Self-Regulatory Organizations; Nasdaq PHLX LLC; Notice of Filing of Proposed Rule Change To Amend Equity 4, Rules 3301A and 3301B To Establish New “Contra Midpoint Only” and “Contra Midpoint Only With Post-Only” Order Types and To Make Other Corresponding Changes to the Rulebook, 62129-62134 [2023-19358]
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Federal Register / Vol. 88, No. 173 / Friday, September 8, 2023 / Notices
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 22 and Rule 19b–
4(f)(6) 23 thereunder.
A proposed rule change filed under
Rule 19b–4(f)(6) 24 normally does not
become operative prior to 30 days after
the date of the filing. However, pursuant
to Rule 19b–4(f)(6)(iii),25 the
Commission may designate a shorter
time if such action is consistent with the
protection of investors and the public
interest. The Exchange has asked the
Commission to waive the 30-day
operative delay so that the proposed
rule change may become operative upon
filing. The Exchange requested the
waiver, stating its desire to harmonize
its rules to those of NYSE American to
ensure fair competition among the
options exchanges. Further, the
proposed change would allow options
on IPO’d securities to come to market
sooner (i.e., at least two business days
post-IPO not inclusive of the day of the
IPO) without sacrificing investor
protection. For these reasons, and
because the proposed rule change does
not raise any novel legal or regulatory
issues, the Commission believes that
waiving the 30-day operative delay is
consistent with the protection of
investors and the public interest.
Therefore, the Commission hereby
waives the 30-day operative delay and
designates the proposal operative upon
filing.26
At any time within 60 days of the
filing of the proposed rule change, the
Commission summarily may
temporarily suspend such rule change if
it appears to the Commission that such
action is necessary or appropriate in the
public interest, for the protection of
investors, or otherwise in furtherance of
the purposes of the Act. If the
Commission takes such action, the
Commission shall institute proceedings
to determine whether the proposed rule
change should be approved or
disapproved.
22 15
U.S.C. 78s(b)(3)(A).
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, 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.
24 17 CFR 240.19b–4(f)(6).
25 17 CFR 240.19b–4(f)(6)(iii).
26 For purposes only of waiving the 30-day
operative delay, the Commission has also
considered the proposed rule’s impact on
efficiency, competition, and capital formation. See
15 U.S.C. 78c(f).
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23 17
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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–
CBOE–2023–043 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–CBOE–2023–043. 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
a.m. and 3 p.m. Copies of the filing also
will be available for inspection and
copying at the principal office of the
Exchange. Do not include personal
identifiable information in submissions;
you should submit only information
that you wish to make available
publicly. We may redact in part or
withhold entirely from publication
submitted material that is obscene or
subject to copyright protection. All
submissions should refer to file number
SR–CBOE–2023–043 and should be
submitted on or before September 29,
2023.
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62129
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.27
Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2023–19355 Filed 9–7–23; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No, 34–98280; File No. SR–PHLX–
2023–40]
Self-Regulatory Organizations; Nasdaq
PHLX LLC; Notice of Filing of
Proposed Rule Change To Amend
Equity 4, Rules 3301A and 3301B To
Establish New ‘‘Contra Midpoint Only’’
and ‘‘Contra Midpoint Only With PostOnly’’ Order Types and To Make Other
Corresponding Changes to the
Rulebook
September 1, 2023.
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 August
28, 2023, Nasdaq PHLX LLC (‘‘Phlx’’ or
‘‘Exchange’’) filed with the Securities
and Exchange Commission
(‘‘Commission’’) the proposed rule
change as described in Items I, II, and
III, below, which Items have been
prepared by the Exchange. The
Commission is publishing this notice to
solicit comments on the proposed rule
change from interested persons.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The Exchange proposes to amend
Equity 4, Rules 3301A and 3301B 3 to
establish new ‘‘Contra Midpoint Only’’
and ‘‘Contra Midpoint Only with PostOnly’’ Order Types, and to make other
corresponding changes to the Rulebook.
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
27 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
3 References herein to Phlx Rules in the 3000
Series shall mean Rules in Phlx Equity 4.
1 15
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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
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1. Purpose
The Exchange proposes to amend
Equity 4, Rule 3301A(b) to establish
‘‘Contra Midpoint Only’’ or ‘‘CMO’’ and
‘‘Contra Midpoint Only with Post-Only’’
or ‘‘CMO+PO’’ as new Order Types on
the Exchange.
A CMO is a Non-Displayed Order
Type priced at the midpoint between
the National Best Bid and the National
Best Offer (the ‘‘NBBO’’ and the
midpoint of the NBBO, the ‘‘Midpoint’’).
The Exchange will remove a CMO
resting on the Order Book upon entry of
certain types of incoming Orders that
are likely to result in unfavorable
executions, including because the
incoming Orders are likely to indicate
price movements that would be more
favorable to the resting CMO user than
the prevailing price. Thus, the CMO
provides protection to the resting CMO
user against executions at the prevailing
Midpoint price that the user may deem
unfavorable. As explained below, once
the System removes a CMO under these
circumstances, the Exchange would
submit a new CMO at the then-current
Midpoint price automatically on behalf
of the user.4
A CMO+PO is like a CMO, except that
it provides for ‘‘post-only’’
functionality, meaning that like a
Midpoint Peg Post-Only Order,5 a
CMO+PO will execute upon entry only
in circumstances where economically
beneficial to the party entering the
Order.
The CMO and CMO+PO are Order
Types that the Exchange has developed
to provide market participants with
options that allow them to make their
own determinations with regards to
various trade-offs that exist when
executing their strategies in the markets.
One such trade off might be the amount
of liquidity they can obtain in the near
term versus the potential for market
4 In certain instances below, the Exchange uses
the term ‘‘removal’’ rather than the term
‘‘cancellation’’ to describe how the System would
behave when handling a CMO. When the Exchange
removes a CMO from its Order Book, it would not
send a cancellation message when doing so, thus
limiting the potential for information leakage.
5 See Rule 3301A(b)(6).
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movement relative to the Midpoint
price. Some participants may value
avoiding immediate executions in order
to wait for a better price while others
would rather obtain the liquidity
instead of waiting.
In this regard, CMO resembles an
order type that the Exchange’s sister
market, the Nasdaq Stock Market LLC
(‘‘Nasdaq’’), introduced in 2018—the
Midpoint Extended Life Order (‘‘M–
ELO’’).6 Like CMO, M–ELO is also a
non-displayed Order Type that executes
only at the Midpoint. It is eligible to
execute only against other M–ELOs, and
it protects users from interacting with
time-sensitive orders by requiring them
to wait a period of time (a ‘‘Holding
Period’’) before their M–ELO is eligible
to execute (originally one-half second,
and subsequently reduced to 10
milliseconds).7 In 2019, Nasdaq
enhanced the M–ELO concept by adding
the Midpoint Extended Life Order Plus
Continuous Book (‘‘M–ELO+CB’’).8 A
M–ELO+CB behaves exactly like a M–
ELO, except that it may also interact
with Midpoint Orders on Nasdaq’s
Continuous Book (and thus have access
to larger sources of liquidity) to the
extent that such Midpoint Orders, in
turn, opt to rest on the Continuous Book
for at least 10 milliseconds before
becoming eligible to execute against a
M–ELO+CB. CMO and CMO+PO are
variations on the M–ELO/M–ELO+CB
theme. M–ELOs only trade against other
Orders from like-minded participants
that are willing to wait the required time
period before trading. CMOs and
CMO+POs, by contrast, can trade in a
wider array of situations, but like M–
ELO, they will not trade in instances
where the incoming order is likely to
impact the prevailing price of the
security. This will provide users of
CMOs and CMO+POs with
opportunities for more liquidity
interaction than M–ELO but without a
delay mechanism. On the other hand,
CMOs and CMO+POs will provide more
protection to users than regular
Midpoint Orders, but with less
opportunity to interact with liquidity.
