Self-Regulatory Organizations; Nasdaq PHLX LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Amend Options 3, Section 13 Concerning PIXL, 62863-62866 [2023-19731]

Download as PDF Federal Register / Vol. 88, No. 176 / Wednesday, September 13, 2023 / Notices the structure of the proposal does not disclose of the exact weighting for each of the 142 data elements, it does set forth the two goals Nasdaq will consider when weighing those data elements initially and during each weekly retraining, which provides information as to how those 142 factors will be used in determining the Holding Period for a security. Based on how the proposed rule sets forth the goals that will govern each retraining, the Commission believes that Nasdaq’s delineation of when it would and would not file a proposed rule change to alter the operation of Dynamic M–ELO is consistent with Nasdaq’s rule filing obligation. The Commission agrees that the weekly retraining to optimize the weighting of the 142 data elements considered by Dynamic M–ELO to best achieve those goals within the rule’s parameters would not necessitate the filing of a proposed rule change with the Commission because those adjustments would be reasonably and fairly implied by the proposed rule. However, to the extent Nasdaq seeks to change, add to, or delete from the rule’s construct in connection with the weekly retraining, it would first be required to file a proposed rule change with the Commission. V. Solicitation of Comments on Amendment No. 2 to the Proposed Rule Change Interested persons are invited to submit written data, views, and arguments concerning whether Amendment No. 2 is consistent with the Act. Comments may be submitted by any of the following methods: ddrumheller on DSK120RN23PROD with NOTICES1 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– NASDAQ–2022–079 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–NASDAQ–2022–079. 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 VerDate Sep<11>2014 17:37 Sep 12, 2023 Jkt 259001 with respect to the proposed rule change that are filed with the Commission, and all written communications relating to the proposed rule change between the Commission and any person, other than those that may be withheld from the public in accordance with the provisions of 5 U.S.C. 552, will be available for website viewing and printing in the Commission’s Public Reference Room, 100 F Street NE, Washington, DC 20549 on official business days between the hours of 10:00 a.m. and 3:00 p.m. Copies of the filing also will be available for inspection and copying at the principal office of the Exchange. 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–NASDAQ–2022– 079, and should be submitted on or before October 4, 2023. VI. Accelerated Approval of Proposed Rule Change, as Modified by Amendment No. 2 The Commission finds good cause to approve the proposed rule change prior to the 30th day after the date of publication of Amendment No. 2 in the Federal Register. Amendment No. 2 does not include any material changes to the operation of the proposed Dynamic M–ELO and its machinelearning model. In Amendment No. 2, the Exchange: (1) adds the defined term ‘‘proprietary assessment of market conditions’’ to the proposed rule text, which consolidates certain details and explanations about how the machinelearning model would operate from prior versions into a single defined term; (2) revises the list of factors provided in Exhibit 3b to include expanded and ‘‘simplified’’ explanations of the terminology used therein; (3) adds a representation that the systems used to operate Dynamic M–ELO and machine-learning model are ‘‘SCI Systems’’ and thus subject to compliance with Regulation SCI; and (4) expands the legal analysis to address comments regarding unfair discrimination and the exercise of impermissible discretion by the Exchange. The Commission finds that Amendment No. 2 raises no novel regulatory issues that have not previously been subject to comment and is reasonably designed to prevent fraudulent and manipulative acts and PO 00000 Frm 00094 Fmt 4703 Sfmt 4703 62863 practices, to promote just and equitable principles of trade, and, in general, to protect investors and the public interest, and not be unfairly discriminatory, or impose an unnecessary or inappropriate burden on competition. Amendment No. 2 does not alter the proposed operation or any material features of Dynamic M–ELO, which operation and features have been subject to two rounds of public comment. In response to public comment, the revisions to the proposal contained within Amendment No. 2 provide additional clarification and details regarding how Dynamic M– ELO and the machine-learning model will operate, as well as additional legal analysis to support the Exchange’s position that the proposal is consistent with the Act. Accordingly, pursuant to Section 19(b)(2) of the Act,121 the Commission finds good cause to approve the proposed rule change on an accelerated basis prior to the 30th day after publication of notice of the filing of Amendment No. 2 in the Federal Register. VII. Conclusion It is therefore ordered, pursuant to Section 19(b)(2) of the Act,122 that the proposed rule change (SR–NASDAQ– 2022–079), as modified by Amendment No. 2, be, and it hereby is, approved on an accelerated basis. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.123 Sherry R. Haywood, Assistant Secretary. [FR Doc. 2023–19728 Filed 9–12–23; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–98320; File No. SR–PHLX– 2023–41] Self-Regulatory Organizations; Nasdaq PHLX LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Amend Options 3, Section 13 Concerning PIXL September 7, 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 30, 2023, Nasdaq PHLX LLC (‘‘Phlx’’ or ‘‘Exchange’’) filed with the Securities and Exchange Commission 121 15 U.S.C. 78s(b)(2). U.S.C. 78s(b)(2). 123 17 CFR 200.30–3(a)(12). 1 15 U.S.C. 78s(b)(1). 2 17 CFR 240.19b–4. 