranted
inefficiencies that arise when
participants must repeatedly re-enter
rejected Pegged Orders until a
permissible price becomes available.25 26
‘‘posted price’’ of an incoming Displayed Order to
execute against a locking or crossing Order(s)
automatically. The Exchange proposes to add the
phrase ‘‘or crossed, as applicable,’’ for
completeness. It also proposes to add the phrases
‘‘at its non-displayed price’’ and ‘‘posted price’’ for
purposes of clarity. They merely communicate that
the incoming Displayed Order or Midpoint Peg
Post-Only Order first posts to the Exchange Book,
thereby locking or crossing the resting Order at its
non-displayed price.
23 15 U.S.C. 78f(b).
24 15 U.S.C. 78f(b)(5).
25 The Exchange notes that as part of this
proposed change, if there is no Pegging Price upon
entry for a Displayed Order that has Market
Pegging, or an Order with a Non-Display Attribute
that has Primary Pegging or Market Pegging, then
it will no longer accept such Orders at their limit
price. The Exchange believes that this proposed
change is consistent with the Act because it better
aligns with customer intentions for Pegged Orders
to post at a Pegging Price. That is, the Exchange
believes that participants prefer for Pegged Orders
to be entered at a Pegging Price, rather than its
entered limit price, even if that means that the
Order must wait for a Pegging Price to become
available. As discussed above, the Exchange does
not propose this change for Pegged Orders with
Routing Attributes.
26 It is also consistent with the Act to limit the
time period for which the Exchange will hold,
without canceling, Pegged Orders for which there
is no pegging price or permissible pegging price
because the Exchange does not believe that
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It is also consistent with the Act to
maintain the existing practice in the
Rule of rejecting a Pegged Order without
a permissible pegging price where the
Order has been assigned a Routing
Attribute. The Exchange is not yet
prepared to hold such Orders in the
same way that it proposes to do so for
Pegged Orders without Routing
Attributes, although it contemplates
doing so in the near future.
Moreover, the proposal to amend Rule
3301B(d) to state expressly that
Midpoint Pegging Orders are subject to
price collars, like Orders with Primary
and Market Pegging, will correct an
unintended omission and ensure that
the Rule is consistent with existing
Exchange practice and with customer
expectations. The application of these
collars will prevent Pegged Orders from
having prices that deviate too far away
from where the security was trading
when the Order was first entered.27
The Exchange’s proposals to amend
its rules governing the Trade Now
Attribute, at Rule 3301B(l), is consistent
with the Act. First, it is consistent with
the Act to add to Trade Now so-called
‘‘Midpoint Trade Now’’ functionality,
which presently exists on Nasdaq. This
functionality will allow market
participants to have their Orders
executed as a taker of liquidity should
that Order become locked at its nondisplayed price by a contra-side
Midpoint Peg Post-Only Order. This
functionality will therefore promote an
efficient and orderly market by allowing
Orders in this scenario to execute and
resolve a locked market. Similarly,
allowing a subsequent Order to execute
against a locking Midpoint Peg PostOnly Order if the resting Order that is
locked by the Midpoint Peg Post-Only
Order has not enabled the Trade Now
functionality will also promote an
efficient and orderly market by allowing
the incoming Order in that scenario to
execute and resolve an instance where
Orders with a non-displayed price on
both the buy and sell side of the market
customers would want the Exchange to hold their
orders indefinitely. Moreover, holding such orders
indefinitely would encumber the Exchange’s
System. The Exchange believes that a one second
holding period for such orders is long enough to
provide the above-stated efficiencies for
participants, but not too long as to encumber them.
However, the Exchange believes that it is reasonable
to reserve discretion to alter the holding period,
from time to time, should it determine that doing
so better meets the needs of customers or its System
resources.
27 Additionally, the Exchange believes that it is
consistent with the Act to replace the word
‘‘would’’ with ‘‘could’’ in this provision, because
doing so would clarify that collars apply in
circumstances in which Pegged Orders might
execute, but do not necessarily do so. See supra,
n.19.
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are priced equally but not executing
against each other.
The proposed amendments to Trade
Now will also streamline and simplify
the instructions that participants must
enter to address the handling of their
orders in various locking or crossing
scenarios. Rather than require a
participant to manually send a Trade
Now instruction whenever an Order
entered through OUCH or FLITE
becomes locked, the proposed amended
Rule will allow for a participant to
enable Trade Now functionality on a
port-level basis for all Order entry
protocols and for all Order Types that
support Trade Now, as well as on an
order-by-order basis, for the NonDisplayed Order Type, when entered
through OUCH and FLITE.28
Furthermore, it is consistent with the
Act to add language to Rule 3301B(l) to
state that Trade Now allows a resting
Order that becomes locked ‘‘or crossed,
as applicable, at its non-displayed
price’’ by the ‘‘posted price’’ of an
incoming Displayed Order to execute
against a locking or crossing Order(s)
automatically. The Exchange proposes
to add the phrase ‘‘or crossed, as
applicable,’’ for completeness. The
Exchange also proposes to add the
phrases ‘‘at its non-displayed price’’ and
[sic] for purposes of clarity. They merely
communicate that the incoming
Displayed Order or Midpoint Peg PostOnly Order first posts to the Exchange
Book, thereby locking or crossing the
resting Order at its non-displayed price.