Instead of imposing a waiting period,
the Exchange will remove a resting
6 See Securities Exchange Act Release No. 34–
82825 (Mar. 7, 2018), 83 FR 10937 (Mar. 13, 2018)
(order approving SR–NASDAQ–2017–074).
7 In 2020, the Commission issued an order
approving the Nasdaq’s proposal to shorten the
Holding Period for M–ELO and M–ELO+CB Orders
from one-half second to 10 milliseconds. See
Securities Exchange Act Release No. 34–88743
(April 24, 2020), 85 FR 24068 (April 30, 2020)
(order approving SR–NASDAQ–2020–011).
8 See Securities Exchange Act Release No. 34–
86938 (September 11, 2019), 84 FR 48978
(September 17, 2019) (order approving SR–
NASDAQ–2019–048).
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CMO when it faces incoming orders that
have the potential to shift the Midpoint,
while also providing an opportunity to
a participant to receive price
improvement when the System
resubmits its CMO or CMO+PO to take
advantage of a shift in the Midpoint.
The specific proposed characteristics
of the CMO are as follows:
A CMO is a non-displayed Order
Type with the Midpoint Pegging
Attribute that will be priced and ranked
in time order at the Midpoint. A user
may cancel a CMO at any time.
The System will remove a CMO Order
automatically if a CMO is resting at the
Midpoint on the PSX Book, an incoming
Order is priced through the price of the
CMO, the CMO would otherwise trade
against the incoming Order,9 and one or
more of the following conditions apply,
which the Exchange anticipates are
indicative of a pending price shift in
favor of the CMO user:
• The incoming Order is Displayed
and its size is greater than that of the
resting CMO; or
• The incoming Order is not
Displayed, it is priced at or better than
the far side of the NBBO, and its size is
greater than that of the resting CMO.
Again, in the first of these scenarios,
the Exchange observes that the
incoming Order has the potential to
cause the NBBO to shift, such that
removal of the CMO will be preferable
to allowing the CMO to execute at a
Midpoint price that may be stale. The
System will then automatically resubmit a new CMO on behalf of the user
after removing the original CMO. In the
second scenario, the incoming Order
may not cause a shift in the NBBO, due
to its hidden nature, but because it is
priced aggressively at the far side of the
NBBO, it still offers a CMO user an
opportunity for an execution that is
more favorable than the prevailing
midpoint price. CMO functionality
enables a participant to avail itself of
this opportunity.
The following examples illustrate this
concept. In the first example, assume
that the National Best Bid is $10.00 and
the National Best Offer is $11.00.
Participant A enters Order 1, which is
a CMO to buy 100 shares of X that is
priced at $10.50—the midpoint of the
NBBO. While Order 1 is resting on the
Exchange Book, Participant B enters
Order 2, which is a Displayed Order to
sell 200 shares of X at $10.40. In this
instance, Order 2 is larger than Order 1.
If Order 1 was not a CMO and it had
9 For example, if the incoming Order is filled
fully by resting interest with price/time priority
ahead of the resting CMO Order, then the System
will not remove the CMO Order from the Order
Book.
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executed against Order 2 at $10.50, then
Participant A would have missed out on
the favorable impact of Order 2 shifting
the midpoint of the NBBO lower to
$10.20. To avoid this outcome, however,
the System would remove Order 1 from
the Exchange Book and resubmit it as
Order 3, priced at $10.20. Participant C
then enters Order 4 to sell 100 shares of
X at 10.20. Order 3 would then execute
against Order 4 at $10.20, thus
providing Participant A with price
improvement.
In a second example, assume again
that the National Best Bid is $10.00 and
the National Best Offer is $11.00.
Participant A again enters Order 1,
which is a CMO to buy 100 shares of X
that is priced at $10.50. While Order 1
is resting on the Exchange Book,
Participant B enters Order 2, which this
time is a Non-Displayed Order to sell
200 shares at $10.00. CMO functionality
would activate for Order 1 both because
Order 2 is larger than Order 1 and
because Order 2 is priced at the far side
of the NBBO. The System would
resubmit Order 1 as Order 3, priced at
$10.00. Order 3 would then execute at
$10.00, again providing price
improvement to Participant A.10
Additionally, because a CMO
inherently possesses the Midpoint
Pegging Attribute, it will behave in
accordance with Rule 3301B(d), which
governs Orders with Midpoint Pegging.
Thus, consistent with Rule 3301B(d),
the following behavior applies to CMOs:
• A CMO user may only enter a CMO
Order during Market Hours.
• A CMO will have its price set upon
initial entry and will thereafter have its
price reset in accordance with changes
to the relevant Inside Quotation. A CMO
will receive a new timestamp whenever
its price is updated 11 and therefore will
be evaluated with respect to possible
execution in the same manner as a
newly entered Order. If the price to
which a CMO is pegged becomes
unavailable, pegging would lead to a
price at which the CMO cannot be
posted, or if the Inside Bid and Inside
Offer become crossed, then the CMO
will be removed from the PSX Book and
will be re-entered once there is a
permissible price, provided however,
that the System will cancel the CMO if
no permissible pegging price becomes
available within one second after the
10 There also may be scenarios where use of CMO
might not ultimately benefit market participants,
such as where the amount of price improvement
associated with use of CMO is outweighed by the
fee a participant would incur when its CMO is
deemed to remove liquidity from the Exchange
Book.
11 A CMO will also receive a new timestamp
whenever it is resubmitted after removal.
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CMO was removed and no longer
available on the PSX 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).12
• If at the time of entry, there is no
price to which a CMO, that has not been
assigned a Time in Force of Immediateor-Cancel, can be pegged or pegging
would lead to a price at which the Order
cannot be posted, or if the Inside Bid
and Inside Offer are Crossed, then the
CMO will not be immediately available
on the PSX Book and will be entered
once there is a permissible price;
provided however, that the System will
cancel the CMO if no permissible
pegging price becomes available within
one second after Order entry (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).
• A CMO will have its price set upon
initial entry to the Midpoint, unless the
CMO has a limit price, and that limit
price is lower than the Midpoint for a
CMO to buy (higher than the Midpoint
for CMO to sell), in which case the
Order will be ranked on the PSX Book
at its limit price. If the Inside Bid and
Inside Offer are locked, a CMO will be
priced at the locking price. However,
even if the Inside Bid and Inside Offer
are locked, an Order with CMO that
locked an Order on the PSX Book would
execute.