122 15 E:\FR\FM\13SEN1.SGM 13SEN1 62864 Federal Register / Vol. 88, No. 176 / Wednesday, September 13, 2023 / Notices (‘‘Commission’’) the proposed rule change as described in Items I and II below, which Items have been prepared by the self-regulatory organization. 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 its Rules at Options 3, Section 13, Price Improvement XL (‘‘PIXL’’). 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. ddrumheller on DSK120RN23PROD with NOTICES1 A. Self-Regulatory Organization’s Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change 1. Purpose Phlx proposes to amend Options 3, Section 13, Price Improvement XL (‘‘PIXL’’), to harmonize its price improvement rule text regarding entry checks in Options 3, Section 13(a)(1) through (3) to mirror the rule text of Nasdaq GEMX, LLC’s (‘‘GEMX’’), Nasdaq MRX, LLC’s (‘‘MRX’’), and Nasdaq ISE, LLC’s (‘‘ISE’’) PIM, and BX’s PRISM, without changing the substantive operations of these price improvement auctions. The Exchange proposes to amend Options 3, Section 13(a)(1) through (3) to harmonize the language, to the extent possible, with other Nasdaq affiliated markets. The harmonization will allow market participants to compare Phlx’s PIXL entry checks with similar mechanisms on Nasdaq affiliated markets. The Exchange also proposes to make two technical amendments to Options 4A at Section 6, Position Limits, and Section 12, Terms of Index Options Contracts. The Exchange also proposes additional changes described below. VerDate Sep<11>2014 17:37 Sep 12, 2023 Jkt 259001 PIXL Entry Checks Phlx proposes to add ‘‘a price that is’’ to the end of Options 3, Section 13(a)(1) and add new subparagraphs (A) and (B) to distinguish opposite and same side checks for a PIXL Order for less than 50 options contracts.3 The opposite side check for a PIXL Order for less than 50 options contracts is currently specified in the current rule text which is being relocated to Options 3, Section 13(a)(1)(A). The same side check for a PIXL Order for less than 50 options contracts currently does not specify the NBBO check. Today, if the PIXL Order is for less than 50 option contracts, and if the difference between the NBBO is $0.01, the Initiating Member must stop the entire PIXL Order at a price that is on the same side of the market as the PIXL Order, equal to or better than the NBBO 4 and better than any Limit Order on the Limit Order Book. This language represents current System functionality. Additionally, Phlx proposes to add more detail to describe the current System functionality. If the PIXL Order is for a Non-Public Customer, the PIXL Order must also be better than any quote on the same side of the market as the PIXL Order. Today, the System will check if the PIXL Order is better than any quote on the same side of the market as the PIXL Order if the PIXL Order is for a Non-Public Customer. The addition of this detail within Options 3, Section 13(a)(1)(B) will bring transparency to the current System checks for a PIXL Order for less than 50 options contracts. Phlx proposes to amend Options 3, Section 13(a)(2) to add a ‘‘:’’ to the end of (a)(2) and add new subparagraphs (A) and (B) which distinguish the opposite side and same side checks if the PIXL Order is for the account of a Public Customer and such order is for 50 option contracts or more. The opposite side check for a PIXL Order for the account of a Public Customer for 50 option contracts or more is currently specified in the current rule text, which is being relocated to Options 3, Section 13(a)(2)(A). The same side check for a PIXL Order for the account of a Public Customer for 50 option contracts or more currently does not specify the manner in which the PIXL Order must 3 The proposed language below in Options 3, Section 13(a)(1) through (3) excludes Complex Orders which are described in Options 3, Section 13(a)(4). 4 For example, if the market is 0.98 bid and 0.99 offer, a Public Customer PRISM Order to buy for less than 50 contracts must be stopped at 0.98 cents in this scenario to be accepted into a PRISM Auction, provided there is no resting order or quote on the BX order book at 0.98 in which case the PRISM Order would be rejected. PO 00000 Frm 00095 Fmt 4703 Sfmt 4703 improve on the same side or the NBBO check. The Exchange proposes to amend the same side check in Options 3, Section 13(a)(2)(B) to state that if the PIXL Order is for the account of a Public Customer and such order is for 50 option contracts or more, or if the difference between the NBBO is greater than $0.01, the Initiating Member must stop the entire PIXL Order at a price that is, on the same side of the market as the PIXL Order, (1) at least $0.01 better than any Limit Order on the Limit Order book; (2) at or better than the PIXL Order’s limit price (if the Order is a Limit Order); and equal to or better than the NBBO. This rule text represents current System functionality. This new rule text makes clear the various same side entry checks that are performed by the current System. Phlx proposes to amend Options 3, Section 13(a)(3) to add ‘‘:’’ to the end of (a)(3) and add new subparagraphs (A) and (B) which distinguish the opposite side and same side checks for a PIXL Order for the account of a broker dealer or any other person or entity that is not a Public Customer and such order is for 50 option contracts or more. The Exchange currently does not specify the opposite side check in the case whether the PIXL Order is for an account of a broker dealer or any other person that is not a Public Customer and the order is for 50 contracts or more. The Exchange proposes to note the current entry check performed by the System by amending the language in Options 3, Section 13(a)(3)(A) to provide, if the PIXL Order is for the account of a broker dealer or any other person or entity that is not a Public Customer and such order is for 50 option contracts or more, or if the difference between the NBBO is greater than $0.01, the Initiating Member must stop the entire PIXL Order at a