`[Federal Register Volume 89, Number 249 (Monday, December 30, 2024)]
[Notices]
[Pages 106888-106925]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2024-30904]



[[Page 106887]]

Vol. 89

Monday,

No. 249

December 30, 2024

Part IV





 Securities and Exchange Commission





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Self-Regulatory Organizations; Nasdaq PHLX LLC; Notice of Filing and 
Immediate Effectiveness of Proposed Rule Change To Amend Various Phlx 
Rules in Connection With a Technology Migration; Notice

  Federal Register / Vol. 89 , No. 249 / Monday, December 30, 2024 / 
Notices  

[[Page 106888]]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-101989; File No. SR-Phlx-2024-71]


Self-Regulatory Organizations; Nasdaq PHLX LLC; Notice of Filing 
and Immediate Effectiveness of Proposed Rule Change To Amend Various 
Phlx Rules in Connection With a Technology Migration

December 19, 2024.
    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 December 12, 2024, Nasdaq PHLX LLC (``Phlx'' or ``Exchange'') filed 
with the Securities and Exchange Commission (``SEC'' or ``Commission'') 
the proposed rule change as described in Items I, II, and III, below, 
which Items have been prepared by the Exchange. The Commission is 
publishing this notice to solicit comments on the proposed rule change 
from interested persons.
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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 Options 2, Section 6, Market Maker 
Orders. The Exchange also proposes to amend the following Options 3 
Rules: Section 4, Entry and Display of Quotes; Section 6, Firm 
Quotations; Section 7, Types of Orders and Order and Quote Protocols; 
Section 8, Opening Process; Section 9, Trading Halts; Section 10, 
Electronic Execution Priority and Processing in the System; Section 15, 
Simple Order Risk Protections; Section 23, Data Feeds and Trade 
Information; and Section 28, Optional Risk Protections. The Exchange 
also proposes to amend Options 5, Section 4, Order Routing; Options 6, 
Section 1, Authorization to Give-Up; Options 7, Section 9, B, Port 
Fees; and Options 8, Section 32, Types of Floor-Based (Non-System) 
Orders.
    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
    In connection with a technology migration to an enhanced Nasdaq, 
Inc. (``Nasdaq'') functionality which will result in higher 
performance, scalability, and more robust architecture, the Exchange 
intends to adopt certain trading functionality currently utilized at 
Nasdaq affiliate exchanges. As further discussed below, the Exchange is 
proposing to adopt such functionality substantially in the same form as 
currently on the Nasdaq affiliated options exchanges, while retaining 
certain intended differences between it and its affiliates. The 
Exchange also proposes a number of changes to memorialize existing 
functionality, add more granularity in its rules to describe how 
existing functionality operates today, and to harmonize the Exchange's 
rules where appropriate with the rules of its affiliated options 
exchanges by using consistent language to describe identical 
functionality.
    Specifically, the Exchange proposes to amend Options 2, Section 6, 
Market Maker Orders and the following Options 3 Rules: Section 4, Entry 
and Display of Quotes; Section 6, Firm Quotations; Section 7, Types of 
Orders and Order and Quote Protocols; Section 8, Opening Process; 
Section 9, Trading Halts; and Section 10, Electronic Execution Priority 
and Processing in the System; \3\ Section 15, Simple Order Risk 
Protections; Section 23, Data Feeds and Trade Information; and Section 
28, Optional Risk Protections. The Exchange also proposes to amend 
Options 5, Section 4, Order Routing; Options 7, Section 9, B, Port 
Fees; and Options 8, Section 32, Types of Floor-Based (Non-System) 
Orders. Each rule change is described below.
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    \3\ Phlx Options 1, Section 1(b)(57) provides, [t]he term 
``System'' shall mean the automated system for order execution and 
trade reporting owned and operated by the Exchange which comprises: 
(i) an order execution service that enables members to automatically 
execute transactions in option series; and provides members with 
sufficient monitoring and updating capability to participate in an 
automated execution environment; (ii) a trade reporting service that 
submits ``locked-in'' trades for clearing to a registered clearing 
agency for clearance and settlement; transmits last-sale reports of 
transactions automatically to the Options Price Reporting Authority 
(``OPRA'') for dissemination to the public and industry; and 
provides participants with monitoring and risk management 
capabilities to facilitate participation in a ``locked-in'' trading 
environment; and (iii) the data feeds described at Options 3, 
Section 23.
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Options 2, Section 6
    Options 2, Section 6(a) currently states that Market Makers \4\ and 
Lead Market Makers \5\ may enter all order types defined in Options 3, 
Section 7(b) in the options classes to which they are appointed and 
non-appointed, except for Market Orders as provided in Options 3, 
Section 7(b)(1), Stop Orders as provided in Options 3, Section 7(b)(4), 
All-or-None Orders as provided in Options 3, Section 7(b)(5), Directed 
Orders as provided for in Options 2, Section 10, and Public Customer-
to-Public Customer Cross Orders subject to Options 3, Section 13(a) and 
(f).
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    \4\ A ``Market Maker'' means a Streaming Quote Trader or a 
Remote Streaming Quote Trader who enters quotations for his own 
account electronically into the System. See Options 1, Section 
1(b)(28).
    \5\ A ``Lead Market Maker'' means a member who is registered as 
an options Lead Market Maker pursuant to Options 2, Section 12(a). A 
Lead Market Maker includes a Remote Lead Market Maker which is 
defined as a Lead Market Maker in one or more classes that does not 
have a physical presence on the Exchange's Trading Floor and is 
approved by the Exchange pursuant to Options 2, Section 11. See 
Options 1, Section 1(b)(27).
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    The Exchange proposes to remove the Market Maker restrictions 
related to Market Orders,\6\ Stop Orders,\7\ All-or-None Orders \8\ and 
Directed Orders \9\ so as not to restrict the ability of a Lead Market 
Maker or Market Maker from entering orders they may enter today on

[[Page 106889]]

other options markets.\10\ With this proposed change, Market Makers 
would be permitted to enter Market Orders, Stop Orders and All-or-None 
Orders similar to other market participants, and similar to market 
makers on ISE, GEMX and MRX, as explained below in greater detail. 
Also, today, Market Makers may enter all Complex Order types. To make 
this clear in the rule text, the Exchange proposes to reference Options 
3, Section 14, which governs Complex Orders, in addition to referencing 
Options 3, Section 7(b), which governs simple orders.\11\
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    \6\ A Market Order is an order to buy or sell a stated number of 
options contracts that is to be executed at the best price 
obtainable when the order reaches the Exchange. Lead Market Makers, 
Market Makers, and Off-Floor Broker-Dealers may not submit Market 
Orders. See Phlx Options 3, Section 7(b)(1).
    \7\ A Stop Order is a Limit Order or Market Order to buy or sell 
at a limit price when interest on the Exchange for a particular 
option contract reaches a specified price. A Stop Order shall be 
cancelled if it is immediately electable upon receipt. A Stop Order 
shall not be elected by a trade that is reported late or out of 
sequence or by a Complex Order trading with another Complex Order. 
Lead Market Makers and Maker Makers may not submit a Stop Order. 
Off-Floor Broker-Dealers may not enter a Stop Market Order. See Phlx 
Options 3, Section 7(b)(4).
    \8\ An All-or-None Order is a Limit Order or Market Order that 
is to be executed in its entirety or not at all. An All-or None 
Order may only be submitted by a Public Customer as an Immediate-or-
Cancel Order. The Acceptable Trade Range protection in Options 3, 
Section 15(a) is not applied to All-Or-None Orders. See Phlx Options 
3, Section 7(b)(5).
    \9\ The term ``Directed Order'' means any order to buy or sell 
which has been directed to a particular Lead Market Maker, RSQT, or 
SQT by an Order Flow Provider, as defined below. To qualify as a 
Directed Order, an order must be delivered to the Exchange via the 
System. See Phlx Options 2, Section 10.
    \10\ The Exchange proposes to delete the term ``Lead Market 
Makers'' in Options 2, Section 6(a) as the term ``Market Makers'' 
includes ``Lead Market Makers.'' Both terms are not necessary. 
Additionally, removing the term ``Lead Market Makers'' harmonizes 
the rule text in Phlx Options 2, Section 6(a) to ISE, GEMX, MRX and 
BX Options 2, Section 6(a).
    \11\ Today, Options 3, Section 14 includes all Complex Order 
Types that may be traded by any market participant.
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    Additionally, as currently noted in Options 3, Section 7(e), Off-
Floor Broker-Dealers may not enter All-or-None Orders, Market Orders, 
Stop Market Orders, and public customer-to-public customer cross orders 
subject to Options 3, Section 13(a) and (f). The Exchange is also 
proposing to remove the restrictions applicable to Off-Floor Broker-
Dealers. Today, Nasdaq ISE, LLC (``ISE''), Nasdaq GEMX, LLC (``GEMX'') 
and Nasdaq MRX, LLC (``MRX'') Options 2, Section 6 do not provide 
similar restrictions as Phlx for Market Orders, Stop Orders and All-or-
None Orders.
    The Exchange proposes to permit Lead Market Makers, Market Makers, 
and Off-Floor Broker Dealers to enter Market Orders and Stop Orders 
similar to all other market participants on Phlx. Today, all market 
participants, including Lead Market Makers, Market Makers and Off-Floor 
Broker Dealers \12\ may transact Market Orders and Stop Orders on other 
options markets.\13\ The Exchange does not believe there is any reason 
to restrict Lead Market Makers, Market Makers and Off-Floor Broker 
Dealers from entering Market Orders or Stop Orders. Previously, in a 
2019 rule change \14\ Phlx noted that it believed that prohibiting 
Market Makers from entering Market Orders was consistent with the Act 
because Market Orders are designed to remove liquidity from the Order 
Book. Further, that rule change noted that Stop Orders are non-
displayed order types until they are triggered which does not benefit 
the role of a Market Makers in displaying liquidity on the Order 
Book.\15\ Stop Orders are triggered by either the occurrence of a 
transaction or posting on the order book. Once triggered, the order 
becomes displayed as either a Market Order or Limit Order as described 
in greater detail below in the discussion of Stop Orders in Options 3, 
Section 7. At this time, the Exchange proposes to permit Lead Market 
Makers, Market Makers, and Off-Floor Broker Dealers to enter both 
Market Orders and Stop Orders. Today, ISE, GEMX and MRX do not prohibit 
Lead Market Makers, Market Makers, and Off-Floor Broker Dealers from 
entering a Market Order and Stop Order on those markets, and those 
markets have not observed any adverse consequences. Also, current Phlx 
Options 2, Section 6 restricts the number of contracts that a Market 
Maker may enter in a quarter,\16\ thereby preventing Market Makers from 
entering an unlimited quantity of orders. In addition, the Exchange 
would no longer prohibit an Off-Floor Broker Dealer from entering a 
Market Order for the same reasons.\17\ All Market Makers, including 
away market makers, are restricted to a total number of contracts 
executed during a quarter in options series to which it is not 
appointed of twenty-five percent (25%) of the total number of contracts 
executed by the Market Maker and Lead Market Maker in options series as 
all options markets impose this restriction on market makers. The 
Exchange does not believe there is any reason to restrict Off-Floor 
Broker Dealers from entering Market Orders in options classes, rather, 
the Exchange proposes to permit all member organizations to be able to 
enter Market Orders. Finally, the Exchange believes that harmonizing 
the ability for Lead Market Makers, Market Makers, and Off-Floor Broker 
Dealers to enter both Market Orders and Stop Orders across ISE, GEMX, 
MRX and Phlx will allow market participants to enter equivalent order 
types on all these markets. For these reasons, Phlx believes Lead 
Market Makers, Market Makers and Off-Floor Broker Dealers should be 
permitted to utilize Market Orders and Stop Orders to remove liquidity 
from its order book without impacting their ability to provide 
liquidity.
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    \12\ Phlx Options 1, Section 1(b)(33) provides, [t]he term 
``Off-Floor Broker-Dealer Order'' means an order delivered from off 
the floor of the Exchange by or on behalf of a broker-dealer for the 
proprietary account(s) of such broker-dealer, including an order for 
a market maker located on an exchange or trading floor other than 
the Exchange's trading floor delivered electronically for the 
proprietary account(s) of such market maker.
    \13\ See Nasdaq ISE, LLC (``ISE''), Nasdaq GEMX, LLC (``GEMX'') 
and Nasdaq MRX, LLC (``MRX) Options 2, Section 6 and NYSE Arca, Inc. 
Rule 6.37B-O and NYSE American LLC Rule 925.2NY.
    \14\ See Securities Exchange Act Release No. 87691 (December 9, 
2019), 85 FR 68197 (December 13, 2019) (SR-Phlx-2019-52) (Notice of 
Filing and Immediate Effectiveness of Proposed Rule Change To Amend 
Order Types and Remove and Relocate Certain Rule Text Currently 
Located Within Rule 1080).
    \15\ Id.
    \16\ Pursuant to Phlx Options 2, Section 6, the total number of 
contracts executed during a quarter by a Market Maker and Lead 
Market Maker in options series to which it is not appointed may not 
exceed twenty-five percent (25%) of the total number of contracts 
executed by the Market Maker and Lead Market Maker in options 
series.
    \17\ Current Phlx Options 3, Section 7(e) provides that, an off-
floor broker-dealer order may be entered for a minimum size of one 
contract. Off-floor broker-dealers may enter all order types defined 
in Options 3, Section 7(b) except for All-or-None Orders, Market 
Orders, Stop Market Orders, and public customer-to-public customer 
cross orders subject to Options 3, Section 13(a) and (f).
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    Today, Phlx restricts all market participants from entering All-or-
None Orders except Public Customers.\18\ Similar to other options 
markets, the Exchange proposes to permit all market participants to 
enter All-or-None Orders. The Exchange is proposing to amend the All-
or-None Order type in Options 3, Section 7 to reflect this proposed 
change as explained further below. By way of background, in 2019, the 
Exchange amended its All-or-None Order to no longer offer the order 
type to Professionals.\19\ At the time, the Exchange noted that 
permitting Public Customers to enter All-or-None Orders with specific 
size limitations that rest on the Order Book would continue to allow 
Public Customers the opportunity to obtain fills for their orders when 
the market moves even if the All-Or-None Order was not immediately 
executable upon entry. The Exchange notes that in 2023, it amended All-
or-None Orders so that they would no longer rest on the order book, 
rather the order type would be executed in its entirety, or it will 
cancel if it cannot execute.\20\ With this change, the prior reasoning 
is no longer a reason to restrict the order type to Public Customer use 
only. The Exchange proposes to remove the restriction that only permits 
Public Customers to enter the order type and allow all market 
participants to utilize the All-or-None Order which now does not rest 
on the order book. The

[[Page 106890]]

Exchange proposes to reflect the removal of the restriction in Options 
2, Section 6 to reflect the fact that Market Makers would be able to 
trade All-or-None Orders. The Exchange also explains this change below 
in Options 3, Section 7 with respect to the order type amendments for 
All-or-None Orders. Permitting all market participants to enter an AON 
Order will harmonize the order type to ISE, GEMX and MRX Options 3, 
Section 7(c) which also permit all market participants to utilize this 
order type.
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    \18\ This includes Off-Floor Broker Dealers as noted in current 
Options 3, Section 7(e).
    \19\ See Securities Exchange Act Release No. 85262 (March 7, 
2019), 84 FR 9192 (March 13, 2019) (SR-Phlx-2019-03) (Notice of 
Filing and Immediate Effectiveness of a Proposed Rule Change To 
Amend Option Floor Procedure Advice A-9 and Phlx Rules 1000 and 1066 
and To Adopt a New Phlx Rule 1078). Prior to this rule change, All-
or-None Orders were available to Public Customers and Professionals, 
(``2019 AON Rule Change'').
    \20\ See Securities Exchange Act Release No. 98142 (August 16, 
2023), 88 FR 57140 August 22, 2023) (SR-Phlx-2023-34) (Notice of 
Filing and Immediate Effectiveness of Proposed Rule Change To Amend 
Phlx's All-or-None Order) (``2023 AON Rule Change'').
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    The Exchange notes that Directed Orders are orders directed to a 
Market Maker by an Order Flow Provider. An order becomes a Directed 
Order when it interacts with a Market Maker quote that is at the NBBO 
at the time of receipt of the Directed Order. The Exchange believes it 
is misleading to include a Directed Order in this list because a 
Directed Order may be executed by a Market Maker.
    Third, the Exchange proposes to amend ``Public Customer-to-Public 
Customer Cross Orders'' to ``Customer Cross Orders'' to align with the 
name of this order type on ISE, GEMX and MRX Options 3, Section 7(i). 
The Exchange proposes to relocate the definition of Public Customer-to-
Public Customer Cross Orders'' from Options 3, Section 13 to proposed 
Options 3, Section 7(i). A Customer Cross Order cannot be entered by a 
Market Maker. The Exchange believes noting this exception in this order 
type will bring greater transparency to Options 2, Section 6. 
Additionally, the Exchange proposes to adopt a Reserve Order at Options 
3, Section 7(g). A Reserve Order is a limit order with a displayed and 
non-displayed portion.
    The Exchange believes that Market Maker liquidity should be 
displayed liquidity.\21\ For these reasons, and to remain competitive 
with other markets, the Exchange proposes to permit Market Makers to 
enter all orders they are eligible to submit, with the exception of 
Reserve Orders, and restrict Reserve Orders in the non-appointed 
classes similar to ISE, GEMX and MRX Options 2, Section 6. As noted 
above, Market Makers are not able to enter Reserve Orders.
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    \21\ While Stop Orders are not displayed until triggered, the 
Exchange notes that once triggered a Stop Order would be displayed 
as either a Market or Limit Order.
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    The Exchange also proposes to amend the rule citations to align 
with the relocated rule text. Finally, the Exchange proposes to 
renumber the remainder of the text within Options 2, Section 6, related 
to total number of contracts that may be executed in a quarter, as new 
``b.'' The proposed rule text of Options 2, Section 6 will align with 
ISE, GEMX and MRX Options 2, Section 6.
Options 3, Section 4
    With respect to quotes, today, as set forth in Options 3, Section 
4(b)(6), if, at the time of entry, a quote would cause a locked or 
crossed market violation or would cause a trade-through violation, it 
will either be re-priced to the current national best offer (for bids) 
or the current national best bid (for offers) as non-displayed and 
displayed at one minimum price variance above (for offers) or below 
(for bids) the national best price.
    The Exchange now proposes to amend the quote re-pricing mechanism 
currently described in Phlx Options 3, Section 4(b)(6) by harmonizing 
it with ISE, GEMX and MRX Options 3, Section 4(b)(6). As amended, the 
quote re-pricing language in Options 3, Section 4(b)(6) would be 
amended to provide: ``If, at the time of entry, a quote would cause a 
locked or crossed market violation or would cause a trade-through 
violation, it will be re-priced to the current national best offer (for 
bids) or the current national best bid (for offers) as non-displayed, 
and displayed at one minimum price variance above (for offers) or below 
(for bids) the national best price, or immediately cancelled, as 
configured by the member organization.'' With this amendment, Phlx 
would permit member organizations to configure their ports to instruct 
the Exchange to immediately cancel a quote that would otherwise cause a 
locked or crossed market violation in lieu of re-pricing the quote. The 
Exchange believes this functionality will provide member organizations 
with more flexibility in handling their quotes.
    Further, the Exchange proposes to remove the Quote Exhaust 
functionality which is explained further below. In connection with the 
removal of that functionality, the Exchange proposes to amend Options 
2, Section 6(b)(8) to remove a reference to the Quote Exhaust.
Options 3, Section 6
    Currently, Options 3, Section 6, Firm Quotations, describes the 
Exchange's Quote Exhaust functionality that was adopted in 2009.\22\ 
Quote Exhaust occurs when the Exchange's disseminated market at a 
particular price level includes a quote, and such market is exhausted 
by an inbound contra-side quote or order (``initiating quote or 
order''), and following such exhaustion, contracts remain to be 
executed from the initiating quote or order through the initial 
execution price.\23\ The initial execution price that gives rise to 
Quote Exhaust is known as the ``reference price.'' \24\ Under Quote 
Exhaust, any order volume that is routed to away markets will be marked 
as an ISO.\25\ When a Quote Exhaust occurs, the System will initiate a 
``Quote Exhaust Timer'' that applies to all options traded on the 
System, not to exceed one second, during which any participant 
(including any participant(s) whose size was exhausted) may submit 
quotes, sweeps or orders at any price level.\26\ Today, during the 
Quote Exhaust Timer, the Exchange will disseminate the reference price 
for the remaining size, provided that such price does not lock an away 
market, in which case, the Exchange will disseminate a bid and offer 
that is one MPV from the away market price. Today, the Exchange will 
disseminate, on the opposite side of the market from remaining 
unexecuted contracts: (i) a non-firm bid for the price and size of the 
next available bid(s) on the Exchange if the remaining size is a 
seller, or (ii) a non-firm offer for the price and size of the next 
available offer(s) on the Exchange if the remaining size is a buyer. If 
the remaining contracts in the initiating quote or order are either 
traded or cancelled during the Quote Exhaust Timer, the Quote Exhaust 
Timer will be terminated, and normal trading will resume.\27\
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    \22\ See Securities Exchange Act Release No. 59721 (April 9, 
2009), 74 FR 17245 (April 14, 2009) (SR-Phlx-2009-32) (Notice of 
Filing of Proposed Rule Change Relating to the Exchange's Enhanced 
Electronic Trading Platform for Options, Phlx XL II).
    \23\ See Phlx Options 3, Section 6(a)(2)(B)(2).
    \24\ Id.
    \25\ Id.
    \26\ See Phlx Options 3, Section 6(a)(2)(B)(2)(a).
    \27\ See Phlx Options 3, Section 6(a)(2)(B)(2)(b).
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    Today, if the Exchange receives an order, quote or sweep on the 
opposite side of the market from the initiating quote or order during 
the Quote Exhaust Timer that locks or crosses the reference price at 
any time during the Quote Exhaust Timer, it will execute immediately 
against the initiating quote or order at the reference price. If the 
initiating quote or order that caused the Quote Exhaust is exhausted, 
the Quote Exhaust Timer will be terminated. Today, with respect to any 
order, quote or sweep received on the opposite side of the market from 
the initiating quote or order during the Quote Exhaust Timer that is 
inferior to the reference price, the system will place any non-IOC 
order onto the book. Such non-IOC