• If a CMO has been assigned a
Discretion Order Attribute, the CMO
may execute at any price within the
discretionary price range, even if
beyond the limit price specified with
respect to the Midpoint Pegging Order
Attribute. If CMO is priced at its limit
price, the price of the CMO may
nevertheless be changed to a less
aggressive price based on changes to the
Inside Quotation.
Unlike other Orders with the
Midpoint Pegging Attribute, CMOs
cannot be assigned a Routing Attribute,
such that provisions of the Midpoint
Pegging Rule that govern Midpoint
Pegged Orders with Routing do not
apply to CMOs.
As noted above, a CMO will not be
accepted outside of Market Hours. A
CMO remaining unexecuted at the end
of Market Hours will be cancelled by the
System.
The System will cancel CMOs when
a trading halt is declared, and the
12 A
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user may enter a CMO using RASH or OUCH.
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62131
System will reject any CMOs entered
during a trading halt.13
A CMO user may opt to apply the
Minimum Quantity, Trade Now, or
Discretion Order Attributes and a TimeIn-Force to a CMO. Again, the NonDisplay and Midpoint Pegging
Attributes always apply to CMOs.
A CMO+PO will possess all the
characteristics and attributes of a CMO,
as described above, as well as those of
a Managed Midpoint Peg Post-Only
Order, as set forth in Rule 3301A(b)(6),
with certain exceptions set forth below.
Like a Midpoint Peg Post-Only Order,
a CMO+PO is a Non-Displayed Order
that is priced at the Midpoint and
executes upon entry only in
circumstances where economically
beneficial to the party entering the
Order.
Like a Midpoint Peg Post-Only Order,
the price of the CMO+PO will be
updated repeatedly to equal the
midpoint between the NBBO; provided,
however, that the CMO+PO will not be
priced higher (lower) than its limit
price. In the event that the Midpoint
between the NBBO becomes higher than
(lower than) the limit price of a
CMO+PO to buy (sell), the price of the
CMO+PO will stop updating and the
CMO+PO will post (with a Non-Display
Attribute) at its limit price, but will
resume updating if the Midpoint
becomes lower than (higher than) the
limit price of the CMO+PO to buy (sell).
Similarly, if a CMO+PO is on the PSX
Book and subsequently the NBBO is
crossed, or if there is no NBBO, the
Order will be removed from the PSX
Book and will be re-entered at the new
Midpoint once there is a valid NBBO
that is not crossed. The CMO+PO
receives a new timestamp each time its
price is changed.
All CMO+POs will be cancelled if
they remain on the PSX Book at the end
of Market Hours.14 Also like a Midpoint
Peg Post-Only Order, a CMO+PO may
not possess the Discretion or Routing
Order Attributes, and a CMO+PO must
be priced at more than $1 per share.
Finally, unlike a Midpoint Peg PostOnly Order, RASH may be used to enter
13 The Exchange also proposes to amend the
Exchange’s Rule governing Midpoint Pegging, at
Rule 3301B(d), to add language stating that ‘‘Orders
with Midpoint Pegging will be cancelled by the
System when a trading halt is declared, and any
Orders with Midpoint Pegging entered during a
trading halt will be rejected.’’ Such language exists
in a corresponding rule of the rulebook of the
Exchange’s sister exchange, the Nasdaq Stock
Market, LLC, see Nasdaq Rule 4703(d), but was
mistakenly omitted from Rule 3301B(d).
14 A CMO+PO entered prior to the beginning of
Market Hours will be rejected. A CMO+PO will be
cancelled by the System when a trading halt is
declared, and any CMO+PO entered during a
trading halt will be rejected.
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a CMO+PO with a Time in Force of IOC
(as well as OUCH, which can be used
for such purposes with respect to a
MPPO), and in such cases the Order will
be canceled after determining whether it
can be executed.
CMO and CMO+PO executions will
be reported to Securities Information
Processors and provided in the
Exchange’s proprietary data feed
without any new or special indication.
As part of the surveillance the
Exchange currently performs, CMOs and
CMO+POs will be subject to real-time
surveillance to determine if they are
being abused by market participants.
The Exchange is committed to
determining whether there is
opportunity or prevalence of behavior
that is inconsistent with normal risk
management behavior. Manipulative
abuse is subject to potential disciplinary
action under the Exchange’s Rules, and
other behavior that is not necessarily
manipulative but nonetheless frustrates
the purposes of the CMO or CMO+PO
may be subject to penalties or other
participant requirements to discourage
such behavior, should it occur.15
The Exchange plans to implement
CMO and CMO+PO within thirty days
after Commission approval of the
proposal. The Exchange will make the
CMO and CMO+PO available to all
members and to all securities upon
implementation. The Exchange will
announce the implementation date by
Equity Trader Alert.16
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
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15 Punitive fees or other participant requirements
tied to CMO and CMO+PO usage will be
implemented by rule filing under Section 19(b) of
the Act, 15 U.S.C. 78s(b), should the Exchange
determine that they are necessary to maintain a fair
and orderly market.
16 The Exchange plans to propose a fee structure
for the CMO and CMO+PO in a subsequent
Commission rule filing.
17 15 U.S.C. 78f(b).
18 15 U.S.C. 78f(b)(5).
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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. In
particular, the proposal is consistent
with the Act because it would create
additional options with respect to how
participants can manage trading at the
Midpoint. These additional options
allow participants to tune their
interactions more finely in the market,
which can lead to more efficient trading
opportunities on the Exchange for
investors with similar investment
objectives.19 Much like the analogous
M–ELO Order Type, which Nasdaq
introduced a few years ago, CMO and
CMO+PO would provide market
participants with a means to avoid
certain execution scenarios which they
may deem unfavorable. Unlike M–ELO,
however, which imposes a waiting
period upon participants to bring likeminded participants together, the CMO
and CMO+PO would have no such
waiting period. That is, the Exchange
designed CMO and CMO+PO for
participants that want Midpoint or
better executions but have a greater
urgency to execute their orders and are
not concerned about interacting with
other participants acting with similar or
more urgency. At the same time, the
CMO and CMO+PO will avoid
interacting with orders that have the
potential to shift the Midpoint, even
without a holding period, by providing
for the System to remove a CMO or
CMO+PO from the Order Book when
faced with incoming Orders that cross
the Midpoint or otherwise have the
potential to shift the Midpoint. The
System will then automatically enter a
new CMO to take advantage of a better
ensuing Midpoint.
19 Cf. Securities Exchange Act Release No. 34–
82825 (March 7, 2018), 83 FR 10937 (March 13,
2018) (SR–NASDAQ–2017–074) (approving the
Midpoint Extended Life Order (‘‘M–ELO’’) because
it could ‘‘create additional and more efficient
trading opportunities on the Exchange for investors
with longer investment time horizons, including
institutional investors, and could provide these
investors with an ability to limit the information
leakage and the market impact that could result
from their orders.’’).