price that is: (A) equal to or better than the NBBO and the internal market PBBO (the ‘‘Reference BBO’’) on the opposite side of the market from the PIXL Order.5 This language represents current System functionality. Phlx notes that the Reference BBO was defined in Options 3, Section 13(a)(3)(A). The Exchange proposes to amend the same side check in the case whether the PIXL Order is for an account of a broker dealer or any other person that is not a Public Customer and the order is for 50 contracts or more. The Exchange proposes to state if the PIXL Order is for the account of a broker dealer or any other person or entity that is not a Public Customer and such order is for 5 The Exchange also proposes to amend Options 3, Section 13(a)(3)(B) to re-number current (A) and (B). E:\FR\FM\13SEN1.SGM 13SEN1 Federal Register / Vol. 88, No. 176 / Wednesday, September 13, 2023 / Notices 50 option contracts or more, or if the difference between the NBBO is greater than $0.01, the Initiating Member must stop the entire PIXL Order at a price that is on the same side of the market as the PIXL Order, the better of: (1) the Reference BBO price improved by at least $0.01, (2) the PIXL Order’s limit price (if the order is a Limit Order), or (3) equal to or better than the NBBO. The Exchange is removing the clause in current Options 3, Section 13(a)(3)(2) which the Exchange believes is confusing as current Options 3, Section 13(a)(3)(1) notes the Reference BBO must be improved by at least $0.01. Also, the NBBO entry check is being relocated to new subparagraph (a)(3)(B)(3). Finally, the Exchange is making a technical amendment to Options 3, Section 13(a)(4)(A) to remove a semicolon and replace it with a comma. The Exchange believes that the proposed amendments will bring greater clarity to the current System functionality as the various System checks are noted for each side of the PIXL Order. Further, the NBBO check is specifically noted as this check on the same side check ensures the order does not trade-through. The Exchange is not substantively amending the current System functionality. Auction Process The Exchange proposes a technical amendment to Options 3, Section 13(b)(4) to remove the ‘‘an’’ at the beginning of the paragraph as this is unnecessary. Next, the Exchange proposes to replace references to ‘‘Limit Order,’’ ‘‘order’’ and ‘‘orders’’ within Options 3, Section 13(b)(4) with the word ‘‘interest’’ because an order or quote on the order book may interact with a PIXL Order. This represents current System functionality. Finally, the Exchange proposes to amend Options 3, Section 13(b)(6) to remove the term ‘‘then-existing’’ from the paragraph. The phrase is not necessary as the clause ‘‘cPBBO at the time of the conclusion of the Auction’’ makes clear which cPBBO will be referenced. ddrumheller on DSK120RN23PROD with NOTICES1 Technical Amendments The Exchange proposes to make two technical amendments within Options 4A, Options Index Rules. The Exchange proposes to renumber Options 4A, Section 6(a)(iv) to Options 4A, Section 6(a)(ii). The Exchange also proposes to re-letter Options 4A, Section 12(a)(2)(H), (I) and (J), respectively, as Options 4A, Section 12(a)(2)(G), (H) and (I). VerDate Sep<11>2014 17:37 Sep 12, 2023 Jkt 259001 2. Statutory Basis The Exchange believes that its proposal is consistent with section 6(b) of the Act,6 in general, and furthers the objectives of section 6(b)(5) of the Act,7 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. PIXL Entry Checks Phlx’s proposal to amend Options 3, Section 13(a)(1)–(3) to harmonize the language within the PIXL entry checks with language within GEMX’s PIM, ISE’s PIM, MRX’s PIM and BX’s PRISM, without changing the substantive operations of these price improvement auctions, is consistent with the Act and the protection of investors and the general public because by utilizing similar language, market participants will be able to compare Phlx’s PIXL entry checks with similar mechanisms on Nasdaq affiliated markets. Amending Options 3, Section 13(a)(1) and adding new subparagraphs (A) and (B) to distinguish opposite and same side checks for a PIXL Order for less than 50 options contracts and specifying the same side NBBO check is consistent with the Act and the protection of investors and the general public because it will add more detail to describe the current System functionality. The NBBO check is always relevant in the same side check to avoid a trade-through. Specifying that if the PIXL Order is for a Non-Public Customer, the PIXL Order must also be better than any quote on the same side of the market as the PIXL Order is consistent with the Act so that the PIXL Order improves the order book and provides a meaningful opportunity for price improvement. Further, the addition of this detail within Options 3, Section 13(a)(1)(B) will bring transparency to the current System checks for a PIXL Order for less than 50 options contracts. Amending Options 3, Section 13(a)(2) to add new subparagraphs (A) and (B) to distinguish the opposite side and same side checks if the PIXL Order is for the account of a Public Customer and such order is for 50 option contracts or more, and specifying the manner in which the PIXL Order must improve on the same side or the NBBO check is consistent with the Act and the protection of investors and the general public. The Exchange currently requires, if the PIXL Order is for the 6 15 7 15 PO 00000 U.S.C. 78f(b). U.S.C. 78f(b)(5). Frm 00096 Fmt 4703 Sfmt 4703 62865 account of a Public Customer and such order is for 50 option contracts or more, that the PIXL Order must be at or better than the PIXL Order’s limit price and it must also not trade-through the order book. The eligibility requirements if the PIXL Order is for the account of a Public Customer and such order is for 50 option contracts or more should provide a meaningful opportunity for price improvement, and thereby benefit investors and others in a manner that is consistent with the