[[Page 106891]]

order on the book will be included in the first PBBO calculation 
following the end of the Quote Exhaust Timer. All non-marketable sweeps 
and IOC orders will be cancelled immediately if not executed and will 
not participate in the Quote Exhaust process.\28\ Today, if the 
Exchange receives an order, quote or sweep on the same side of the 
market as the initiating quote or order during the Quote Exhaust Timer, 
the System will cancel any such sweep or IOC order. If such new quote 
or order, other than an IOC order, is a market or marketable Limit 
Order or marketable quote (i.e., priced at or through the reference 
price) the System will display it at the reference price, with a 
disseminated size that is the sum of such order and/or quote plus the 
remaining contracts in the initiating order or quote.\29\
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    \28\ See Phlx Options 3, Section 6(a)(2)(B)(2)(c).
    \29\ See Phlx Options 3, Section 6(a)(2)(B)(2)(d).
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    Today, at the end of the Quote Exhaust Timer, if there are still 
unexecuted contracts remaining in the initiating quote or order or any 
new interest on the same side of the market, the System will calculate 
a new Phlx Best Bid/Offer (``PBBO''). The PBBO includes the remaining 
unexecuted portion of the initiating quote or order plus any new 
interest received on the same side of the market at the reference 
price, or if locking or crossing the ABBO, at one minimum trading 
increment away from the ABBO, for the full available size. The other 
side of the PBBO will be the actual Exchange interest at the best 
price.\30\
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    \30\ See Phlx Options 3, Section 6(a)(2)(B)(2)(e).
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    Today, the System will conduct an Acceptable Range Test to 
determine if the next available price on the Exchange is within an 
Acceptable Range.\31\ The System will first determine whether to trade 
at the next available Phlx price by comparing it to the Acceptable 
Range price (defined as, with respect to an initiating buy order, the 
highest price of the Acceptable Range, and, with respect to an 
initiating sell order, the lowest price of the Acceptable Range) and 
the Away Best Bid/Offer (``ABBO'') price to establish a ``Best 
Price''.\32\ Current Options 3, Section 6(g)(1) describes the Best 
Price. The current rules review the various potential scenarios 
including where the initiating quote or order does not lock the Best 
Price, locks the Best Price, crosses the Best Price, the order is not 
routable, and remainders.\33\ The current rule also considers scenarios 
where there are no offers on the Exchange and on away markets in the 
affected series, or no bids or a zero priced bid on Exchange.\34\
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    \31\ See Phlx Options 3, Section 6(a)(2)(B)(2)(f).
    \32\ See Phlx Options 3, Section 6(a)(2)(B)(2)(g).
    \33\ See Phlx Options 3, Section 6(a)(2)(B)(2)(g)(1)-(6).
    \34\ See Phlx Options 3, Section 6(a)(2)(B)(3).
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    Today, with Quote Exhaust, the Exchange disseminates an updated bid 
and offer prices together with the size associated with such bid and 
offer in certain cases.\35\ All quotations made available by the 
Exchange and displayed by quotation vendors shall be firm for customer 
and broker-dealer orders \36\ at the disseminated price in an amount up 
to the disseminated size,\37\ except in certain cases.\38\ Finally, 
today, responsible brokers or dealers that receive an order to buy or 
sell a listed option at the disseminated price in an amount greater 
than the disseminated size shall, within thirty (30) seconds of receipt 
of the order, (i) execute the entire order at the disseminated price 
(or better), or (ii) execute that portion of the order equal to the 
disseminated size at the disseminated price (or better), and revise its 
bid or offer.\39\
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    \35\ See Phlx Options 3, Section 6(a)(2)(C).
    \36\ Phlx Supplementary .01 to Options 3, Section 6 provides, 
``Broker-dealer orders'' includes orders for the account(s) of 
market makers on another exchange and Market Makers on the Exchange.
    \37\ Phlx Options 3, Section 6(b)(1) provides in pertinent part 
that, except as provided in paragraph (c) of this Rule, all 
quotations made available by the Exchange and displayed by quotation 
vendors shall be firm for customer and broker-dealer orders at the 
disseminated price in an amount up to the disseminated size. If the 
responsible broker or dealer is representing (as agent) a Limit 
Order, such responsible broker or dealer shall be responsible (as 
agent) up to the size of such Limit Order, but may be responsible as 
principal for all or a portion of the excess of the disseminated 
size over the size of such Limit Order to the extent provided in 
General 2, Section 17. Phlx Options 2, Section 6(b)(2) provides in 
pertinent part that, in the event an SQT, RSQT or Lead Market Maker 
in a Streaming Quote Option has electronically submitted on the 
Exchange bids or offers for a Streaming Quote Option, each such SQT, 
RSQT or Lead Market Maker member shall be considered a ``responsible 
broker or dealer'' for that bid or offer, up to the size associated 
with such responsible broker or dealer's bid or offer.
    \38\ Phlx Options 2, Section 6(c) provides in pertinent part 
that, the requirements of paragraph (b) or (d) of this Rule shall 
not apply to displayed quotations: (i) when the level of trading 
activities or the existence of unusual market conditions is such 
that the Exchange is incapable of collecting, processing, and making 
available to quotation vendors the data for a subject security 
required to be made available pursuant to the SEC Quote Rule in a 
manner that accurately reflects the current market on the Exchange 
as determined by an Options Exchange Official; (ii) during a trading 
rotation; (iii) if any of the circumstances provided in paragraph 
(c)(3) of the SEC Quote Rule exist; or (iv) on a case by case basis 
where it is determined that an exemption is warranted for an obvious 
error in the posting of the disseminated price or disseminated size 
due to reporter error or system malfunction. The Exchange shall 
immediately notify all specified persons of such a determination. 
Regular trading procedures shall be resumed when an Options Exchange 
Official determines that the conditions supporting that declaration 
no longer exist. The Exchange shall immediately notify all specified 
persons of such a determination.
    \39\ See Phlx Options 2, Section 6(d).
---------------------------------------------------------------------------

    Quote Exhaust was designed to enhance the process for refreshing a 
Market Maker's quote that has been fully exhausted by an incoming quote 
or order that has, after exhausting the Phlx quote at a particular 
price level, remaining size to be executed at a price through the 
reference price. The Quote Exhaust functionality was intended to 
provide an opportunity for remaining portions of incoming quotes or 
orders to be executed on the Exchange at prices that are equal to or 
better than away markets by allowing Market Makers to refresh their 
quotes before routing away, thus potentially providing better prices at 
which to execute such remaining portions. Quote Exhaust is intended to 
provide an opportunity for such quote or order to receive a price for 
that order better than the next price that would otherwise be available 
on Phlx whether by executing on the Phlx or by routing to applicable 
away markets. This functionality implements price checks to limit 
executions at far away prices.
    At this time, Phlx proposes to discontinue Quote Exhaust. Today, 
the Exchange offers various risk protections in its System to limit 
executions at far away prices. Phlx offers an Acceptable Trade Range 
protection at Options 3, Section 15(b)(1) and an Automated Quotation 
Adjustments protection at Options 3, Section 15(c)(2). In light of 
these additional protections and other risk protections that the 
Exchange is adding with this proposal within Options 3, Section 15, the 
Exchange does not believe that the Quote Exhaust protection is required 
any longer. Other Nasdaq affiliated exchanges do not offer Quote 
Exhaust. Once discontinued, the Exchange's quoting functionalities will 
continue to abide by Phlx's Options 3, Section 4 rules governing the 
entry and display of orders and the allocation methodology in Options 
3, Section 10. By way of example,

Market Maker quotes 1.00 (100) x 1.10 (100)
FIX Order to Sell 101 @0.95 arrives
Order trades 100 @1.00 with the quote
The quote purges as its entire bid side volume were exhausted
The remaining 1 contract books
Today, the Quote Exhaust timer begins--the reference price is displayed 
for the remaining 1 contract of the initiating sell order, and the 
displayed bid is disseminated to OPRA with a `non-firm' indicator; 
Dissemination is 0.00 (0) x 1.00 (1), bid not firm
Quote Exhaust timer concludes

[[Page 106892]]

Today, a firm quote is now disseminated to OPRA; dissemination is 0.00 
(0) x 0.95 (1)

    As proposed, without Quote Exhaust, there will be no period during 
which the order is disseminated at the Quote Exhaust Reference Price; 
instead, the order's remainder will book and display at its limit price 
right away. The Exchange will continue to purge the other side of the 
quote due to one side being exhausted, as is the case today on ISE, 
GEMX, MRX that do not have a similar quote exhaust mechanism.
    Without Quote Exhaust:

Market Maker quotes 1.00 (100) x 1.10 (100)
FIX Order to Sell 101 @0.95 arrives
Order trades 100 @1.00 with the quote
The quote purges as its entire bid side volume were exhausted
The remaining 1 contract books
A firm quote is disseminated to OPRA; dissemination is 0.00 (0) x 0.95 
(1)

    With respect to the interaction between the Quote Exhaust and risk 
protections, the Exchange notes that instead of first being posted at 
the Quote Exhaust Reference Price, aggressively priced orders can 
instead post right away at the Acceptable Trade Range Threshold \40\, 
allowing for quicker order execution while still providing order 
exposure and pauses between price bands, which continues to allow for 
risk mitigation. By way of example,
---------------------------------------------------------------------------

    \40\ See Phlx Options 3, Section 15(b)(1) which describes the 
Acceptable Trade Range.

Note that the configured Acceptable Trade Range (ATR) price band is 
$0.07 in the price range used in this example.
Market Maker1 quotes 2.00 (10) x 2.12 (10)
Firm enters FIX Order to Buy 10 @1.80
Public Customer enters FIX Market Order to Sell 20 @MKT
Trades 10 @2.00 with Market Maker1's quote
Market Maker 1's quote is purged as its entire bid side volume has been 
exhausted
Quote exhaust commences and displays the remainder of the Public 
Customer's market order at the quote exhaust reference price, 
disseminating to OPRA: 1.80 (10) x 2.00 (10), bid not firm
Quote exhaust timer passes
The remainder of the Public Customer's market order now posts at the 
Acceptable Trade Range (ATR) Threshold of 1.93, disseminating to OPRA: 
1.80 (10) x 1.93 (10), bid not firm
ATR Posting Period (iteration #1) passes
The remainder of the Public Customer's market order now posts at the 
new ATR Threshold of 1.86, disseminating to OPRA: 1.80 (10) x 1.86 
(10), bid not firm
ATR Posting Period (iteration #2) passes
The remainder of the Public Customer's market order now trades with the 
Firm FIX order on the book, 10 @1.80

    With this proposal, Quote Exhaust will no longer occur; after 
trading with Market Maker 1's quote, the remainder of the Public 
Customer Market Order will go straight into its first ATR Posting 
Period, displaying at the ATR Threshold of 1.93--it will no longer 
first display at the Quote Exhaust reference price of 2.00, but the 
remainder of the behavior will remain the same due to applicability of 
ATR.
    Similar to ISE, GEMX and MRX, the Exchange proposes to amend 
Options 3, Section 6 to rename it ``Collection and Dissemination of 
Quotes'' and adopt a rule identical to ISE, GEMX and MRX Options 3, 
Section 6. The proposed new rule will specify, as is the case today, 
that each Market Maker shall communicate to the Exchange its bid and 
offers in accordance with the requirements of Rule 602 of Regulation 
NMS under the Exchange Act and the Rules of the Exchange.\41\ Further, 
as is the case today, the Exchange will disseminate to quotation 
vendors the highest bid and the lowest offer, and the aggregate 
quotation size associated therewith that is available to Public 
Customer Orders, in accordance with the requirements of Rule 602 of 
Regulation NMS under the Exchange Act.\42\
---------------------------------------------------------------------------

    \41\ See proposed Phlx Options 3, Section 6(a).
    \42\ See proposed Phlx Options 3, Section 6(b).
---------------------------------------------------------------------------

    The Exchange proposes in Options 3, Section 6(c) to adopt rules 
around unusual market conditions. Today, Options 3, Section 6(c) notes 
that ``when the level of trading activities or the existence of unusual 
market conditions is such that the Exchange is incapable of collecting, 
processing, and making available to quotation vendors the data for a 
subject security required to be made available pursuant to the SEC 
Quote Rule in a manner that accurately reflects the current market on 
the Exchange as determined by an Options Exchange Official.'' The 
Exchange proposes to continue to provide that in proposed Options 3, 
Section 6(c)(1),

    An Exchange official designated by the Board shall have the 
power to determine that the level of trading activities or the 
existence of unusual market conditions is such that the Exchange is 
incapable of collecting, processing, and making available to 
quotation vendors the data for the option in a manner that 
accurately reflects the current state of the market on the Exchange. 
Upon making such a determination, the Exchange shall designate the 
market in such option to be ``fast.'' When a market for an option is 
declared fast, the Exchange will provide notice that its quotations 
are not firm by appending an appropriate indicator to its 
quotations.

    Further, the Exchange proposes to state in proposed Options 3, 
Section 6(c)(2) that if a market is declared fast, designated Exchange 
officials shall have the power to: (i) direct that one or more trading 
rotations be employed pursuant to Options 3, Section 8; (ii) suspend 
the minimum size requirement of Options 2, Section 5(c)(1); or (iii) 
take such other actions as are deemed in the interest of maintaining a 
fair and orderly market. Today, Options 3, Section 9(b) provides 
certain manual trading halt authority deemed necessary in the interests 
of maintaining a fair and orderly market in such class or series of 
options and to protect investors.
    Proposed Options 3, Section 6(c)(3) provides that the Exchange will 
monitor the activity or conditions that caused a fast market to be 
declared, and a designated Exchange official shall review the condition 
of such market at least every thirty (30) minutes. Regular trading 
procedures shall be resumed by the Exchange when a designated Exchange 
official determines that the conditions supporting a fast market 
declaration no longer exist. The Exchange will provide notice that its 
quotations are once again firm by removing the indicator from its 
quotations. Finally, the Exchange proposes to state in Options 3, 
Section 6(c)(4) that if the conditions supporting a fast market 
declaration cannot be managed utilizing one or more of the procedures 
described above, then a designated Exchange official shall halt trading 
in a class, or classes so affected. Today, ISE, GEMX and MRX have the 
same authority in Options 3, Section 6(c)(3) to protect those markets 
in the event of unusual market conditions. The Exchange believes that 
it should be able to manage trading on Phlx in the same manner as ISE, 
GEMX and MRX in the event of unusual market conditions.
Options 3, Section 7
    Phlx proposes to align its order types to those of ISE, GEMX and 
MRX Options 3, Section 7 and utilize the same numbering as those 
markets.\43\
---------------------------------------------------------------------------

    \43\ The Exchange also proposes to separately file rule changes 
related to Complex Orders, Qualified Contingent Cross Orders and 
auctions. The Exchange notes that those filing will also add order 
types to Options 3, Section 7 to mirror ISE, GEMX and MRX Options 3, 
Section 7 order types.

---------------------------------------------------------------------------

[[Page 106893]]

    Phlx proposes to relocate Options 3, Section 7(f) \44\ to the first 
paragraph of Options 3, Section 7.
---------------------------------------------------------------------------

    \44\ Current Phlx Options 3, Section 7(f) states, Orders may not 
be unbundled, nor may a firm solicit a customer to unbundle an order 
for this purpose.
---------------------------------------------------------------------------

Market Orders
    The Exchange proposes to amend the description of Market Orders. 
Today, Options 3, Section 7(b)(1) states, ``A Market Order is an order 
to buy or sell a stated number of options contracts that is to be 
executed at the best price obtainable when the order reaches the 
Exchange. Lead Market Makers, Market Makers and Off-Floor Broker-
Dealers may not submit Market Orders.'' The Exchange proposes to amend 
the definition of Market Orders to introduce a cancel timer feature, 
which will allow member organizations to designate Market Orders that 
do not execute after a certain period of time to be cancelled back to 
the member organization. Specifically, the Exchange proposes to add 
that member organizations can designate their Market Orders not 
executed after a pre-established period of time, as established by the 
Exchange,\45\ will be cancelled back to the member organization once an 
options series has opened for trading. Nasdaq BX, Inc. currently has an 
identical timer feature for BX Market Orders.\46\ Similar to BX, the 
proposed timer would be available once the intra-day trading session 
begins for an options series, as the Exchange already has a separate 
opening delay timer that provides protection to the market during the 
Opening Process.\47\ In particular, the Exchange would cancel orders 
(if consistent with the member organization's instructions) if an 
options series has not opened before the conclusion of the opening 
delay timer.\48\ As such, the Exchange is proposing that the pre-
established period of time for the proposed timer feature would 
commence once the intra-day trading session begins for that options 
series. In other words, while the Opening Process is on-going, and the 
intra-day trading session has not commenced, the pre-established period 
of time for the proposed timer feature would not commence. Further, the 
Exchange proposes to note that Market Orders on the order book would be 
immediately cancelled if an options series is halted, provided the 
member organization designated the cancellation of Market Orders.\49\ 
The proposed changes are intended to make clear that in the event there 
is a Market Order in a zero bid market while the Market Order was 
resting on the order book, the Member has an option to designate the 
cancellation of that Market Order pursuant to the proposed cancel timer 
feature. In this case, those Market Orders to sell, which were resting 
on the order book, would immediately cancel upon a trading halt instead 
of waiting until the end of the pre-established timer period. ISE, 
GEMX, MRX and BX also has identical language governing its Market 
Orders today.\50\ Like ISE, GEMX, MRX and BX, the Exchange believes 
that the proposed intra-day timer feature will provide additional 
flexibility for member organizations that wish to cancel unexecuted 
Market Orders after a certain period of time.
---------------------------------------------------------------------------

    \45\ The Exchange will initially set the pre-established period 
of time at 4 seconds, identical to BX. This specification will be 
set out in the ISE System settings document on a publicly available 
website. The Exchange would issue an Options Trader Alert notifying 
all member organizations if it determined to amend that timeframe.
    \46\ See BX Options 3, Section 7(a)(5).
    \47\ See Phlx Options 3, Section 8 for the Opening Process.
    \48\ See Phlx Options 3, Section 8(k).
    \49\ Member organizations may make the designation to cancel 
their Market Orders through their FIX and port settings.
    \50\ See ISE, GEMX and MRX Options 3, Section 7(a) and BX 
Options 3, Section 7(a)(5).
---------------------------------------------------------------------------

    As noted above in Options 2, Section 6, the Exchange would no 
longer prohibit Market Makers (and Lead Market Makers) \51\ from 
entering Market Orders. In addition, the Exchange would no longer 
prohibit an Off-Floor Broker Dealer \52\ from entering a Market Order 
for the same reasons as expressed above in Options 2, Section 6.\53\ 
All Market Makers, including away market makers, are restricted to a 
total number of contracts executed during a quarter in options series 
to which it is not appointed of twenty-five percent (25%) of the total 
number of contracts executed by the Market Maker and Lead Market Maker 
in options series as all options markets impose this restriction on 
market makers. The Exchange does not believe there is any reason to 
restrict Off-Floor Broker Dealers from entering Market Orders in 
options classes, rather, the Exchange proposes to permit all member 
organizations to be able to enter Market Orders as is the case on The 
Nasdaq Options Market LLC (``NOM''), BX, ISE, GEMX and MRX.
---------------------------------------------------------------------------

    \51\ As explained above, Market Makers is a broad term that 
covers Lead Market Makers so both terms are not needed.
    \52\ Phlx Options 1, Section 1(b)(33) provides, [t]he term 
``Off-Floor Broker-Dealer Order'' means an order delivered from off 
the floor of the Exchange by or on behalf of a broker-dealer for the 
proprietary account(s) of such broker-dealer, including an order for 
a market maker located on an exchange or trading floor other than 
the Exchange's trading floor delivered electronically for the 
proprietary account(s) of such market maker.
    \53\ Current Phlx Options 3, Section 7(e) provides that An off-
floor broker-dealer order may be entered for a minimum size of one 
contract. Off-floor broker-dealers may enter all order types defined 
in Options 3, Section 7(b) except for All-or-None Orders, Market 
Orders, Stop Market Orders, and public customer-to-public customer 
cross orders subject to Options 3, Section 13(a) and (f).
---------------------------------------------------------------------------

Limit Orders
    The Exchange proposes to relocate ``Limit Orders'' from current 
Options 3, Section 7(b)(2) to proposed Options 3, Section 7(b) without 
change.\54\ The Exchange proposes to define three types of Limit Orders 
similar to ISE, GEMX and MRX. First, the Exchange proposes to define a 
``Marketable Limit Order'' as a Limit Order to buy (sell) at or above 
(below) the best offer (bid) on the Exchange. Next, the Exchange 
proposes to define a Fill-or-Kill Orders as a Limit Order that is to be 
executed in its entirety as soon as it is received and, if not so 
executed, treated as cancelled. Finally, the Exchange proposes to 
relocate an Intermarket Sweep Order from current Options 3, Section 
7(b)(3) to proposed Options 3, Section 7(b)(3) with some additions. The 
Exchange proposes to reorder some sentences to closely resemble ISE, 
GEMX and MRX Options 3, Section 7(b)(3). The Exchange proposes to add 
an additional sentence to make clear that ISOs must have a TIF 
designation of IOC. Additionally, the Exchange proposes to define the 
``regular order book'' as the ``single-leg order book.''
---------------------------------------------------------------------------

    \54\ Phlx Options 3, Section 7(b)(2) states, A Limit Order is an 
order to buy or sell a stated number of options contracts at a 
specified price or better.
---------------------------------------------------------------------------

All-or-None Orders
    The Exchange proposes to relocate the All-or-None Orders from 
current Options 3, Section 7(b)(5) to proposed Options 3, Section 7(c) 
and amend it. Today, Phlx restricts All-or-None Orders to be entered 
only by Public Customers. At this time, the Exchange proposes to permit 
any member organization to submit an All-or-None Order similar to ISE, 
GEMX, and MRX Options 3, Section 7(c). The Exchange would not apply the 
Acceptable Trade Range protection in Options 3, Section 15(a) to All-
Or-None Orders, similar to other orders. Finally, similar to ISE, GEMX 
and MRX, the Exchange proposes to modify All-or-None Orders so that 
they would execute against multiple, aggregated orders if the 
executions would occur simultaneously. Additionally, as is the case 
today, an All-or-None Order would not be submitted during the Opening 
Process similar to any other order that does not

[[Page 106894]]

rest as the there is no order book during the Opening Process.
Stop Orders
    The Exchange proposes to relocate the Stop Order description from 
Options 3, Section 7(b)(4) \55\ to proposed Options 3, Section 7(d) and 
(e). Today, Phlx's Stop Order may be a Limit or Market Order. Also, the 
Stop Order may not be elected by a trade that is reported late or out 
of sequence or by a Complex Order trading with another Complex Order. 
Phlx restricts Lead Market Makers, Maker Makers, and Off-Floor Broker-
Dealers from entering Stop Market Orders. At this time, the Exchange 
proposes to amend its Stop Order to mirror the order type that is in 
use on ISE, GEMX and MRX at Options 3, Section 7(d) and (e). First, 
Phlx will permit all member organizations to utilize a Stop Order and 
Stop Limit Order and not restrict Maker Makers (including Lead Market 
Makers) as noted in the discussion of Options 2, Section 6 above. 
Further, the category of ``Off-Floor Broker-Dealer Orders'' is being 
eliminated as described below with this rule change. Second, the 
Exchange will not separately specify a Stop Market Limit Order, rather 
it will describe an elected Stop Order as a Market Order. The Exchange 
proposes to describe a Stop Order as an order that becomes a Market 
Order when the stop price is elected. A Stop Order to buy is elected 
when the option is bid or trades on the Exchange at, or above, the 
specified stop price. A Stop Order to sell is elected when the option 
is offered or trades on the Exchange at, or below, the specified stop 
price. A Stop Order shall be cancelled if it is immediately electable 
upon receipt. Stop Orders may only be entered through FIX. The rule 
text that currently provides, ``A Stop Order shall not be elected by a 
trade that is reported late or out of sequence or by a Complex Order 
trading with another Complex Order'' will be relocated to the ended of 
the sentence. The Exchange proposes to provide that a Stop Limit Order 
is an order that becomes a Limit Order when the stop price is elected. 
A Stop Limit Order to buy is elected when the option is bid or trades 
on the Exchange at, or above, the specified stop price. A Stop Limit 
Order to sell becomes a sell limit order when the option is offered or 
trades on the Exchange at, or below, the specified stop price. A Stop 
Limit Order shall be cancelled if it is immediately electable upon 
receipt. The Exchange is removing the rule text that states that a Stop 
Order is a non-displayed, contingency order until elected because the 
proposed rule text makes clear that the Stop Order does not become a 
Market or Limit Order until it is elected. Finally, similar to a Stop 
Order, a Stop Limit Order shall not be elected by a trade that is 
reported late or out of sequence or by a Complex Order trading with 
another Complex Order.
---------------------------------------------------------------------------

    \55\ Phlx Options 3, Section 7(b)(4), states, A Stop Order is a 
Limit Order or Market Order to buy or sell at a limit price when 
interest on the Exchange for a particular option contract reaches a 
specified price. A Stop Order shall be cancelled if it is 
immediately electable upon receipt. A Stop Order shall not be 
elected by a trade that is reported late or out of sequence or by a 
Complex Order trading with another Complex Order. Lead Market Makers 
and Maker Makers may not submit a Stop Order. Off-Floor Broker-
Dealers may not enter a Stop Market Order. (A) A Stop-Limit Order to 
buy becomes a Limit Order executable at the limit price or better 
when the option contract trades or is bid on the Exchange at or 
above the stop-limit price. A Stop-Limit Order to sell becomes a 
Limit Order executable at the limit price or better when the option 
contract trades or is offered on the Exchange at or below the stop-
limit price. (B) A Stop Market Order is similar to a stop-limit 
except it becomes a Market Order when the option contract reaches a 
specified price. (C) A Stop Order is a non-displayed, contingency 
order until elected.
---------------------------------------------------------------------------