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The CMO and CMO+PO will be
available for voluntary use by all
Exchange members. Although the
proposal would enable market
participants that use CMOs to avoid
potentially adverse executions, while
causing participants to miss executions
to the extent that their incoming Orders
trigger removal of CMOs, this treatment
is fair. That is, the proposal would
facilitate the provision of marketenhancing midpoint liquidity by
providing a mechanism by which
participants could post such liquidity
safely and without fear of adverse
executions. Exchange functionality
which permits like-minded participants
the ability to achieve their objectives in
an efficient manner will improve overall
execution quality on the market.
Moreover, the protections that these
Order Types provide are tailored to
mitigate the risk of adverse executions,
even though the entry of either an
incoming Displayed Order larger than a
CMO or an incoming spread-crossing
Non-Displayed Order larger than a CMO
would not necessarily result in an
adverse execution in every conceivable
circumstance.20 As the chart below
demonstrates, mark-outs are
significantly worse after executions
against incoming contra-orders in the
two scenarios covered by the proposed
Rule than they are after executions in
other scenarios. This data suggests that
the CMO and CMO+PO would, indeed,
help participants avoid poor quality
executions that would likely occur
otherwise.
20 Cf. Order Approving a Proposed Rule Change
to Add a New Discretionary Limit Order Type
Called D-Limit, Securities Exchange Act Release
No. 34–89686 (August 26, 2020), 85 FR 54438
(September 1, 2020) (SR–IEX–2019–15) (‘‘D-Limit
orders will encourage long term investors to
participate in the displayed exchange market by
protecting them against one particular strategy
employed by short term traders. It is not unfairly
discriminatory for an exchange to address that
advantage in a narrowly tailored manner that
promotes investor protection and the public
interest. Accordingly, the Commission concludes
that IEX’s proposal is not designed to permit unfair
discrimination between customers, issuers, brokers,
or dealers.’’).
E:\FR\FM\08SEN1.SGM
08SEN1
all midpoint executions adding liquidity
on the Exchange.
Like all other Order Types, the
Exchange will conduct real-time
surveillance to monitor the use of CMOs
and CMO+POs to ensure that such usage
is appropriately tied to the intent of the
Order Type. Transactions in CMOs and
CMO+POs will be reported to the
Securities Information Processor and
will be provided in the Exchange’s
proprietary data feed in the same
manner as all other transactions
occurring on the Exchange, without any
new or special indication that it is a
CMO or CMO+PO execution. The
Exchange believes that doing so is
important to ensuring that investors are
protected from any market impact that
may occur if CMO executions were
reported with a special indication.
The Exchange does not believe that
the proposed CMO or CMO+PO will
negatively affect the quality of the
market. To the contrary, the Exchange
believes that the addition of CMO and
CMO+PO will draw new market
participants to the Exchange’s
transparent and well-regulated market.
The CMO and CMO+PO will allow
investors an opportunity to find likeminded counterparties at the Midpoint
on the Exchange, while also limiting
executions users may deem unfavorable
and providing opportunities for price
improvement. Insofar as the CMO and
CMO+PO would provide new options
for participants to achieve efficient,
high-quality midpoint executions, the
CMO and CMO+PO stands to increase
participation on the Exchange and to
improve the quality of executions on the
Exchange.
Lastly, it is consistent with the Act to
amend the Exchange’s Rule governing
Midpoint Pegging, at Rule 3301B(d), to
add language stating that ‘‘Orders with
Midpoint Pegging will be cancelled by
the System when a trading halt is
declared, and any Orders with Midpoint
Pegging entered during a trading halt
will be rejected.’’ Such language exists
in a corresponding rule of the rulebook
of the Exchange’s sister exchange, the
VerDate Sep<11>2014
17:30 Sep 07, 2023
Jkt 259001
PO 00000
Frm 00088
Fmt 4703
Sfmt 4703
Nasdaq Stock Market, LLC, at Nasdaq
Rule 4703(d), but was mistakenly
omitted from Rule 3301B(d). In
additional to correcting an inadvertent
omission of this language from the
Exchange’s Rulebook, the proposed text
codifies existing Exchange practice and
corresponds to participant expectations
for the behavior of Orders with
Midpoint Pegging during trading halts.
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 believes that the
introduction of the CMO and CMO+PO
will draw new market participants to
the Exchange while also providing a
new option for existing participants that
wish to achieve high-quality Midpoint
(or better) executions, but do not wish
for their Orders to be subject to a
E:\FR\FM\08SEN1.SGM
08SEN1
EN08SE23.015</GPH>
The Exchange also notes that the
scenarios in which CMO and CMO+PO
would apply constitute only a quarter of
62133
EN08SE23.014</GPH>
lotter on DSK11XQN23PROD with NOTICES1
Federal Register / Vol. 88, No. 173 / Friday, September 8, 2023 / Notices
lotter on DSK11XQN23PROD with NOTICES1
62134
Federal Register / Vol. 88, No. 173 / Friday, September 8, 2023 / Notices
Holding Period (as in M–ELO or M–
ELO+CB orders on Nasdaq) or care
about their counterparties being subject
to the same. To the extent the proposed
change is successful in attracting
additional market participants or
increasing existing participation on the
Exchange, the Exchange believes that
the proposed change will promote
competition among trading venues by
making the Exchange a more attractive
trading venue for investors and
participants.
Additionally, adoption of the CMO
and CMO+PO will not burden
competition among market participants.
The CMO and CMO+PO will be
available to all Exchange members and
it will be available on an optional basis.
Thus, any member that seeks to avail
itself of the benefits of a CMO or
CMO+PO can choose accordingly.
Although the proposal provides
potential benefits for investors that
select the CMO and CMO+PO, the
Exchange believes that all market
participants will benefit to the extent
that this proposal contributes to a
healthy and attractive market that is
attentive to the needs of all types of
investors.
The proposal also will not adversely
impact market participants that choose
not to use these Order Types because no
changes need to be made to participants’
systems to account for it. As discussed
above, CMO and CMO+PO executions
will be reported the same as other
executions, without any new or special
indicator.
In any event, the Exchange notes that
it operates in a highly competitive
market in which market participants can
readily choose between competing
venues if they deem participation in the
Exchange’s market is no longer
desirable. In such an environment, the
Exchange must carefully consider the
impact that any change it proposes may
have on its participants, understanding
that it will likely lose participants to the
extent a change is viewed as
unfavorable by them. Because
competitors are free to modify the
incentives and structure of their
markets, the Exchange believes that the
degree to which modifying the market
structure of an individual market may
impose any burden on competition is
limited. Last, to the extent the proposed
change is successful in attracting
additional market participants or
additional activity by existing
participants, the Exchange also believes
that the proposed change will promote
competition among trading venues by
making the Exchange a more attractive
trading venue for participants and
investors.
VerDate Sep<11>2014
17:30 Sep 07, 2023
Jkt 259001
The Exchange perceives no
competitive impact associated with
amending the Exchange’s Rule
governing Midpoint Pegging, at Rule
3301B(d), to add language stating that
‘‘Orders with Midpoint Pegging will be
cancelled by the System when a trading
halt is declared, and any Orders with
Midpoint Pegging entered during a
trading halt will be rejected.’’ This
proposal merely adds language that had
been mistakenly omitted from the
Exchange’s Rulebook, but which exists
in the corresponding rules of the Nasdaq
Stock Market, LLC, and codifies existing
Exchange practice as to Orders with
Midpoint Pegging during a trading halt.
