[Federal Register Volume 84, Number 211 (Thursday, October 31, 2019)]
[Notices]
[Pages 58420-58422]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-23731]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-87403; File No. SR-Phlx-2019-46]
Self-Regulatory Organizations; Nasdaq PHLX LLC; Notice of Filing
and Immediate Effectiveness of Proposed Rule Change To Amend Phlx Rule
1097
October 25, 2019.
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 October 22, 2019, 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.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange proposes to amend Phlx Rule 1097, ``Limitations on
Order Entry.''
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.
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
The Exchange proposes an amendment to Phlx Rule 1097, ``Limitations
on Order Entry'' to add additional rule text concerning limitations on
solicited orders. Specifically, the Exchange proposes to reinstate a
paragraph that was recently removed from Rule 1080. The Exchange
recently filed a rule change \3\ which, among other thing, removed a
paragraph from Phlx Rule 1080(c)(ii)(C)(2) and (3) which provided,
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\3\ See Securities Exchange Act Release Nos. 86286 (July 2,
2019), 84 FR 32794 (July 9, 2019) (SR-Phlx-2019-25) (``July
Filing'').
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Solicitation Orders. Order Entry Firms must expose orders they
represent as agent for at least one (1) second before such orders may
be automatically executed, in whole or in part, against orders
solicited from members and non-member broker-dealers to transact with
such orders, except for: (a) Orders entered into PIXL pursuant to Rule
1087, (b) orders entered into COLA pursuant to Rule 1080, Commentary
.02(c)(ii)(e), or (c) orders entered into the QCC mechanism pursuant to
Rules 1080(o).
(3) It shall be a violation of Rule 1080(c)(ii)(C) for any Exchange
member or member organization to be a party to any arrangement designed
to circumvent Rule 1080(c)(ii)(C) by providing an opportunity for a
customer, member, member organization, or non-member broker-dealer to
execute immediately against agency orders delivered to the Exchange,
whether such orders are delivered via AUTOM or represented in the
trading crowd by a member or a member organization, except for: (a)
Orders entered into PIXL pursuant to Rule 1087, (b) orders entered into
COLA pursuant to Rule 1080, Commentary .02(c)(ii)(e), or (c) orders
entered into the QCC mechanism pursuant to Rules 1080(o).
In its July Filing, the Exchange noted that the above language was
repetitive of language within current Rule 1080(c)(ii)(C)(1), which
text was relocated to Rule 1097(b) and requires exposure similar to of
one second and describes the same behavior as current Rule
1080(c)(ii)(C)(2) and (3) and lists the same exceptions. At this time,
the Exchange desires to reinstate the rule text of Rule
1080(c)(ii)(C)(2) and (3) because while some circumstances are covered
by current Rule 1097(b), after further consideration, there are
circumstances which are specific to the text that was previously within
Rule 1080(c)(ii)(C)(2) and (3), such as certain crossing transactions.
Specifically, the Exchange proposes to adopt rule text similar to
previous Rule 1080(c)(ii)(C)(2) and (3) within Rule 1097(c) which
conforms to rule text currently within Nasdaq ISE, LLC, Nasdaq GEMX,
LLC and Nasdaq MRX, LLC Options 3, Section 22(c). The Exchange proposes
to similarly title the new section ``Limitations on Solicitation
Orders.'' The Exchange proposes to state,
Limitations on Solicitation Orders. Members may not execute
orders they represent as agent on the Exchange against orders
solicited from Members and non-Member broker-dealers to transact
with such orders unless (i) the unsolicited order is first exposed
on the Exchange for at least one (1) second; (ii) the member has
been bidding or offering on the Exchange for at least 1 second prior
to receiving an agency order that is executable against such order;
(iii) the orders are entered into Price Improvement XL or ``PIXL''
pursuant to Rule 1087; (iv) the orders are entered into the Complex
Order Live Auction or ``COLA'' pursuant to Rule 1098(e); or (v) the
orders are entered into the Qualified Contingent Cross or ``QCC''
mechanism pursuant to Rules 1088 or Options 8, Section 30(e).
The Exchange proposes the same exceptions to order entry for orders
represented as agent as specified within Rule 1097(b) for principal
transactions, with one exception. Rule 1097(b) currently contains an
exception which provides, ``the member proceeds in accordance with the
crossing rules contained in Rule 1064.'' Rule 1064 was recently
relocated to Options 8, Section 30, ``Crossing, Facilitation and
Solicited Orders.'' This rule describes certain crossing orders,
including facilitation and solicited orders which are available on the
Exchange's Trading Floor. The Exchange notes that, today, these orders
are exposed in the trading crowd for at least 1 second in accordance
with the general provision of Rule 1097 and therefore is not an
exception to Rule 1097(b) or proposed (c). The Exchange proposes to
remove this exception from Rule 1097(b) and not include the exception
within proposed Rule 1097(c), with the exception of noting the Floor
Qualified Contingent Cross exception within Options 8, Section 30(e).
Similar to Qualified Contingent Cross Orders that execute
electronically, the Floor Qualified Contingent Cross Orders is an
exception to both Rule 1097(b) and (c).