Cancel or Replace Orders
    The Exchange proposes to relocate the Cancel and Replace Order 
description from Options 3, Section 7(b)(7) \56\ to proposed Options 3, 
Section 7(f). The Exchange proposes to modify the Cancel and Replace 
Order so that it mirrors the functionality on ISE, GEMX and MRX at 
Options 3, Section 7(f). The Exchange would state at the beginning that 
``Cancel and Replace Orders shall mean'' to conform the text to the 
other changes to the order types. The Exchange would remove the phrase 
``with new terms and conditions'' and instead note that the replacement 
order will retain the priority of the cancelled order, if the order 
posts to the Order Book, provided the price is not amended or size is 
not increased. In the case of Reserve Orders, which the Exchange is 
adopting as noted further below, the replacement order will retain the 
priority of the cancelled order, if the order posts to the Order Book, 
provided the price is not amended or size (displayed and non-displayed) 
is not changed. This new text specifically notes that amending the 
price or increasing the size will result in a loss of priority. Further 
the Exchange proposes to state that if the replacement portion of a 
Cancel and Replace Order does not satisfy the System's price or other 
reasonability checks (e.g., Options 3, Section 15(a)(1) and Options 3, 
Section 15(a)(2)) the existing order shall be cancelled and not 
replaced. Today, the Exchange utilizes the simple order checks in 
Options 3, Section 15(a)(1), Order Price Protection, and Options 3, 
Section 15(b)(1), Acceptable Trade Range, for each order entered into 
the System, including replacement orders. This additional language 
brings more clarity to the rule text.
---------------------------------------------------------------------------

    \56\ Phlx Options 3, Section 7(b)(7) provides, A Cancel-
Replacement Order is a single message for the immediate cancellation 
of a previously received order and the replacement of that order 
with a new order with new terms and conditions. If the previously 
placed order is already filled partially or in its entirety, the 
replacement order is automatically canceled or reduced by the number 
of contracts that were executed. The replacement order will result 
in a loss of priority.
---------------------------------------------------------------------------

Reserve Orders
    The Exchange proposes to adopt a Reserve Order at Options 3, 
Section 7(g) that is identical to the order type in ISE, GEMX and MRX 
Options 3, Section 7(g). As proposed, a Reserve Order would be a limit 
order that contains both a displayed portion and a non-displayed 
portion. Both the displayed and non-displayed portions of a Reserve 
Order would be available for potential execution against incoming 
marketable orders. A non-marketable Reserve Order would rest on the 
order book. The displayed portion of a Reserve Order would be ranked at 
the specified limit price and the time of order entry. The displayed 
portion of a Reserve Order would trade in accordance with Options 3, 
Section 10(a)(1)(A) for Public Customer Orders, and Options 3, Section 
10(a)(1)(F) for non-Public Customer Orders. Reserve Orders would be 
entered with an instruction for the displayed portion of the order to 
be refreshed: (A) upon full execution of the displayed portion or upon 
any partial execution; and (B) up to the initial size of the displayed 
portion or with a random refresh quantity within a range determined by 
the member organization. When the displayed portion of a Reserve Order 
is decremented, either in full or in part, it would be refreshed from 
the non-displayed portion of the resting Reserve Order. If the 
displayed portion is refreshed in part, the new displayed portion would 
include the previously displayed portion. Upon any refresh, the entire 
displayed portion would be ranked at the specified limit price and 
obtain a new time stamp, i.e., the time that the new displayed portion 
of the order was refreshed. The new displayed portion would trade in 
accordance with Options 3, Section 10(a)(1)(A) for Public Customer 
Orders, and Options 3, Section 10(a)(1)(F) for non-Public Customer 
Orders. The initial non-displayed portion of a Reserve Order rests on 
the order book and would be ranked based on the specified limit price 
and time of order entry. Thereafter, non-displayed portions, if any, 
always obtain the same time stamp

[[Page 106895]]

as that of the new displayed portion as described in proposed Options 
3, Section 7(g)(5). The non-displayed portion of any Reserve Order 
would be available for execution only after all displayed interest has 
been executed. The non-displayed portion of any Reserve Order would 
trade in accordance with Options 3, Section 10(a)(1)(A) for Public 
Customer Orders, and Options 3, Section 10(a)(1)(F) for non-Public 
Customer Orders. The Exchange believes that the adoption of this new 
order type will allow all member organizations the ability to trade 
their orders with displayed and non-displayed portions similar to ISE, 
GEMX and MRX Options 3, Section 7(g).
Attributable Orders
    The Exchange proposes to adopt Attributable Orders at Options 3, 
Section 7(h) that is identical to the order type in ISE, GEMX and MRX 
Options 3, Section 7(h). An Attributable Order would be a market or 
limit order which displays the user firm ID for purposes of electronic 
trading on the Exchange. Use of Attributable Orders is voluntary. 
Attributable Orders may not be available for all Exchange Systems. The 
Exchange will issue an Options Regulatory Alert specifying the Systems 
for which the Attributable Order type shall be available. The Exchange 
believes that the availability of this order type will allow member 
organizations the ability to display their firm identification if they 
elect to do so.
Directed Orders 57
---------------------------------------------------------------------------

    \57\ The Exchange is skipping certain letters in this rule to 
account for other rule changes that will be filed that impact 
Options 3, Section 7(i), (j), (k), (t) and (v). Where the Exchange 
is reserving letters, it is to align to the lettering in ISE, GEMX 
and MRX Options 3, Section 7.
---------------------------------------------------------------------------

    The Exchange proposes to relocate the reference to Directed Orders 
currently in Options 3, Section 7(b)(11) \58\ to Options 3, Section 
7(l) without change. The Exchange proposes to reserve Options 3, 
Section 7(m).
---------------------------------------------------------------------------

    \58\ Phlx Options 3, Section 7(b)(11) provides, A Directed Order 
is as described in Options 2, Section 10.
---------------------------------------------------------------------------

Add Liquidity Orders
    The Exchange proposes to adopt an Add Liquidity Order (``ALO'') at 
Options 3, Section 7(n) that is identical to ISE, GEMX and MRX Options 
3, Section 7(n). ALOs are limit orders that will only be executed as a 
``maker'' on the Exchange. An Add Liquidity Order is a limit order that 
is to be executed in whole or in part on the Exchange (i) only after 
being displayed on the Exchange's limit order book; and (ii) without 
routing any portion of the order to another market center. Member 
organizations may specify whether an Add Liquidity Order shall be 
cancelled or re-priced to the minimum price variation above the 
national best bid price (for sell orders) or below the national best 
offer price (for buy orders) if, at the time of entry, the order (i) is 
executable on the Exchange; or (ii) the order is not executable on the 
Exchange, but would lock or cross the national best bid or offer. If at 
the time of entry, an Add Liquidity Order would lock or cross one or 
more non-displayed orders or quotes on the Exchange, the Add Liquidity 
Order shall be cancelled or re-priced to the minimum price variation 
above the best non-displayed bid price (for sell orders) or below the 
best non-displayed offer price (for buy orders). Notwithstanding the 
aforementioned, if an Add Liquidity Order would not lock or cross an 
order or quote on the System but would lock or cross the NBBO, the 
order will be handled pursuant to Options 3, Section 5(d).\59\ An Add 
Liquidity Order will be ranked in the Exchange's limit order book in 
accordance with Options 3, Section 10 which governs priority and 
allocation. Add Liquidity Orders may only be submitted when an options 
series is open for trading. This order type would give market 
participants greater control over the circumstances in which their 
orders are executed.
---------------------------------------------------------------------------

    \59\ Phlx Options 3, Section 5(d) provides, An order will not be 
executed at a price that trades through another market or displayed 
at a price that would lock or cross another market. An order that is 
designated by the member as routable will be routed in compliance 
with applicable Trade-Through and Locked and Crossed Markets 
restrictions. An order that is designated by a member as non-
routable will be re-priced in order to comply with applicable Trade-
Through and Locked and Crossed Markets restrictions. If, at the time 
of entry, an order that the entering party has elected not to make 
eligible for routing would cause a locked or crossed market 
violation or would cause a trade-through violation, it will be re-
priced to the current national best offer (for bids) or the current 
national best bid (for offers) as non-displayed, and displayed at 
one minimum price variance above (for offers) or below (for bids) 
the national best price.
---------------------------------------------------------------------------

    Below are some examples of the Add Liquidity Order.
Add Liquidity Only Order Re-Price Example
 Non-Penny Program MPV Option in open trading state
 Market Maker A quote $0.90 (10) x $1.00 (10)
 ABBO $0.85 x $1.05
 Firm A sends Add Liquidity Only Order to buy 5 arrives at 
$1.00
[cir] Reprices on book to $0.95
[cir] Displays on $0.95 bid, which is National Best displayed bid with 
a quantity of 5
 Order to sell 10 arrives at $0.90
[cir] 5 execute with Firm A @$0.95
[cir] 5 execute with Market Maker A @$0.90
[cir] NBBO updates back to $0.90 x $1.00
Add Liquidity Only Reject Example
 Non-Penny Program MPV Option in open trading state
 Market Maker A quote $0.90 (10) x $1.00 (10)
 ABBO $0.85 x $1.05
 Firm A sends Add Liquidity Only Order to buy 5 arrives at 
$1.00
[cir] Order is rejected back to sender because the sender configured 
the order for reject instead of re-price
    The Exchange notes that it proposes to reserve Options 3, Section 
7(o), (p), (q), (r), (s) and (t).
Opening Sweep
    The Exchange proposes to relocate the Opening Sweep order type at 
Options 3, Section 7(b)(6) \60\ to Options 3, Section 7(u) and amend 
it. The Exchange proposes to replace references to ``Lead Market 
Makers'' and ``Market Makers'' to simply ``Market Makers'' as all Lead 
Market Makers are also Market Makers.\61\ Additionally, the Exchange 
proposes to note that with the technology migration, that Opening 
Sweeps would be subject to the new Market Wide Risk Protection proposed 
in Options 3, Section 15. The Exchange is proposing to add a Market 
Wide Risk Protection to its rules with this proposal as described 
below. Finally, the Exchange proposes to add a precise citation to the 
Opening Process in the last sentence of Options 3, Section 7(u) by 
including ``(b)(i)'' after Options 3, Section 8.
---------------------------------------------------------------------------

    \60\ Phlx Options 3, Section 7(b)(6) provides, An Opening Sweep 
is a one-sided order entered by a Lead Market Maker or Market Maker 
through SQF for execution against eligible interest in the System 
during the Opening Process. This order type is not subject to any 
protections listed in Options 3, Section 15, except for Automated 
Quotation Adjustments. The Opening Sweep will only participate in 
the Opening Process pursuant to Options 3, Section 8 and will be 
cancelled upon the open if not executed.
    \61\ See Phlx Options 1, Section 1(b)(28) which defines a Market 
Maker as a Streaming Quote Trader or a Remote Streaming Quote Trader 
who enters quotations for his own account electronically into the 
System.
---------------------------------------------------------------------------

    The Exchange proposes to reserve Options 3, Section 7(x) and (y).
PIXL Order
    The Exchange proposes to relocate the description of a PIXL Order 
from Options 3, Section 7(b)(9) \62\ to Options 3, Section 7(y) without 
substantive

[[Page 106896]]

change.\63\ The Exchange proposes to populate Supplementary Material 
.01 to Options 3, Section 7 in a separate rule change.
---------------------------------------------------------------------------

    \62\ Phlx Options 3, Section 7(b)(9) provides, A PIXL Order is 
as described in Options 3, Section 13.
    \63\ The Exchange proposes to remove ``A'' before the words 
``PIXL Order.''
---------------------------------------------------------------------------

Time in Force Provisions
    The Exchange proposes to relocate the rule text concerning Time in 
Force from current Options 3, Section 7(c) to Supplementary Material 
.02 to Options 3, Section 7 without change. Phlx Options 3, Section 
7(c) provides, ``Time in Force or ``TIF.'' The term ``Time in Force'' 
shall mean [sic] the period of time that the System will hold an order 
for potential execution, and shall include:''
Day Order
    The Exchange proposes to relocate Day Order from current Options 3, 
Section 7(c)(1) \64\ to Supplementary Material .02(a) to Options 3, 
Section 7 and make minor amendments to the description. The Exchange 
proposes to amend the first sentence which states, ``If not executed, 
an order entered with a TIF of ``Day'' expires at the end of the day on 
which it was entered.'' The Exchange proposes to instead provide, ``An 
order to buy or sell entered with a TIF of ``DAY,'' which, if not 
executed, expires at the end of the day on which it was entered.'' The 
Exchange is rewording the rule text of Day Order to mirror the text in 
ISE, GEMX and MRX Supplementary Material .02(a) to Options 3, Section 
7. The Exchange notes that Phlx does not have the Precise or OTTO 
protocols today.
---------------------------------------------------------------------------

    \64\ Phlx Options 3, Section 7(c)(1) provides, If not executed, 
an order entered with a TIF of ``Day'' expires at the end of the day 
on which it was entered. All orders by their terms are Day Orders 
unless otherwise specified. Day orders may be entered through FIX.
---------------------------------------------------------------------------

Good-Till-Cancelled
    The Exchange proposes to relocate Good Till Cancelled from Options 
3, Section 7(c)(4) \65\ to Supplementary Material .02(b) to Options 3, 
Section 7 and amend the description. Currently, Supplementary Material 
.02(b) to Options 3, Section 7 provides that a Good Til Cancelled 
(``GTC'') Order entered with a TIF of GTC, if not fully executed, will 
remain available for potential display and/or execution unless 
cancelled by the entering party, or until the option expires, whichever 
comes first. GTC Orders shall be available for entry from the time 
prior to market open specified by the Exchange until market close. The 
Exchange proposes to instead provide that an order to buy or sell 
entered with a TIF of ``GTC'' remains in force until the order is 
filled, canceled or the option contract expires; provided, however, 
that GTC orders will be canceled in the event of a corporate action 
that results in an adjustment to the terms of an option contract. The 
first sentence of the current text is simply worded differently. Also, 
all order types are available throughout the trading day unless 
specified otherwise. The Exchange proposes to add language concerning a 
corporate event, noting that GTC orders are canceled in the event of a 
corporate action that results in an adjustment to the terms of an 
option contract. This is also true today. The Exchange is adding this 
rule text to clarify the current System behavior. The proposed GTC 
description is identical to the rule text in ISE, GEMX and MRX 
Supplementary Material .02(b) to Options 3, Section 7. There is no 
System change as a result of the change to the description of the GTC 
order.
---------------------------------------------------------------------------

    \65\ Phlx Options 3, Section 7(c)(4) provides, A Good Til 
Cancelled (``GTC'') Order entered with a TIF of GTC, if not fully 
executed, will remain available for potential display and/or 
execution unless cancelled by the entering party, or until the 
option expires, whichever comes first. GTC Orders shall be available 
for entry from the time prior to market open specified by the 
Exchange until market close.
---------------------------------------------------------------------------

Good-Till-Date
    The Exchange proposes to adopt a new TIF designation, Good-Till-
Date or ``GTD'' at Supplementary Material .02(c) to Options 3, Section 
7 which is identical to ISE, GEMX and MRX's Good-Till-Date TIF at 
Supplementary Material .02(c) to Options 3, Section 7. A Good-Till-Date 
TIF is an order to buy or sell entered with a TIF of ``GTD,'' which, if 
not executed, would be cancelled at the sooner of the end of the 
expiration date assigned to the order, or the expiration of the series; 
provided, however, that GTD orders would be canceled in the event of a 
corporate action that results in an adjustment to the terms of an 
option contract. The Exchange believes this additional TIF will provide 
member organizations with additional opportunities when trading on 
Phlx.
Immediate-or-Cancel
    The Exchange proposes to relocate Immediate-or-Cancel from Options 
3, Section 7(c)(2) \66\ to Supplementary Material .02(d) to Options 3, 
Section 7 and amend the description. Supplementary Material .02(d) to 
Options 3, Section 7 currently states, ``An Immediate-or-Cancel 
(``IOC'') Order entered with a TIF of ``IOC'' is a Market Order or 
Limit Order to be executed in whole or in part upon receipt. Any 
portion not so executed is cancelled.'' The Exchange proposes a non-
substantive amendment to instead provide, ``Immediate-or-Cancel. An 
order entered with a TIF of ``IOC'' that is to be executed in whole or 
in part upon receipt. Any portion not so executed is to be treated as 
cancelled.'' The Exchange proposes to relocate the rule text in Options 
3, Section 7(c)(A) to Supplementary Material .02(d)(1) to Options 3, 
Section 7 without change. The Exchange proposes to relocate the rule 
text in Options 3, Section 7(c)(B) to Supplementary Material .02(d)(2) 
to Options 3, Section 7 and remove the reference to ``Lead Market 
Maker'' to simply ``Market Makers'' as all Lead Market Makers are also 
Market Makers.\67\ The Exchange proposes to amend ``SQF is not subject 
to'' to ``the SQF protocol will not be subject to''. The Exchange 
proposes to add an ``(A)'' before Order Price Protection, and change 
``or Size Limitation in Options 3, Section 15(a)(1), (a)(2), and 
(b)(2), respectively, or Size Limitation within Options 3, Section 
16(e)'' to ``and Size Limitation Protection as defined in Options 3, 
Section 15(a)(1), (a)(2), and (b)(2) respectively, for single leg 
orders.'' These modifications are non-substantive and simply bring more 
clarity to the rule text. The Exchange proposes to relocate the rule 
text in current Phlx Options 3, Section 7(c)(2)(C) in a separate rule 
change. These changes align with rule text in ISE, GEMX and MRX 
Supplementary Material .02(d) to Options 3, Section 7.
---------------------------------------------------------------------------

    \66\ Phlx Options 3, Section 7(c)(2) provides, An Immediate-or-
Cancel (``IOC'') Order entered with a TIF of ``IOC'' is a Market 
Order or Limit Order to be executed in whole or in part upon 
receipt. Any portion not so executed is cancelled. (A) Orders 
entered with a TIF of IOC are not eligible for routing. (B) IOC 
orders may be entered through FIX or SQF, provided that an IOC Order 
entered by a Market Maker or Lead Market Maker through SQF is not 
subject to the Order Price Protection, the Market Order Spread 
Protection, or Size Limitation in Options 3, Section 15(a)(1), 
(a)(2), and (b)(2), respectively, or Size Limitation within Options 
3, Section 16(e). (C) Orders entered into the Price Improvement XL 
(``PIXL'') Mechanism and Qualified Contingent Cross (``QCC'') 
Mechanism are considered to have a TIF of IOC. By their terms, these 
orders will be: (1) executed either on entry or after an exposure 
period, or (2) cancelled.
    \67\ See Phlx Options 1, Section 1(b)(28) which defines a Market 
Maker as a Streaming Quote Trader or a Remote Streaming Quote Trader 
who enters quotations for his own account electronically into the 
System.
---------------------------------------------------------------------------

Opening Only
    The Exchange proposes to relocate Opening Only from Options 3, 
Section 7(c)(3) \68\ to proposed Supplementary

[[Page 106897]]

Material .02(e) of Options 3, Section 7. The Exchange is proposing to 
add Phlx's new Market Wide Risk Protection to the list of risk 
protections that would apply to Opening Only. The Exchange proposes a 
new Market Wide Risk Protection as explained below in this proposal. 
Also, the Exchange proposes to capitalize ``orders'' in the last 
sentence.
---------------------------------------------------------------------------

    \68\ Phlx Options 3, Section 7(c)(3) provides, An Opening Only 
(``OPG'') order is entered with a TIF of ``OPG''. This order can 
only be executed in the Opening Process pursuant to Options 3, 
Section 8. This order type is not subject to any protections listed 
in Options 3, Section 15, except Size Limitation. Any portion of the 
order that is not executed during the Opening Process is cancelled. 
OPG orders may not route.
---------------------------------------------------------------------------

Order Entry Protocols
    The Exchange proposes to amend the rule text currently in 
Supplementary Material .03(a)(i) of Options 3, Section 7. With respect 
to the FIX protocol, within proposed Supplementary Material .03(A) of 
Options 3, Section 7,\69\ the Exchange proposes to add ``post trade 
allocation messages'' to the list of features that will be included in 
FIX. A post trade allocation message allows market participants to 
specify how an order should be subdivided among one or more 
accounts.\70\ Today, ISE, GEMX and MRX provide post trade allocation 
messages through FIX.\71\ The Exchange does not propose to amend the 
SQF protocol within Supplementary Material .03(B) of Options 3, Section 
7 \72\ or the FBMS protocol within Supplementary Material .03(C) of 
Options 3, Section 7.\73\
---------------------------------------------------------------------------

    \69\ Phlx Supplementary Material .03(A) of Options 3, Section 7 
provides, ``Financial Information eXchange'' or ``FIX'' is an 
interface that allows members and their Sponsored Customers to 
connect, send, and receive messages related to orders and auction 
orders and responses to and from the Exchange. Features include the 
following: (1) execution messages; (2) order messages; and (3) risk 
protection triggers and cancel notifications.''
    \70\ For example, a member may specify the account(s) and their 
respective order quantities which make up the order.
    \71\ See ISE, GEMX and MRX Supplementary Material .03(a)(i) of 
Options 3, Section 7.
    \72\ Phlx Supplementary Material .03(A) of Options 3, Section 7 
provides, ``Specialized Quote Feed'' or ``SQF'' is an interface that 
allows Lead Market Makers, Streaming Quote Traders (``SQTs'') and 
Remote Streaming Quote Traders (``RSQTs'') to connect, send, and 
receive messages related to quotes, Immediate-or-Cancel Orders, and 
auction responses into and from the Exchange. Features include the 
following: (1) options symbol directory messages (e.g., underlying 
and complex instruments); (2) system event messages (e.g., start of 
trading hours messages and start of opening); (3) trading action 
messages (e.g., halts and resumes); (4) execution messages; (5) 
quote messages; (6) Immediate-or-Cancel Order messages; (7) risk 
protection triggers and purge notifications; (8) opening imbalance 
messages; (9) auction notifications; and (10) auction responses. The 
SQF Purge Interface only receives and notifies of purge requests 
from the Lead Market Maker, SQT or RSQT. Lead Market Makers, SQTs 
and RSQTs may only enter interest into SQF in their assigned options 
series. Immediate-or-Cancel Orders entered into SQF are not subject 
to the Order Price Protection, the Market Order Spread Protection, 
or Size Limitation in Options 3, Section 15(a)(1), (a)(2) and 
(b)(2), respectively.
    \73\ Phlx Supplementary Material .03(C) of Options 3, Section 7 
provides, Options Floor Based Management System or (``FBMS'') is a 
component of the System designed to enable members and/or their 
employees to enter, route and report transactions stemming from 
options orders received on the Exchange. The FBMS also is designed 
to establish an electronic audit trail for options orders 
negotiated, represented and executed by members on the Exchange, to 
the extent permissible pursuant to Options 8, Section 22(a), such 
that the audit trail provides an accurate, time-sequenced record of 
electronic and other orders, quotations and transactions on the 
Exchange, beginning with the receipt of an order by the Exchange, 
and further documenting the life of the order through the process of 
execution, partial execution, or cancellation of that order. The 
features of FBMS are described in Options 8, Sections 28(e) and 29. 
In addition, a non-member or member may utilize an FBMS FIX 
interface to create and send an order into FBMS to be represented by 
a Floor Broker for execution.
---------------------------------------------------------------------------

Routing
    The Exchange proposes to relocate the rule text at Options 3, 
Section 7(d) \74\ to Supplementary Material .04 of Options 3, Section 7 
without change.
---------------------------------------------------------------------------

    \74\ Phlx Options 3, Section 7(d) provides, Routing Strategies. 
Orders may be entered on the Exchange with a routing strategy of 
FIND, SRCH or Do-Not-Route (``DNR'') as provided in Options 5, 
Section 4 through FIX only.
---------------------------------------------------------------------------

Options 3, Section 8
    The Exchange proposes to amend Options 3, Section 8, Options 
Opening Process, at Options 3, Section 8(b) to note the eligible 
interest that will be included in the Opening Process. The Exchange 
currently provides at Options 3, Section 8(b) that, ``Eligible interest 
during the Opening Process includes Valid Width Quotes, Opening Sweeps, 
and orders. Quotes, other than Valid Width Quotes, will not be included 
in the Opening Process. Non-SQT Market Makers may submit orders.'' The 
Exchange proposes to note that ``Eligible interest during the Opening 
Process includes Valid Width Quotes, Opening Sweeps, and orders, 
including Opening Only Orders, but excluding orders with a Time-In-
Force of ``Immediate or Cancel'' and Add Liquidity Orders. Quotes, 
other than Valid Width Quotes, will not be included in the Opening 
Process. The displayed and non-displayed portions of the Reserve Orders 
are considered for execution and in determining the Opening Price 
throughout the Opening Process. Non-SQT Market Makers may submit 
orders.'' \75\ The Exchange would exclude Add Liquidity Orders and 
consider Reserve Orders (displayed and non-displayed portions) for 
execution in the Opening Process as well as when considering the 
Opening Price. The Exchange proposes to amend the rule text to note how 
those order types are accepted by the System for processing during the 
Opening Process. The proposed eligibility of these orders mirror ISE, 
GEMX and MRX Options 3, Section 8(b).
---------------------------------------------------------------------------