C. Self-Regulatory Organization’s
Statement on Comments on the
Proposed Rule Change Received From
Members, Participants, or Others
No written comments were either
solicited or received.
III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
Within 45 days of the date of
publication of this notice in the Federal
Register or within such longer period (i)
as the Commission may designate up to
90 days of such date if it finds such
longer period to be appropriate and
publishes its reasons for so finding or
(ii) as to which the Exchange consents,
the Commission shall: (a) by order
approve or disapprove such proposed
rule change, or (b) institute proceedings
to determine whether the proposed rule
change should be disapproved.
IV. Solicitation of Comments
Interested persons are invited to
submit written data, views and
arguments concerning the foregoing,
including whether the proposed rule
change is consistent with the Act.
Comments may be submitted by any of
the following methods:
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–2023–40 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–2023–40. This file
number should be included on the
subject line if email is used. To help the
Commission process and review your
PO 00000
Frm 00089
Fmt 4703
Sfmt 4703
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
a.m. and 3 p.m. Copies of the filing also
will be available for inspection and
copying at the principal office of the
Exchange. Do not include personal
identifiable information in submissions;
you should submit only information
that you wish to make available
publicly. We may redact in part or
withhold entirely from publication
submitted material that is obscene or
subject to copyright protection. All
submissions should refer to file number
SR–PHLX–2023–40 and should be
submitted on or before September 29,
2023.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.21
Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2023–19358 Filed 9–7–23; 8:45 am]
BILLING CODE 8011–01–P
SMALL BUSINESS ADMINISTRATION
SBA Council on Underserved
Communities Meeting
AGENCY:
Small Business Administration
(SBA).
Notice of Federal advisory
committee meeting.
ACTION:
The SBA is issuing this notice
to announce the location, date, time,
and agenda for the fourth meeting of the
SBA Council on Underserved
Communities. The meeting will be in
person for Council members and
streamed live to the public.
DATES: The meeting will be held on
Wednesday, September 13th, 2023, from
9:30 a.m. to 12:30 p.m. Eastern Time.
ADDRESSES: The Council on
Underserved Communities will meet at
SUMMARY:
21 17
E:\FR\FM\08SEN1.SGM
CFR 200.30–3(a)(12).
08SEN1
]]>Agencies
[Federal Register Volume 88, Number 173 (Friday, September 8, 2023)]
[Notices]
[Pages 62129-62134]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2023-19358]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No, 34-98280; File No. SR-PHLX-2023-40]
Self-Regulatory Organizations; Nasdaq PHLX LLC; Notice of Filing
of Proposed Rule Change To Amend Equity 4, Rules 3301A and 3301B To
Establish New ``Contra Midpoint Only'' and ``Contra Midpoint Only With
Post-Only'' Order Types and To Make Other Corresponding Changes to the
Rulebook
September 1, 2023.
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 August 28, 2023, Nasdaq PHLX LLC (``Phlx'' or ``Exchange'') filed
with the Securities and Exchange Commission (``Commission'') the
proposed rule change as described in Items I, II, and III, below, which
Items have been prepared by the Exchange. The Commission is publishing
this notice to solicit comments on the proposed rule change from
interested persons.
---------------------------------------------------------------------------
\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, Rules 3301A and 3301B \3\
to establish new ``Contra Midpoint Only'' and ``Contra Midpoint Only
with Post-Only'' Order Types, and to make other corresponding changes
to the Rulebook.
---------------------------------------------------------------------------
\3\ References herein to Phlx Rules in the 3000 Series shall
mean Rules in Phlx Equity 4.
---------------------------------------------------------------------------
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
[[Page 62130]]
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 Equity 4, Rule 3301A(b) to establish
``Contra Midpoint Only'' or ``CMO'' and ``Contra Midpoint Only with
Post-Only'' or ``CMO+PO'' as new Order Types on the Exchange.
A CMO is a Non-Displayed Order Type priced at the midpoint between
the National Best Bid and the National Best Offer (the ``NBBO'' and the
midpoint of the NBBO, the ``Midpoint''). The Exchange will remove a CMO
resting on the Order Book upon entry of certain types of incoming
Orders that are likely to result in unfavorable executions, including
because the incoming Orders are likely to indicate price movements that
would be more favorable to the resting CMO user than the prevailing
price. Thus, the CMO provides protection to the resting CMO user
against executions at the prevailing Midpoint price that the user may
deem unfavorable. As explained below, once the System removes a CMO
under these circumstances, the Exchange would submit a new CMO at the
then-current Midpoint price automatically on behalf of the user.\4\
---------------------------------------------------------------------------
\4\ In certain instances below, the Exchange uses the term
``removal'' rather than the term ``cancellation'' to describe how
the System would behave when handling a CMO. When the Exchange
removes a CMO from its Order Book, it would not send a cancellation
message when doing so, thus limiting the potential for information
leakage.
---------------------------------------------------------------------------
A CMO+PO is like a CMO, except that it provides for ``post-only''
functionality, meaning that like a Midpoint Peg Post-Only Order,\5\ a
CMO+PO will execute upon entry only in circumstances where economically
beneficial to the party entering the Order.
---------------------------------------------------------------------------
\5\ See Rule 3301A(b)(6).
---------------------------------------------------------------------------
The CMO and CMO+PO are Order Types that the Exchange has developed
to provide market participants with options that allow them to make
their own determinations with regards to various trade-offs that exist
when executing their strategies in the markets. One such trade off
might be the amount of liquidity they can obtain in the near term
versus the potential for market movement relative to the Midpoint
price. Some participants may value avoiding immediate executions in
order to wait for a better price while others would rather obtain the
liquidity instead of waiting.
In this regard, CMO resembles an order type that the Exchange's
sister market, the Nasdaq Stock Market LLC (``Nasdaq''), introduced in
2018--the Midpoint Extended Life Order (``M-ELO'').\6\ Like CMO, M-ELO
is also a non-displayed Order Type that executes only at the Midpoint.
It is eligible to execute only against other M-ELOs, and it protects
users from interacting with time-sensitive orders by requiring them to
wait a period of time (a ``Holding Period'') before their M-ELO is
eligible to execute (originally one-half second, and subsequently
reduced to 10 milliseconds).\7\ In 2019, Nasdaq enhanced the M-ELO
concept by adding the Midpoint Extended Life Order Plus Continuous Book
(``M-ELO+CB'').\8\ A M-ELO+CB behaves exactly like a M-ELO, except that
it may also interact with Midpoint Orders on Nasdaq's Continuous Book
(and thus have access to larger sources of liquidity) to the extent
that such Midpoint Orders, in turn, opt to rest on the Continuous Book
for at least 10 milliseconds before becoming eligible to execute
against a M-ELO+CB. CMO and CMO+PO are variations on the M-ELO/M-ELO+CB
theme. M-ELOs only trade against other Orders from like-minded
participants that are willing to wait the required time period before
trading. CMOs and CMO+POs, by contrast, can trade in a wider array of
situations, but like M-ELO, they will not trade in instances where the
incoming order is likely to impact the prevailing price of the
security. This will provide users of CMOs and CMO+POs with
opportunities for more liquidity interaction than M-ELO but without a
delay mechanism. On the other hand, CMOs and CMO+POs will provide more
protection to users than regular Midpoint Orders, but with less
opportunity to interact with liquidity. Instead of imposing a waiting
period, the Exchange will remove a resting CMO when it faces incoming
orders that have the potential to shift the Midpoint, while also
providing an opportunity to a participant to receive price improvement
when the System resubmits its CMO or CMO+PO to take advantage of a
shift in the Midpoint.
