[Federal Register Volume 85, Number 116 (Tuesday, June 16, 2020)]
[Notices]
[Pages 36456-36458]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-12895]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-89040; File No. SR-Phlx-2020-27]
Self-Regulatory Organizations; Nasdaq PHLX LLC; Notice of Filing
and Immediate Effectiveness of Proposed Rule Change To Amend Phlx
Options 5, Section 4
June 10, 2020.
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 May 28, 2020, Nasdaq PHLX LLC (``Phlx'' or ``Exchange'') filed with
the Securities and Exchange Commission (``Commission'') the proposed
rule change as described in Items I and II below, which Items have been
prepared by the Exchange. The Commission is publishing this notice to
solicit comments on the proposed rule change from interested persons.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------
I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange proposes to amend Options 5, Section 4, Order Routing.
The text of the proposed rule change is available on the Exchange's
website at http://nasdaqphlx.cchwallstreet.com/, at the principal
office of the Exchange, and at the Commission's Public Reference Room.
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, the Exchange included statements
concerning the purpose of and basis for the proposed rule change and
discussed any comments it received on the proposed rule change. The
text of these statements may be examined at the places specified in
Item IV below. The Exchange has prepared summaries, set forth in
sections A, B, and C below, of the most significant aspects of such
statements.
[[Page 36457]]
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
In 2019, Phlx filed a rule proposal to define the term ``Public
Customer'' within Rule 1000(b)(56) to provide, ``Public Customer shall
mean a person or entity that is not a broker or dealer in securities
and is not a professional as defined within Phlx Rule 1000(b)(14).''
\3\ This defined term was later relocated to Options 1, Section
1(b)(46).\4\ Within the Defined Term Rule Change, the Exchange replaced
the term ``customer'' in various rules to either the defined term
``Public Customer'' or both the defined terms ``Public Customer'' and
``Professional.'' \5\
---------------------------------------------------------------------------
\3\ See Securities Exchange Act Release No. 86959 (September 13,
2019), 84 FR 49362 (September 19, 2019) (SR-Phlx-2019-33) (``Defined
Term Rule Change'').
\4\ See Securities Exchange Act Release No. 88213 (February 14,
2020), 85 FR 9859 (February 20, 2020) (SR-Phlx-2020-03) (``Phlx
Rulebook Relocation Rule Change'').
\5\ The term ``Professional'' is defined within Options 1,
Section 1(b)(45) as ``The term ``professional'' means any person or
entity that (i) is not a broker or dealer in securities, and (ii)
places more than 390 orders in listed options per day on average
during a calendar month for its own beneficial account(s). Member
organizations must indicate whether orders are for Professionals.''
---------------------------------------------------------------------------
While converting various terms within the Phlx Rules, the Exchange
inadvertently failed to revise Phlx Options 5, Section 4(a)(iii)(C).
This particular reference was not contained within the Defined Term
Rule Change. The Exchange should have added ``and Professional'' to
Options 5, Section 4(a)(iii)(C) within the Defined Term Rule Change.
Both Public Customers and Professional SRCH Orders may route. The
Exchange has permitted market participants to route both Public
Customer and Professional SRCH Orders for some time. During the Opening
Process, Phlx only permits Public Customer and Professional orders to
route.\6\ The Exchange noted within the Defined Term Rule Change that,
``the Exchange is not amending any provision of the rules, rather the
Exchange is making clear where a Public Customer order is intended and
where the term Professional is intended to avoid confusion.'' \7\
---------------------------------------------------------------------------
\6\ See Options 3, Section 8(k)(C)(6) and Options 5, Section
4(a)(iii)(B)(1).
\7\ See note 3 above.
---------------------------------------------------------------------------
The Exchange proposes to add the words ``and Professional'' within
Phlx Options 5, Section 4(a)(iii)(C) to make clear that Professional
SRCH Orders may route, in addition to Public Customer SRCH Orders to
conform the rule text with the functionality of the System.
Finally, the Exchange proposes to correct a typo within Options 5,
Section 4(a)(iii)(B)(9) to change the word ``designed'' to
``designated.''
2. Statutory Basis
The Exchange believes that its proposal is consistent with Section
6(b) of the Act,\8\ in general, and furthers the objectives of Section
6(b)(5) of the Act,\9\ in particular, in that it is designed to promote
just and equitable principles of trade, to remove impediments to and
perfect the mechanism of a free and open market and a national market
system, and, in general to protect investors and the public interest.
The Exchange's proposal to correct Options 5, Section 4(a)(iii)(C) to
add the words ``and Professional'' to make clear that Public Customer
and Professional SRCH Orders may route is consistent with the Act.
Today, the System permits both Public Customer and Professional SRCH
Orders to route. Also, the Exchange believes that it is not unfairly
discriminatory to limit the routing of SRCH Orders to Public Customers
and Professionals. The Exchange has traditionally routed non-broker-
dealer orders because the Exchange believes those market participants
do not have the same capabilities as broker-dealers in terms of an
ability to route to other options markets. Broker-dealers typically
have memberships at other exchanges, unlike non-broker-dealers.
---------------------------------------------------------------------------
\8\ 15 U.S.C. 78f(b).