Act. Amending Options 3, Section 13(a)(3) to add new subparagraphs (A) and (B) to distinguish the opposite side and same side checks for a PIXL Order for the account of a broker dealer or any other person or entity that is not a Public Customer and such order is for 50 option contracts or more and specifying the opposite side check and same side NBBO check is consistent with the Act and the protection of investors and the general public. The opposite side check must be equal to or better than the NBBO and any nondisplayed order on the Exchange’s order book to avoid a trade-through. Also, the NBBO check is always relevant in the same side check to avoid a tradethrough. The eligibility requirements if the PIXL Order is for the account of a broker dealer or any other person or entity that is not a Public Customer and such order is for 50 option contracts or more should provide a meaningful opportunity for price improvement, and thereby benefit investors and others in a manner that is consistent with the Act. The Exchange believes that the proposed amendments will bring greater clarity to the current System functionality as the various System checks are noted for each side of the PIXL Order. Further, the NBBO check is specifically noted as this check on the same side check ensures the order does not trade-through. The Exchange is not substantively amending the current System functionality. Auction Process The Exchange’s proposal to amend Options 3, Section 13(b)(4) to replace references to ‘‘Limit Order,’’ ‘‘order’’ and ‘‘orders’’ with the word ‘‘interest’’ is consistent with the Act and the protection of investors and the general public because an order or quote on the order book may currently interact with a PIXL Order. The proposed rule text makes clear that a quote will participate in a PIXL as unrelated marketable interest. The clarification will make the rule text transparent. Amending Options 3, Section 13(b)(6) to remove the term ‘‘then-existing’’ from the paragraph is consistent with the Act E:\FR\FM\13SEN1.SGM 13SEN1 62866 Federal Register / Vol. 88, No. 176 / Wednesday, September 13, 2023 / Notices Technical Amendments because the phrase is not necessary as the subsequent clause makes clear which cPBBO will be referenced. Technical Amendments The Exchange’s proposal to make two technical amendments within Options 4A, Options Index Rules, are consistent with the Act as the amendments to Options 4A, Sections 6 and 12 are nonsubstantive. 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. PIXL Entry Checks Phlx’s proposal to amend Options 3, Section 13(a)(1)–(3) to harmonize the language within the PIXL entry checks with language within GEMX’s PIM, ISE’s PIM, MRX’s PIM and BX’s PRISM, without changing the substantive operations of these price improvement auctions, does not impose an undue burden on competition because market participants will be able to compare Phlx’s PIXL entry checks with similar mechanisms on Nasdaq affiliated markets. Amending Options 3, Section 13(a)(1)–(3) to specify the entry checks that are utilized by Phlx’s System today to initiate a PIXL does not impose an undue burden on competition because these checks will apply uniformly to any order entered into PIXL. Further, the proposed amendments will add transparency to the current System functionality as the various System checks are noted for each side of the PIXL Order. Further, the Exchange is not substantively amending the current System functionality. ddrumheller on DSK120RN23PROD with NOTICES1 Auction Process The Exchange’s proposal to amend Options 3, Section 13(b)(4) to replace references to ‘‘Limit Order,’’ ‘‘order’’ and ‘‘orders’’ within Options 3, Section 13(b)(4) with the word ‘‘interest’’ does not impose an undue burden on competition because all quotes will participate in a PIXL as an unrelated order. The clarification will make the rule text transparent. Amending Options 3, Section 13(b)(6) to remove the term ‘‘then-existing’’ from the paragraph does not impose an undue burden on competition because the phrase is not necessary as the subsequent clause makes clear which cPBBO will be referenced. VerDate Sep<11>2014 17:37 Sep 12, 2023 Jkt 259001 The Exchange’s proposal to make two technical amendments within Options 4A, Options Index Rules, do not impose an undue burden on competition as the amendments to Options 4A, Sections 6 and 12 are non-substantive. 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 after the date of the filing, or such shorter time as the Commission may designate, it has become effective pursuant to section 19(b)(3)(A) of the Act 8 and Rule 19b– 4(f)(6) thereunder.9 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 should be approved or disapproved. IV. Solicitation of Comments 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–2023–41. 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–2023–41 and should be submitted on or before October 4, 2023. 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: For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.10 Sherry R. Haywood, Assistant Secretary. Electronic Comments BILLING CODE 8011–01–P • 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–2023–41 on the subject line. [FR Doc. 2023–19731 Filed 9–12–23; 8:45 am] SMALL BUSINESS ADMINISTRATION Data Collection Available for Public Comments 60-Day notice and request for comments. ACTION: 8 15 U.S.C. 78s(b)(3)(A). 9 17 CFR 240.19b–4(f)(6). In addition, Rule 19b– 4(f)(6) requires a self-regulatory organization to give the Commission written notice of its intent to file the proposed rule change at least five business days prior to the date of filing of the proposed rule change, or such shorter time as designated by the Commission. The Exchange has satisfied this requirement. PO 00000 Frm 00097 Fmt 4703 Sfmt 4703 The Small Business Administration (SBA) intends to request approval, from the Office of Management and Budget (OMB) for the SUMMARY: 10 17 E:\FR\FM\13SEN1.SGM CFR 200.30–3(a)(12). 13SEN1