Finally, the Exchange believes that it
is consistent with the Act to make
conforming changes to the Midpoint Peg
Post-Only Order Type, at Rule 3301A,
which already includes Trade Now, to
accommodate the adoption of Midpoint
Trade Now functionality.
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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. As a general
principle, the proposed changes are
reflective of the significant competition
among exchanges and non-exchange
venues for order flow. In this regard,
proposed changes that facilitate
enhancements to the Exchange’s System
and order entry protocols as well as
those that amend and clarify the
Exchange’s Rules regarding its Order
Attributes, are pro-competitive because
28 As noted above, for Orders entered through
RASH or FIX, Trade Now will be available on an
order-by-order basis for all Order Types that
support Trade Now.
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they bolster the efficiency, integrity, and
overall attractiveness of the Exchange in
an absolute sense and relative to its
peers.
Moreover, none of the proposed
changes will unduly burden intramarket competition among various
Exchange participants. Participants will
experience no competitive impact from
its proposals to hold (up to one second),
rather than reject (or accept at their limit
price), Pegging Orders (other than those
with Routing Attributes) in
circumstances in which no permissible
pegging price is available, as these
proposals will merely eliminate
unwarranted inefficiencies that ensue
from the System requiring participants
to repeatedly re-enter Pegged Orders
until a price becomes available, or the
System posting Pegged Orders at their
limit prices, if there is no pegging price.
Moreover, the proposal to amend Rule
3301B(d) to state expressly that
Midpoint Pegging Orders are subject to
price collars, like Orders with Primary
and Market Pegging, will have no
competitive impact as the proposal is
consistent with existing Exchange
practice and with customer
expectations.
The Exchange’s proposals to amend
its rules governing Trade Now will have
no adverse competitive impact on
participants. The proposed addition of
Midpoint Trade Now functionality will
expand the Exchange’s capabilities
relative to competitors, thereby
rendering it a more attractive trading
venue. Moreover, this new functionality
is optional for participants to employ.
Meanwhile, the other proposed changes
to Rule 3301B(l) will render the Trade
Now Order Attribute more efficient and
easier for participants to utilize. The
proposed conforming changes to the
Midpoint Peg Post-Only Order Type, at
Rule 3301A, will merely accommodate
the adoption of Midpoint Trade Now
functionality.
C. Self-Regulatory Organization’s
Statement on Comments on the
Proposed Rule Change Received From
Members, Participants, or Others
No written comments were either
solicited or received.
III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
Because the foregoing proposed rule
change does not: (i) Significantly affect
the protection of investors or the public
interest; (ii) impose any significant
burden on competition; and (iii) become
operative for 30 days from the date on
which it was filed, or such shorter time
as the Commission may designate, it has
PO 00000
Frm 00164
Fmt 4703
Sfmt 4703
become effective pursuant to Section
19(b)(3)(A) of the Act 29 and Rule 19b–
4(f)(6) thereunder.30
At any time within 60 days of the
filing of the proposed rule change, the
Commission summarily may
temporarily suspend such rule change if
it appears to the Commission that such
action is necessary or appropriate in the
public interest, for the protection of
investors, or otherwise in furtherance of
the purposes of the Act. If the
Commission takes such action, the
Commission shall institute proceedings
to determine whether the proposed rule
change should be approved or
disapproved.
IV. Solicitation of Comments
Interested persons are invited to
submit written data, views, and
arguments concerning the foregoing,
including whether the proposed rule
change is consistent with the Act.
Comments may be submitted by any of
the following methods:
Electronic Comments
• Use the Commission’s internet
comment form (https://www.sec.gov/
rules/sro.shtml); or
• Send an email to rule-comments@
sec.gov. Please include File Number SR–
Phlx–2021–40 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–2021–40. 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
29 15
U.S.C. 78s(b)(3)(A).
CFR 240.19b–4(f)(6). In addition, Rule 19b–
4(f)(6)(iii) requires a self-regulatory organization to
give the Commission written notice of its intent to
file the proposed rule change, along with a brief
description and text of the proposed rule change,
at least five business days prior to the date of filing
of the proposed rule change, or such shorter time
as designated by the Commission. The Exchange
has satisfied this requirement.
30 17
E:\FR\FM\19JYN1.SGM
19JYN1
Federal Register / Vol. 86, No. 135 / Monday, July 19, 2021 / Notices
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–2021–40, and should
be submitted on or before August 9,
2021.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.31
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2021–15186 Filed 7–16–21; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–92393; File No. SR–Phlx–
2021–38]
Self-Regulatory Organizations; Nasdaq
PHLX LLC; Notice of Filing and
Immediate Effectiveness of Proposed
Rule Change To Amend Options 2,
Section 5, Electronic Market Maker
Obligations and Quoting Requirements
July 13, 2021.
lotter on DSK11XQN23PROD with NOTICES1
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 June 30,
2021, Nasdaq PHLX LLC (‘‘Phlx’’ or
‘‘Exchange’’) filed with the Securities
and Exchange Commission
(‘‘Commission’’) the proposed rule
change as described in Items I and II
below, which Items have been prepared
by the Exchange. The Commission is
publishing this notice to solicit
comments on the proposed rule change
from interested persons.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The Exchange proposes to amend
Options 2, Section 5, Electronic Market
Maker Obligations and Quoting
Requirements.