    \75\ Today, Opening Only Orders are eligible for the Opening 
Process but not Immediate or Cancel Orders.
---------------------------------------------------------------------------

    Also, similar to ISE, GEMX and MRX Options 3, Section 8(g), the 
Exchange proposes to account for the addition of Reserve Orders with 
respect to the Potential Opening Price \76\ in Phlx Options 3, Section 
8(h). The Exchange notes that to calculate the Potential Opening Price, 
the System will take into consideration all Valid Width Quotes and 
orders (including Opening Sweeps and displayed and non-displayed 
portions of Reserve Orders) for the option series and identify the 
price at which the maximum number of contracts can trade (``maximum 
quantity criterion''). The addition of this rule text will make clear 
the manner in which the System will handle a Reserve Order during the 
Opening Process.
---------------------------------------------------------------------------

    \76\ The Potential Opening Price indicates a price where the 
System may open once all other Opening Process criteria is met.
---------------------------------------------------------------------------

    The Exchange proposes to amend Options 3, Section 8(h)(A), which 
currently describes how the Potential Opening Price would be calculated 
when there is more than one Potential Opening Price. Today, Phlx 
Options 3, Section 8(h)(A) provides that when two or more Potential 
Opening Prices would satisfy the maximum quantity criterion and leave 
no contracts unexecuted, the System takes the highest and lowest of 
those prices and takes the mid-point; if such mid-point is not 
expressed as a permitted minimum price variation, it will be rounded to 
the minimum price variation that is closest to the closing price for 
the affected series from the immediately prior trading session. If 
there is no closing price from the immediately prior trading session, 
the System will round up to the minimum price variation to determine 
the Opening Price. The Exchange proposes to no longer round in the 
direction of the previous trading day's closing price, rather it would 
round up to the minimum price variation if the mid-point of the high/
low is not expressed as a permitted minimum price variation with this 
technology migration. The proposed changes are intended to simplify and 
bring greater transparency to the Opening Process, as market 
participants can now have a better sense of how the Potential Opening 
Price will be calculated without having to account for the closing 
price of each options series. This proposed change will mirror

[[Page 106898]]

the functionality on ISE, GEMX and MRX.\77\
---------------------------------------------------------------------------

    \77\ See ISE, GEMX and MRX Options 3, Section 8(g).
---------------------------------------------------------------------------

    The Exchange further proposes to amend Phlx Options 3, Section 
8(j)(7), which currently describes the determination of Opening Quote 
Range (``OQR'') boundaries in certain scenarios.\78\ Specifically, the 
Exchange proposes to amend the last sentence of Options 3, Section 
8(j)(7) which currently states, ``The System will route routable Public 
Customer and Professional interest pursuant to Options 3, Section 
10(a)(1)(A).'' The Exchange proposes to remove the current limitation 
that only allows routable Public Customer \79\ and Professional \80\ 
interest to route during the Opening Process. Instead, all routable 
market participant interest will be allowed to route to align the 
Exchange's opening functionality with ISE, GEMX and MRX Options 3, 
Section 8, which does not limit orders that may route in the Opening 
Process. Specifically, the Exchange proposes to remove the reference to 
Public Customer and Professional to allow all routable interest to 
route in the Opening Process. The Exchange proposes to update the 
cross-cite to Phlx Options 3, Section 10(a)(1)(A), that currently 
points to the Public Customer priority overlay. Instead, the Exchange 
would amend the citation to point to the more general priority rule in 
Phlx Options 3, Section 10(a).
---------------------------------------------------------------------------

    \78\ OQR is an additional type of boundary used in the Opening 
Process, and is intended to limit the opening price to a reasonable, 
middle ground price, thus reducing the potential for erroneous 
trades during the Opening Process.
    \79\ The term ``Public Customer'' means a person or entity that 
is not a broker or dealer in securities and is not a Professional as 
defined within Options 1, Section (b)(45). See Option 1, Section 
1(b)(46).
    \80\ 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. 
See Option 1, Section 1(b)(45).
---------------------------------------------------------------------------

    Similar to other changes noted herein, the Exchange proposes to 
amend Phlx Options 3, Section 8(k)(C)(6) to note how Reserve Orders 
will be handled in the Opening Process for purposes of execution. The 
Exchange proposes to state, ``The System will execute orders at the 
Opening Process that have contingencies (such as without limitation, 
Reserve Orders) and non-routable orders, such as a ``Do Not Route'' or 
``DNR'' Orders, to the extent possible. This rule text will add 
transparency to Phlx's rule text, and mirror rule text in ISE, GEMX and 
MRX Options 3, Section 8(j)(6). Additionally, the Exchange proposes an 
amendment to the last sentence of Phlx Options 3, Section 8(k)(C)(6) 
which currently states, ``The System will only route non-contingency 
Public Customer and Professional orders.'' In line with proposed 
amendments to permit the System to route all market participant 
interest, thereby removing the limitation that only allows routable 
Public Customer and Professional interest to route, and in line with 
the addition of rule text related to the handling of Reserve Orders, 
the Exchange proposes to instead provide, ``The System will only route 
non-contingency orders, except Reserve Orders may route up to their 
full volume.'' With this proposal, Phlx would have the following 
contingency orders that will not route: a Stop Order, an All-or-None 
Order and a Fill-or-Kill Order.
    The Exchange proposes to amend current Phlx Options 3, Section 
8(k)(D) to mirror rule text in ISE, GEMX and MRX Options 3, Section 
8(j)(6)(A) which states, ``The System will cancel any order or quote 
that is priced through the Opening Price. All other interest will be 
eligible for trading after opening.'' Today, the Phlx System will 
cancel any order or quote priced through the Opening Price. Also, 
today, all other interest will be eligible for trading after the 
Opening Process and will remain on the order book. The Exchange 
believes that this rule text will bring greater transparency to Phlx's 
Opening Process.
    Finally, the Exchange proposes to amend rule text in the Opening 
Process Cancel Timer at Phlx Options 3, Section 8(l). With the 
retention of the ``Good-Till-Cancel Order'' and adoption of the ``Good-
Till-Date Order,'' the Exchange proposes to amend the order types in 
the last sentence of Options 3, Section 8(l) for consistency.
Options 3, Section 9
    The Exchange proposes to amend Phlx Options 3, Section 9, Trading 
Halts. Specifically, the Exchange proposes to amend Options 3, Section 
9(d)(3) to amend the manner in which a Stop Order will be treated 
during a trading halt. The Exchange proposes to mirror the treatment of 
Stop Orders in ISE, GEMX and MRX Options 3, Section 9(d)(3). Today, the 
rule text notes that ``[a]fter the opening, the Exchange shall elect 
Stop Orders, as defined in Options 8, Section 32(c)(2), and, because 
they become Market Orders, shall cancel them back and notify member 
organizations of the reason for such rejection.'' The Exchange proposes 
to amend the rule text to instead provide, ``After the Opening Process, 
if a Stop Order is elected, as defined in Options 3, Section 7(d) 
because they become Market Orders, the System shall cancel them back 
and notify market participants of the reason for such cancellation.'' 
Stop Orders would become elected as provided for in proposed Options 3, 
Section 7(d).\81\ The Exchange currently cites Phlx Options 8, Section 
32 erroneously, as those rules refer to Stop Order types on the trading 
floor. The Exchange proposes to instead cite proposed new Options 3, 
Section 7(d) which describes the electronic Stop Order type. The 
Exchange proposes to note that the System cancels orders. Also, the 
Exchange proposes to change the word rejection to cancellation because 
the order would be cancelled not rejected. The Exchange also proposes 
to amend Phlx Options 3, Section 9(f) which currently states, ``During 
a halt, the Exchange will maintain existing orders on the book (but not 
existing quotes), except as noted in Options 5, Section 4, accept 
orders and quotes, and process cancels. During a halt, existing quotes 
are cancelled and auction orders and auction responses, as well as 
Crossing Orders, are rejected.'' The Exchange notes that this exception 
in Phlx Options 3, Section 9(f) to potential exceptions to this rule 
within Options 5, Section 4 is not necessary as the Exchange follows 
the trading halt processes in Options 3, Section 9. Options 5, Section 
4 does not change the manner in which Options 3, Section 9 operates.
---------------------------------------------------------------------------

    \81\ As proposed in Options 3, Section 7(d) a Stop Order becomes 
a Market Order when the stop price is elected. A Stop Order to buy 
is elected when the option is bid or trades on the Exchange at, or 
above, the specified stop price. A Stop Order to sell is elected 
when the option is offered or trades on the Exchange at, or below, 
the specified stop price.
---------------------------------------------------------------------------

Options 3, Section 10
    The Exchange proposes to amend Phlx Options 3, Section 10, 
Electronic Execution Priority and Processing in the System. Today, 
generally, Phlx's System rounds down. With this technology migration, 
the Exchange proposes to amend Phlx's rounding methodology to round up 
to the nearest integer. Today, ISE, GEMX and MRX Options 3, Section 
10(c) provide for a Size Pro-Rata allocation with the same rounding 
methodology as proposed for Phlx. The Exchange is opting to round up 
and not down, uniformly, and disclose that rounding methodology 
directly within Options 3, Section 10, so that all member organizations 
are aware of the rounding methodology that would be utilized by the 
System. In addition, if the result of an allocation is not a whole

[[Page 106899]]

number, it will now be rounded up to the nearest whole number instead 
of down. Finally, with respect to rounding, because the System is 
rounding up, the provisions which describe allocations for remainders 
of less than one contract are being deleted because they cannot 
mathematically occur. The Exchange believes that rounding up uniformly 
is consistent with the Act because it provides for the equitable 
allocation of contracts among the Exchange's market participants. The 
Exchange proposes to provide market participants with transparency as 
to the number of contracts that they are entitled to receive as the 
result of rounding. Further, the Exchange believes that this 
methodology produces an equitable outcome during allocation that is 
consistent with the protection of investors and the public interest 
because all market participants are aware of the methodology that will 
be utilized to calculate outcomes for allocation purposes. By way of 
example,

Broker/Dealer Order to Buy 20 @1.00
Firm Order to Buy 10 @1.00
Customer Order to Sell 7 @1.00
Today, this order would allocate as follows: 4 contracts to the Broker/
Dealer Order (BD receives 20/30 of the incoming 7 = 4.667, rounds down 
to 4 contracts)
Today, this order allocates 2 contracts to the Firm Order (Firm 
receives 10/30 of the incoming 7 = 2.33, rounds down to 2 contracts)
Today, this order allocates 1 contract (the odd lot) to the Broker/
Dealer Order

    With this proposal, allocation will round up instead of down, 
meaning the Broker/Dealer order would instead be allocated 5 contracts 
and the Firm order would receive the remaining 2 contracts.
    To that end, the Exchange proposes to amend Options 3, Section 
10(a) to instead provide that ``If the result is not a whole number, it 
will be rounded up to the nearest whole number. Size Pro-Rata Priority 
shall mean that resting orders and quotes in the order book are 
prioritized according to price. If there are two or more resting orders 
or quotes at the same price, the System allocates contracts from an 
incoming order or quote to resting orders and quotes beginning with the 
resting order or quote displaying the largest size proportionally 
according to displayed size, based on the total number of contracts 
displayed at that price. Pursuant to Size Pro-Rata, if there are still 
contracts to be allocated after the displayed size of all orders at 
that price has been executed, the remaining size from the incoming 
order will be allocated proportionally against non-displayed interest 
according to remaining total size of each resting order at such price, 
beginning with the order which has the largest total size remaining. 
The Exchange is proposing to allocate similar to ISE, GEMX and MRX 
Options 3, Section 10(c). The Size Pro-Rata allocation divides the 
remainder proportionally among the non-displayed interest. Both the 
displayed and non-displayed portions of a Reserve Order are available 
for potential execution against incoming marketable orders or quotes. 
The non-displayed portion of any Reserve Order is available for 
execution only after all displayed interest on the single-leg order 
book has been executed. The Odd Lot Allocation within Phlx Options 3, 
Section 10(a)(1)(F) is also being removed because the Exchange would no 
longer utilize the random assignment discussed in that paragraph, 
rather the Exchange would simply round up any allocation which does not 
result in a whole number, and thus would have no Odd Lot contracts 
remaining to be allocated.
    The Exchange proposes to amend Phlx Options 3, Section 10(a)(1)(B) 
to change a reference to ``DROT'' to ``Directed Market Maker'' for 
consistency.
    The Exchange proposes to amend Phlx Options 3, Section 10(a)(1)(C) 
to provide that ``After all Public Customer orders have been fully 
executed, upon receipt of a Directed Order pursuant to Options 2, 
Section 10, provided the Directed Market Maker's quote is at the better 
of the internal PBBO or the NBBO, the Directed Market Maker will be 
afforded a participation entitlement. This participation entitlement 
will be considered after the Opening Process.'' Today, a Directed 
Market Maker's quote or market maker order must be at the better of the 
internal PBBO or NBBO. The Exchange believes that similar to ISE, GEMX 
and MRX Options 3, Section 10(c)(1)(C), that Market Maker orders should 
not be considered when offering Directed Market Maker priority 
enhancements. Phlx Options 2, Section 10 provides that when the 
Exchange's disseminated price is the NBBO at the time of receipt of the 
Directed Order, and the Directed Lead Market Maker, SQT or RSQT is 
quoting at the better of the internal PBBO or the NBBO, the Directed 
Order shall be automatically executed and allocated in accordance with 
Options 3, Section 10(a)(1)(C). The Exchange proposes to only offer the 
Directed Market Maker enhanced allocation if a Directed Market Maker's 
quote is at the better of the internal PBBO or the NBBO and not its 
order. Consistent with this change, the Exchange proposes to remove 
``or order(s)'' after quote throughout Options 3, Section 10(a)(1)(C). 
Consistent with its proposal to round up, the Exchange proposes to 
remove the last sentence of Options 3, Section 10(a)(1)(C) that 
provides, ``If rounding would result in an allocation of less than one 
contract, the Directed Market Maker shall receive one contract.''
    The Exchange proposes to amend the Phlx's Entitlement for Orders of 
5 contracts or fewer at Options 3, Section 10(a)(1)(D) to align with 
ISE, GEMX and MRX Options 3, Section 10(a)(1)(D). The Exchange proposes 
to amend the last sentence to provide, ``On a quarterly basis, the 
Exchange will evaluate what percentage of the volume executed on the 
Exchange is comprised of orders for 5 contracts or fewer allocated to 
Lead Market Makers, and will reduce the size of the orders included in 
this provision if such percentage is over 40%.'' Today, Phlx's 
percentage for the reduction is 25%. The Exchange believes that 
utilizing the higher percentage continues to restrict Lead Market 
Makers with respect to the percentage of the volume executed on Phlx 
that is comprised of orders for 5 contracts or fewer allocated to Lead 
Market Makers. The Exchange will continue to evaluate the percentage on 
a quarterly basis. The Exchange monitors ISE, GEMX and MRX Lead 
Markets' orders for 5 contracts or fewer based on this percentage today 
and this has not raised any concerns. Finally, this proposal will align 
this percentage to 40% identical to ISE, GEMX and MRX Options 3, 
Section 10(a)(1)(D) so that Market Makers have the same compliance 
across the Nasdaq affiliated exchanges.\82\ Phlx notes that currently 
Lead Market Makers are not approaching the 25% threshold noted in 
Options 3, Section 10(a)(1)(D)(ii) related to the quarterly review of 5 
contracts or fewer by the Exchange, which percentage is based on total 
volume executed. With this proposal, Phlx will monitor the frequency in 
which Lead Market Makers receive orders for 5 contracts or fewer. 
Specifically, the Exchange will review the proposed provision quarterly 
and will maintain the orders for 5 contracts or fewer at a level that 
will not allow these small size orders executed by Lead Market Makers 
to account for more than 40% of the volume executed on the Exchange. 
The Exchange does not believe the proposal raises any new or novel 
issues as other options exchanges also offer the same

[[Page 106900]]

allocation for orders for 5 contracts or fewer.\83\ The Exchange 
believes that providing this benefit offers Lead Market Makers an 
incentive for vigorous quoting since a Lead Market Maker must be 
quoting at the NBBO in order to receive the allocation. Incentivizing 
Lead Market Makers to provide liquidity on Phlx, in turn, provides 
greater opportunity for executions, tighter spreads, and better pricing 
for all member organizations. While the Commission has, in the past, 
been concerned about locking up larger portions of order flow from 
intra-market price competition, the Exchange believes that the 
enhancement would remain adequately balanced by the increased 40% 
threshold that limits the volume of orders of five contracts or fewer 
that are executed by Lead Market Makers to account for no more than 40% 
of the volume executed on the Exchange. The proposed increased 
limitation of 40% continues to strike a reasonable balance between 
encouraging vigorous price competition by Lead Market Makers and 
rewarding those Lead Market Makers for their unique duties. Lead Market 
Maker are also subject to the heightened quoting requirements specified 
in Options 2, Section 5(c)(2)(B). As noted above, consistent with 
proposed rounding, the Exchange proposes to remove the Phlx Odd Lot 
Allocation in Phlx Options 3, Section 10(a)(1)(F) \84\ because Phlx 
will round up which would not result in remaining contracts to be 
allocated after rounding. There is no net benefit or negative to 
electing to round up versus utilizing any other method of rounding 
(down, banker's rounding, etc.) provided the rounding is handling 
uniformly and applied in the same manner to each trade executed by the 
System. The Exchange will uniformly apply its proposed rounding 
methodology, rounding up, to all transactions executed on Phlx. The 
Exchange also proposes to remove the reference to this paragraph at the 
end of Phlx Options 3, Section 10(a)(1)(D)(ii).
---------------------------------------------------------------------------

    \82\ BX also utilizes 40%. See Options 3, Sections 
10(a)(1)(C)(1)(c) and 10(a)(2)(iii).
    \83\ See ISE, GEMX and MRX Options 3, Section 10(a)(1)(D).
    \84\ Phlx Options 3, Section 10(a)(1)(F) provides, [i]f there 
are contracts remaining after Market Maker Priority is applied, such 
contracts shall be allocated by randomly assigning all Market Makers 
(including the Lead Market Maker or Directed Market Maker) an order 
of allocation each trading day, and allocating orders, quotes and 
sweeps in accordance with the trading day's order assignment, 
provided the Market Maker, is at the best price at which the order, 
quote or sweep is being traded.
---------------------------------------------------------------------------

    Similar to ISE, GEMX and MRX Options 3, Section 10(c)(1)(E), the 
Exchange proposes to account for Reserve Orders in proposed Phlx 
Options 3, Section 7(g)(3). The Exchange proposes to state that, ``If 
there are contracts remaining after all Market Maker interest has been 
fully executed, notwithstanding Options 3, Section 7(g)(3), such 
contracts shall be executed based on the Size Pro-Rata execution 
algorithm as described in Options 3, Section 10(a).'' The Exchange 
proposes to cite to proposed Phlx Options 3, Section 7(g)(3) which 
provides that the displayed portion of a Reserve Order will trade in 
accordance with Options 3, Section 10(a)(1)(A) for Public Customer 
Orders and this subparagraph (F) for non-Public Customer Orders. The 
displayed portion of a Reserve Order will be allocated the same as 
other order types. Both the displayed and non-displayed portions of a 
Reserve Order are available for potential execution against incoming 
marketable orders or quotes. The non-displayed portion of any Reserve 
Order is available for execution only after all displayed interest on 
the single-leg order book has been executed. The proposed rule text 
related to allocation of a Reserve Order is identical to ISE, GEMX and 
MRX at Options 3, Section 10(g). The Exchange also proposes to add a 
citation to Options 3, Section 10(a) in this paragraph for clarity.
    Finally, the Exchange proposes to amend Phlx Options 3, Section 
10(a)(2) to capitalize ``market maker'' and remove the Market Maker 
order at the end of this paragraph because, as proposed above, the 
Exchange proposes to only offer the Directed Market Maker allocation if 
a Directed Market Maker's quote is at the better of the internal PBBO 
or the NBBO and not an order.
Options 3, Section 15
    The Exchange proposes to amend Options 3, Section 15, Simple Order 
Risk Protections.
Order Price Protection
    The Exchange proposes to amend its Order Price Protection (``OPP,'' 
also known as the fat finger check) in Phlx Options 3, Section 15(a)(1) 
to align certain features with the OPP functionality currently offered 
by its affiliate, NOM and BX. The Exchange's proposal will introduce an 
alternative method to determine parameters for this risk protection. 
The Exchange notes that OPP is intended to prevent erroneous executions 
of orders on Phlx. This proposal seeks to further this objective by 
introducing a fixed dollar threshold that, in combination with the 
existing percentage threshold, will provide a modified approach to 
order rejection based on the price of the order.
    The Exchange's current OPP feature prevents certain day limit, good 
til cancelled, and immediate or cancel orders at prices outside of pre-
set standard limits from being accepted by the System. OPP applies to 
all options but currently does not apply to Stop-Limit Orders, 
Intermarket Sweep Orders or Complex Orders. Today, OPP is operational 
each trading day after the opening until the close of trading, except 
during trading halts. OPP assists member organizations in controlling 
risk by checking each order, before it is accepted into the System, 
against certain parameters. Today, as set forth in Phlx Options 3, 
Section 15(a)(1)(B), OPP rejects incoming orders that exceed certain 
parameters according to the following algorithm:

    (i) If the better of the NBBO or the internal market BBO (the 
``Reference BBO'') on the contra-side of an incoming order is 
greater than $1.00, orders with a limit more than 50% through such 
contra-side Reference BBO will be rejected by the System upon 
receipt.
    (ii) If the Reference BBO on the contra-side of an incoming 
order is less than or equal to $1.00, orders with a limit more than 
100% through such contra-side Reference BBO will be rejected by the 
System upon receipt.

    With this technology migration, the Exchange proposes to expand the 
algorithm for OPP to introduce a fixed dollar threshold as an 
alternative to the percentage specified within the current rule. To 
effect this change, the Exchange proposes to amend Phlx Options 3, 
Section 15(a)(1)(B) to provide that OPP will reject incoming orders 
that exceed certain parameters according to the following algorithm:

    (i) If the better of the NBBO or the internal market BBO (the 
``Reference BBO'') on the contra-side of an incoming order is 
greater than $1.00, orders with a limit more than the greater of the 
below will cause the order to be rejected by the System upon 
receipt.
    (A) 50% through such contra-side Reference BBO; or
    (B) a configurable dollar amount not to exceed $1.00 through 
such contra-side Reference BBO as specified by the Exchange 
announced via an Options Trader Alert.
    (ii) If the Reference BBO on the contra-side of an incoming 
order is less than or equal to $1.00, orders with a limit more than 
the greater of the below will cause the order to be rejected by the 
System upon receipt.
    (A) 100% through such contra-side Reference BBO; or
    (B) a configurable dollar amount not to exceed $1.00 through 
such contra-side Reference BBO as specified by the Exchange 
announced via an Options Trader Alert.

    The proposed alternative would permit for a range of prices to be 
executed where the incoming order is up to $1.00 from the Reference 
BBO. The parameters are identical to NOM and BX Options 3, Section 
15(a)(1)(B). Similar to NOM and BX, the Exchange

[[Page 106901]]

believes that utilizing the greater of a fixed dollar amount or 
percentage would expand the applicability of OPP while still providing 
a reasonable limit to the range where orders will be accepted. By 
implementing a functionality that applies the greater of a fixed dollar 
amount not to exceed $1.00 or a percentage, the Exchange would ensure 
that this protection would be able to accommodate all orders based on a 
determination of how far from the Reference BBO the order is priced.
    The Exchange notes that certain securities in lower price ranges 
would not benefit from the application of a percentage as would 
securities with higher prices. For instance, the application of a 50% 
threshold to a $50 security would provide a rejection if a limit order 
was priced $75 or greater compared to a 100% threshold for a $0.02 
security which would be rejected if a limit order was priced $0.04 or 
greater. As such, certain orders could be rejected under the current 
framework because the percentage threshold is applied to the contra-
side of an incoming order, including in cases where the order is not 
erroneously priced. Below are additional examples to illustrate the 
application of the current and proposed rule:

Example: An Option Priced Less Than $1.00

    For a penny MPV option with a BBO on Phlx of $0.01 x $0.02, 
consider that the configurable dollar amount is set to $0.05.
    Current Rule: Reject buy orders of more than $0.04 bid if 
incoming order was less than $1.00, and it was more than 100% 
through the contra-side of the Reference BBO.
    Proposed Rule: A buy order priced up to $0.07 ($0.02 offer + 
$0.05 configuration) would not be rejected because a configurable 
dollar amount from $0.00 to $0.05 would allow the order to be 
entered into the System for execution.
    This order was marketable upon entry and was not priced far from 
the current bid. The Exchange believes in this example, the order 
should be permitted to trade instead of being rejected.