Agencies

[Federal Register Volume 88, Number 176 (Wednesday, September 13, 2023)]
[Notices]
[Pages 62863-62866]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2023-19731]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-98320; File No. SR-PHLX-2023-41]


Self-Regulatory Organizations; Nasdaq PHLX LLC; Notice of Filing 
and Immediate Effectiveness of Proposed Rule Change To Amend Options 3, 
Section 13 Concerning PIXL

September 7, 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 30, 2023, Nasdaq PHLX LLC (``Phlx'' or ``Exchange'') filed 
with the Securities and Exchange Commission

[[Page 62864]]

(``Commission'') the proposed rule change as described in Items I and 
II below, which Items have been prepared by the self-regulatory 
organization. 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 its Rules at Options 3, Section 13, 
Price Improvement XL (``PIXL'').
    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
    Phlx proposes to amend Options 3, Section 13, Price Improvement XL 
(``PIXL''), to harmonize its price improvement rule text regarding 
entry checks in Options 3, Section 13(a)(1) through (3) to mirror the 
rule text of Nasdaq GEMX, LLC's (``GEMX''), Nasdaq MRX, LLC's 
(``MRX''), and Nasdaq ISE, LLC's (``ISE'') PIM, and BX's PRISM, without 
changing the substantive operations of these price improvement 
auctions. The Exchange proposes to amend Options 3, Section 13(a)(1) 
through (3) to harmonize the language, to the extent possible, with 
other Nasdaq affiliated markets. The harmonization will allow market 
participants to compare Phlx's PIXL entry checks with similar 
mechanisms on Nasdaq affiliated markets.
    The Exchange also proposes to make two technical amendments to 
Options 4A at Section 6, Position Limits, and Section 12, Terms of 
Index Options Contracts. The Exchange also proposes additional changes 
described below.
PIXL Entry Checks
    Phlx proposes to add ``a price that is'' to the end of Options 3, 
Section 13(a)(1) and add new subparagraphs (A) and (B) to distinguish 
opposite and same side checks for a PIXL Order for less than 50 options 
contracts.\3\ The opposite side check for a PIXL Order for less than 50 
options contracts is currently specified in the current rule text which 
is being relocated to Options 3, Section 13(a)(1)(A). The same side 
check for a PIXL Order for less than 50 options contracts currently 
does not specify the NBBO check. Today, if the PIXL Order is for less 
than 50 option contracts, and if the difference between the NBBO is 
$0.01, the Initiating Member must stop the entire PIXL Order at a price 
that is on the same side of the market as the PIXL Order, equal to or 
better than the NBBO \4\ and better than any Limit Order on the Limit 
Order Book. This language represents current System functionality. 
Additionally, Phlx proposes to add more detail to describe the current 
System functionality. If the PIXL Order is for a Non-Public Customer, 
the PIXL Order must also be better than any quote on the same side of 
the market as the PIXL Order. Today, the System will check if the PIXL 
Order is better than any quote on the same side of the market as the 
PIXL Order if the PIXL Order is for a Non-Public Customer. The addition 
of this detail within Options 3, Section 13(a)(1)(B) will bring 
transparency to the current System checks for a PIXL Order for less 
than 50 options contracts.
---------------------------------------------------------------------------