31 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
1 15
VerDate Sep<11>2014
18:23 Jul 16, 2021
Jkt 253001
The text of the proposed rule change
is available on the Exchange’s website at
https://listingcenter.nasdaq.com/
rulebook/phlx/rules, at the principal
office of the Exchange, and at the
Commission’s Public Reference Room.
II. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
In its filing with the Commission, the
Exchange included statements
concerning the purpose of and basis for
the proposed rule change and discussed
any comments it received on the
proposed rule change. The text of these
statements may be examined at the
places specified in Item IV below. The
Exchange has prepared summaries, set
forth in sections A, B, and C below, of
the most significant aspects of such
statements.
A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
1. Purpose
The Exchange proposes to amend
Phlx Rules at Options 2, Section 5,
Electronic Market Maker Obligations
and Quoting Requirements. Currently,
the Exchange requires Market Makers 3
and Lead Maker Makers 4 to enter bids
and offers for the options to which they
3 A ‘‘Market Maker’’ means a Streaming Quote
Trader or a Remote Streaming Quote Trader who
enters quotations for his own account electronically
into the System. See Options 1, Section 1(b)(28). A
‘‘Streaming Quote Trader’’ or ‘‘SQT’’ means a
Market Maker who has received permission from
the Exchange to generate and submit option
quotations electronically in options to which such
SQT is assigned. An SQT may only submit such
quotations while such SQT is physically present on
the trading floor of the Exchange. An SQT may only
submit quotes in classes of options in which the
SQT is assigned. See Options 1, Section 1(b)(54). A
‘‘Remote Streaming Quote Trader’’ or ‘‘RSQT’’
means a Market Maker that is a member affiliated
with an Remote Streaming Quote Trader
Organization with no physical trading floor
presence who has received permission from the
Exchange to generate and submit option quotations
electronically in options to which such RSQT has
been assigned. A qualified RSQT may function as
a Remote Lead Market Maker upon Exchange
approval. An RSQT is also known as a Remote
Market Maker (‘‘RMM’’) pursuant to Options 2,
Section 11. A Remote Streaming Quote
Organization (‘‘RSQTO’’) or Remote Market Maker
Organization (‘‘RMO’’) are Exchange member
organizations that have qualified pursuant to
Options 2, Section 1. See Options 1, Section
1(b)(49).
4 A ‘‘Lead Market Maker’’ means a member who
is registered as an options Lead Market Maker
pursuant to Options 2, Section 12(a). A Lead Market
Maker includes a Remote Lead Market Maker which
is defined as a Lead Market Maker in one or more
classes that does not have a physical presence on
an Exchange’s trading floor and is approved by the
Exchange pursuant to Options 2, Section 11. See
Options 1, Section 1(b)(27).
PO 00000
Frm 00165
Fmt 4703
Sfmt 4703
38151
are registered, except in an assigned
options series listed intra-day on the
Exchange.5 Quotations must meet the
legal quote width requirements
specified in Options 2, Section 4(c).6 On
a daily basis, an electronic Market
Maker must make markets consistent
with the applicable quoting
requirements. Market Makers (SQTs and
RSQTs) associated with the same
member organization 7 are collectively
required to provide two-sided
quotations in 60% of the cumulative
number of seconds, or such higher
percentage as Phlx may announce in
advance, for which that member
organization’s assigned options series
are open for trading.8 Notwithstanding
the foregoing, a member organization is
not required to make two-sided markets
pursuant to Options 2, Section 5(c)(2) in
any Quarterly Option Series, any
adjusted option series,9 and any option
series with an expiration of nine months
or greater.10 Lead Market Makers
(including Remote Lead Market
Makers), associated with the same
member organization, are collectively
required to provide two-sided
quotations in 90% of the cumulative
number of seconds, or such higher
percentage as Phlx may announce in
advance, for which that member
organization’s assigned options series
are open for trading. Lead Market
Makers are required to make two-sided
markets pursuant to Options 2, Section
5 in any Quarterly Option Series, any
Adjusted Option Series, and any option
series with an expiration of nine months
or greater.11 Finally, a Directed SQT or
5 See
Options 2, Section 5(c).
2, Section 4(c) describes the required
bid/ask differentials.
7 The term ‘‘member organization’’ means a
corporation, partnership (general or limited),
limited liability partnership, limited liability
company, business trust or similar organization,
transacting business as a broker or a dealer in
securities and which has the status of a member
organization by virtue of (i) admission to
membership given to it by the Membership
Department pursuant to the provisions of General
3, Sections 5 and 10 or the By-Laws or (ii) the
transitional rules adopted by the Exchange pursuant
to Section 6–4 of the By-Laws. References herein to
officer or partner, when used in the context of a
member organization, shall include any person
holding a similar position in any organization other
than a corporation or partnership that has the status
of a member organization. See General 1, Section
1(17).
8 Options 2, Section 5(c)(2)(A).
9 An adjusted option series is defined as an option
series wherein one option contract in the series
represents the delivery of other than 100 shares of
underlying stock or Exchange-Traded Fund Shares
(‘‘Adjusted Options Series’’). See Options 2, Section
5(c)(2)(A)(i).