\9\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------
Previously, Phlx did not define the term ``public customer.'' The
addition of the term ``Public Customer'' in the Rulebook, excluded
professionals, which are separately defined. The Exchange's proposal
will correct its error and make clear that Professional SRCH Orders may
route. For purposes of the Order Protection and Locked and Crossed
Markets Plan, a ``customer'' is defined as an individual or
organization that is not a Broker/Dealer.\10\ This would include a
Professional. Phlx routes Public Customer and Professional SRCH Orders
that are not automatically executed because there is a displayed bid or
offer on another exchange trading the same options contract that is
better than the best bid or offer on the Exchange. The Exchange
believes that ensuring that ``customer'' orders, as that term is
defined within Options 5, Section 1(f), are routed subject to the
customer's routing instructions, is consistent with the Exchange Act
and provides for the protection of these market participants to ensure
that they are executed at the best bid or offer.
---------------------------------------------------------------------------
\10\ See Phlx Options 5, Section 1(f). The term ``customer'' as
utilized within Options 5, Section 1(f) is equivalent to the
combination of Phlx's defined terms Public Customer and
Professional.
---------------------------------------------------------------------------
The Exchange noted in the Defined Term Rule Change that, ``The
Exchange desires to make clear where a customer order means a Public
Customer order or both a Public Customer and a Professional order. By
distinguishing the use of these terms, market participants will better
understand Exchange Rules.'' \11\ The Exchange has permitted market
participants to route both Public Customer and Professional SRCH Orders
for some time. During the Opening Process, Phlx only permits Public
Customer and Professional orders to route.\12\ The Exchange noted
within the Defined Term Rule Change that, ``the Exchange is not
amending any provision of the rules, rather the Exchange is making
clear where a Public Customer order is intended and where the term
Professional is intended to avoid confusion.'' \13\
---------------------------------------------------------------------------
\11\ See note 3 above.
\12\ See note 5 above.
\13\ See note 3 above.
---------------------------------------------------------------------------
Finally, the Exchange's proposal to correct a typo within Options
5, Section 4(a)(iii)(B)(9) to change the word ``designed'' to
``designated'' is non-substantive and will clarify the Rule.
B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the proposed rule change will
impose any burden on competition not necessary or appropriate in
furtherance of the purposes of the Act. The Exchange's proposal to
correct Options 5, Section 4(a)(iii)(C) to add the words ``and
Professional'' to make clear that Public Customer and Professional SRCH
Orders may route does not impose an undue burden on competition. Today,
the System permits Public Customer and Professional SRCH Orders to
route. During the Opening Process, Phlx only permits Public Customer
and Professional orders to route.\14\ The Exchange does not believe
that limiting the routing of SRCH Orders to Public Customers and
Professionals imposes an undue burden on competition. The Exchange has
traditionally routed non-broker-dealer orders because the Exchange
believes those market participants do not have the same capabilities as
broker-dealers in terms of an ability to route to other options
markets. Broker-dealers typically have memberships at other exchanges,
unlike non-broker-dealers.
---------------------------------------------------------------------------
\14\ Id.
---------------------------------------------------------------------------
[[Page 36458]]
The addition of the words ``and Professional'' will bring greater
transparency to the Rulebook.
The Exchange's proposal to correct a typo within Options 5, Section
4(a)(iii)(B)(9) to change the word ``designed'' to ``designated'' is
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 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)(iii) of the Act \15\ and
subparagraph (f)(6) of Rule 19b-4 thereunder.\16\
---------------------------------------------------------------------------
\15\ 15 U.S.C. 78s(b)(3)(A)(iii).
\16\ 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.
---------------------------------------------------------------------------
A proposed rule change filed under Rule 19b-4(f)(6) \17\ normally
does not become operative prior to 30 days after the date of the
filing. However, pursuant to Rule 19b-4(f)(6)(iii),\18\ the Commission
may designate a shorter time if such action is consistent with the
protection of investors and the public interest. The Exchange requests
that the Commission waive the 30-day operative delay so that it may
immediately correct an omission in its rules and specify that both
Public Customer and Professional SRCH Orders may route. The Exchange
believes that the proposed amendment will bring greater clarity to its
rules. The Commission believes that waiving the 30-day operative delay
is consistent with the protection of investors and the public interest.
Accordingly, the Commission waives the 30-day operative delay and
designates the proposed rule change operative upon filing.\19\
---------------------------------------------------------------------------
\17\ 17 CFR 240.19b-4(f)(6).
\18\ 17 CFR 240.19b-4(f)(6)(iii).
\19\ For purposes only of waiving the 30-day operative delay,
the Commission has considered the proposed rule's impact on
efficiency, competition, and capital formation. See 15 U.S.C.
78c(f).
---------------------------------------------------------------------------
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 (http://www.sec.gov/rules/sro.shtml); or
Send an email to [email protected]. Please include
File Number SR-Phlx-2020-27 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-2020-27. 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 (http://www.sec.gov/rules/sro.shtml).
Copies of the submission, all subsequent amendments, all written
statements with respect to the proposed rule change that are filed with
the Commission, and all written communications relating to the proposed
rule change between the Commission and any person, other than those
that may be withheld from the public in accordance with the provisions
of 5 U.S.C. 552, will be available for website viewing and printing in
the Commission's Public Reference Room, 100 F Street NE, Washington, DC
20549, on official business days between the hours of 10:00 a.m. and
3:00 p.m. Copies of the filing also will be available for inspection
and copying at the principal office of the Exchange. All comments
received will be posted without change. Persons submitting comments are
cautioned that we do not redact or edit personal identifying
information from comment submissions. You should submit only
information that you wish to make available publicly. All submissions
should refer to File Number SR-Phlx-2020-27 and should be submitted on
or before July 7, 2020.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\20\
---------------------------------------------------------------------------
\20\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-12895 Filed 6-15-20; 8:45 am]
BILLING CODE 8011-01-P