    \3\ The proposed language below in Options 3, Section 13(a)(1) 
through (3) excludes Complex Orders which are described in Options 
3, Section 13(a)(4).
    \4\ For example, if the market is 0.98 bid and 0.99 offer, a 
Public Customer PRISM Order to buy for less than 50 contracts must 
be stopped at 0.98 cents in this scenario to be accepted into a 
PRISM Auction, provided there is no resting order or quote on the BX 
order book at 0.98 in which case the PRISM Order would be rejected.
---------------------------------------------------------------------------

    Phlx proposes to amend Options 3, Section 13(a)(2) to add a ``:'' 
to the end of (a)(2) and add new subparagraphs (A) and (B) which 
distinguish the opposite side and same side checks if the PIXL Order is 
for the account of a Public Customer and such order is for 50 option 
contracts or more. The opposite side check for a PIXL Order for the 
account of a Public Customer for 50 option contracts or more is 
currently specified in the current rule text, which is being relocated 
to Options 3, Section 13(a)(2)(A). The same side check for a PIXL Order 
for the account of a Public Customer for 50 option contracts or more 
currently does not specify the manner in which the PIXL Order must 
improve on the same side or the NBBO check. The Exchange proposes to 
amend the same side check in Options 3, Section 13(a)(2)(B) to state 
that if the PIXL Order is for the account of a Public Customer and such 
order is for 50 option contracts or more, or if the difference between 
the NBBO is greater than $0.01, the Initiating Member must stop the 
entire PIXL Order at a price that is, on the same side of the market as 
the PIXL Order, (1) at least $0.01 better than any Limit Order on the 
Limit Order book; (2) at or better than the PIXL Order's limit price 
(if the Order is a Limit Order); and equal to or better than the NBBO. 
This rule text represents current System functionality. This new rule 
text makes clear the various same side entry checks that are performed 
by the current System.
    Phlx proposes to amend Options 3, Section 13(a)(3) to add ``:'' to 
the end of (a)(3) and add new subparagraphs (A) and (B) which 
distinguish the opposite side and same side checks for a PIXL Order for 
the account of a broker dealer or any other person or entity that is 
not a Public Customer and such order is for 50 option contracts or 
more. The Exchange currently does not specify the opposite side check 
in the case whether the PIXL Order is for an account of a broker dealer 
or any other person that is not a Public Customer and the order is for 
50 contracts or more. The Exchange proposes to note the current entry 
check performed by the System by amending the language in Options 3, 
Section 13(a)(3)(A) to provide, if the PIXL Order is for the account of 
a broker dealer or any other person or entity that is not a Public 
Customer and such order is for 50 option contracts or more, or if the 
difference between the NBBO is greater than $0.01, the Initiating 
Member must stop the entire PIXL Order at a price that is: (A) equal to 
or better than the NBBO and the internal market PBBO (the ``Reference 
BBO'') on the opposite side of the market from the PIXL Order.\5\ This 
language represents current System functionality. Phlx notes that the 
Reference BBO was defined in Options 3, Section 13(a)(3)(A). The 
Exchange proposes to amend the same side check in the case whether the 
PIXL Order is for an account of a broker dealer or any other person 
that is not a Public Customer and the order is for 50 contracts or 
more. The Exchange proposes to state if the PIXL Order is for the 
account of a broker dealer or any other person or entity that is not a 
Public Customer and such order is for

[[Page 62865]]