10 Options 2, Section 5(c)(2)(A).
11 Options 2, Section 5(c)(2)(B).
6 Options
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]]>Agencies
[Federal Register Volume 86, Number 135 (Monday, July 19, 2021)]
[Notices]
[Pages 38147-38151]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2021-15186]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-92377; File No. SR-Phlx-2021-40]
Self-Regulatory Organizations; Nasdaq PHLX LLC; Notice of Filing
and Immediate Effectiveness of Proposed Rule Change To Amend Equity 4,
Rules 3301A and 3301B
July 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 July 2, 2021, Nasdaq PHLX LLC (``Phlx'' or ``Exchange'') filed with
the Securities and Exchange Commission (``Commission'') the proposed
rule change as described in Items I and II below, which Items have been
prepared by the Exchange. The Commission is publishing this notice to
solicit comments on the proposed rule change from interested persons.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------
I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange proposes to amend Equity 4, Rule 3301B, as described
further below.
The text of the proposed rule change is available on the Exchange's
website at https://listingcenter.nasdaq.com/rulebook/phlx/rules, at the
principal office of the Exchange, and at the Commission's Public
Reference Room.
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, the Exchange included statements
concerning the purpose of and basis for the proposed rule change and
discussed any comments it received on the proposed rule change. The
text of these statements may be examined at the places specified in
Item IV below. The Exchange has prepared summaries, set forth in
sections A, B, and C below, of the most significant aspects of such
statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
Presently, the Exchange is making functional enhancements and
improvements to specific Order Attributes \3\ that are currently only
available via the RASH Order entry protocol.\4\ Specifically, the
Exchange will be upgrading the logic and implementation of these Order
Types and Order Attributes so that the features are more streamlined
across the Exchange Systems and order entry protocols, and will enable
the Exchange to process these Orders more quickly and efficiently.
Additionally, this System upgrade will pave the way for the Exchange to
enhance the OUCH Order entry protocol \5\ so that Participants may
enter such Order Types and Order Attributes via OUCH, in addition to
the RASH Order entry protocols.\6\ The Exchange plans to implement its
enhancement of the OUCH protocol sequentially, by Order Type and Order
Attribute.\7\
---------------------------------------------------------------------------
\3\ An ``Order Attribute'' is a set of variable instructions
that may be associated with an Order to further define how it will
behave with respect to pricing, execution, and/or posting to the
Exchange Book when submitted to the System. See Equity 1, Section
1(b)(7).
\4\ The RASH (Routing and Special Handling) Order entry protocol
is a proprietary protocol that allows members to enter Orders,
cancel existing Orders and receive executions. RASH allows
participants to use advanced functionality, including discretion,
random reserve, pegging and routing. See https://nasdaqtrader.com/content/technicalsupport/specifications/TradingProducts/rash_sb.pdf.
\5\ The OUCH Order entry protocol is a proprietary protocol that
allows subscribers to quickly enter orders into the System and
receive executions. OUCH accepts limit Orders from members, and if
there are matching Orders, they will execute. Non-matching Orders
are added to the Limit Order Book, a database of available limit
Orders, where they are matched in price-time priority. OUCH only
provides a method for members to send Orders and receive status
updates on those Orders. See https://www.nasdaqtrader.com/Trader.aspx?id=OUCH.
\6\ The Exchange designed the OUCH protocol to enable members to
enter Orders quickly into the System. As such, the Exchange
developed OUCH with simplicity in mind, and it therefore lacks more
complex order handling capabilities. By contrast, the Exchange
specifically designed RASH to support advanced functionality,
including discretion, random reserve, pegging and routing. Once the
System upgrades occur, then the Exchange intends to propose further
changes to its Rules to permit participants to utilize OUCH, in
addition to RASH, to enter order types that require advanced
functionality.
\7\ The Exchange notes that its sister exchange, The Nasdaq
Stock Market, LLC (``Nasdaq''), has already filed similar proposed
rule changes with the Commission. See Securities Exchange Act
Release No. 34-92180 (June 15, 2021), 86 FR 33420 (June 24, 2021)
(SR-NASDAQ-2021-044).
---------------------------------------------------------------------------
To support and prepare for these upgrades and enhancements, the
Exchange recently submitted two rule filings to the Commission that
amended its rules pertaining to, among other things, Market Maker Peg
Orders and Orders with Reserve Size.\8\ The Exchange now proposes to
further amend its Rules governing Order Attributes, at Rule 3301B. In
particular, the Exchange proposes to adjust the current functionality
of the Pegging \9\ and Trade Now Attributes,\10\ as described below, so
that they align with how the System, once upgraded, will handle these
Order Attributes going forward. The Exchange also proposes to amend the
Midpoint Peg Post-Only Order Type, at Rule 3301A, to accommodate
changes to the Trade Now Attribute.
---------------------------------------------------------------------------
\8\ See Securities Exchange Act Release No. 34-91263 (March 5,
2021), 86 FR 13950 (March 11, 2021) (SR-Phlx-2021-11); Securities
Exchange Act Release No. 34-90558 (December 3, 2020), 85 FR 79231
(December 9, 2020) (SR-Phlx-2020-51).
\9\ See Rule 3301B(d).
\10\ See Rule 3301B(l).