Example: An Option Priced Greater Than $1.00

    For a penny MPV option with a BBO on Phlx of $1.01 x $1.02, 
consider that the configurable dollar amount is set to $0.60.
    Current Rule: Reject buy orders 50% through $1.02--orders priced 
greater than $1.53 ($1.02 + $0.51).
    Proposed Rule: A buy order priced up to $1.62 would not be 
rejected (this would be greater than 50% through 1.02).
    This order was marketable upon entry and was not priced far from 
the current bid. The Exchange believes in this example, the order 
should be permitted to trade instead of being rejected.

    As the above examples illustrate, the Exchange believes that 
securities in the lower price range could benefit by the proposed 
alternative method because the fixed amount provides for additional 
executions in certain situations where a percentage would reject an 
order that was intentional and not erroneous. This approach has been 
successful for NOM and BX in limiting erroneous executions while 
permitting intentional executions at reasonable prices, and the 
Exchange therefore proposes to adopt this approach for its options 
market as well. Similar to NOM and BX, the Exchange will post the 
configurable amount on its website and announce any changes to the 
amount in an Options Trader Alert.
    The Exchange also proposes to add language similar to NOM and BX, 
which would provide the Exchange with discretion to temporarily 
deactivate OPP from time to time on an intra-day basis if it determined 
that unusual market conditions warranted deactivation in the interest 
of a fair and orderly market. Like NOM and BX, the Exchange believes 
that it will be useful to have the flexibility to temporarily disable 
OPP intra-day in response to an unusual market event (for example, if 
dissemination of data was delayed and resulted in unreliable underlying 
values needed for the Reference BBO). Member organizations would be 
notified of intra-day OPP deactivation and any subsequent reactivation 
by the Exchange through the issuance of System status messages. 
Specifically, the Exchange proposes to add in Phlx Options 3, Section 
15(a)(1)(A) that OPP may be temporarily deactivated on an intra-day 
basis at the Exchange's discretion.
    Lastly, the Exchange proposes to amend Options 3, Section 15(a)(1) 
to remove the current exclusion of Intermarket Sweep Orders (``ISOs'') 
and Complex Orders from the OPP rule. With the proposed amendment, OPP 
will apply to ISOs. With respect to ISOs, the intent of an ISO is to 
sweep as many prices as possible at the top of the book, so market 
participants need to cast as wide a net as possible to get those prices 
and fill the ISO. With the current OPP functionality, lower priced ISOs 
are more likely to get rejected for the reasons discussed above, and 
the Exchange determined at the time to exclude ISOs when adopting OPP. 
The proposal to add a fixed dollar threshold as an alternative OPP 
parameter, however, would provide more flexibility for more lower-
priced options (including lower-priced ISOs) to get executed, and the 
Exchange therefore believes it is no longer necessary to exclude ISOs 
from OPP going forward. The Exchange further believes extending the 
protection to ISOs will promote the goal of limiting erroneous 
executions on the Exchange while permitting intentional executions at 
reasonable prices, and in general, extend more protections to ISOs. The 
Exchange is removing Complex Orders from the list of order types noted 
in Options 3, Section 15(a) because Section 15 applies to single-leg 
orders. The Exchange notes Complex Order risk protections in Options 3, 
Section 16. Finally, the Exchange proposes to add ``until elected'' 
after Stop-Limit Orders. Once the Stop-Limit Order is elected, the 
Exchange checks the Limit Order against the OPP bounds and will cancel 
the order back to the entering member if the order falls outside of the 
OPP bounds at the time of its election.
Market Wide Risk Protection
    The Exchange proposes to introduce new order entry and execution 
rate checks identical to those on BX at Options 3, Section 15(a)(3) for 
Market Wide Risk Protection. These new risk protections are designed to 
aid member organizations in their order risk management by 
supplementing current price reasonability checks with activity based 
order protections.\85\ The Exchange proposes to detail these risk 
protections in proposed Options 3, Section 15(a)(3), entitled ``Market 
Wide Risk Protection'' or ``MWRP''. As proposed, the System will 
maintain one or more counting programs for each member organization 
that count orders entered and contracts traded on Phlx. Member 
organizations may use multiple counting programs to separate risk 
protections for different groups established within the member 
organization. The counting programs will maintain separate counts, over 
rolling time periods specified by the member organization for each 
count, of: (1) the total number of orders entered in the order book; 
and (2) the total number of contracts traded.\86\
---------------------------------------------------------------------------

    \85\ The Exchange currently provides members organizations with 
price protections for orders such as the OPP and the Market Order 
Spread Protection, which prevent limit orders and market orders from 
being executed at far away and potentially erroneous prices.
    \86\ Phlx will also provide Market Wide Risk Protections for 
Complex Orders in a separate rule change.
---------------------------------------------------------------------------

    All member organizations must provide parameters for the order 
entry and execution rate protections as described in (1) and (2) above. 
While the MWRP is mandatory for all member organizations, the Exchange 
is not proposing to establish minimum or maximum values for the order 
entry and execution parameters described above. The Exchange believes 
that this

[[Page 106902]]

approach will give member organizations the flexibility needed to 
appropriately tailor the MWRP to their respective risk management 
needs. In this regard, the Exchange notes that each member organization 
is in the best position to determine risk settings appropriate for 
their firm based on the member organization's trading activity and 
business needs. In the interest of maintaining a fair and orderly 
market, however, the Exchange will also establish default values for 
each of these parameters that apply to member organizations that do not 
submit their own parameters for the MWRP, and will announce these 
default values in an Options Trader Alert to be distributed to member 
organizations. The Exchange notes that this approach is consistent with 
BX's current functionality and would provide Phlx member organizations 
with the flexibility to establish their own MWRP order entry and 
execution rate parameters. The Exchanges also notes that similar to BX, 
Phlx member organizations will have the discretion to establish the 
applicable time period for each of the counts maintained under the 
proposed MWRP, provided that the selected time period must be within 
the minimum and maximum duration of the applicable time period 
established by the Exchange and announced via an Options Trader 
Alert.\87\
---------------------------------------------------------------------------

    \87\ See proposed Options 3, Section 15(a)(3). See also BX 
Options 3, Section 15(a)(3).
---------------------------------------------------------------------------

    Pursuant to proposed Phlx Options 3, Section 15(a)(3)(A)-(C), if, 
during the applicable time period, the member organization exceeds the 
thresholds that it has set for any of the order entry or execution 
counts described above on Phlx, the System will automatically reject 
all subsequent incoming orders entered by the member organization. 
Member organizations may also choose to have the System automatically 
cancel all of their existing orders on Phlx when the MWRP is triggered. 
The MWRP will remain engaged until the member organization manually 
notifies the Exchange to enable the acceptance of new orders. For 
member organizations that still have open orders on the order book that 
have not been cancelled pursuant to proposed subparagraph (B), the 
System will continue to allow those member organizations to interact 
with existing orders entered before the protection was triggered, 
including sending cancel order messages and receiving trade executions 
for those orders. The action taken in proposed subparagraphs (A)-(C) is 
substantially similar to BX Options 3, Section 15(a)(3)(C), except that 
BX does not have complex order functionality.
    The Exchange believes that the proposed MWRP will assist member 
organizations in better managing their risk when trading on Phlx. In 
particular, the proposed rule change provides functionality that allows 
member organizations to set risk management thresholds for the number 
of orders or contracts executed on the Exchange during a specified 
period. As discussed above, this is similar to how BX has implemented 
the MWRP, and the Exchange believes this functionality will likewise be 
beneficial for Phlx member organizations.
    The examples below illustrate how the MWRP would work both for 
order entry and order execution protections:
Example: Order Entry Rate Protection
    Broker Dealer 1 (``BD1'') designates an allowable order rate of 499 
orders/1 second.
    @0 milliseconds, BD1 enters 200 orders. (Order total: 200 orders).
    @450 milliseconds, BD1 enters 250 orders. (Order total: 450 
orders).
    @950 milliseconds, BD1 enters 50 orders. (Order total: 500 orders).
    Market Wide Risk Protection is triggered on Phlx due to exceeding 
499 orders in 1 second. All subsequent orders are rejected, and if BD1 
has opted in to this functionality, all existing orders are cancelled. 
BD1 must contact the Exchange to resume trading.
Example: Order Execution Rate Protection
    BD1 designates an allowable execution rate of 15,000 contracts/2 
seconds.
    @0 milliseconds, BD1 receives executions for 5,000 contracts.
    (Execution total: 5,000 contracts).
    @600 milliseconds, BD1 receives executions for 10,000 contracts.
    (Execution total: 15,000 contracts).
    @1550 milliseconds, BD1 receives executions for 2,000 contracts.
    (Execution total: 17,000 contracts).
    Market Wide Risk Protection is triggered on Phlx due to exceeding 
15,000 contracts in 2 seconds. All subsequent orders are rejected, and 
if BD1 has opted in to this functionality, all existing orders are 
cancelled. BD1 must contact the Exchange to resume trading.
Acceptable Trade Range
    The Exchange proposes to amend the Acceptable Trade Range or 
``ATR'' at Phlx Options 3, Section 15(b)(1) to note that ATR will not 
be available for All-or-None Orders. The Exchange notes that it would 
be difficult, from a technical standpoint, to apply this feature to 
those orders because their particular contingency makes it difficult to 
automate their handling.\88\ In 2023, the Exchange filed a rule change 
\89\ to amend Phlx's All-or-None Orders so that they may only be 
submitted as an Immediate-or-Cancel Order. As a result of the 2023 rule 
change, All-or-None Orders no longer rest on the order book and instead 
execute in their entirety or are cancelled if it cannot execute.\90\ 
The Exchange should have noted at that time that because of that change 
that ATR would not be available for All-or-None Orders. The Exchange is 
proposing this rule text to note similar to, ISE, GEMX and MRX Options 
3, Section 15(a)(2)(A)(i) that the Acceptable Trade Range is not 
available for All-or-None Orders.\91\
---------------------------------------------------------------------------

    \88\ See Securities Exchange Act Release No. 79677 (December 22, 
2016), 81 FR 96114 (December 29, 2016) (SR-ISEGemini-2016-17) 
(Notice of Filing of Proposed Rule Change To Amend Various Rules in 
Connection With a System Migration to Nasdaq INET Technology).
    \89\ See Securities Exchange Act Release No. 98142 (August 16, 
2023), 88 FR 57140 (August 22, 2023) (SR-Phlx-2023-34) (Nasdaq PHLX 
LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule 
Change To Amend Phlx's All-or-None Order) (``SR-Phlx-2023-34'').
    \90\ Id.
    \91\ Similar to Phlx, ISE, GEMX and MRX All-or-None Orders are 
immediate or cancel. See ISE, GEMX and MRX Options 3, Section 7(c).
---------------------------------------------------------------------------

    Additionally, the Exchange proposes to account for quotes, in 
addition to orders in Options 3, Section 15(b)(1)(B) in the sentence 
that provides, ``If the order/quote remains unexecuted after the 
Posting Period, a New Acceptable Trade Range will be calculated and the 
order/quote will execute, route, or post up to the new Acceptable Trade 
Range Threshold Price, unless a member organization has requested that 
their orders be returned if posted at the outer limit of the Acceptable 
Trade Range (in which case, the order will be returned).'' In addition 
to orders, quotes are also subject to a request to be returned if 
posted at the outer limit of the Acceptable Trade Range. The addition 
of quotes clarifies the current System functionality.
    The Exchange also proposes to remove the following phrase in 
Options 3, Section 15(b)(1)(B), ``. . . unless a Quote Exhaust has 
occurred, in which case the Quote Exhaust process in Options 3, Section 
6(a)(ii)(B)(3) will ensue, triggering a new Reference Price.'' As noted 
above in this proposal, the Exchange would no longer have the Quote 
Exhaust functionality. Therefore, the Exchange notes that a Quote 
Exhaust would not impact the ATR functionality as a result of its 
removal.

[[Page 106903]]

Anti-Internalization
    The Exchange proposes to enhance the anti-internalization (``AIQ'') 
functionality at Phlx Options 3, Section 15(c)(1), provided to Market 
Makers on the Exchange by giving member organizations the flexibility 
to choose to have this protection apply at the market participant 
identifier (i.e., existing functionality), at the Exchange account 
level, or at the firm level. The Exchange believes that this 
enhancement will provide helpful flexibility for Market Makers that 
wish to prevent trading against all quotes and orders entered by their 
firm, or Exchange account, instead of just quotes and orders that are 
entered under the same market participant identifier. Similar 
functionality is currently available on ISE, MRX and GEMX at Options 3, 
Section 15(a)(3)(A).
    Currently, as provided in Phlx Options 3, Section 15(c)(1), the 
Exchange provides mandatory AIQ functionality that prevents Market 
Makers from trading against their own quotes and orders. In particular, 
quotes and orders entered by Market Makers using the same market 
participant identifier will not be executed against quotes and orders 
entered on the opposite side of the market by the same Market Maker 
using the same identifier. In such a case, the System cancels the 
oldest of the quotes or orders back to the entering party prior to 
execution. This functionality does not apply in any auction.
    Today, this protection prevents Market Makers from trading against 
their own quotes and orders at the market participant identifier level. 
The proposed enhancement to this functionality would allow member 
organizations to choose to have this protection applied at the Market 
Maker identifier level (existing functionality), at the Exchange 
account level, or at the firm level. If member organizations choose to 
have this protection applied at the Exchange account level, AIQ would 
prevent quotes and orders from different market participant identifiers 
associated with the same Exchange account from trading against one 
another. Similarly, if the member organizations choose to have this 
protection applied at the member organization firm level, AIQ would 
prohibit quotes and orders from different market participant 
identifiers within the member organization firm from trading against 
one another. The Exchange believes that the proposed AIQ enhancement 
will provide member organizations with more tailored functionality that 
allows them to manage their trading as appropriate based on the member 
organizations' business needs. While the Exchange believes that some 
firms may want to restrict AIQ to trading against interest from the 
same Market Maker identifier (i.e., as implemented today), other firms 
may find it helpful to be able to configure AIQ to apply at the 
Exchange account level or at the firm level so that they are protected 
regardless of which Market Maker identifier the order or quote 
originated from. ISE, GEMX and MRX Options 3, Section 15(a)(3)(A) offer 
identical flexibility.
    The examples below illustrate how AIQ would operate based on the 
market participant identifier level protection, the Exchange account 
level, or for member organizations that choose to apply AIQ at the firm 
level:
Example: Market Participant Identifier Level
    ABC (market participant identifiers 123A & 555B) with AIQ 
configured at the market participant identifier level.
    123A Quote: $1.00 (5) x $1.10 (20).
    555B Buy Order entered for 10 contracts at $1.10.
    555B Buy Order executes 10 contracts against 123A Quote. 123A and 
555B are not prevented by the System from trading against one another 
because member organization ABC has configured AIQ to apply at the 
market participant identifier level. This is the same as existing 
functionality.
Example: Exchange Account Level
    ABC (Account 999 with market participant identifiers 123A and 555B, 
and Account 888 with market participant identifier 789A) with AIQ 
configured at the Exchange account level.
    123A Quote: $1.00 (5) x $1.10 (20).
    789A Quote: $1.05 (10) x $1.10 (20).
    555B Buy Order entered for 30 contracts at $1.10.
    555B Buy Order executes against 789A Quote but 555B Buy Order does 
not execute against 123A Quote. AIQ purges the 123A Quote and the 
remaining contracts of the 555B Buy Order rests on the book at $1.10. 
123A and 555B are not permitted trade against one another because 
member organization ABC has configured AIQ to apply at the Exchange 
account level. This is new functionality as the member organization has 
opted to have AIQ operate at the Exchange account level.
Example: Firm Level
    ABC (Account 999 with market participant identifiers 123A and 555B, 
and Account 888 with market participant identifier 789A) with AIQ 
configured at the firm level.
    123A Quote: $1.00 (5) x $1.10 (20).
    789A Quote: $1.05 (10) x $1.10 (20).
    555B Buy Order entered for 30 contracts at $1.10.
    AIQ purges the 123A Quote and the 789A Quote and the 555B Buy Order 
rests on the book at $1.10. This is new functionality as the member 
organization has opted to have AIQ operate at the member organization 
firm level.
Quotation Adjustments
    The Exchange proposes to amend Phlx Options 3, Section 15(c)(2), 
which sets forth the Exchange's ``Rapid Fire'' risk protection for 
quotes, to expand existing functionality by introducing optional Delta 
and Vega (as defined below) curtailment measures in addition to the 
current percentage-based and volume-based curtailments. The new 
curtailment measures will be functionally similar to the Delta and Vega 
thresholds currently offered by BX pursuant to Options 3, Section 
15(c)(2). The proposed new Delta and Vega thresholds are optional risk 
protections. In connection with this change, the Exchange also proposes 
to restructure its rules regarding Rapid Fire and ``Multi-Trigger'' 
risk protections to more closely align with the BX's rule structure 
which has identical language to the proposed Phlx rule text.\92\ With 
the proposed changes, Rapid Fire and Multi-Trigger will be triggered 
only when a Market Maker exceeds its designated thresholds similar to 
BX's approach, instead of when the thresholds are met or exceeded (as 
is currently the case).
---------------------------------------------------------------------------

    \92\ As presently set forth in Phlx Options 3, Section 
15(c)(2)(C), the Exchange's Multi-Trigger functionality removes 
Market Maker quotes in all options series in all underlying issues 
when a specified number of Rapid Fire thresholds are triggered over 
a chosen interval.
---------------------------------------------------------------------------

    Today, Rapid Fire is a risk protection that removes a Market 
Maker's quotes and SQF interest \93\ in all options series

[[Page 106904]]

of an underlying security from the marketplace when certain designated 
percentage-based or volume-based thresholds are met or exceeded. Market 
Makers are required to utilize either the percentage-based threshold or 
the volume-based threshold.\94\ The Exchange proposes to amend the 
current Rapid Fire functionality to no longer remove IOC Orders 
submitted through SQF and continue to remove quotes. Today, ISE, GEMX, 
MRX and BX only remove quotes through SQF and do not remove IOC Orders 
submitted through SQF.\95\ The Exchange believes that preserving an IOC 
Order submitted through SQF is consistent with the Act as Market Makers 
quote to provide liquidity on the Exchange and the risk protection is 
intended to provide a protection to those participants when acting as 
liquidity providers. Market Makers utilizing IOC Orders may also 
provide liquidity but to a lesser extent. The Exchange believes that 
limiting the risk protection to quotes, similar to other Nasdaq 
affiliated markets, continues to protect investors while not also 
purging IOC orders which may interact against other interest on the 
Exchange.
---------------------------------------------------------------------------

    \93\ Today, the exchange's SQF protocol permits Market Makers to 
submit both quotes and Immediate-or-Cancel or ``IOC'' Orders to the 
Exchange. Phlx Supplementary Material .03(A) of Options 3, Section 7 
provides, ``Specialized Quote Feed'' or ``SQF'' is an interface that 
allows Lead Market Makers, Streaming Quote Traders (``SQTs'') and 
Remote Streaming Quote Traders (``RSQTs'') to connect, send, and 
receive messages related to quotes, Immediate-or-Cancel Orders, and 
auction responses into and from the Exchange. Features include the 
following: (1) options symbol directory messages (e.g., underlying 
and complex instruments); (2) system event messages (e.g., start of 
trading hours messages and start of opening); (3) trading action 
messages (e.g., halts and resumes); (4) execution messages; (5) 
quote messages; (6) Immediate-or-Cancel Order messages; (7) risk 
protection triggers and purge notifications; (8) opening imbalance 
messages; (9) auction notifications; and (10) auction responses. The 
SQF Purge Interface only receives and notifies of purge requests 
from the Lead Market Maker, SQT or RSQT. Lead Market Makers, SQTs 
and RSQTs may only enter interest into SQF in their assigned options 
series. Immediate-or-Cancel Orders entered into SQF are not subject 
to the Order Price Protection, the Market Order Spread Protection, 
or Size Limitation in Options 3, Section 15(a)(1), (a)(2) and 
(b)(2), respectively.
    \94\ See Phlx Options 3, Section 15(c)(2)(G). In contrast, the 
Multi-Trigger threshold is optional.
    \95\ See ISE, GEMX and MRX Options 3, Section 15(a)(3)(B)(i). 
See also BX Options 3, Section 15(c)(2)(A).
---------------------------------------------------------------------------

    The Exchange now proposes to introduce two optional thresholds 
which, in addition to the existing percentage-based and volume-based 
thresholds, will make up the suite of Rapid Fire thresholds that will 
be offered to Market Makers upon the technology migration. First, in 
new subparagraph (c)(2)(A)(iii) of Phlx Options 3, Section 15, the 
Exchange proposes to add:

    (iii) Delta Threshold. A Market Maker may provide a Delta 
Threshold by which the System will automatically remove a Market 
Maker's quotes in all series of an options class. For each class of 
options, the System will maintain a Delta counter, which tracks the 
absolute value of the difference between (1) purchased call 
contracts plus sold put contracts and (2) sold call contracts plus 
purchased put contracts. If the Delta counter exceeds the Delta 
Threshold established by the member organization, the System will 
automatically remove a Market Maker's quotes in all series of the 
options class.

    The proposed rule text for Delta Threshold is identical to BX 
Options 3, Section 15(c)(2)(A)(iii).
    Second, in new subparagraph (c)(2)(A)(iv) of Phlx Options 3, 
Section 15, the Exchange proposes to add:

    Vega Threshold. A Market Maker may provide a Vega Threshold by 
which the System will automatically remove a Market Maker's quotes 
in all series of an options class. For each class of options, the 
System will maintain a Vega counter, which tracks the absolute value 
of purchased contracts minus sold contracts. If the Vega counter 
exceeds the Vega Threshold established by the Member, the System 
will automatically remove a Market Maker's quotes in all series of 
the options class.