---------------------------------------------------------------------------
\6\ See Securities Exchange Act Release No. 34-82825 (Mar. 7,
2018), 83 FR 10937 (Mar. 13, 2018) (order approving SR-NASDAQ-2017-
074).
\7\ In 2020, the Commission issued an order approving the
Nasdaq's proposal to shorten the Holding Period for M-ELO and M-
ELO+CB Orders from one-half second to 10 milliseconds. See
Securities Exchange Act Release No. 34-88743 (April 24, 2020), 85 FR
24068 (April 30, 2020) (order approving SR-NASDAQ-2020-011).
\8\ See Securities Exchange Act Release No. 34-86938 (September
11, 2019), 84 FR 48978 (September 17, 2019) (order approving SR-
NASDAQ-2019-048).
---------------------------------------------------------------------------
The specific proposed characteristics of the CMO are as follows:
A CMO is a non-displayed Order Type with the Midpoint Pegging
Attribute that will be priced and ranked in time order at the Midpoint.
A user may cancel a CMO at any time.
The System will remove a CMO Order automatically if a CMO is
resting at the Midpoint on the PSX Book, an incoming Order is priced
through the price of the CMO, the CMO would otherwise trade against the
incoming Order,\9\ and one or more of the following conditions apply,
which the Exchange anticipates are indicative of a pending price shift
in favor of the CMO user:
---------------------------------------------------------------------------
\9\ For example, if the incoming Order is filled fully by
resting interest with price/time priority ahead of the resting CMO
Order, then the System will not remove the CMO Order from the Order
Book.
---------------------------------------------------------------------------
The incoming Order is Displayed and its size is greater
than that of the resting CMO; or
The incoming Order is not Displayed, it is priced at or
better than the far side of the NBBO, and its size is greater than that
of the resting CMO.
Again, in the first of these scenarios, the Exchange observes that
the incoming Order has the potential to cause the NBBO to shift, such
that removal of the CMO will be preferable to allowing the CMO to
execute at a Midpoint price that may be stale. The System will then
automatically re-submit a new CMO on behalf of the user after removing
the original CMO. In the second scenario, the incoming Order may not
cause a shift in the NBBO, due to its hidden nature, but because it is
priced aggressively at the far side of the NBBO, it still offers a CMO
user an opportunity for an execution that is more favorable than the
prevailing midpoint price. CMO functionality enables a participant to
avail itself of this opportunity.
The following examples illustrate this concept. In the first
example, assume that the National Best Bid is $10.00 and the National
Best Offer is $11.00. Participant A enters Order 1, which is a CMO to
buy 100 shares of X that is priced at $10.50--the midpoint of the NBBO.
While Order 1 is resting on the Exchange Book, Participant B enters
Order 2, which is a Displayed Order to sell 200 shares of X at $10.40.
In this instance, Order 2 is larger than Order 1. If Order 1 was not a
CMO and it had
[[Page 62131]]
executed against Order 2 at $10.50, then Participant A would have
missed out on the favorable impact of Order 2 shifting the midpoint of
the NBBO lower to $10.20. To avoid this outcome, however, the System
would remove Order 1 from the Exchange Book and resubmit it as Order 3,
priced at $10.20. Participant C then enters Order 4 to sell 100 shares
of X at 10.20. Order 3 would then execute against Order 4 at $10.20,
thus providing Participant A with price improvement.
In a second example, assume again that the National Best Bid is
$10.00 and the National Best Offer is $11.00. Participant A again
enters Order 1, which is a CMO to buy 100 shares of X that is priced at
$10.50. While Order 1 is resting on the Exchange Book, Participant B
enters Order 2, which this time is a Non-Displayed Order to sell 200
shares at $10.00. CMO functionality would activate for Order 1 both
because Order 2 is larger than Order 1 and because Order 2 is priced at
the far side of the NBBO. The System would resubmit Order 1 as Order 3,
priced at $10.00. Order 3 would then execute at $10.00, again providing
price improvement to Participant A.\10\
---------------------------------------------------------------------------
\10\ There also may be scenarios where use of CMO might not
ultimately benefit market participants, such as where the amount of
price improvement associated with use of CMO is outweighed by the
fee a participant would incur when its CMO is deemed to remove
liquidity from the Exchange Book.
---------------------------------------------------------------------------
Additionally, because a CMO inherently possesses the Midpoint
Pegging Attribute, it will behave in accordance with Rule 3301B(d),
which governs Orders with Midpoint Pegging. Thus, consistent with Rule
3301B(d), the following behavior applies to CMOs:
A CMO user may only enter a CMO Order during Market Hours.
A CMO will have its price set upon initial entry and will
thereafter have its price reset in accordance with changes to the
relevant Inside Quotation. A CMO will receive a new timestamp whenever
its price is updated \11\ and therefore will be evaluated with respect
to possible execution in the same manner as a newly entered Order. If
the price to which a CMO is pegged becomes unavailable, pegging would
lead to a price at which the CMO cannot be posted, or if the Inside Bid
and Inside Offer become crossed, then the CMO will be removed from the
PSX Book and will be re-entered once there is a permissible price,
provided however, that the System will cancel the CMO if no permissible
pegging price becomes available within one second after the CMO was
removed and no longer available on the PSX 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).\12\
---------------------------------------------------------------------------
\11\ A CMO will also receive a new timestamp whenever it is
resubmitted after removal.
\12\ A user may enter a CMO using RASH or OUCH.
---------------------------------------------------------------------------
If at the time of entry, there is no price to which a CMO,
that has not been assigned a Time in Force of Immediate-or-Cancel, can
be pegged or pegging would lead to a price at which the Order cannot be
posted, or if the Inside Bid and Inside Offer are Crossed, then the CMO
will not be immediately available on the PSX Book and will be entered
once there is a permissible price; provided however, that the System
will cancel the CMO if no permissible pegging price becomes available
within one second after Order entry (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).
A CMO will have its price set upon initial entry to the
Midpoint, unless the CMO has a limit price, and that limit price is
lower than the Midpoint for a CMO to buy (higher than the Midpoint for
CMO to sell), in which case the Order will be ranked on the PSX Book at
its limit price. If the Inside Bid and Inside Offer are locked, a CMO
will be priced at the locking price. However, even if the Inside Bid
and Inside Offer are locked, an Order with CMO that locked an Order on
the PSX Book would execute.
If a CMO has been assigned a Discretion Order Attribute,
the CMO may execute at any price within the discretionary price range,
even if beyond the limit price specified with respect to the Midpoint
Pegging Order Attribute. If CMO is priced at its limit price, the price
of the CMO may nevertheless be changed to a less aggressive price based
on changes to the Inside Quotation.