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[[Page 38148]]
Changes to Pegging Order Attribute
First, the Exchange proposes to amend Rule 3301B(d), which governs
the Pegging Order Attribute. The Exchange offers three types of
Pegging: Primary Pegging, Market Pegging, and Midpoint Pegging.\11\ The
Rule presently provides that if, at the time of entry, there is no
price to which a Pegged Order can be pegged, the Order will be
rejected, provided, however, that a Displayed Order that has Market
Pegging, or an Order with a Non-Display Attribute that has Primary
Pegging or Market Pegging, will be accepted at its limit price. The
Exchange proposes to replace this text by stating that if, at the time
of entry, there is no price to which a Pegged Order, that has not been
assigned a Routing Order Attribute, can be pegged or pegging would lead
to a price at which the Order cannot be posted, then the Order will not
be immediately available on the Exchange Book and will be entered once
there is a permissible price.\12\ The Exchange proposes this change so
as to enhance the manner in which the Exchange presently handles Pegged
Orders in this scenario. Rather than reject such Orders outright, and
require customers to continuously reenter the Orders thereafter until a
pegging price emerges, which may cost them queue priority, the Exchange
believes that it would be more efficient and customer-friendly to
simply hold a Pegged Order until a permissible pegging price
emerges.\13\
---------------------------------------------------------------------------
\11\ See Rule 3301B(d) (defining ``Primary Pegging'' as pegging
with reference to the inside quotation on the same side of the
market, ``Market Pegging'' as pegging with reference to the inside
quotation on the opposite side of the market, and ``Midpoint
Pegging'' as pegging with reference to the midpoint between the
inside bid and the inside offer).
\12\ This change is applicable to Primary, Market and Midpoint
Pegging Orders entered via RASH/FIX; OUCH/FLITE Midpoint Pegging
behavior is not affected by this change. The Exchange also proposes
to amend existing language in this provision which states that ``if
the Inside Bid and Inside Offer are crossed or if there is no Inside
Bid and/or Inside Offer, the Order will not be accepted.'' The
proposed amendment would specify that this language applies only to
Orders with Midpoint Pegging entered through OUCH or FLITE. The
proposed changes to pegged orders entered through RASH or FIX will
allow the Exchange to handle the Order more consistent with the
customer intended instruction, and are necessary to facilitate
forthcoming System enhancements.
\13\ Meanwhile, the Exchange proposes to amend the Rule to state
that if a Pegged Order is assigned a Routing Order Attribute, and a
permissible pegging price is not available upon entry, then the
Order will continue to be rejected. The Exchange proposes to retain
existing practice for Pegged Orders with Routing Order Attributes
because the Exchange is not yet prepared to make similar changes to
such Orders, although it contemplates doing so in the near future.
---------------------------------------------------------------------------
A similar rationale applies to the Exchange's proposal to cease
accepting certain Market or Primary Pegged Orders at their limit prices
if no pegging price is available. Because participants presumably
prefer for their orders to post at the pegging price, the Exchange
believes that participants would prefer for the Exchange to hold such
orders until a permissible pegging price emerges, rather than post the
orders at their limit prices.14 15
---------------------------------------------------------------------------
\14\ When a Pegged Order lacks a pegging price or a permissible
pegging price, the System will not wait indefinitely for a pegging
price or a permissible pegging price to become available. Instead,
the System will cancel the Order if no permissible pegging price
becomes available within one second after Order entry or after the
Order was removed due to the lack of a permissible pegging price and
no longer available on the Book. The Exchange may, in the exercise
of its discretion, modify the length of this maximum time period by
posting advance notice of the applicable new time period on its
website.
\15\ In this paragraph of Rule 3301B(d), the Exchange again
proposes to state that it will continue to reject a Pegged Order
entered through RASH or FIX when a permissible pegging price is
unavailable, if the Pegged Order is assigned a Routing Order
Attribute. The Exchange will continue to accept certain Market and
Primary Pegged Orders at their limit price where they have Routing
Order Attributes. The Exchange proposes to retain existing practice
for Pegged Orders with Routing Order Attributes because the Exchange
is not yet prepared to make similar changes to such Orders, although
it contemplates doing so in the near future.
---------------------------------------------------------------------------
The Exchange proposes similar changes to the paragraph of Rule
3301B(d) that applies to Pegged Orders entered through RASH or FIX that
posted to the Exchange Book. The text presently provides that if the
price to which an Order is pegged is not available, the Order will be
rejected. The Exchange proposes instead to state that if the price to
which an Order is pegged becomes unavailable or pegging would lead to a
price at which the Order cannot be posted,\16\ then the Exchange will
remove the Order from the Exchange Book and re-enter it once there is a
permissible price. Again, the Exchange proposes this change to enhance
and make the System more efficient by providing for the Exchange to re-
post the Pegged Orders rather than rejecting them when there is no
permissible pegging price and requiring participants to re-enter them
once a valid price becomes available.\17\ The Exchange notes that the
proposed change will not apply to Pegged Orders with Routing Attributes
assigned to them; the existing Rule functionality will continue to
apply to those Orders.