    The proposed rule text for Vega Threshold is identical to BX 
Options 3, Section 15(c)(2)(A)(iv).
    With the proposed changes to add the Delta and Vega Thresholds 
described above, the Exchange also proposes to amend its Rapid Fire and 
Multi-Trigger rules to align the rule structure with BX Options 3, 
Section 15(a)(2)(C). In restructuring these rules, the existing Phlx 
functionality will remain unchanged except with respect to when the 
Rapid Fire and Multi-Trigger thresholds will be triggered, and a minor 
change to the specified time period. Each will be discussed in more 
detail below. The Exchange will separately describe the Active Quote 
Protection amendment proposed in Options 3, Section 15(c)(2)(B) below.
    To effect this change, the Exchange proposes to adopt new rule text 
in Phlx Options 3, Section 15(c)(2)(A), which will provide that Market 
Makers are required to utilize the Percentage Threshold or Volume 
Threshold. The Exchange will also replace each instance of 
``Percentage-Based Threshold'' and ``Volume-Based Threshold'' with 
``Percentage Threshold'' and ``Volume Threshold'' throughout Options 3, 
Section 15(c)(2) to align with BX terminology. The Exchange further 
proposes to add that Market Makers may utilize the new Delta and Vega 
Thresholds to make clear that these thresholds are optional for Market 
Makers. The Exchange has determined not to make the new Delta and Vega 
Thresholds mandatory under this proposal, and will continue to require 
Market Makers to utilize either the Percentage or Volume Threshold, for 
Market Makers who do not elect to use the Active Quote Protection 
discussed below in lieu of the Rapid Fire protections.
    For each of these features, the System will automatically remove a 
Market Maker's quotes in all series in an options class when any of the 
Percentage Threshold, Volume Threshold, Delta Threshold or Vega 
Threshold has been exceeded. As noted above, this is a change from 
current functionality where as amended, Rapid Fire will be triggered 
only when the Market Maker exceeds any of the designated thresholds. 
Currently, Rapid Fire is triggered when the designated thresholds are 
met or exceeded.\96\ In addition, a Market Maker is required to specify 
a period of time not to exceed 30 seconds (``Specified Time Period'') 
during which the System will automatically remove a Market Maker's 
quotes in all series of an options class. This is another change from 
current functionality where today, the Specified Time Period 
established by the Market Maker for the Percentage and Volume 
Thresholds must not exceed 15 seconds.\97\ The proposed changes on Phlx 
relating to when Rapid Fire will be triggered and the Specified Time 
Periods will align with BX Options 3, Section 15(c)(2)(A). By 
harmonizing Phlx's Rapid Fire rule to BX's rule in this manner, the 
Exchange seeks to simplify the regulatory requirements and increase the 
understanding of the Exchange's operations related to Rapid Fire for 
market participants on Phlx and on BX. The Exchange believes more 
consistent rules with its affiliated exchange will contribute to less 
complexity for market participants and more efficient regulatory 
compliance.
---------------------------------------------------------------------------

    \96\ See Phlx Options 3, Section 15(c)(2)(A) and (B).
    \97\ See Phlx Options 3, Section 15(c)(2)(A) and (B).
---------------------------------------------------------------------------

    Otherwise, the new rule text in Phlx Options 3, Section 15(c)(2)(A) 
will not change existing Rapid Fire functionality. In particular, the 
Specified Time Period will commence for an options class every time an 
execution occurs in any series in such option class and will continue 
until the System removes quotes as described in the Rule or the 
Specified Time Period expires. The Specified Time Period operates on a 
rolling basis among all series in an options class in that there may be 
Specified Time Periods occurring simultaneously for each Threshold and 
such Specified Time Periods may overlap. The Specified Time Periods 
will be the same value for each of the Percentage Threshold, Volume 
Threshold, Delta Threshold, and Vega Threshold.\98\
---------------------------------------------------------------------------

    \98\ See id. for similar features in the current Percentage and 
Volume Thresholds.
---------------------------------------------------------------------------

    The Exchange also proposes to replace the description of the 
existing Percentage Threshold in Phlx Options 3, Section 15(c)(2)(A) 
with new rule text in Options 3, Section 15(c)(2)(A)(i) as follows:


[[Page 106905]]


    Percentage Threshold. A Market Maker must provide a specified 
percentage (``Percentage Threshold''), of not less than 1%, by which 
the System will automatically remove a Market Maker's quotes in all 
series of an options class. For each series in an options class, the 
System will determine (1) during a Specified Time Period and for 
each side in a given series, a percentage calculated by dividing the 
size of a Market Maker's quote size executed in a particular series 
(the numerator) by the Marker Maker's quote size available at the 
time of execution plus the total number of the Market Marker's quote 
size previously executed during the unexpired Specified Time Period 
(the denominator) (``Series Percentage''); and (2) the sum of the 
Series Percentage in the options class (``Issue Percentage'') during 
a Specified Time Period. The System tracks and calculates the net 
impact of positions in the same options class; long call percentages 
are offset by short call percentages, and long put percentages are 
offset by short put percentages in the Issue Percentage. If the 
Issue Percentage exceeds the Percentage Threshold the System will 
automatically remove a Market Maker's quotes in all series of the 
options class during the Specified Time Period.

    With the proposed changes, the Percentage Threshold will be applied 
in the same manner as today, except with respect to the differences 
discussed above (i.e., when the Percentage Threshold will be triggered 
and the threshold's Specified Time Period). The proposed rule text is 
identical to BX Options 3, Section 15(c)(2)(A)(i).
    The Exchange also proposes to replace the description of the 
existing Volume Threshold in Phlx Options 3, Section 15(c)(2)(A)(ii) 
with new rule text in Options 3, Section 15(c)(2)(A)(ii) as follows:

    Volume Threshold. A Market Maker must provide a Volume Threshold 
by which the System will automatically remove a Market Maker's 
quotes in all series of an options class when the Market Maker 
executes a number of contracts which exceeds the designated number 
of contracts in all series in an options class.

    With the proposed changes, the Volume Threshold will be applied in 
the same manner as today, except with respect to the differences 
discussed above (i.e., when the Volume Threshold will be triggered and 
the threshold's Specified Time Period). The proposed rule text is 
identical to BX Options 3, Section 15(c)(2)(A)(ii).
    In connection with the foregoing changes, current Phlx Options 3, 
Section 15(c)(2)(C), which describes the Exchange's Multi-Trigger risk 
protection, will be amended throughout to add the Delta and Vega 
Thresholds wherever the Rule references Percentage and Volume 
Thresholds. In addition, the Exchange proposes to amend the Multi-
Trigger Specified Time Period from 15 seconds to 30 seconds to align 
with the Specified Time Periods proposed above. The Exchange further 
proposes in the Multi-Trigger rule to amend when Multi-Trigger will be 
triggered to align with the Rapid Fire changes proposed above. 
Specifically, the Exchange proposes to amend the provision, ``[o]nce 
the System determines that the number of triggers equals or exceeds a 
number. . .'' to instead state, ``[o]nce the System determines that the 
number of triggers exceeds a number. . .'' to make clear that Multi-
Trigger will no longer remove Market Maker quotes when the Multi-
Trigger threshold is met (and not exceeded).
    Phlx Options 3, Section 15(c)(2)(D), which explains how the System 
purges quotes once the Rapid Fire and Multi-Trigger thresholds are 
triggered, will be amended to conform with the changes proposed above. 
In particular, the Exchange proposes conforming changes to add the 
Delta and Vega Thresholds wherever these provisions reference 
Percentage and Volume Thresholds, and to replace ``reached'' with 
``exceeded'' in each instance where the language indicates that the 
Rapid Fire and Multi-Trigger thresholds have been reached.\99\
---------------------------------------------------------------------------

    \99\ The Exchange will describe the amendments to proposed 
Options 3, Section 15(c)(2)(D)(i) and (ii) further below.
---------------------------------------------------------------------------

    Phlx Options 3, Section 15(c)(2)(E) will likewise be amended to add 
references to the Delta and Vega Thresholds, and will state that if a 
Market Maker requests the System to remove quotes in all options series 
in an underlying issue, the System will automatically reset the 
Specified Time Period(s) for the Percentage, Volume, Delta, or Vega 
Threshold.\100\ As is the case today, the Multi-Trigger Specified Time 
Period(s) will not automatically reset for the Multi-Trigger Threshold.
---------------------------------------------------------------------------

    \100\ The Specified Time Period(s) will also be automatically 
reset if Rapid Fire is triggered (and the System automatically 
removes quotes).
---------------------------------------------------------------------------

    Phlx Options 3, Section 15(c)(2)(F), which sets forth the re-entry 
process once Rapid Fire and Multi-Trigger are triggered, the Exchange 
will likewise add references to the Delta and Vega Thresholds wherever 
the provision refers to the Percentage and Volume Thresholds. The 
Exchange also proposes a clarifying change in the first sentence to 
add, ``[w]hen the System removes quotes as a result of exceeding . . 
.'' in order to align with BX Options 3, Section 15(c)(2)(F). The 
Exchange further proposes a non-substantive change in the first 
sentence to amend ``reentry'' to ``re-entry''
    Lastly, Options 3, Section 15(c)(2)(G), will be amended to specify 
that the Exchange will require Phlx Market Makers to utilize either the 
Percentage Threshold, the Volume Threshold, or the Contract Limit. For 
Market Makers that elect to utilize the Contract Limit, the Percentage 
Threshold, Volume Threshold, Delta Threshold, and Vega Threshold will 
not be available for use on the Market Maker's badge. The Delta, Vega, 
and Multi-Trigger Thresholds are optional. The Exchange is adding 
``Contract Limit'' to the required risk protections that must be 
utilized by a Phlx Market Maker.
    The following are examples to illustrate how the proposed Delta and 
Vega Thresholds would apply:
Example: Delta Threshold
MM1 has Delta Threshold set to 10 contracts
MM1 quotes IBM Call Option 2.55 (100) x 3.00 (1000)
FIX Order to Sell 11 @MKT trades with MM quote
Trade occurs for 11 @2.55, triggers Rapid Fire for MM1 since 11 calls 
purchased for MM1 > MM1's Delta Threshold of 10
Example: Vega Threshold
MM1 has Vega Threshold set to 10 contracts
MM1 quotes IBM Call Option 2.55 (100) x 3.00 (1000)
FIX Order to Sell 11 @MKT trades with MM quote
Trade occurs for 11 @2.55, triggers Rapid Fire for MM1 since 11 calls 
purchased for MM1 > MM1's Vega Threshold of 10
Active Quote Protection
    The Exchange proposes to adopt an active risk counter functionality 
called active quote protection (``Active Quote Protection''), at Phlx 
Options 3, Section 15(c)(2)(B), which will be available to Market 
Makers as an alternative to existing passive risk counter functionality 
described in Options 3, Section 15(c)(2)(A) (i.e., ``Automated 
Quotation Adjustments'' or Rapid Fire).\101\ The proposed Active Quote 
Protection functionality will be identical to BX Options 3, Section 
15(c)(2)(B). Today, the Exchange requires Market Makers to configure 
risk exposure thresholds based on either percentage of executed quotes 
(``Percentage Threshold'') or total number of executed contracts 
(``Volume Threshold''). Also, as proposed herein,

[[Page 106906]]

the Exchange proposes two optional risk exposure thresholds based on 
the absolute value of the difference between long and short positions 
(``Delta Threshold''), and absolute value of the difference between 
contracts bought and contracts sold (``Vega Threshold'') (collectively, 
``Thresholds'').\102\ As set forth in Options 3, proposed Section 
15(c)(2)(A), the System tracks each Threshold with a corresponding risk 
counter over a Market Maker-specified rolling time period not to exceed 
30 seconds. Furthermore, Section 15(c)(2)(A) describes that when a risk 
counter exceeds the corresponding Threshold during the specified time 
period, the System would automatically remove the Market Maker's quotes 
in all series of the applicable options class (each, a ``Purge 
Event''). As a result of a Purge Event, the corresponding risk counter 
and Threshold would reset upon such removal. The Exchange also notes 
that pursuant to Section 15(c)(2)(E) today, the Thresholds and risk 
counters can be completely reset if the Market Maker specifically 
requests the System to remove quotes in all options series in an 
underlying issue. This risk protection is passive in that the risk 
counters wait to reset until the expiry of a specified time period, a 
Purge Event, or when the Market Maker otherwise sends a specific 
instruction to the Exchange to remove quotes to completely reset the 
counters.
---------------------------------------------------------------------------

    \101\ As described below, the Exchange will specifically define 
this passive risk counter functionality as ``Rapid Fire'' within 
this Rule.
    \102\ The proposed Thresholds are described in detail in Phlx 
Options 3, Section 15(c)(2)(A)(i)--(iv). If a Market Maker does not 
provide a parameter for each Threshold, the Exchange will apply 
default parameters announced to member organizations.
---------------------------------------------------------------------------

    The Exchange now proposes to introduce a new risk protection, which 
is an alternative to Rapid Fire, called Active Quote Protection that 
would enable Market Makers to actively manage their executed contract 
limit (``Contract Limit'') by sending an electronic instruction to the 
Exchange to decrement their executed contract limit counter (``Limit 
Counter'') by a specified amount at any time, rather than waiting until 
the expiry of a defined time period, when the risk limit is exceeded 
(like a Purge Event), or when the Market Maker otherwise sends a 
specific instruction to purge quotes to completely reset the risk 
counter.\103\
---------------------------------------------------------------------------

    \103\ If the Market Maker opting to use Active Quote Protection 
does not provide a Contract Limit at the outset, the Exchange will 
apply a default parameter for the Active Quote Protection Contract 
Limit (which would be announced to member organizations). The 
Exchange will initially set the default Contract Limit at 100 
contracts.
---------------------------------------------------------------------------

    The Contract Limit, as set by the Market Maker, would apply for the 
duration of the trading day. Once the Market Maker's Limit Counter 
exceeds the Contract Limit set by the Market Maker, the System would 
automatically remove quotes in all series of the applicable options 
class submitted through the Exchange's Specialized Quote Feed 
protocol,\104\ identical to how the quote removal mechanism works for a 
Purge Event today.\105\ Today, Purge Events are triggered under the 
existing Quotation Adjustments on the first execution that exceeds the 
applicable Threshold. Once an execution occurs, the System checks all 
Thresholds to see if they have been exceeded. If exceeded, the Market 
Maker's quote would be purged pursuant to Phlx Options 3, Section 
15(c)(2)(C). In order to remain consistent with the firm quote 
obligations of a broker-dealer pursuant to Rule 602 of Regulation NMS, 
any marketable orders or quotes that are executable against a Market 
Maker's quotes that are received \106\ prior to the time the applicable 
Threshold is triggered will be automatically executed up to the size of 
the Market Maker's quote, regardless of whether the execution would 
cause the Market Maker to exceed their pre-set Percentage Threshold, 
Volume Threshold, Delta Threshold, or Vega Threshold.\107\
---------------------------------------------------------------------------

    \104\ Specialized Quote Feed or ``SQF'' is an interface that 
only Market Makers may use to submit quotes to the Exchange at 
renumbered Supplementary Material .03(B) to Options 3, Section 7.
    \105\ See Options 3, Section 15(c)(2)(C).
    \106\ The time of receipt for an order or quote is the time such 
message is processed by the Exchange's order book.
    \107\ See proposed Phlx Options 3, Section 15(c)(2)(D)(ii).
---------------------------------------------------------------------------

    Under Active Quote Protection, the System would similarly handle 
the Market Maker's quote in that the quote could be filled one 
execution over the Contract Limit before the Market Maker's remaining 
quotes are cancelled by the System in order to be consistent with the 
firm quote obligations under Rule 602 of Regulation NMS. Specifically, 
the Exchange notes that any marketable orders or quotes that are 
executable against a Market Maker's quotes that are received \108\ 
prior to the time the Contract Limit is triggered will be automatically 
executed up to the size of the Market Maker's quote, regardless of 
whether the execution would cause the Market Maker to exceed the 
Contract Limit.\109\
---------------------------------------------------------------------------

    \108\ The time of receipt for an order or quote is the time such 
message is processed by the Exchange's order book.
    \109\ For both the current Quotation Adjustments and proposed 
Active Quote Protection, the System will execute marketable interest 
up to the size of the Market Maker's quote, but cannot guarantee 
interest will be fully executed, as is the case with any execution 
in the Exchange's order book. There is always the possibility that 
the Market Maker's quote size (and/or Market Maker's quote plus 
other interest on the order book) may not be sufficient volume to 
fill the incoming interest.
---------------------------------------------------------------------------

    Additionally, under Active Quote Protection, Market Makers will be 
able to submit a request (i) to decrement their Limit Counter by a 
specified number of contracts, or (ii) to fully decrement their Limit 
Counter to zero.\110\ Market Makers that elect to use the proposed 
Active Quote Protection on a badge \111\ will not be able to use the 
existing Threshold risk protections described above on the same badge 
(i.e., the active and passive risk counter functionality would be 
mutually exclusive per badge) given that it would be unnecessarily 
complex to implement from a technology standpoint. Market Makers may be 
associated with multiple badges today, so if they want to use both risk 
protections for their activity on the Exchange, they will be able to 
set either the active or passive risk counter functionality on each 
badge.
---------------------------------------------------------------------------

    \110\ As discussed later in this rule change, in order to re-
enter the System after their quotes are purged pursuant to the 
Active Quote Protection, Market Makers will need to submit the same 
request to fully decrement their Limit Counter to zero.
    \111\ Phlx Options 1, Section 1(b)(6) provides that the term 
``badge'' means an account number, which may contain letters and/or 
numbers, assigned to Lead Market Makers and Market Makers. A Lead 
Market Maker or Market Maker account may be associated with multiple 
badges.
---------------------------------------------------------------------------

    To effectuate the foregoing changes, the Exchange proposes to set 
forth the new risk protection in paragraph (B) of Phlx Options 3, 
Section 15(c)(2), as follows:

    In lieu of Rapid Fire, a Market Maker may provide an executed 
contract limit (``Contract Limit'') that, if exceeded, the System 
will automatically remove the Market Maker's quotes in all series of 
an options class submitted through SQF. The System will apply the 
Contract Limit for the duration of the trading day. For each class 
of options, the System will maintain an active limit counter that 
will track the current number of contracts executed through the 
Market Maker's quotes (``Limit Counter''). If the Limit Counter 
exceeds the Contract Limit established by the Market Maker, the 
System will automatically remove the Market Maker's quotes as 
described in Section 15(c)(2)(D). Market Makers may submit a request 
(i) to decrement their Limit Counter by a specified number of 
contracts, or (ii) to fully decrement their Limit Counter to zero, 
including to re-enter the System as described in Section 
15(c)(2)(E). For Market Makers that elect to utilize the Contract 
Limit, the Percentage Threshold, Volume Threshold, Delta Threshold, 
and Vega Threshold will not be available for use on the Market 
Maker's badge.

    The Exchange also proposes to amend proposed paragraph (G) of Phlx 
Options 3, Section 15(c)(2) to specify that the

[[Page 106907]]

active and passive risk counter functionality will be mutually 
exclusive per badge). As amended, proposed paragraph (G) will provide:

    The Exchange will require Phlx Market Makers to utilize either 
the Percentage Threshold, the Volume Threshold, or the Contract 
Limit. For Market Makers that elect to utilize the Contract Limit, 
the Percentage Threshold, Volume Threshold, Delta Threshold, and 
Vega Threshold will not be available for use on the Market Maker's 
badge. The Delta, Vega, and Multi-Trigger Thresholds are optional.

    As described above, once the Limit Counter exceeds the Contract 
Limit set by the Market Maker under the proposed Active Quote 
Protection, the System would automatically remove quotes in the same 
manner as currently specified for a Purge Event in proposed paragraph 
(D) of Phlx Options 3, Section 15(c)(2). Accordingly, the Exchange 
proposes to add Active Quote Protection's Contract Limit throughout the 
proposed Rule as noted herein. Specifically, proposed paragraph (D) 
will provide that the System will automatically remove quotes in all 
series of an options class in an underlying security when the 
Percentage Threshold, Volume Threshold, Delta Threshold, Vega 
Threshold, or the Contract Limit has been exceeded. The System will 
automatically remove quotes in all series of an option class in all 
underlying securities when the Multi-Trigger Threshold \112\ has been 
exceeded. The System will send a Purge Notification Message to the 
Market Maker for all affected options when the above thresholds have 
been exceeded. Proposed subparagraph (D)(i) will provide that the 
Percentage Threshold, Volume Threshold, Delta Threshold, Vega 
Threshold, Contract Limit, and Multi-Trigger Threshold are considered 
independently of each other.
---------------------------------------------------------------------------

    \112\ Multi-Trigger Threshold is defined in current paragraph 
(C) of Section 15(c)(2) as the number of allowable triggers by which 
the Exchange will automatically remove quotes in all options series 
in all underlying issues submitted through designated Phlx protocols 
as specified by the Exchange. This threshold is part of the 
Exchange's Multi-Trigger risk protection.
---------------------------------------------------------------------------

    Further, as discussed above, any marketable orders or quotes that 
are executable against a Market Maker's quotes that are received \113\ 
prior to the time the applicable Threshold or Contract Limit is 
triggered will be automatically executed up to the size of the Market 
Maker's quote, even if such execution would cause the Market Maker to 
exceed any of their pre-set risk limits with respect to any of the 
foregoing risk parameters. The Exchange notes that proposed sub-
paragraph (D)(ii) only mentions that quotes will execute up to the 
Market Maker's size, and is silent on marketable orders. In addition, 
the current Rule does not specify the time of receipt of such 
marketable interest that is executable against the size of the Market 
Maker's quote. As such, the Exchange proposes to add this specificity 
in proposed sub-paragraph (D)(ii) to better describe how the System 
operates today for Quotation Adjustments and how the System will 
operate for proposed Active Quote Protection. In particular, sub-
paragraph (D)(ii) will provide:
---------------------------------------------------------------------------

    \113\ The time of receipt for an order or quote is the time such 
message is processed by the Exchange's order book.

    The System will execute any marketable orders or quotes that are 
executable against a Market Maker's quote and received prior to the 
time the Percentage Threshold, Volume Threshold, Delta Threshold, 
Vega Threshold, or Contract Limit is triggered up to the size of the 
Market Maker's quote, even if such execution results in executions 
in excess of the Market Maker's applicable Threshold or Contract 
---------------------------------------------------------------------------
Limit with respect to any parameter.

    In addition, when the System removes quotes as a result of 
exceeding the Contract Limit under Active Quote Protection, the 
Exchange proposes to require the Market Maker to submit a request to 
re-enter the System. This request will be the same type of message as 
the request described in proposed paragraph (B) where the Market Maker 
must request to fully decrement their Limit Counter back to zero in 
order to re-enter the System. This requirement will be added in 
proposed paragraph (F) of Phlx Options 3, Section 15(c)(2), and will be 
similar to how the existing quote purge mechanism works for the 
Thresholds today, except the Market Maker needs to send a separate 
message (i.e., a re-entry indicator) to re-enter the System when their 
quotes are purged as a result of exceeding any of the existing 
Thresholds.
    The Exchange also proposes that the new Active Quote Protection 
would leverage the existing and amended multi-trigger (``Multi-
Trigger'') functionality proposed in Phlx Options 3, Section 
15(c)(2)(C). Today, Multi-Trigger is a risk protection offered 
alongside the current Quotation Adjustments. A Market Maker or Market 
Maker Group, which is defined as multiple affiliated Phlx Market 
Makers,\114\ may provide the specified time period and number of 
allowable Purge Events by which the Exchange will automatically remove 
quotes in all options series in all underlying issues submitted through 
designated Phlx protocols as specified by the Exchange (``Multi-Trigger 
Threshold''). As proposed, Multi-Trigger is triggered when during a 
time period established by the Market Maker not to exceed 30 seconds, 
the total number of Quotation Adjustment Purge Events exceeds the 
Multi-Trigger Threshold provided to the Exchange by the Phlx Market 
Maker or Phlx Market Maker Group. When Multi-Trigger is triggered, the 
System automatically purges all of the Market Maker's or Group's quotes 
in all options series in an underlying issue. As set forth in proposed 
Phlx Options 3, Section 15(c)(2)(F), when the System removes quotes as 
a result of the Multi-Trigger Threshold, the Market Maker must manually 
request re-entry to the System by contacting the Exchange. Exchange 
staff must then set a re-entry indicator in this case to enable re-
entry, which will cause the System to send a Reentry Notification 
Message to the Phlx Market Maker or Group for all options series in all 
underlying issues. The Market Maker's Clearing Firm will be notified 
regarding the trigger and re-entry into the System after quotes are 
removed as a result of the Multi-Trigger Threshold, provided the Market 
Maker's Clearing Firm has requested to receive such notification.
---------------------------------------------------------------------------

    \114\ This would be more than one Phlx Market Maker, but does 
not require the aggregation of all of the member organization's 
Market Makers. A Group would be comprised of Phlx Market Makers 
affiliated with one member organization (i.e., one options member 
firm). The member organization would be required to define a Group 
by providing a list of such affiliated Phlx Market Makers to the 
Exchange.
---------------------------------------------------------------------------

    Today, Multi-Trigger is meant to provide Market Makers or a Group 
with protection from the risk of multiple executions across multiple 
series of an option or across multiple options. This risk protection 
recognizes that risk to Market Makers is not limited to a single series 
in an option or even to all series in an option; Market Makers that 
quote in multiple series of multiple options have significant exposure, 
requiring them to offset or hedge their overall positions. Market 
Makers are required to continuously quote in assigned options, and 
quoting across many series in an option or multiple options creates the 
possibility of executions that can create large, unintended principal 
positions that could expose Market Makers to unnecessary risk. Multi-
Trigger is therefore intended to assist Market Makers or Groups in 
managing their market risk by tracking the number of Purge Events 
relative to the Multi-Trigger Threshold set by the Market Maker or 
Group. The Exchange believes that tracking the number of Active Quote 
Protection Purge Events for a

[[Page 106908]]

Market Maker or Group against its Multi-Trigger Threshold would be 
similarly useful for managing market risk.
    To that end, the Exchange proposes to further update Multi-Trigger 
to add purge events under Active Quote Protection to the Multi-Trigger 
counter such that Active Quote Protection purge events and Purge Events 
under the current Quotation Adjustments will be aggregated together as 
counting toward the specified Multi-Trigger Threshold. Accordingly, the 
Exchange proposes to add references to the Active Quote Protection rule 
(i.e., proposed paragraph (B) of Options 3, Section 15(c)(2)) 
throughout the Multi-Trigger rule in proposed paragraph (C), 
specifically:

    A Market Maker or Market Maker Group (multiple affiliated Market 
Makers is a ``Group'' as defined by a Phlx member and provided by 
such member to the Exchange) may provide a Specified Time Period and 
number of allowable triggers by which the Exchange will 
automatically remove quotes in all options series in all underlying 
issues submitted through designated Phlx protocols, as specified by 
the Exchange (``Multi-Trigger Threshold''). During a specified time 
period established by the Phlx Market Maker not to exceed 30 seconds 
(``Multi- Trigger Specified Time Period''), the number of times the 
System automatically removes the Phlx Market Maker's or Group's 
quotes in all options series will be based on the number of triggers 
of the Percentage Threshold described in paragraph (A)(i) above, the 
Volume Threshold described in paragraph (A)(ii) above, the Delta 
Threshold described in paragraph (A)(iii) above, the Vega Threshold 
described in paragraph (A)(iv) above, and the Contract Limit 
described in paragraph (B) above. Once the System determines that 
the number of triggers exceeds a number established by either the 
Phlx Market Maker or Group, during a Multi-Trigger Specified Time 
Period, the System will automatically remove all quotes in all 
options series in all underlying issues for that Phlx Market Maker 
or Group, during a Multi-Trigger Specified Time Period, the System 
will automatically remove all quotes in all options series in all 
underlying issues for that Phlx Market Maker or Group. A trigger is 
defined as the event which causes the System to automatically remove 
quotes in all options series in an underlying issue. A Multi-Trigger 
Specified Time Period will commence after every trigger of the 
Percentage Threshold, Volume Threshold, Delta Threshold, Vega 
Threshold, or Contract Limit and will continue until the System 
removes quotes as described in paragraph (D) below or the Multi-
Trigger Specified Time Period expires. The System counts triggers 
within the Multi-Trigger Specified Time Period across all triggers 
for the Phlx Market Maker or Group. A Multi-Trigger Specified Time 
Period operates on a rolling basis in that there may be multiple 
Multi-Trigger Specified Time Periods occurring simultaneously and 
such Multi-Trigger Specified Time Periods may overlap.

