[Federal Register Volume 85, Number 85 (Friday, May 1, 2020)]
[Notices]
[Pages 25500-25503]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-09249]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-88753; File No. SR-Phlx-2020-21]
Self-Regulatory Organizations; Nasdaq PHLX LLC; Notice of Filing
and Immediate Effectiveness of Proposed Rule Change To Amend Various
Phlx Rules Related to Routing, Remote Specialist, and Assistant Lead
Market Maker
April 27, 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 April 15, 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.
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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 Rules at Options 2, Section 3,
Allocation Application, Allocation, Reallocation, Transfer and
Voluntary Resignation''; Options 2, Section 4, Obligations of Market
Makers; Options 2, Section 11, Lead Market Maker Appointments; Options
5, Section 4, Order Routing; Options 8, Section 11, Floor Market Maker
and Lead Market Maker Appointment; Options 8, Section 25, Floor
Allocation; and Options 8, Section 39, Option Minor Rule Violations and
Order and Decorum Regulations at E-2, Allocation, Time Stamping,
Matching and Access to Matched Trades.
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 to amend Phlx Rules at Options 2, Section 3,
Allocation Application, Allocation, Reallocation, Transfer and
Voluntary Resignation''; Options 2, Section 4, Obligations of Market
Makers; Options 2, Section 11, Lead Market Maker Appointments; Options
5, Section 4, Order Routing; Options 8, Section 11, Floor Market Maker
and Lead Market Maker Appointment; Options 8, Section 25, Floor
Allocation; and Options 8, Section 39, Option Minor Rule Violations and
Order and Decorum Regulations at E-2, Allocation, Time Stamping,
Matching and Access to Matched Trades. Each change is described below.
Remote Specialist
The Exchange proposes to amend Options 2, Section 4, Obligations of
Market Maker, to replace rule text currently within Options 2, Section
4(b)(2) with more precise rule text. Currently, the rule text in the
last two sentences of Options 2, Section 4(b)(2) provides, ``An RSQT
shall not submit option quotations in eligible options to which such
RSQT is assigned to the extent that the RSQT is also approved as a
Remote Lead Market Maker in the same options. An RSQT may only trade in
a market making capacity in classes of options in which he is assigned
or approved as a Remote Lead Market Maker.'' The Exchange would like to
replace this text with more precise language which it believes more
clearly conveys the meaning of those sentences. The Exchange proposes
to state, ``An RSQT may not simultaneously quote both as RSQT and
Remote Lead Market
[[Page 25501]]
Maker in a particular security. If an RSQT is a Remote Lead Market
Maker in a particular security, the Remote Lead Marker Maker must make
a market as a Remote Lead Market Maker and may not make a market as an
RSQT in that particular security.'' This rule text, which the Exchange
believes is clear and precise, is taken from the Order which approved
this rule text.\3\ This amendment is a non-substantive rule change
which is merely intended to bring greater clarity to the obligation of
an RSQT who is also the Remote Lead Market Maker in a particular
security.
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\3\ See Securities Exchange Act Release No. 63717 (January 14,
2011), 76 FR 4141at 4143 (January 24, 2011) (SR-Phlx-2010-145)
(``Order Granting Accelerated Approval to a Proposed Rule Change, as
Modified by Amendment No. 1 Thereto, Relating to the Establishment
of Remote Specialists'').
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Assistant Lead Market Maker
The Exchange proposes to amend rule text within Options 2, Section
3, Allocation Application, Allocation, Reallocation, Transfer and
Voluntary Resignation; Options 2, Section 11, Lead Market Maker
Appointments; Options 8, Section 11, Floor Market Maker and Lead Market
Maker Appointment; Options 8, Section 25, Floor Allocation; and Options
8, Section 39, Option Minor Rule Violations and Order and Decorum
Regulations at E-2, Allocation, Time Stamping, Matching and Access to
Matched Trades to replace the term ``assistant'' with ``back-up.'' This
amendment is non-substantive. The Exchange believes that the word
``back-up'' is a more precise term that emphasizes that the Market
Maker must be able to take on all the duties of the Lead Market Maker.
No obligations are being amended with respect to this role.
Routing
Phlx previously filed a rule proposal \4\ to amend this Options 5,
Section 4, ``Order Routing,'' which was previously numbered Rule
1093.\5\ At this time, the Exchange proposes to remove two sentences
within Options 5, Section 4 for FIND and SRCH Orders. These sentences
were inadvertently not removed in the Prior Rule Change.