---------------------------------------------------------------------------
\16\ An example of a scenario where pegging would lead to a
price at which an Order cannot be posted is as follows. Assume that
the NBBO is $0.0002 x $0.0003. A Primary Pegged Order to buy is
entered with a passive offset amount of $0.0003. This would result
in the Order being made unavailable by the Exchange as -$0.0001 is
not a permissible price. Currently, the Exchange accepts such Orders
at its limit price, and will post the Orders to the Exchange Book in
accordance with the parameters that apply to the underlying Order
Type.
\17\ The Exchange proposes to apply a similar time limitation to
the holding period prescribed above. Similarly, for an Order with
Midpoint Pegging, if the Inside Bid and Inside Offer become crossed,
or there is no Inside Bid or Inside Offer, the System will cancel
the Order if no permissible price becomes available within one
second after the Order was removed and no longer available on the
Exchange Book (the Exchange may, in the exercise of its discretion
modify the length of this one second time period by posting advance
notice of the applicable time period on its website). For an Order
with Midpoint Pegging with a Routing Attribute, the new one second
time period will be applicable.
---------------------------------------------------------------------------
Rule 3301B(d) also subjects Pegging Orders to collars, meaning that
any portion of a Pegging Order that would \18\ execute, either on the
Exchange or when routed to another market center, at a price of more
than $0.25 or 5 percent worse than the NBBO at the time when the order
reaches the System, whichever is greater, will be cancelled. Although
the Rule states that it applies this collar to Orders with Primary and
Market Pegging, the Exchange has always intended for the collar to also
apply to Orders with Midpoint Pegging, and in practice, it does so. The
failure of the Rule to reflect the application of the collar to
Midpoint Pegged Orders was an unintended omission. The Exchange now
proposes to revise Rule 3301B(d) to correct this omission.
---------------------------------------------------------------------------
\18\ Additionally, the Exchange proposes to replace the word
``would'' with ``could'' in this provision, so as to clarify that
collars apply in circumstances in which Pegged Orders might execute,
but do not necessarily do so. An example of a circumstance in which
such Orders do not execute is as follows. Assume that the NBBO is
$10.00 x $10.01. A Market Pegged Order to buy posts at $10.01. The
NBBO then updates to $10.00 x $11.00. Because re-pricing and posting
the Market Pegged Order would result in the Order being available on
the Book and executable at $11.00 (outside of the collars), the
Order will be canceled.
---------------------------------------------------------------------------
Changes to the Trade Now Order Attribute
Additionally, the Exchange proposes to amend its rules governing
the Trade Now Attribute, at Rule 3301B(l). Pursuant to Rule 3301B(l),
Trade Now is an Order Attribute that allows a resting Order that
becomes locked by an incoming Displayed Order to execute against a
locking or crossing Order as a liquidity taker. The Exchange proposes
to amend Trade Now in several respects.
First, the Exchange proposes to incorporate so-called ``Midpoint
Trade Now'' functionality into the Trade Now Attribute, similar what
Nasdaq did in a recent corresponding rule filing.\19\ This
[[Page 38149]]
functionality would allow a resting Order that becomes locked at its
non-displayed price by an incoming Midpoint Peg Post-Only Order to
execute against a locking or crossing Order as a liquidity taker. This
functionality will allow market participants to have their Orders
executed as a taker of liquidity should that Order become locked at its
non-displayed price by a contra-side incoming Midpoint Peg Post-Only
Order. This functionality will therefore promote an efficient and
orderly market by allowing Orders in this scenario to execute and
resolve a locked market. Similarly, allowing a subsequent Order to
execute against a locking Midpoint Peg Post-Only Order if the resting
Order that is locked by the Midpoint Peg Post-Only Order has not
enabled the Trade Now functionality will also promote an efficient and
orderly market by allowing the incoming Order in that scenario to
execute and resolve an instance where Orders with a non-displayed price
on both the buy and sell side of the market are priced equally but not
executing against each other.
---------------------------------------------------------------------------
\19\ See Securities Exchange Act Release No. 34-92180 (June 15,
2021), 86 FR 33420 (June 24, 2021) (SR-NASDAQ-2021-044). The
Exchange notes that prior to SR-NASDAQ-2021-044, Midpoint Trade Now
was a distinct Order Attribute in the Nasdaq rulebook, first
introduced in 2018. See Securities Exchange Act Release No. 34-84621
(November 19, 2018), 83 FR 60514 (November 26, 2018) (SR-NASDAQ-
2018-090). SR-NASDAQ-2021-044 incorporated Midpoint Trade Now into
Trade Now.
---------------------------------------------------------------------------
Next, the Exchange proposes to amend Rule 3301B(l) by streamlining
and simplifying the instructions that participants must enter to
address the handling of their orders in various locking or crossing
scenarios.\20\ Specifically, rather than require a participant to
manually send a Trade Now instruction whenever an Order entered through
OUCH or FLITE becomes locked, the proposed amended Rule will allow for
a participant to enable Trade Now functionality on a port-level basis
for all Order entry protocols and for all Order Types that support
Trade Now, as well as on an order-by-order basis, for the Non-Displayed
Order Type, when entered through OUCH or FLITE.\21\ For Orders entered
through RASH or FIX, Trade Now will be available on an order-by-order
basis for all Order Types that support Trade Now. The proposal will not
extend Trade Now functionality to new Order Types.\22\ However, the
Exchange notes that it proposes conforming changes to the Midpoint Peg
Post-Only Order Type, at Rule 3301A, which already includes Trade Now,
to accommodate the adoption of Midpoint Trade Now functionality.