    The following example illustrates the proposed behavior of the 
Active Quote Protection risk protection:
Active Quote Protection Example
    Market Maker AAPL
    Contract Limit: 100
    Market Maker trades a transaction for 10 contracts in AAPL; Limit 
Counter goes from 0 to 10.
    Market Maker sends a request to decrement its Limit Counter in AAPL 
for 10 contracts; Limit Counter goes from 10 to 0.
    Market Maker trades a transaction for 20 contracts in AAPL; Limit 
Counter goes from 0 to 20.
    Market Maker trades a transaction for 50 contracts in AAPL; Limit 
Counter goes from 20 to 70.
    Market Maker sends a request to decrement its Limit Counter in AAPL 
for 20 contracts; Limit Counter goes from 70 to 50.
    Market Maker trades a transaction for 60 contracts in AAPL; Limit 
Counter goes from 50 to 110 and all Market Maker quotes in AAPL are 
automatically purged after the execution because the Limit Counter 
exceeded the Market Maker's Contract Limit of 100 executed contracts.
    At this point, the Market Maker must send a request to fully 
decrement its Limit Counter in AAPL back to zero in order to begin 
quoting again.
Multi-Trigger Active Quote Protection Example
    Assume Market Maker in AAPL and SPY has Quotation Adjustments set 
for AAPL and Active QP set for SPY.
    Market Maker sets its Multi-Trigger Threshold so that it is 
triggered at 25 purge events within a 20 second time period.
    On a given trading day, if an Active Quote Protection Purge Event 
is triggered 15 times in SPY and a Quotation Adjustment Purge Event is 
triggered 11 times in AAPL, all within 20 seconds, then the Exchange 
will automatically remove all of the Market Maker's quotes AAPL and SPY 
because 26 purge events were triggered for the Market Maker.
    Lastly, the Exchange proposes to title paragraph (A) as ``Rapid 
Fire'' and paragraph (C) as ``Multi-Trigger'' to more clearly identify 
which rules apply to which risk protections.
Post-Only Quoting Protection
    The Exchange proposes to adopt an optional quoting protection for 
Market Makers at Phlx Options 3, Section 15(c)(3) that will be 
identical to BX Options 3, Section 15(c)(3). This optional risk 
protection would allow Market Makers to prevent their quotes from 
removing liquidity from the Exchange's order book upon entry. As 
proposed, Market Makers may elect to configure their SQF protocols to 
prevent their quotes from removing liquidity (``Post-Only Quote 
Configuration''). A Post-Only Quote Configuration would re-price or 
cancel a Market Maker's quote that would otherwise lock or cross any 
resting order or quote \115\ on the order book upon entry. Market 
Makers may elect whether to re-price or cancel their quotes with this 
functionality. When configured for re-price, quotes would be re-priced 
and displayed by the System to one MPV below the current best offer 
(for bids) or above the current best bid (for offers). Notwithstanding 
the aforementioned, if a quote with a Post-Only Quote Configuration 
would not lock or cross an order or quote on the System but would lock 
or cross the NBBO, the quote will be handled pursuant to Options 3, 
Section 4(b)(6).\116\ When configured for cancel, Market Makers will 
have their quotes cancelled whenever the quote would lock or cross the 
NBBO or be placed on the book at a price other than its limit price. 
Finally, the Exchange notes that similar to BX, this risk protection 
will not apply during an Opening Process because the order book is 
established once options series are open for trading. Below are some 
Post-Only Quote Configuration examples.
---------------------------------------------------------------------------

    \115\ This would include any re-priced orders pursuant to Phlx 
Options 3, Section 5(d), ALOs as described in proposed Options 3, 
Section 7(n), and any re-priced quotes as described in Phlx Options 
3, Section 4(b)(6). As described above, ALOs may re-price.
    \116\ Phlx Options 3, Section 4(b)(6) provides that a quote will 
not be executed at a price that trades through another market or 
displayed at a price that would lock or cross another market. If, at 
the time of entry, a quote would cause a locked or crossed market 
violation or would cause a trade-through violation, it will either 
be re-priced and displayed at one minimum price variance above (for 
offers) or below (for bids) the national best price, or immediately 
cancelled, as configured by the Member.
---------------------------------------------------------------------------

Re-Priced Post-Only Quote Configuration--Penny Interval Program Display 
and Execution Example
Penny Interval Program MPV in open trading state
Market Makers A and C do not have Post-Only Quote Configuration risk 
protection configured
Market Maker B is configured for Post-Only Quote Configuration re-price
Market Maker A quote $0.98 (10) x $1.00 (10)
ABBO $0.96 x $1.03
Market Maker B quote $1.00 (10) x $1.01 (10) arrives

[[Page 106909]]

[cir] Bid side of quote re-prices onto order book @0.99 and sets 
displayed NBBO to 10 quantity
[cir] Offer side rests at 1.01 without issue
Market Maker C quote $0.97 (20) x $0.98 (20) arrives
Trades 10 with Market Maker B @$0.99 and 10 with Market Maker A @$0.98
Market Maker B avoids taking liquidity while Market Maker C, who chose 
not to be configured for such, removes liquidity by interacting with 
re-priced interest on Phlx's order book.
Re-Priced Post-Only Quote Configuration--Non-Penny Interval Program 
Display and Execution Example
Non-Penny Interval Program MPV in open trading state
Market Maker A quote $0.95 (10) x $1.00 (10)
ABBO $0.85 x $1.05
Market Maker B (configured for Post-Only Quote Configuration and 
selection of re-price upon quote) quote arrives $1.00 (5) x $1.05 (5)
[cir] Bid side quote re-prices on order book to $0.95
[cir] Displays on order book @$0.95 (bid), which now shows (15 
quantity)
[cir] Offer side quote books and displays in Depth of Market Feed at 
$1.05
Order to sell 10 contracts arrives @$0.95
[cir] 7 contracts execute with Market Maker A @$0.95
[cir] 3 contracts execute with Market Maker B @$0.95

    In this example, the Market Maker avoided taking liquidity by 
deploying the Post-Only Quote Configuration with re-price.
Options 3, Section 23
    The Exchange proposes to amend Phlx Options 3, Section 23, Data 
Feeds and Trade Information. The Exchange proposes to rename various 
market data feeds in Phlx Options 3, Section 23(a) to harmonize the 
names of the feeds to ISE, GEMX and MRX market data feeds at Options 3 
Section 23(a). Specifically, the Exchange proposes to rename ``Top of 
PHLX Options'' to ``Nasdaq Phlx Top of Market'' but continue to utilize 
``TOPO'' as the acronym. The Exchange proposes to rename ``PHLX 
Orders'' as ``Nasdaq Phlx Order Feed.'' Finally, the Exchange proposes 
to rename ``PHLX Depth of Market'' as ``Nasdaq Phlx Depth of Market.'' 
The Exchange proposes similar amendments to the name of the feeds at 
Options 7, Section 9, B.
    The Exchange proposes to no longer offer TradeInfo, which is a user 
interface set forth in Phlx Options 3, Section 23(b)(2) that permits a 
member to: (i) search all orders submitted in a particular security or 
all orders of a particular type, regardless of their status (open, 
canceled, executed, etc.); (ii) view orders and executions; and (iii) 
download orders and executions for recordkeeping purposes. Due to the 
lack of demand for this interface by member organizations the Exchange 
is retiring the interface. The Exchange seeks to decommission the 
TradeInfo interface when the Exchange migrates over to the enhanced 
technology platform with the technology migration. The Exchange notes 
that FIX and the Clearing Trade Interface (``CTI''),\117\ which are 
available to all member organizations, can be used today to obtain 
order information that is currently available within TradeInfo, and FIX 
can be used to cancel orders today.
---------------------------------------------------------------------------

    \117\ CTI is a real-time clearing trade update message that is 
sent to a member after an execution has occurred and contains trade 
details specific to that member. The information includes, among 
other things, the following: (i) The Clearing Member Trade Agreement 
or ``CMTA'' or ``OCC'' number; (ii) Exchange badge or house number; 
(iii) the Exchange internal firm identifier; (iv) an indicator which 
will distinguish electronic and non-electronically delivered orders; 
(v) liquidity indicators and transaction type for billing purposes; 
and (vi) capacity. See Options 3, Section 23(b)(1).
---------------------------------------------------------------------------

    Additionally, the Exchange proposes to remove the $95 per user, per 
month TradeInfo Interface Fee in the Pricing Schedule at Options 7, 
Section 9, B. The fee would not be necessary once TradeInfo is 
discontinued.
Options 3, Section 28
    The Exchange proposes to introduce optional quantity and notional 
value checks in new Phlx Options 3, Section 28, entitled ``Optional 
Risk Protections.'' The proposed optional order risk protections will 
be identical to the protections currently offered by ISE, GEMX and MRX 
Options 3, Section 28. Member organizations may use this voluntary 
functionality through their FIX protocol to limit the quantity and 
notional value they can send per order and on aggregate for the day. 
Specifically, member organizations may establish limits for the 
following parameters, as set forth in proposed subparagraphs (a)(1)-
(4):
    (1) Notional dollar value per order, which will be calculated as 
quantity multiplied by limit price multiplied by number of underlying 
shares;
    (2) Daily aggregate notional dollar value;
    (3) Quantity per order; and
    (4) Daily aggregate quantity
    Proposed paragraph (b) will provide that member organizations may 
elect one or more of the above optional risk protections by contacting 
Market Operations and providing a per order value (for (a)(1) and 
(a)(3)) or daily aggregate value (for (a)(2) and (a)(4)) for each order 
protection. Member organizations may modify their settings through 
Market Operations. Proposed paragraph (c) will provide that the System 
will reject all incoming aggregated member organization orders for any 
of the (a)(2) and (a)(4) risk protections after the value configured by 
the member organization is exceeded. Proposed paragraph (d) will 
provide that the System will reject all incoming member organization 
orders for any of the (a)(1) and (a)(3) risk protections upon arrival 
if the value configured by the member organization is exceeded by the 
incoming order. The Exchange notes that the difference in handling 
between aggregate and individual order protections is necessary to 
allow for complete processing of the final order that puts a member 
organization's configured value over the aggregate values configured. 
While individual orders can be directly measured against the configured 
values for (a)(1) and (a)(3), the aggregate values must be calculated 
after complete processing of an order and thus the rejection of orders 
begins upon the arrival of the next order after the aggregate values in 
(a)(2) or (a)(4) have been exceeded.
    The following example shows how the System will reject all 
subsequent incoming aggregated orders after the (a)(2) or (a)(4) values 
configured by the member organization have been exceeded.
Optional Risk Protection Example
    Aggregate Quantity Limit = 800.
    Member organization enters an order to Buy 500--Accepted.
    Member organization enters an order to Buy 400--Accepted (member 
organization did not meet the configured limit of 800 with the first 
order of 500 at the time Member organization entered the second order).
    Member organization enters an order to Buy 1--Rejected (member 
organization already exceeded the configured limit of 800 with the 
second order of 400).
    The following example shows how the System will reject all incoming 
orders upon arrival if the (a)(1) or (a)(3) values configured by the 
member organization have been exceeded by the arriving order:
    Quantity per Order Limit = 800.
    Member organization enters an order to Buy 801--Rejected (member 
organization exceeded the Quantity per order limit upon arrival with 
the order to buy 801 contracts).
    Proposed paragraph (e) will provide that if a member organization 
sets a notional dollar value, a Market Order

[[Page 106910]]

would not be accepted from that member organization. This is because 
notional dollar value is calculated by using an order's specified limit 
price, and Market Orders by definition are priced at the best available 
price upon execution. Lastly, proposed paragraph (f) will provide that 
the proposed risk protections are only available for orders entered 
through FIX. Additionally, all of the proposed settings will be firm 
level.
Options 5, Section 4
    The Exchange proposes to amend Options 5, Section 4, Order Routing, 
to align Phlx's routing to ISE Options 4, Section 5.
    The Exchange proposes to amend Phlx Options 5, Section 4(a) to 
include Stop-Limit Orders in addition to Stop Orders in the list of 
order types that are not included in the PBBO because they have not 
been triggered. Today, Phlx's Stop Order description refers to both a 
market and limit order. The Exchange's proposal adopts the Stop Order 
at ISE Options 3, Section 7(d) and Stop Limit Order at ISE Options 3, 
Section 7(e). The Exchange proposes to reflect both order types. As is 
the case today, the Exchange proposes to note, similar to ISE Options 
4, Section 5(a), that when checking the Order Book, the System will 
seek to execute at the price at which it would send the order to an 
away market. The Exchange believes that this sentence will bring 
greater clarity to the Exchange's rule. Similarly, the Exchange 
proposes to add text to clarify its current System behavior for TIFs. 
Today, routing options may be combined with all available order types 
and times-in-force, with the exception of order types and times-in-
force whose terms are inconsistent with the terms of a particular 
routing option. The Exchange also believes this sentence will clarify 
the current operation of the routing System. Finally, as is the case 
today, the Exchange proposes to note the time the routing System is 
available, the ability to list an order as non-routable and cross-
reference the locked and crossed rules. The Exchange would state, ``The 
order routing process shall be available to members from 9:30 a.m. 
Eastern Time until market close and shall route orders as described 
below. Member organizations can designate orders as either available 
for routing or not available for routing. All routing of orders shall 
comply with Options 5, Options Order Protection and Locked and Crossed 
Market Rules.'' This proposed rule text provides greater transparency 
to the Exchange's current System operation and harmonizes Phlx's rule 
text to ISE Options 4, Section 5(a).
    The Exchange proposes some modifications to its FIND Order in Phlx 
Options 5, Section 4(iii)(B) to conform to ISE Options 5, Section 
4(iii)(B). By way of background, a FIND Order is an order that is: (i) 
routable at the conclusion of an Opening Process; and (ii) routable 
upon receipt during regular trading, after an option series is open. 
Phlx proposes to add the following language to the end of Options 5, 
Section 4(iii)(B) to reflect its current routing functionality, ``FIND 
Orders that are not marketable with the ABBO upon receipt will be 
treated as DNR for the remainder of the trading day and post to the 
order book, even in the event that there is a new Opening Process after 
a trading halt.'' Phlx also proposes to add rule text to the end of 
Phlx Options 5, Section 4(a)(iii)(B) which states, ``. . . and post to 
the Order book, even in the event that there is a new Opening Process 
after a trading halt'' to make clear that the FIND Order would post to 
the Order Book and not route again, even if there were a new Opening 
Process.\118\
---------------------------------------------------------------------------

    \118\ FIND Orders that are not marketable with the ABBO upon 
receipt are handled differently than FIND Orders that are marketable 
with the ABBO upon receipt. FIND Orders that are marketable with the 
ABBO upon receipt would be eligible for routing the next time the 
option series is subject to a new Opening Process, which may include 
a re-opening after a trading halt. FIND Orders that are not 
marketable with the ABBO upon receipt will not be subject to routing 
even in the event that there is a new Opening Process after a 
trading halt. The handling of FIND Orders on Phlx is identical to 
ISE Options 5, Section 4(a)(iii)(B).
---------------------------------------------------------------------------

    The Exchange proposes to amend Phlx Options 5, Section 
4(iii)(B)(1). The Exchange proposes to remove the following sentences, 
``With respect to an Opening Process, only a Public Customer and 
Professional FIND Order on the Order Book, whether it is received prior 
to the opening or it is a GTC FIND Order from a prior day, may be 
routed at the conclusion of an Opening Process. Non-Public Customer and 
non-Professional FIND Orders are not eligible for routing at the 
conclusion of an Opening Process.'' Phlx proposes to amend its routing 
functionality to permit all market participants to route, not just 
Public Customer and Professional FIND Orders. To this end, Phlx 
proposes to remove this limitation. The Exchange proposes to amend the 
next sentence which state, ``At the end of an Opening Process, any FIND 
Order that is priced through the Opening Price, pursuant to Phlx 
Options 3, Section 8(a)(iii), will be cancelled, and any FIND Order 
that is at or inferior to the Opening Price will be executed pursuant 
to Options 3, Section 8(k).'' The Exchange proposes to instead provide, 
``At the end of an Opening Process, any FIND Order that is priced 
through the Opening Price, pursuant to Phlx Options 3, Section 
8(a)(iii), will be cancelled, and any FIND Order that is at or inferior 
to the Opening Price will execute or book pursuant to Options 3, 
Section 8(k).'' The Exchange noted in proposed Phlx Options 5, Section 
4(iii)(B) that a FIND Order may post to the order book in certain 
cases. This rule text adds clarity to the rules by naming all possible 
scenarios. Finally, the Exchange proposes to remove the last sentence 
of this paragraph which states, ``Such FIND Order will not be eligible 
for routing until the next time the option series is subject to a new 
Opening Process.'' The Exchange is removing this sentence because of 
the addition to the end of Options 5, Section 4(a)(iii)(B). The Opening 
Process at Phlx Options 3, Section 8(k), describes the manner in which 
orders route at the end of that process. This sentence is not necessary 
within this routing rule. FIND Orders that are not marketable with the 
ABBO upon receipt will be treated as DNR for the remainder of the 
trading day, and will not be subject to routing even in the event that 
there is a new Opening Process after a trading halt.\119\
---------------------------------------------------------------------------

    \119\ Orders that route during an Opening Process route at the 
end of the Opening Process, when the Exchange simultaneously opens 
an options series and routes. Thereafter, FIND Orders that were 
submitted after the Opening Process would attempt once to route 
until the FIND Order rests on the Order Book. Once it rests on the 
Order Book, the FIND Order would not route until the next Opening 
Process. Finally, an Opening Process may occur intra-day if there 
was a trading halt. After a trading halt BX would reopen with an 
Opening Process and the FIND Order would be eligible to route once 
again.
---------------------------------------------------------------------------

    Phlx Options 5, Section 4(iii)(B)(2) currently states,

    With respect to an Opening Process, if during a route timer at 
the conclusion of an Opening Process pursuant to Options 3, Section 
8(k) markets move such that the FIND Order is executable against 
Exchange interest, the FIND Order will immediately execute. If 
during a route timer, ABBO markets move such that the FIND Order is 
no longer marketable against the ABBO nor marketable against the 
PBBO, the FIND Order will post at its limit price. If the FIND Order 
is locked or crossed by away quotes, it will route at the completion 
of the route timer. If the ABBO worsens but remains better than the 
PBBO, the FIND Order will reprice and be reexposed at the new 
price(s) without interrupting the route timer.

    In order to more efficiently display the various potential routing 
scenarios, without repeating certain rule text several times throughout 
the rule, the Exchange proposes to amend Phlx Options 5, Section 
4(a)(iii)(B)(2), similar

[[Page 106911]]

to ISE Options 5, Section 4(a)(iii)(B)(2), to describe the potential 
scenarios that may occur for a FIND Order. The proposed paragraph 
provides,

    Generally, a FIND Order will be included in the displayed PBBO 
at its limit price, unless the FIND Order locks or crosses the ABBO, 
in which case it will be entered into the Order Book at the ABBO 
price and displayed one MPV inferior to the ABBO. If there exists a 
locked ABBO when the FIND Order is entered onto the Order Book, the 
FIND Order will be entered into the Order Book at the ABBO price and 
displayed one MPV inferior to the ABBO. If during a Route Timer, 
ABBO markets move such that the FIND Order is no longer marketable 
against the ABBO nor marketable against the BBO, the FIND Order will 
post at its limit price. If the FIND Order is locked or crossed by 
away quotes, it will route at the completion of the Route Timer. If 
the ABBO worsens but remains better than the BBO, the FIND Order 
will reprice and be re-exposed at the new price(s) without 
interrupting the Route Timer. If, during the Route Timer, any new 
interest arrives opposite the FIND Order that is equal to or better 
than the ABBO price, the FIND Order will trade against such new 
interest 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.