50 option contracts or more, or if the difference between the NBBO is 
greater than $0.01, the Initiating Member must stop the entire PIXL 
Order at a price that is on the same side of the market as the PIXL 
Order, the better of: (1) the Reference BBO price improved by at least 
$0.01, (2) the PIXL Order's limit price (if the order is a Limit 
Order), or (3) equal to or better than the NBBO. The Exchange is 
removing the clause in current Options 3, Section 13(a)(3)(2) which the 
Exchange believes is confusing as current Options 3, Section 
13(a)(3)(1) notes the Reference BBO must be improved by at least $0.01. 
Also, the NBBO entry check is being relocated to new subparagraph 
(a)(3)(B)(3).
---------------------------------------------------------------------------

    \5\ The Exchange also proposes to amend Options 3, Section 
13(a)(3)(B) to re-number current (A) and (B).
---------------------------------------------------------------------------

    Finally, the Exchange is making a technical amendment to Options 3, 
Section 13(a)(4)(A) to remove a semicolon and replace it with a comma.
    The Exchange believes that the proposed amendments will bring 
greater clarity to the current System functionality as the various 
System checks are noted for each side of the PIXL Order. Further, the 
NBBO check is specifically noted as this check on the same side check 
ensures the order does not trade-through. The Exchange is not 
substantively amending the current System functionality.
Auction Process
    The Exchange proposes a technical amendment to Options 3, Section 
13(b)(4) to remove the ``an'' at the beginning of the paragraph as this 
is unnecessary. Next, the Exchange proposes to replace references to 
``Limit Order,'' ``order'' and ``orders'' within Options 3, Section 
13(b)(4) with the word ``interest'' because an order or quote on the 
order book may interact with a PIXL Order. This represents current 
System functionality.
    Finally, the Exchange proposes to amend Options 3, Section 13(b)(6) 
to remove the term ``then-existing'' from the paragraph. The phrase is 
not necessary as the clause ``cPBBO at the time of the conclusion of 
the Auction'' makes clear which cPBBO will be referenced.
Technical Amendments
    The Exchange proposes to make two technical amendments within 
Options 4A, Options Index Rules. The Exchange proposes to renumber 
Options 4A, Section 6(a)(iv) to Options 4A, Section 6(a)(ii). The 
Exchange also proposes to re-letter Options 4A, Section 12(a)(2)(H), 
(I) and (J), respectively, as Options 4A, Section 12(a)(2)(G), (H) and 
(I).
2. Statutory Basis
    The Exchange believes that its proposal is consistent with section 
6(b) of the Act,\6\ in general, and furthers the objectives of section 
6(b)(5) of the Act,\7\ 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.
---------------------------------------------------------------------------

    \6\ 15 U.S.C. 78f(b).
    \7\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

PIXL Entry Checks
    Phlx's proposal to amend Options 3, Section 13(a)(1)-(3) to 
harmonize the language within the PIXL entry checks with language 
within GEMX's PIM, ISE's PIM, MRX's PIM and BX's PRISM, without 
changing the substantive operations of these price improvement 
auctions, is consistent with the Act and the protection of investors 
and the general public because by utilizing similar language, market 
participants will be able to compare Phlx's PIXL entry checks with 
similar mechanisms on Nasdaq affiliated markets.
    Amending Options 3, Section 13(a)(1) and adding new subparagraphs 
(A) and (B) to distinguish opposite and same side checks for a PIXL 
Order for less than 50 options contracts and specifying the same side 
NBBO check is consistent with the Act and the protection of investors 
and the general public because it will add more detail to describe the 
current System functionality. The NBBO check is always relevant in the 
same side check to avoid a trade-through. Specifying that if the PIXL 
Order is for a Non-Public Customer, the PIXL Order must also be better 
than any quote on the same side of the market as the PIXL Order is 
consistent with the Act so that the PIXL Order improves the order book 
and provides a meaningful opportunity for price improvement. Further, 
the addition of this detail within Options 3, Section 13(a)(1)(B) will 
bring transparency to the current System checks for a PIXL Order for 
less than 50 options contracts.
    Amending Options 3, Section 13(a)(2) to add new subparagraphs (A) 
and (B) to distinguish the opposite side and same side checks if the 
PIXL Order is for the account of a Public Customer and such order is 
for 50 option contracts or more, and specifying the manner in which the 
PIXL Order must improve on the same side or the NBBO check is 
consistent with the Act and the protection of investors and the general 
public. The Exchange currently requires, if the PIXL Order is for the 
account of a Public Customer and such order is for 50 option contracts 
or more, that the PIXL Order must be at or better than the PIXL Order's 
limit price and it must also not trade-through the order book. The 
eligibility requirements if the PIXL Order is for the account of a 
Public Customer and such order is for 50 option contracts or more 
should provide a meaningful opportunity for price improvement, and 
thereby benefit investors and others in a manner that is consistent 
with the Act.
    Amending Options 3, Section 13(a)(3) to add new subparagraphs (A) 
and (B) to distinguish the opposite side and same side checks for a 
PIXL Order for the account of a broker dealer or any other person or 
entity that is not a Public Customer and such order is for 50 option 
contracts or more and specifying the opposite side check and same side 
NBBO check is consistent with the Act and the protection of investors 
and the general public. The opposite side check must be equal to or 
better than the NBBO and any non-displayed order on the Exchange's 
order book to avoid a trade-through. Also, the NBBO check is always 
relevant in the same side check to avoid a trade-through. The 
eligibility requirements if the PIXL Order is for the account of a 
broker dealer or any other person or entity that is not a Public 
Customer and such order is for 50 option contracts or more should 
provide a meaningful opportunity for price improvement, and thereby 
benefit investors and others in a manner that is consistent with the 
Act.
    The Exchange believes that the proposed amendments will bring 
greater clarity to the current System functionality as the various 
System checks are noted for each side of the PIXL Order. Further, the 
NBBO check is specifically noted as this check on the same side check 
ensures the order does not trade-through. The Exchange is not 
substantively amending the current System functionality.
Auction Process
    The Exchange's proposal to amend Options 3, Section 13(b)(4) to 
replace references to ``Limit Order,'' ``order'' and ``orders'' with 
the word ``interest'' is consistent with the Act and the protection of 
investors and the general public because an order or quote on the order 
book may currently interact with a PIXL Order. The proposed rule text 
makes clear that a quote will participate in a PIXL as unrelated 
marketable interest. The clarification will make the rule text 
transparent.
    Amending Options 3, Section 13(b)(6) to remove the term ``then-
existing'' from the paragraph is consistent with the Act