---------------------------------------------------------------------------
\20\ An example of a crossing scenario is as follows. A non-
displayed Order to buy rests on the Book at $0.9995. Thereafter, a
Post Only Order to sell is entered at $0.9994, which would post on
the Book and display at $0.9994, thereby crossing the non-displayed
Order as the price improvement requirements were not met.
\21\ This proposed change in functionality for OUCH and FLITE is
enabled by the migration of Trade Now to the Exchange's matching
System.
\22\ The Exchange proposes to add language to Rule 3301B(l) to
state that Trade Now allows a resting Order that becomes locked ``or
crossed, as applicable at its non-displayed price'' by the ``posted
price'' of an incoming Displayed Order to execute against a locking
or crossing Order(s) automatically. The Exchange proposes to add the
phrase ``or crossed, as applicable,'' for completeness. It also
proposes to add the phrases ``at its non-displayed price'' and
``posted price'' for purposes of clarity. They merely communicate
that the incoming Displayed Order or Midpoint Peg Post-Only Order
first posts to the Exchange Book, thereby locking or crossing the
resting Order at its non-displayed price.
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The Exchange intends to implement the foregoing changes during the
Third Quarter of 2021. The Exchange will issue an Equity Trader Alert
at least 7 days in advance of implementing the changes.
2. Statutory Basis
The Exchange believes that its proposal is consistent with Section
6(b) of the Act,\23\ in general, and furthers the objectives of Section
6(b)(5) of the Act,\24\ in particular, in that it is designed to
promote just and equitable principles of trade, to remove impediments
to and perfect the mechanism of a free and open market and a national
market system, and, in general to protect investors and the public
interest.
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\23\ 15 U.S.C. 78f(b).
\24\ 15 U.S.C. 78f(b)(5).
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The Exchange believes that its proposed amendments to the Pegging
Order Attribute, at Rule 3301B(d), are consistent with the Act. The
proposals to eliminate the functionality that provides for the System
to reject certain Pegged Orders that lack a permissible pegging price,
or to post the Orders at their limit price, are consistent with the Act
because they eliminate unwarranted inefficiencies that arise when
participants must repeatedly re-enter rejected Pegged Orders until a
permissible price becomes available.25 26 It is also
consistent with the Act to maintain the existing practice in the Rule
of rejecting a Pegged Order without a permissible pegging price where
the Order has been assigned a Routing Attribute. The Exchange is not
yet prepared to hold such Orders in the same way that it proposes to do
so for Pegged Orders without Routing Attributes, although it
contemplates doing so in the near future.
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\25\ The Exchange notes that as part of this proposed change, if
there is no Pegging Price upon entry for a Displayed Order that has
Market Pegging, or an Order with a Non-Display Attribute that has
Primary Pegging or Market Pegging, then it will no longer accept
such Orders at their limit price. The Exchange believes that this
proposed change is consistent with the Act because it better aligns
with customer intentions for Pegged Orders to post at a Pegging
Price. That is, the Exchange believes that participants prefer for
Pegged Orders to be entered at a Pegging Price, rather than its
entered limit price, even if that means that the Order must wait for
a Pegging Price to become available. As discussed above, the
Exchange does not propose this change for Pegged Orders with Routing
Attributes.
\26\ It is also consistent with the Act to limit the time period
for which the Exchange will hold, without canceling, Pegged Orders
for which there is no pegging price or permissible pegging price
because the Exchange does not believe that customers would want the
Exchange to hold their orders indefinitely. Moreover, holding such
orders indefinitely would encumber the Exchange's System. The
Exchange believes that a one second holding period for such orders
is long enough to provide the above-stated efficiencies for
participants, but not too long as to encumber them. However, the
Exchange believes that it is reasonable to reserve discretion to
alter the holding period, from time to time, should it determine
that doing so better meets the needs of customers or its System
resources.
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Moreover, the proposal to amend Rule 3301B(d) to state expressly
that Midpoint Pegging Orders are subject to price collars, like Orders
with Primary and Market Pegging, will correct an unintended omission
and ensure that the Rule is consistent with existing Exchange practice
and with customer expectations. The application of these collars will
prevent Pegged Orders from having prices that deviate too far away from
where the security was trading when the Order was first entered.\27\
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\27\ Additionally, the Exchange believes that it is consistent
with the Act to replace the word ``would'' with ``could'' in this
provision, because doing so would clarify that collars apply in
circumstances in which Pegged Orders might execute, but do not
necessarily do so. See supra, n.19.
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The Exchange's proposals to amend its rules governing the Trade Now
Attribute, at Rule 3301B(l), is consistent with the Act. First, it is
consistent with the Act to add to Trade Now so-called ``Midpoint Trade
Now'' functionality, which presently exists on Nasdaq. This
functionality will allow market participants to have their Orders
executed as a taker of liquidity should that Order become locked at its
non-displayed price by a contra-side Midpoint Peg Post-Only Order. This
functionality will therefore promote an efficient and orderly market by
allowing Orders in this scenario to execute and resolve a locked
market. Similarly, allowing a subsequent Order to execute against a
locking Midpoint Peg Post-Only Order if the resting Order that is
locked by the Midpoint Peg Post-Only Order has not enabled the Trade
Now functionality will also promote an efficient and orderly market by
allowing the incoming Order in that scenario to execute and resolve an
instance where Orders with a non-displayed price on both the buy and
sell side of the market
[[Page 38150]]
are priced equally but not executing against each other.