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\4\ See Securities Exchange Act Release No. 87811 (December 20,
2019), 84 FR 72017 (December 30, 2019) (SR-Phlx-2019-56) (``Prior
Rule Change'').
\5\ Phlx has recently renumbered its rules in connection with a
Rulebook relocation to a new Rulebook shell. See SR-Phlx-2020-03.
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FIND Orders
The Exchange proposes to delete a sentence within FIND Orders at
Options 5, Section 4(a)(iii)(B)(5) which states, ``If during the Route
Timer, the ABBO moves and crosses the FIND Order, any new interest
arrives opposite the FIND Order that is marketable against the FIND
Order will trade at the FIND Order price.'' This sentence is incorrect
in that it contradicts a sentence at the end of Options 5, Section
4(a)(iii)(B)(5) which states, ``If during the Route Timer any new
interest arrives opposite the FIND Order that is marketable against the
FIND Order such interest will trade against the FIND Order at the ABBO
price unless the ABBO is improved to a price which crosses the FIND
Order's already displayed price, in which case the incoming order will
execute at the previous ABBO price as the away market crossed a
displayed price.'' The current last sentence within Options 5, Section
4(a)(iii)(B)(5) accurately describes the scenario for new interest
arriving opposite the FIND Order that is marketable against the FIND
Order.
By way of example, assume a PHLX BBO: 1 x 1.25 and a CBOE BBO: 1.05
x 1.15.
If a FIND Order was entered to Buy 1 @1.20
FIND Order to buy is exposed on Phlx market data feeds @1.15 (then
ABBO) and displayed on OPRA at 1.14
Route Timer begins
During Route Timer a Limit Order to sell 1 @1.15 arrives
CBOE adjusts its BBO to 1.05 x 1.10
The Route Timer ends and the Find Order will trade with the sell
Limit Order at 1.15 in this example.
The incorrect sentence provides that if the ABBO moves and crosses the
FIND Order, any new interest that arrives opposite the FIND Order,
which is marketable against the FIND Order, will trade at the FIND
Order Price. This is incorrect because the new interest would trade
against the FIND Order at the ABBO price, unless the ABBO is improved
to a price which crosses the FIND Order's already displayed price, in
which case the incoming order will execute at the previous ABBO price
as the away market crossed a displayed price. The current sentence is
incorrect because the FIND Order will not trade at the FIND Order price
as noted in the first quoted sentence, rather it would execute at the
previous ABBO price because the away market crossed a displayed price.
The Exchange would display the order one MPV inferior to the away
market offer, at 1.14. The FIND Order would execute at 1.15 which was
the previous ABBO bid, as the away market crossed the displayed price
of 1.14. Today, the System does not execute this trade at the FIND
Order price as incorrectly noted. The Exchange would not trade-through
the ABBO in this circumstance, Phlx would be bound by the Cboe's price
in the above example. This specific rule text does not properly reflect
the System operation. The rule text which provides that if the away
market crossed Phlx's already displayed price the FIND Order will
execute at the previous ABBO price, reflects the current System
handling.
The Exchange proposes to correct the rule text by deleting the
contradictory sentence. The remaining rule text will properly reflects
the current System handling. Further, the Exchange proposes to relocate
the correct sentence within Options 5, Section 4(a)(iii)(B)(5) to the
same location as the deleted text to improve the flow of information
presented within Options 5, Section 4(a)(iii)(B)(5).
SRCH Orders
The Exchange proposes a similar correction to the SRCH Orders rule
text. The Exchange proposes to similarly remove rule a contradictory
sentence within current Options 5, Section 4(a)(iii)(C)(4) which
provides, ``If during the Route Timer, the ABBO moves and crosses the
SRCH Order, any new interest arrives opposite the SRCH Order that is
marketable against the SRCH Order will trade at the SRCH Order price.''
Also, the Exchange proposes to replicate the last sentence of Options
5, Section 4(a)(iii)(C)(6), which contains the accurate scenario for
new interest arriving opposite the SRCH Order that is marketable
against the SRCH Order, to the same location as the deleted text within
Options 5, Section 4(a)(iii)(C)(4) to improve the flow of information
presented within that paragraph. The Exchange proposes to retain the
exact sentence within Options 5, Section 4(a)(iii)(C)(6) because it
applies equally to the scenarios described within Options 5, Section
4(a)(iii)(C)(6).
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 and to protect investors and the
public interest.
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\6\ 15 U.S.C. 78f(b).
\7\ 15 U.S.C. 78f(b)(5).