Unlike other Orders with the Midpoint Pegging Attribute, CMOs
cannot be assigned a Routing Attribute, such that provisions of the
Midpoint Pegging Rule that govern Midpoint Pegged Orders with Routing
do not apply to CMOs.
As noted above, a CMO will not be accepted outside of Market Hours.
A CMO remaining unexecuted at the end of Market Hours will be cancelled
by the System.
The System will cancel CMOs when a trading halt is declared, and
the System will reject any CMOs entered during a trading halt.\13\
---------------------------------------------------------------------------
\13\ The Exchange also proposes to amend the Exchange's Rule
governing Midpoint Pegging, at Rule 3301B(d), to add language
stating that ``Orders with Midpoint Pegging will be cancelled by the
System when a trading halt is declared, and any Orders with Midpoint
Pegging entered during a trading halt will be rejected.'' Such
language exists in a corresponding rule of the rulebook of the
Exchange's sister exchange, the Nasdaq Stock Market, LLC, see Nasdaq
Rule 4703(d), but was mistakenly omitted from Rule 3301B(d).
---------------------------------------------------------------------------
A CMO user may opt to apply the Minimum Quantity, Trade Now, or
Discretion Order Attributes and a Time-In-Force to a CMO. Again, the
Non-Display and Midpoint Pegging Attributes always apply to CMOs.
A CMO+PO will possess all the characteristics and attributes of a
CMO, as described above, as well as those of a Managed Midpoint Peg
Post-Only Order, as set forth in Rule 3301A(b)(6), with certain
exceptions set forth below.
Like a Midpoint Peg Post-Only Order, a CMO+PO is a Non-Displayed
Order that is priced at the Midpoint and executes upon entry only in
circumstances where economically beneficial to the party entering the
Order.
Like a Midpoint Peg Post-Only Order, the price of the CMO+PO will
be updated repeatedly to equal the midpoint between the NBBO; provided,
however, that the CMO+PO will not be priced higher (lower) than its
limit price. In the event that the Midpoint between the NBBO becomes
higher than (lower than) the limit price of a CMO+PO to buy (sell), the
price of the CMO+PO will stop updating and the CMO+PO will post (with a
Non-Display Attribute) at its limit price, but will resume updating if
the Midpoint becomes lower than (higher than) the limit price of the
CMO+PO to buy (sell). Similarly, if a CMO+PO is on the PSX Book and
subsequently the NBBO is crossed, or if there is no NBBO, the Order
will be removed from the PSX Book and will be re-entered at the new
Midpoint once there is a valid NBBO that is not crossed. The CMO+PO
receives a new timestamp each time its price is changed.
All CMO+POs will be cancelled if they remain on the PSX Book at the
end of Market Hours.\14\ Also like a Midpoint Peg Post-Only Order, a
CMO+PO may not possess the Discretion or Routing Order Attributes, and
a CMO+PO must be priced at more than $1 per share. Finally, unlike a
Midpoint Peg Post-Only Order, RASH may be used to enter
[[Page 62132]]
a CMO+PO with a Time in Force of IOC (as well as OUCH, which can be
used for such purposes with respect to a MPPO), and in such cases the
Order will be canceled after determining whether it can be executed.
---------------------------------------------------------------------------
\14\ A CMO+PO entered prior to the beginning of Market Hours
will be rejected. A CMO+PO will be cancelled by the System when a
trading halt is declared, and any CMO+PO entered during a trading
halt will be rejected.
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CMO and CMO+PO executions will be reported to Securities
Information Processors and provided in the Exchange's proprietary data
feed without any new or special indication.
As part of the surveillance the Exchange currently performs, CMOs
and CMO+POs will be subject to real-time surveillance to determine if
they are being abused by market participants. The Exchange is committed
to determining whether there is opportunity or prevalence of behavior
that is inconsistent with normal risk management behavior. Manipulative
abuse is subject to potential disciplinary action under the Exchange's
Rules, and other behavior that is not necessarily manipulative but
nonetheless frustrates the purposes of the CMO or CMO+PO may be subject
to penalties or other participant requirements to discourage such
behavior, should it occur.\15\
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\15\ Punitive fees or other participant requirements tied to CMO
and CMO+PO usage will be implemented by rule filing under Section
19(b) of the Act, 15 U.S.C. 78s(b), should the Exchange determine
that they are necessary to maintain a fair and orderly market.
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The Exchange plans to implement CMO and CMO+PO within thirty days
after Commission approval of the proposal. The Exchange will make the
CMO and CMO+PO available to all members and to all securities upon
implementation. The Exchange will announce the implementation date by
Equity Trader Alert.\16\
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\16\ The Exchange plans to propose a fee structure for the CMO
and CMO+PO in a subsequent Commission rule filing.
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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. In particular, the proposal is consistent with the Act
because it would create additional options with respect to how
participants can manage trading at the Midpoint. These additional
options allow participants to tune their interactions more finely in
the market, which can lead to more efficient trading opportunities on
the Exchange for investors with similar investment objectives.\19\ Much
like the analogous M-ELO Order Type, which Nasdaq introduced a few
years ago, CMO and CMO+PO would provide market participants with a
means to avoid certain execution scenarios which they may deem
unfavorable. Unlike M-ELO, however, which imposes a waiting period upon
participants to bring like-minded participants together, the CMO and
CMO+PO would have no such waiting period. That is, the Exchange
designed CMO and CMO+PO for participants that want Midpoint or better
executions but have a greater urgency to execute their orders and are
not concerned about interacting with other participants acting with
similar or more urgency. At the same time, the CMO and CMO+PO will
avoid interacting with orders that have the potential to shift the
Midpoint, even without a holding period, by providing for the System to
remove a CMO or CMO+PO from the Order Book when faced with incoming
Orders that cross the Midpoint or otherwise have the potential to shift
the Midpoint. The System will then automatically enter a new CMO to
take advantage of a better ensuing Midpoint.
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\17\ 15 U.S.C. 78f(b).
\18\ 15 U.S.C. 78f(b)(5).
\19\ Cf. Securities Exchange Act Release No. 34-82825 (March 7,
2018), 83 FR 10937 (March 13, 2018) (SR-NASDAQ-2017-074) (approving
the Midpoint Extended Life Order (``M-ELO'') because it could
``create additional and more efficient trading opportunities on the
Exchange for investors with longer investment time horizons,
including institutional investors, and could provide these investors
with an ability to limit the information leakage and the market
impact that could result from their orders.'').
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The CMO and CMO+PO will be available for voluntary use by all
Exchange members. Although the proposal would enable market
participants that use CMOs to avoid potentially adverse executions,
while causing participants to miss executions to the extent that their
incoming Orders trigger removal of CMOs, this treatment is fair. That
is, the proposal would facilitate the provision of market-enhancing
midpoint liquidity by providing a mechanism by which participants could
post such liquidity safely and without fear of adverse executions.