The proposed amendments to Trade Now will also streamline and
simplify the instructions that participants must enter to address the
handling of their orders in various locking or crossing scenarios.
Rather than require a participant to manually send a Trade Now
instruction whenever an Order entered through OUCH or FLITE becomes
locked, the proposed amended Rule will allow for a participant to
enable Trade Now functionality on a port-level basis for all Order
entry protocols and for all Order Types that support Trade Now, as well
as on an order-by-order basis, for the Non-Displayed Order Type, when
entered through OUCH and FLITE.\28\ Furthermore, it is consistent with
the Act to add language to Rule 3301B(l) to state that Trade Now allows
a resting Order that becomes locked ``or crossed, as applicable, at its
non-displayed price'' by the ``posted price'' of an incoming Displayed
Order to execute against a locking or crossing Order(s) automatically.
The Exchange proposes to add the phrase ``or crossed, as applicable,''
for completeness. The Exchange also proposes to add the phrases ``at
its non-displayed price'' and [sic] for purposes of clarity. They
merely communicate that the incoming Displayed Order or Midpoint Peg
Post-Only Order first posts to the Exchange Book, thereby locking or
crossing the resting Order at its non-displayed price.
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\28\ As noted above, for Orders entered through RASH or FIX,
Trade Now will be available on an order-by-order basis for all Order
Types that support Trade Now.
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Finally, the Exchange believes that it is consistent with the Act
to make conforming changes to the Midpoint Peg Post-Only Order Type, at
Rule 3301A, which already includes Trade Now, to accommodate the
adoption of Midpoint Trade Now functionality.
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. As a general principle, the
proposed changes are reflective of the significant competition among
exchanges and non-exchange venues for order flow. In this regard,
proposed changes that facilitate enhancements to the Exchange's System
and order entry protocols as well as those that amend and clarify the
Exchange's Rules regarding its Order Attributes, are pro-competitive
because they bolster the efficiency, integrity, and overall
attractiveness of the Exchange in an absolute sense and relative to its
peers.
Moreover, none of the proposed changes will unduly burden intra-
market competition among various Exchange participants. Participants
will experience no competitive impact from its proposals to hold (up to
one second), rather than reject (or accept at their limit price),
Pegging Orders (other than those with Routing Attributes) in
circumstances in which no permissible pegging price is available, as
these proposals will merely eliminate unwarranted inefficiencies that
ensue from the System requiring participants to repeatedly re-enter
Pegged Orders until a price becomes available, or the System posting
Pegged Orders at their limit prices, if there is no pegging price.
Moreover, the proposal to amend Rule 3301B(d) to state expressly that
Midpoint Pegging Orders are subject to price collars, like Orders with
Primary and Market Pegging, will have no competitive impact as the
proposal is consistent with existing Exchange practice and with
customer expectations.
The Exchange's proposals to amend its rules governing Trade Now
will have no adverse competitive impact on participants. The proposed
addition of Midpoint Trade Now functionality will expand the Exchange's
capabilities relative to competitors, thereby rendering it a more
attractive trading venue. Moreover, this new functionality is optional
for participants to employ. Meanwhile, the other proposed changes to
Rule 3301B(l) will render the Trade Now Order Attribute more efficient
and easier for participants to utilize. The proposed conforming changes
to the Midpoint Peg Post-Only Order Type, at Rule 3301A, will merely
accommodate the adoption of Midpoint Trade Now functionality.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
No written comments were either solicited or received.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
Because the foregoing proposed rule change does not: (i)
Significantly affect the protection of investors or the public
interest; (ii) impose any significant burden on competition; and (iii)
become operative for 30 days from the date on which it was filed, or
such shorter time as the Commission may designate, it has become
effective pursuant to Section 19(b)(3)(A) of the Act \29\ and Rule 19b-
4(f)(6) thereunder.\30\
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\29\ 15 U.S.C. 78s(b)(3)(A).
\30\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)(iii)
requires a self-regulatory organization to give the Commission
written notice of its intent to file the proposed rule change, along
with a brief description and text of the proposed rule change, at
least five business days prior to the date of filing of the proposed
rule change, or such shorter time as designated by the Commission.
The Exchange has satisfied this requirement.
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At any time within 60 days of the filing of the proposed rule
change, the Commission summarily may temporarily suspend such rule
change if it appears to the Commission that such action is necessary or
appropriate in the public interest, for the protection of investors, or
otherwise in furtherance of the purposes of the Act. If the Commission
takes such action, the Commission shall institute proceedings to
determine whether the proposed rule change should be approved or
disapproved.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
Electronic Comments
Use the Commission's internet comment form (https://www.sec.gov/rules/sro.shtml); or
Send an email to [email protected]. Please include
File Number SR-Phlx-2021-40 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-2021-40. 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
[[Page 38151]]
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-2021-40, and should be
submitted on or before August 9, 2021.
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\31\ 17 CFR 200.30-3(a)(12).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\31\
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2021-15186 Filed 7-16-21; 8:45 am]
BILLING CODE 8011-01-P