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Remote Specialist
The Exchange's proposal to amend Options 2, Section 4, Obligations
of Market Maker, to replace rule text currently within Options 2,
Section 4(b)(2) with more precise rule text is consistent with the Act.
The proposed new rule text is taken from the order approving the rule
and more clearly explains the obligation of an RSQT who
[[Page 25502]]
is also the Remote Lead Market Maker in a particular security. This
rule change is non-substantive and will benefit market participants by
bringing greater clarity to the rule text.
Assistant Lead Market Maker
The Exchange's proposal to amend rule text within Options 2,
Section 3, Allocation Application, Allocation, Reallocation, Transfer
and Voluntary Resignation; Options 2, Section 11, Lead Market Maker
Appointments; Options 8, Section 11, Floor Market Maker and Lead Market
Maker Appointment; Options 8, Section 25, Floor Allocation; and Options
8, Section 39, Option Minor Rule Violations and Order and Decorum
Regulations at E-2, Allocation, Time Stamping, Matching and Access to
Matched Trades, to replace the term ``assistant'' with ``back-up'' is
consistent with the Act. This amendment is non-substantive. The
Exchange believes that the word ``back-up'' is a more precise term that
emphasizes that the Market Maker must be able to take on all the duties
of the Lead Market Maker and will benefit market participants by
bringing greater clarity to the rule text. No obligations are being
amended with respect to this role.
Routing
With respect to the amendments to the Order Routing Rule, the
Exchange's removal of two contradictory sentences is consistent with
the Act because this will bring clarity and transparency to the rule.
Further, relocating the correct rule text within the FIND and adding
the correct rule text within SRCH rule language are non-substantive
amendments which will improve the flow of information.
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.
Remote Specialist
The Exchange's proposal to amend Options 2, Section 4, Obligations
of Market Maker'' to replace rule text currently within Options 2,
Section 4(b)(2) with more precise rule text does not impose an undue
burden on competition. This non-substantive amendment more clearly
explains the obligation of an RSQT who is also the Remote Lead Market
Maker in a particular security.
Assistant Lead Market Maker
The Exchange's proposal to amend rule text within Options 2,
Section 3, Allocation Application, Allocation, Reallocation, Transfer
and Voluntary Resignation; Options 2, Section 11, Lead Market Maker
Appointments; Options 8, Section 11, Floor Market Maker and Lead Market
Maker Appointment; Options 8, Section 25, Floor Allocation; and Options
8, Section 39, Option Minor Rule Violations and Order and Decorum
Regulations at E-2, Allocation, Time Stamping, Matching and Access to
Matched Trades, to replace the term ``assistant'' with ``back-up'' does
not impose an undue burden on competition. This non-substantive
amendment will bring greater clarity to the rule text. No obligations
are being amended with respect to this role.
Routing
The Exchange believes that deleting the two contradictory sentences
will bring greater clarity to the rule. Further, relocating the correct
rule text within the FIND and adding the correct rule text within the
SRCH language is a non-substantive amendment which will improve the
flow of information.
2. 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 \8\ and
subparagraph (f)(6) of Rule 19b-4 thereunder.\9\
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\8\ 15 U.S.C. 78s(b)(3)(A)(iii).
\9\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)
requires the Exchange to give the Commission written notice of its
intent to file the proposed rule change, along with a brief
description and text of the proposed rule change, at least five
business days prior to the date of filing of the proposed rule
change, or such shorter time as designated by the Commission. The
Exchange has satisfied this requirement.
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A proposed rule change filed under Rule 19b-4(f)(6) \10\ normally
does not become operative prior to 30 days after the date of the
filing. However, pursuant to Rule 19b-4(f)(6)(iii),\11\ 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 remove incorrect and contradictory sentences in Phlx
Options 5, Section 4, to bring greater clarity and transparency to the
Phlx routing 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.\12\
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\10\ 17 CFR 240.19b-4(f)(6).
\11\ 17 CFR 240.19b-4(f)(6)(iii).
\12\ 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).
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At any time within 60 days of the filing of the proposed rule
change, the Commission summarily may temporarily suspend such rule
change if it appears to the Commission that such action is necessary or
appropriate in the public interest, for the protection of investors, or
otherwise in furtherance of the purposes of the Act. If the Commission
takes such action, the Commission shall institute proceedings to
determine whether the proposed rule 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-2020-21 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-2020-21. 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/
[[Page 25503]]
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-2020-21 and should be
submitted on or before May 22, 2020.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\13\
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\13\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-09249 Filed 4-30-20; 8:45 am]
BILLING CODE 8011-01-P