[[Page 62866]]

because the phrase is not necessary as the subsequent clause makes 
clear which cPBBO will be referenced.
Technical Amendments
    The Exchange's proposal to make two technical amendments within 
Options 4A, Options Index Rules, are consistent with the Act as the 
amendments to Options 4A, Sections 6 and 12 are non-substantive.

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.
PIXL Entry Checks
    Phlx's proposal to amend Options 3, Section 13(a)(1)-(3) to 
harmonize the language within the PIXL entry checks with language 
within GEMX's PIM, ISE's PIM, MRX's PIM and BX's PRISM, without 
changing the substantive operations of these price improvement 
auctions, does not impose an undue burden on competition because market 
participants will be able to compare Phlx's PIXL entry checks with 
similar mechanisms on Nasdaq affiliated markets.
    Amending Options 3, Section 13(a)(1)-(3) to specify the entry 
checks that are utilized by Phlx's System today to initiate a PIXL does 
not impose an undue burden on competition because these checks will 
apply uniformly to any order entered into PIXL. Further, the proposed 
amendments will add transparency to the current System functionality as 
the various System checks are noted for each side of the PIXL Order. 
Further, the Exchange is not substantively amending the current System 
functionality.
Auction Process
    The Exchange's proposal to amend Options 3, Section 13(b)(4) to 
replace references to ``Limit Order,'' ``order'' and ``orders'' within 
Options 3, Section 13(b)(4) with the word ``interest'' does not impose 
an undue burden on competition because all quotes will participate in a 
PIXL as an unrelated order. The clarification will make the rule text 
transparent.
    Amending Options 3, Section 13(b)(6) to remove the term ``then-
existing'' from the paragraph does not impose an undue burden on 
competition because the phrase is not necessary as the subsequent 
clause makes clear which cPBBO will be referenced.
Technical Amendments
    The Exchange's proposal to make two technical amendments within 
Options 4A, Options Index Rules, do not impose an undue burden on 
competition as the amendments to Options 4A, Sections 6 and 12 are non-
substantive.

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 after the date of the filing, or such 
shorter time as the Commission may designate, it has become effective 
pursuant to section 19(b)(3)(A) of the Act \8\ and Rule 19b-4(f)(6) 
thereunder.\9\
---------------------------------------------------------------------------

    \8\ 15 U.S.C. 78s(b)(3)(A).
    \9\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6) 
requires a self-regulatory organization to give the Commission 
written notice of its intent to file the proposed rule change at 
least five business days prior to the date of filing of the proposed 
rule change, or such shorter time as designated by the Commission. 
The Exchange has satisfied this requirement.
---------------------------------------------------------------------------

    At any time within 60 days of the filing of 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 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-2023-41 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-2023-41. 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-2023-41 and should be 
submitted on or before October 4, 2023.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\10\
---------------------------------------------------------------------------

    \10\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2023-19731 Filed 9-12-23; 8:45 am]
BILLING CODE 8011-01-P
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