[[Page 58421]]
The Exchange does not believe the proposed rule text within Rule
1097(c) is substantively different than the rule text within former
Rule 1080(c)(ii)(C)(2) and (3). The Exchange desires to conform the
rule text with Nasdaq affiliated exchanges, where applicable. Today,
the behavior specified within proposed Rule 1097(c) would be a
violation of Phlx Rule 707, ``Conduct Inconsistent with Just and
Equitable Principles of Trade.'' The Exchange proposes to specifically
note the prohibition within proposed Rule 1097(c) so that members are
aware when they execute orders they represent as agent on the Exchange
against orders solicited from members and non-member broker-dealers
that certain limitations exist. The Exchange believes the proposed rule
will assist members in understanding the type of behavior that would
violate Exchange rules when executing agency orders, namely executing
agency orders to increase its economic gain from trading against the
order without first giving other trading interest on Phlx an
opportunity to either trade with the agency order or to trade at the
execution price when the member was already bidding or offering on the
book. The Exchange proposes to make clear with this Rule that members
may not gain by failing to expose orders submitted on an agency basis.
The Exchange is promoting transparency of orders to prevent members
from seeking price discovery and potentially preventing price
improvement which may result from exposing an order.
The Exchange proposes to amend the lettering to numbering within
Rule 1097(b) for consistency and update a rule reference. Finally, the
Exchange proposes to renumber Rule 1097(c) as ``(d)''.
2. Statutory Basis
The Exchange believes that its proposal is consistent with Section
6(b) of the Act,\4\ in general, and furthers the objectives of Section
6(b)(5) of the Act,\5\ 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 as
provided for within the purpose section.
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\4\ 15 U.S.C. 78f(b).
\5\ 15 U.S.C. 78f(b)(5).
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The Exchange's proposal to adopt rule text related to solicited
orders similar to other Nasdaq affiliated markets \6\ will bring
greater clarity to current limitations that exist when entering orders.
Proposed Rule 1097(c) is consistent with the Act because it will
promote just and equitable principles of trade and remove impediments
to and perfect the mechanism of a free and open market and a national
market system because it will continue to make clear the requirement to
expose orders as well as present more specific limitations on order
entry which would violate Phlx Rules. Specifically, the proposed rule
will assist members in understanding the type of behavior that would
violate Exchange rules when executing agency orders, namely executing
agency orders to increase its economic gain from trading against the
order without first giving other trading interest on Phlx an
opportunity to either trade with the agency order or to trade at the
execution price when the member was already bidding or offering on the
book. The Exchange proposes to make clear with this Rule that members
may not gain by failing to expose orders submitted on an agency basis.
The Exchange is promoting transparency of orders to prevent members
from seeking price discovery and potentially preventing price
improvement which may result from exposing an order.
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\6\ Nasdaq ISE, LLC, Nasdaq GEMX, LLC and Nasdaq MRX, LLC
Options 3, Section 22(c).
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B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the proposed rule change will
impose any burden on competition that is not necessary or appropriate
in furtherance of the purposes of the Act. The Exchange notes that
proposed Rule 1097(c) will apply uniformly to all members. Until
recently rule text describing limitations on solicitation orders was
described within the Rulebook. Despite the removal of the rule text,
the behavior was prohibited pursuant to Phlx Rule 707. There is no
impact to market participants as a result of adding the new rule text,
rather the new rule text will provide specificity on the type of
behavior that is prohibited.
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 \7\ and
subparagraph (f)(6) of Rule 19b-4 thereunder.\8\
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\7\ 15 U.S.C. 78s(b)(3)(A)(iii).
\8\ 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.
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A proposed rule change filed under Rule 19b-4(f)(6) normally does
not become operative for 30 days after the date of the filing. However,
Rule 19b-4(f)(6)(iii) \9\ permits the Commission to designate a shorter
time if such action is consistent with the protection of investors and
the public interest. In its filing, Phlx requested that the Commission
waive the 30-day operative delay so that the Exchange can implement the
proposed rule change promptly after filing. The Exchange explained that
the behavior prohibited by the proposed rule change is currently also
prohibited by Phlx Rule 707, but stated that adding a more specific
description of the prohibited behavior would provide their members with
greater transparency regarding this specific limitation on entering
orders. The Commission also notes that the behavior prohibited by the
proposed rule change was previously prohibited by Phlx Rule 1080 and
that the Exchange is simply reinstating the prohibition in a manner
that conforms to the rule text of affiliate exchanges.
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\9\ 17 CFR 240.19b-4(f)(6)(iii).
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The Commission believes that waiver of the 30-day operative delay
is consistent with the protection of investors and the public interest,
as such waiver will permit the Exchange to promptly update its rules to
provide greater transparency to its members and to maintain consistency
with its affiliate exchanges. Accordingly, the Commission hereby waives
the 30-day operative delay and designates the proposed rule change
operative upon filing.\10\
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\10\ 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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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
[[Page 58422]]
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-2019-46 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-2019-46. 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-2019-46 and should be submitted on
or before November 21, 2019.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\11\
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\11\ 17 CFR 200.30-3(a)(12) and (59).
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Eduardo A. Aleman,
Deputy Secretary.
[FR Doc. 2019-23731 Filed 10-30-19; 8:45 am]
BILLING CODE 8011-01-P