Exchange functionality which permits like-minded participants the
ability to achieve their objectives in an efficient manner will improve
overall execution quality on the market. Moreover, the protections that
these Order Types provide are tailored to mitigate the risk of adverse
executions, even though the entry of either an incoming Displayed Order
larger than a CMO or an incoming spread-crossing Non-Displayed Order
larger than a CMO would not necessarily result in an adverse execution
in every conceivable circumstance.\20\ As the chart below demonstrates,
mark-outs are significantly worse after executions against incoming
contra-orders in the two scenarios covered by the proposed Rule than
they are after executions in other scenarios. This data suggests that
the CMO and CMO+PO would, indeed, help participants avoid poor quality
executions that would likely occur otherwise.
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\20\ Cf. Order Approving a Proposed Rule Change to Add a New
Discretionary Limit Order Type Called D-Limit, Securities Exchange
Act Release No. 34-89686 (August 26, 2020), 85 FR 54438 (September
1, 2020) (SR-IEX-2019-15) (``D-Limit orders will encourage long term
investors to participate in the displayed exchange market by
protecting them against one particular strategy employed by short
term traders. It is not unfairly discriminatory for an exchange to
address that advantage in a narrowly tailored manner that promotes
investor protection and the public interest. Accordingly, the
Commission concludes that IEX's proposal is not designed to permit
unfair discrimination between customers, issuers, brokers, or
dealers.'').
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[[Page 62133]]
[GRAPHIC] [TIFF OMITTED] TN08SE23.014
The Exchange also notes that the scenarios in which CMO and CMO+PO
would apply constitute only a quarter of all midpoint executions adding
liquidity on the Exchange.
[GRAPHIC] [TIFF OMITTED] TN08SE23.015
Like all other Order Types, the Exchange will conduct real-time
surveillance to monitor the use of CMOs and CMO+POs to ensure that such
usage is appropriately tied to the intent of the Order Type.
Transactions in CMOs and CMO+POs will be reported to the Securities
Information Processor and will be provided in the Exchange's
proprietary data feed in the same manner as all other transactions
occurring on the Exchange, without any new or special indication that
it is a CMO or CMO+PO execution. The Exchange believes that doing so is
important to ensuring that investors are protected from any market
impact that may occur if CMO executions were reported with a special
indication.
The Exchange does not believe that the proposed CMO or CMO+PO will
negatively affect the quality of the market. To the contrary, the
Exchange believes that the addition of CMO and CMO+PO will draw new
market participants to the Exchange's transparent and well-regulated
market. The CMO and CMO+PO will allow investors an opportunity to find
like-minded counterparties at the Midpoint on the Exchange, while also
limiting executions users may deem unfavorable and providing
opportunities for price improvement. Insofar as the CMO and CMO+PO
would provide new options for participants to achieve efficient, high-
quality midpoint executions, the CMO and CMO+PO stands to increase
participation on the Exchange and to improve the quality of executions
on the Exchange.
Lastly, it is consistent with the Act to amend the Exchange's Rule
governing Midpoint Pegging, at Rule 3301B(d), to add language stating
that ``Orders with Midpoint Pegging will be cancelled by the System
when a trading halt is declared, and any Orders with Midpoint Pegging
entered during a trading halt will be rejected.'' Such language exists
in a corresponding rule of the rulebook of the Exchange's sister
exchange, the Nasdaq Stock Market, LLC, at Nasdaq Rule 4703(d), but was
mistakenly omitted from Rule 3301B(d). In additional to correcting an
inadvertent omission of this language from the Exchange's Rulebook, the
proposed text codifies existing Exchange practice and corresponds to
participant expectations for the behavior of Orders with Midpoint
Pegging during trading halts.
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 believes that the introduction of the CMO and CMO+PO
will draw new market participants to the Exchange while also providing
a new option for existing participants that wish to achieve high-
quality Midpoint (or better) executions, but do not wish for their
Orders to be subject to a
[[Page 62134]]
Holding Period (as in M-ELO or M-ELO+CB orders on Nasdaq) or care about
their counterparties being subject to the same. To the extent the
proposed change is successful in attracting additional market
participants or increasing existing participation on the Exchange, the
Exchange believes that the proposed change will promote competition
among trading venues by making the Exchange a more attractive trading
venue for investors and participants.
Additionally, adoption of the CMO and CMO+PO will not burden
competition among market participants. The CMO and CMO+PO will be
available to all Exchange members and it will be available on an
optional basis. Thus, any member that seeks to avail itself of the
benefits of a CMO or CMO+PO can choose accordingly. Although the
proposal provides potential benefits for investors that select the CMO
and CMO+PO, the Exchange believes that all market participants will
benefit to the extent that this proposal contributes to a healthy and
attractive market that is attentive to the needs of all types of
investors.
The proposal also will not adversely impact market participants
that choose not to use these Order Types because no changes need to be
made to participants' systems to account for it. As discussed above,
CMO and CMO+PO executions will be reported the same as other
executions, without any new or special indicator.
In any event, the Exchange notes that it operates in a highly
competitive market in which market participants can readily choose
between competing venues if they deem participation in the Exchange's
market is no longer desirable. In such an environment, the Exchange
must carefully consider the impact that any change it proposes may have
on its participants, understanding that it will likely lose
participants to the extent a change is viewed as unfavorable by them.
Because competitors are free to modify the incentives and structure of
their markets, the Exchange believes that the degree to which modifying
the market structure of an individual market may impose any burden on
competition is limited. Last, to the extent the proposed change is
successful in attracting additional market participants or additional
activity by existing participants, the Exchange also believes that the
proposed change will promote competition among trading venues by making
the Exchange a more attractive trading venue for participants and
investors.
The Exchange perceives no competitive impact associated with
amending the Exchange's Rule governing Midpoint Pegging, at Rule
3301B(d), to add language stating that ``Orders with Midpoint Pegging
will be cancelled by the System when a trading halt is declared, and
any Orders with Midpoint Pegging entered during a trading halt will be
rejected.'' This proposal merely adds language that had been mistakenly
omitted from the Exchange's Rulebook, but which exists in the
corresponding rules of the Nasdaq Stock Market, LLC, and codifies
existing Exchange practice as to Orders with Midpoint Pegging during a
trading halt.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
No written comments were either solicited or received.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
Within 45 days of the date of publication of this notice in the
Federal Register or within such longer period (i) as the Commission may
designate up to 90 days of such date if it finds such longer period to
be appropriate and publishes its reasons for so finding or (ii) as to
which the Exchange consents, the Commission shall: (a) by order approve
or disapprove such proposed rule change, or (b) institute proceedings
to determine whether the proposed rule change should be disapproved.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
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-2023-40 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-2023-40. 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
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
a.m. and 3 p.m. Copies of the filing also will be available for
inspection and copying at the principal office of the Exchange. Do not
include personal identifiable information in submissions; you should
submit only information that you wish to make available publicly. We
may redact in part or withhold entirely from publication submitted
material that is obscene or subject to copyright protection. All
submissions should refer to file number SR-PHLX-2023-40 and should be
submitted on or before September 29, 2023.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\21\
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\21\ 17 CFR 200.30-3(a)(12).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2023-19358 Filed 9-7-23; 8:45 am]
BILLING CODE 8011-01-P