    This paragraph utilizes the term ``generally'' because it always 
applies to FIND Orders. The Exchange proposes to state that a FIND 
Order will be included in the displayed BBO at its limit price, unless 
the FIND Order locks or crosses the ABBO, in which case it will be 
entered into the Order Book at the ABBO price and displayed one MPV 
inferior to the ABBO.\120\ This statement will provide context to the 
FIND Order and would apply consistently to FIND Orders. The Exchange 
further proposes to provide that if there exists a locked ABBO when the 
FIND Order is entered onto the Order Book, the FIND Order will be 
entered into the Order Book at the ABBO price and displayed one MPV 
inferior to the ABBO.\121\ The Exchange further proposes to describe 
the possible scenarios that may occurring during a Route Timer, when 
ABBO markets move such that the FIND Order is no longer marketable 
against the ABBO nor marketable against the BBO, the FIND Order will 
always post at its limit price. If the FIND Order is locked or crossed 
by away quotes, it will route each time at the completion of the Route 
Timer. In the situation where an ABBO worsens, but remains better than 
the BBO, the FIND Order will reprice and be re-exposed at the new 
price(s) without interrupting the Route Timer, each time. If, during 
the Route Timer, any new interest arrives opposite the FIND Order that 
is equal to or better than the ABBO price, the FIND Order will trade 
always against such new interest 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.\122\ The 
Exchange believes that describing these scenarios in this introductory 
paragraph will provide a basis to understand certain FIND Order 
behaviors in certain circumstances and eliminate the need to have these 
circumstances repeated throughout the rule. The Exchange proposes to 
remove the first sentence of Phlx Options 5, Section 4(a)(iii)(B)(2) 
because it is covered within Phlx Options 3, Section 8(k), which 
describes the Opening Process. The Exchange believes that this 
paragraph, as amended, will provide greater clarity as to all the 
possible scenarios and will harmonize Phlx's rule to ISE's rule.
---------------------------------------------------------------------------

    \120\ This sentence is currently located in Phlx Options 5, 
Section 4(iii)(B)(5).
    \121\ This sentence is currently located in Phlx Options 5, 
Section 4(iii)(B)(5).
    \122\ This sentence is currently located in Phlx Options 5, 
Section 4(iii)(B)(5).
---------------------------------------------------------------------------

    The Exchange proposes to amend Phlx Options 5, Section 
4(a)(iii)(B)(3) to add ``A FIND Order received after an Opening Process 
that is not marketable against the PBBO or the ABBO will be entered 
into the Order Book at its limit price. The FIND Order will be treated 
as DNR for the remainder of the trading day, even in the event that 
there is a new Opening Price after a trading halt'' to the end of the 
paragraph. This text is similar to ISE Options 5, Section 
4(a)(iii)(B)(3). Phlx treats FIND Orders received after an Opening 
Process that are not marketable against the BBO or the ABBO in the same 
manner as ISE. Phlx is adding this rule text to make clear that the 
FIND Order will not route, even if there is a new Opening Process to 
reflect current System functionality. The Exchange will not allow a 
non-marketable order to route. The same sentence is being added to Phlx 
Options 5, Section 4(a)(iii)(B)(4) for clarity.
    The Exchange proposes to amend Phlx Options 5, Section 
4(a)(iii)(B)(5) to remove sentences that were relocated to Phlx Options 
5, Section 4(a)(iii)(B)(2) as noted above.
    The Exchange proposes to amend Phlx Options 5, Section 
4(a)(iii)(B)(6) to amend the penultimate sentence to note that an 
Opening Process may occur after a trading halt. An Opening Process 
would occur intra-day if there was a trading halt. After a trading 
halt, Phlx would reopen with an Opening Process. This is the case today 
and this rule text accounts for this potential scenario. The Exchange 
is removing the final sentence which states, ``The remaining size of a 
non-Public Customer and non-Professional FIND Order will be cancelled 
upon an intra-day trading halt.'' As noted above, Phlx proposes to 
amend its routing functionality to permit all market participants to 
route, not just Public Customer and Professional FIND Orders. The 
Exchange is removing this sentence which is unnecessary as orders of 
all market participants will route. The same amendments were also made 
to Phlx Options 5, Section 4(a)(iii)(B)(8).
    The Exchange proposes to amend Phlx Options 5, Section 
4(a)(iii)(B)(7) to remove the final sentence as that concept was 
relocated to Phlx Options 5, Section 4(a)(iii)(B)(2) in the section 
that generally describes routing.
    The Exchange proposes some modifications to its SRCH Order in Phlx 
Options 5, Section 4(iii)(C) to conform to ISE Options 5, Section 
4(iii)(C). By way of background, a SRCH Order is routable at any time 
the option series is open for trading. Similar to the removal of 
restrictions related to Public Customer and Professional order for a 
FIND Order, the Exchange proposes to remove these limitations as to 
SRCH Order. The Exchange is adding a Good-Till-Date Order or GTD at 
proposed Supplementary Material .02(c) to Phlx Options 3, Section 7. 
Today, the Exchange does not offer a GTD Order. The GTD Order would be 
identical to ISE, GEMX and MRX's Good-Till-Date TIF at Supplementary 
Material .02(c) to Options 3, Section 7. The Exchange proposes to add 
GTD to into Phlx Options 5, Section 4(iii)(C), similar to ISE Options 
5, Section 4(iii)(C), to reflect how a GTD TIF would be handled by the 
System for a SRCH Order.\123\
---------------------------------------------------------------------------

    \123\ A GTD SRCH Order may be routed as part of the Opening 
Process.
---------------------------------------------------------------------------

    The Exchange proposes to amend Phlx Options 5, Section 4(iii)(C)(1) 
to add a citation to the Opening Price at Options 3, Section 8(a)(iii). 
The Exchange also proposes to amend the rule text similar to the FIND 
Order to indicate that the SRCH Order would execute or book to account 
for all the scenarios that are possible today. The proposed rule text 
reflects current System functionality.
    Similar to the FIND Order proposal, the Exchange proposes to amend 
Phlx Options 5, Section 4(a)(iii)(C)(2) to provide general guidelines 
for the behavior of SRCH Orders which apply consistently. This proposed 
paragraph

[[Page 106912]]

will allow the Exchange to more efficiently display the various 
potential scenarios without repeating certain rule text several times. 
The Exchange believes that describing these scenarios in this 
introductory paragraph will provide a basis to understand certain SRCH 
Order behaviors in certain circumstances and eliminate the need to have 
these circumstances repeated throughout the rule. Proposed Phlx Options 
5, Section 4(a)(iii)(C)(2) provides,

    Generally, a SRCH Order will be included in the displayed BBO at 
its limit price, unless the SRCH Order locks or crosses the ABBO, in 
which case it will be entered into the Order Book at the ABBO price 
and displayed one MPV inferior to the ABBO. If there exists a locked 
ABBO when the SRCH Order is entered onto the Order Book, the SRCH 
Order will be entered into the Order Book at the ABBO price and 
displayed one MPV inferior to the ABBO. Once on the Order Book, the 
SRCH Order is eligible for routing if it is locked or crossed by an 
away market. If during a Route Timer, ABBO markets move such that 
the SRCH Order is no longer marketable against the ABBO nor 
marketable against the PBBO, the SRCH Order will book at its limit 
price. If, during the Route Timer, any new interest arrives opposite 
the SRCH Order that is equal to or better than the ABBO price, the 
SRCH Order will trade against such new interest at the ABBO price, 
unless the ABBO is improved to a price which crosses the SRCH 
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. If the ABBO worsens but remains better than the 
BBO, the SRCH Order will reprice and be re-exposed at the new 
price(s) without interrupting the Route Timer. If an ABBO locks or 
crosses the SRCH Order during a new Route Timer, which would 
subsequently initiate at the conclusion of any Route Timer if 
interest remains, the SRCH Order may route to the away market at the 
ABBO at the conclusion of such Route Timer. If the SRCH Order is 
locked or crossed by away quotes, it will route at the completion of 
the Route Timer. The System will route and execute contracts 
contemporaneously at the end of the Route Timer.

    Generally, a SRCH Order will be included in the displayed PBBO at 
its limit price, unless the SRCH Order locks or crosses the ABBO, in 
which case it will be entered into the Order Book at the ABBO price and 
displayed one MPV inferior to the ABBO, similar to other routing order 
types. Also, if there is a locked ABBO when the SRCH Order is entered 
onto the Order Book, the SRCH Order will be entered into the Order Book 
at the ABBO price and displayed one MPV inferior to the ABBO to avoid 
locking the away market. The Exchange proposes to generally state, 
``Once on the Order Book, the SRCH Order is eligible for routing if it 
is locked or crossed by an away market.'' This provision is always true 
of SRCH Orders.
    Next, the Exchange provides scenarios that generally may occur 
during a Route Timer. The first scenario is if during a Route Timer, 
ABBO markets move such that the SRCH Order is no longer marketable 
against the ABBO nor marketable against the PBBO. In this case, the 
SRCH Order will book at its limit price. The next scenario is whether 
during the Route Timer, any new interest arrives opposite the SRCH 
Order that is equal to or better than the ABBO price, the SRCH Order 
will trade against such new interest at the ABBO price, unless the ABBO 
is improved to a price which crosses the SRCH 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. If new 
interest arrives that is equal to or better than the ABBO price, the 
SRCH Order will trade at the ABBO price. If new interest arrives that 
is marketable against the SRCH Order it will trade at the ABBO price 
unless the ABBO is improved to a price which crosses the SRCH 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. This last sentence makes clear that the SRCH Order would execute 
at the previous ABBO price as the away market crossed a displayed 
price. Better priced incoming interest will execute against the SRCH 
Order, unless the ABBO crosses the SRCH Order, in which case any new 
interest will execute at the SRCH Order price. In this scenario, Phlx's 
price was already displayed when an away market subsequently crossed 
Phlx's displayed price. If the ABBO worsens but remains better than the 
BBO, the SRCH Order will reprice and be re-exposed at the new price(s) 
without interrupting the Route Timer. Also, if an ABBO locks or crosses 
the SRCH Order during a new Route Timer, which would subsequently 
initiate at the conclusion of any Route Timer if interest remains, the 
SRCH Order may route to the away market at the ABBO at the conclusion 
of such Route Timer, each time. Finally, if the SRCH Order is locked or 
crossed by away quotes, it will route at the completion of the Route 
Timer. The Exchange notes that the System will route and execute 
contracts contemporaneously at the end of the Route Timer. The proposed 
rule text is identical to ISE Options 5, Section 4(a)(iii)(C)(2).
    The Exchange proposes to amend Phlx Options 5, Section 
4(a)(iii)(C)(3), which is being renumbered, to add ``at its limit 
price'' to specify at which price the SRCH Order would be entered on 
the Order Book if not marketable.
    The Exchange proposes to amend Phlx Options 5, Section 
4(a)(iii)(C)(4), which is being renumbered, to make a technical 
amendment to change ``at'' to ``on''. The Exchange also proposes to 
remove ``price equal to the'' because it is unnecessary. Finally, the 
Exchange proposes to remove the last sentence, ``Once on the Order 
Book, the SRCH Order is eligible for routing if it is locked or crossed 
by an away market.'' This sentence was relocated to Phlx Options 5, 
Section 4(a)(iii)(C)(2).
    The Exchange proposes to amend Phlx Options 5, Section 
4(a)(iii)(C)(5), which is being renumbered, to make a technical 
amendment to change ``at'' to ``on''. The Exchange also proposes to add 
``the remainder of the'' to make clear that this sentence is about size 
remaining on the order after exhausting the PBBO. Finally, the Exchange 
proposes to remove the last two sentences that were relocated to Phlx 
Options 5, Section 4(a)(iii)(C)(2).
    The Exchange proposes to amend Phlx Options 5, Section 
4(a)(iii)(C)(6), which is being renumbered, to add ``to an away 
market'' to more clearly state where the order is being routed to. The 
Exchange proposes to remove ``locked or crossed by away quotes, it will 
route at the completion of the Route Timer. If the ABBO worsens but 
remains better than the PBBO, the SRCH Order will reprice and be re-
exposed at the new price(s) without interrupting the Route Timer. If 
the SRCH Order'' because this scenario was relocated to Phlx Options 5, 
Section 4(a)(iii)(C)(2). The Exchange is updating citations and 
capitalizing book and adding Order before it. The Exchange proposes to 
remove the last sentence that was relocated to Phlx Options 5, Section 
4(a)(iii)(C)(2).
    The Exchange proposes to amend Phlx Options 5, Section 
4(a)(iii)(C)(7), which is being renumbered, to remove the second, four, 
fifth and final sentence that were relocated to Phlx Options 5, Section 
4(a)(iii)(C)(2).
    The Exchange proposes to amend Phlx Options 5, Section 
4(a)(iii)(C)(8), which is being renumbered, to update citations and 
pluralize ``price''. The Exchange proposes to remove the last sentence 
that was relocated to Phlx Options 5, Section 4(a)(iii)(C)(2). The 
Exchange also proposes to remove current Phlx Options 5, Section 
4(a)(iii)(C)(8) and (9) which were relocated to Phlx Options 5, Section 
4(a)(iii)(C)(2). Finally, the Exchange proposes to renumber current 
relocated

[[Page 106913]]

to Phlx Options 5, Section 4(a)(iii)(C)(10) as ``9''.
Options 6, Section 1
    The Exchange proposes to amend Options 6, Section 1, Authorization 
to Give Up, to align Phlx's process to that of ISE, GEMX and MRX 
Options 6, Section 1. The Exchange proposes to remove ``with respect to 
floor trading only'' from Options 6, Section 1(a). With this technology 
migration, for each transaction in which a member organization 
participates, the member organization may indicate, at the time of the 
trade, or through post trade allocation, any Options Clearing 
Corporation number of a Clearing Member through which a transaction 
will be cleared (``Give Up''), provided the Clearing Member has not 
elected to Opt In, as defined and described in paragraph (b) below, and 
restrict one or more of its OCC number(s) (``Restricted OCC Number''). 
With this change, the provision for ``at time of trade'' will apply to 
both floor and electronic trading, therefore, electronic only members 
may indicate a Give-Up at the time of trade. Today, electronic trading 
members indicate a Give-Up in the post allocation process. The 
Exchange's automation of the Give-Up process will permit it to prevent 
an unauthorized Give-Up of a Restricted OCC Number that is submitted to 
the System from being processed. The Exchange proposes to amend Options 
6, Section 1(c) to add the following sentence, ``If an unauthorized 
Give Up with a Restricted OCC Number is submitted to the System, the 
System will process that transaction using the Member's default OCC 
clearing number.'' Because the Exchange is adding this automated 
feature, it proposes to remove the rule text in Options 6, Section 
1(c)(ii) that provides, ``For all other orders, the System will not 
allow an unauthorized Give Up with a Restricted OCC Number to be 
submitted at the firm mnemonic level at the point of order entry.'' The 
Exchange will be able to prevent unauthorized Give Ups of Restricted 
OCC Numbers systematically, similar to ISE, GEMX and MRX Options 6, 
Section 1, and would not need this restriction in Options 6, Section 
1(c)(ii).
Options 8, Section 32
    The Exchange proposes some minor numbering amendments to Options 8, 
Section 32, Types of Floor-Based (Non-System) Orders. The Exchange 
proposes to renumber Options 8, Section 32(b), Contingency Order, as 
``5.'' The Exchange proposes to renumber Options 8, Section 32(b)(1), 
Stop-Limit Order as ``i''. The Exchange proposes to renumber Options 8, 
Section 32(b)(2), Stop (stop-loss) Order as ``ii.'' The Exchange 
proposes to renumber Options 8, Section 32(b)(3), All or None Order as 
``iii.'' The Exchange proposes to renumber Options 8, Section 32(b)(4), 
Cancel-Replacement Order as ``iv.'' The Exchange proposes to renumber 
Options 8, Section 32(b)(5), Immediate or Cancel Order as ``v.'' The 
Exchange proposes to renumber Options 8, Section 32(c), Time in Force 
or ``TIF'' as ``b''. Finally, the Exchange proposes to re-letter 
current Options 8, Section 32(d), Not Held Orders, as ``c'' and reserve 
``d''.
    The Exchange proposes to amend All-Or-None Orders at current Phlx 
Options 8, Section 32(b)(3) to remove the restriction that only a 
Public Customer can only submit it. Consistent with the amendment to 
electronic All-or-None Orders, Phlx proposes to remove this restriction 
so that any market participant may enter an All-or-None Order. The 
Exchange also proposes to add an OPG TIF as an available TIF for the 
trading floor. Today, the TIF is available for floor participants. Any 
floor participant may enter the TIF of OPG on the trading floor. The 
Exchange's proposal to add the OPG TIF will provide greater clarity to 
the Exchange's rules.
Implementation
    The Exchange will implement this rule change on or before December 
20, 2025. Phlx would commence its implementation with a limited symbol 
migration and continue to migrate symbols over several weeks. The 
Exchange will issue an Options Trader Alert to Members to provide 
notification of the symbols that will migrate and the relevant dates.
2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act,\124\ in general, and furthers the objectives of 
Section 6(b)(5) of the Act,\125\ 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 it relates to the elimination of fees for 
TradeInfo, the Exchange believes that its proposal is consistent with 
Section 6(b) of the Act,\126\ in general, and furthers the objectives 
of Sections 6(b)(4) and 6(b)(5) of the Act,\127\ in particular, in that 
it provides for the equitable allocation of reasonable dues, fees, and 
other charges among members and issuers and other persons using any 
facility, and is not designed to permit unfair discrimination between 
customers, issuers, brokers, or dealers.
---------------------------------------------------------------------------

    \124\ 15 U.S.C. 78f(b).
    \125\ 15 U.S.C. 78f(b)(5).
    \126\ 15 U.S.C. 78f(b).
    \127\ 15 U.S.C. 78f(b)(4) and (5).
---------------------------------------------------------------------------

    Generally, the Exchange's proposal is intended to add or align 
certain System functionality with functionality currently offered on 
ISE, GEMX, MRX, BX or NOM in order to provide a more consistent 
technology offering across affiliated Nasdaq options exchanges. A more 
harmonized technology offering, in turn, will simplify technology 
implementation, changes, and maintenance by market participants of the 
Exchange that are also participants on Nasdaq affiliated options 
exchanges. The Exchange's proposal also seeks to provide greater 
harmonization between the rules of the Exchange and its affiliates, 
which would result in greater uniformity, and less burdensome and more 
efficient regulatory compliance by market participants. As such, the 
proposal would foster cooperation and coordination with persons engaged 
in facilitating transactions in securities and would remove impediments 
to and perfect the mechanism of a free and open market and a national 
market system. The Exchange believes that more consistent rules will 
increase the understanding of the Exchange's operations for market 
participants that are also participants on the Nasdaq affiliated 
options exchanges, thereby contributing to the protection of investors 
and the public interest. The proposal also seeks to memorialize 
existing functionality and add more granularity in the Exchange's rules 
to describe how existing functionality operates today. The Exchange 
believes that such changes would remove impediments to and perfect the 
mechanism of a free and open market and a national market system 
because the proposed changes would promote transparency in Exchange 
rules and reducing potential confusion, thereby ensuring that members, 
regulators, and the public can more easily navigate the Exchange's 
Rulebook and better understand how options trading is conducted on the 
Exchange.
Options 2, Section 6
    The Exchange believes that permitting Market Makers to enter all 
eligible order types, except Reserve Orders, in both appointed and non-
appointed options classes is consistent with the Act. Today, ISE, GEMX 
and MRX Options 2,

[[Page 106914]]

Section 6 only restricts Market Makers from entering Reserve Orders. 
The Exchange proposes to permit Market Makers to enter Market Orders 
and Stop Orders similar to all other market participants on Phlx. 
Today, all market participants, including Market Makers, may transact 
Market Orders and Stop Orders on other options markets.\128\ The 
Exchange does not believe there is any reason to restrict Market Makers 
from entering Market Orders or Stop Orders. In 2019, Phlx noted in its 
rule change \129\ that it believes that continuing the practice of 
prohibiting Market Makers from entering Market Orders is consistent 
with the Act because Market Orders are designed to remove liquidity 
from the Order Book. Further, Stop Orders are non-displayed order types 
until they are triggered which does not benefit the role of a Market 
Makers in displaying liquidity on the Order Book. At this time, the 
Exchange believes that because there are restrictions on the number of 
contracts that a Market Maker may enter in a quarter,\130\ Market 
Makers should be permitted to utilize Market Orders and Stop Orders to 
remove liquidity from its order book without impacting their ability to 
provide liquidity.
---------------------------------------------------------------------------

    \128\ See Nasdaq ISE, LLC (``ISE''), Nasdaq GEMX, LLC (``GEMX'') 
and Nasdaq MRX, LLC (``MRX) Options 2, Section 6 and NYSE Arca, Inc. 
Rule 6.37B-O and NYSE American LLC Rule 925.2NY.
    \129\ See Securities Exchange Act Release No. 87691 (December 9, 
2019), 85 FR 68197 (December 13, 2019) (SR-Phlx-2019-52) (Notice of 
Filing and Immediate Effectiveness of Proposed Rule Change To Amend 
Order Types and Remove and Relocate Certain Rule Text Currently 
Located Within Rule 1080).
    \130\ Pursuant to Phlx Options 2, Section 6, the total number of 
contracts executed during a quarter by a Market Maker and Lead 
Market Maker in options series to which it is not appointed may not 
exceed twenty-five percent (25%) of the total number of contracts 
executed by the Market Maker and Lead Market Maker in options 
series.
---------------------------------------------------------------------------

    Today, Phlx restricts all market participants from entering All-or-
None Orders except Public Customers. Similar to other options markets, 
the Exchange proposes to permit all market participants to enter All-
or-None Orders. The Exchange is proposing to amend the All-or-None 
Order type in Options 3, Section 7 to reflect this proposed change. In 
2019, the Exchange amended its All-or-None Order to no longer offer the 
order type to Professionals.\131\ At the time, the Exchange noted that 
permitting Public Customers to enter All-or-None Orders with specific 
size limitations that rest on the Order Book would continue to allow 
Public Customers the opportunity to obtain fills for their orders when 
the market moves even if the All-Or-None Order was not immediately 
executable upon entry. The Exchange notes since the 2019 rule change, 
the All-or-None Order was amended so that it would no longer rest on 
the order book, rather the order type would be executed in its 
entirety, or it will cancel if it cannot execute. The Exchange notes 
that with the change to an immediate-or-cancel order there is no longer 
a need to permit the All-or-None Orders to be limited to Public 
Customers. At this time, the Exchange also proposes to reflect in Phlx 
Options 2, Section 6 the ability of Market Makers to also trade All-or-
None Orders. The Exchange notes that Directed Orders are orders 
directed to a Market Maker by an Order Flow Provider. An order becomes 
a Directed Order when it interacts with a Market Maker quote that is at 
the NBBO at the time of receipt of the Directed Order. The Exchange 
believes it is misleading to include a Directed Order in this list 
because a Directed Order may be executed by a Market Maker.
---------------------------------------------------------------------------

    \131\ See Securities Exchange Act Release No. 85262 (March 7, 
2019), 84 FR 9192 (March 13, 2019) (SR-Phlx-2019-03) (Notice of 
Filing and Immediate Effectiveness of a Proposed Rule Change To 
Amend Option Floor Procedure Advice A-9 and Phlx Rules 1000 and 1066 
and To Adopt a New Phlx Rule 1078). Prior to this rule change, All-
or-None Orders were available to Public Customers and Professionals.
---------------------------------------------------------------------------

    Today, Market Makers execute certain orders directed to them 
pursuant to Phlx Options 2, Section 10, provided they were quoting at 
the NBBO at the time the order arrived. Upon execution, these orders 
are treated as Directed Orders pursuant to Phlx rules. A two-sided 
order with a Public Customer on both sides may by its own terms only be 
entered by a Public Customer. That restriction remains in the rules. 
The Exchange notes that there is no reason to restrict Market Makers in 
entering order types, except for the restriction related to Reserve 
Orders, in options classes in which they are appointed and non-
appointed. Unlike other order types, the Reserve Order is a limit order 
that contains both a displayed portion and a non-displayed portion. 
Both the displayed and non-displayed portions of a Reserve Order are 
available for potential execution against incoming marketable orders. 
When the displayed portion of a Reserve Order is decremented, either in 
full or in part, it shall be refreshed from the non-displayed portion 
of the resting Reserve Order. The Exchange believes that because a 
Reserve Order contains a non-displayed portion, Market Makers should 
not be permitted to enter this order type. Market Makers are required 
to make markets that, absent changed market conditions, will be honored 
for the number of contracts entered into the Exchange's System in all 
series of options classes to which the market maker is appointed. The 
Exchange believes that markets should be transparent.
    Market Makers continue to be obligated to add liquidity on the 
Exchange. Options 2, Section 6(b) restricts the number of contracts 
that a Market Maker may enter in an options class to which the Market 
Maker is not appointed. Options 2, Section 5 requires Market Makers to 
abide by certain quoting requirements, in the options classes in which 
they are appointed, in order to maintain the status of a Market Maker. 
The Exchange believes that permitting a Market Maker to enter 
additional eligible order types, except Reserve Orders, in their 
appointed options class will permit Market Makers additional latitude 
to conduct business on the Exchange and effectively compete with other 
market makers on other options exchanges. Quotes and orders entered by 
a Market Maker may not interact against quotes and orders entered on 
the opposite side of the market by the same Market Maker.
Options 3, Section 4
    Phlx's proposal to amend Options 3, Section 4(b)(6) to permit 
member organizations to configure their ports to instruct the Exchange 
to immediately cancel a quote that would otherwise cause a locked or 
crossed market violation in lieu of re-pricing the quote is consistent 
with the Act. This proposal would continue to protect investors and the 
public interest because the functionality would prevent a quote from 
locking and crossing an away market while also providing member 
organization with more flexibility in handling their quotes.
Options 3, Section 6
    The Exchange's proposal to discontinue Quote Exhaust is consistent 
with the Act because, today, Phlx offers various risk protections in 
its System limit executions at far away prices. Phlx offers an 
Acceptable Trade Range protection at Options 3, Section 15(b)(1), an 
Anti-Internalization protection at Options 3, Section 15(c)(1), and an 
Automated Quotation Adjustments protection at Options 3, Section 
15(b)(2). Phlx is also proposing additional risk protections with this 
proposal. Other Nasdaq affiliated exchanges do not offer Quote Exhaust. 
Once discontinued, the Exchange's quoting functionalities will abide by 
Phlx's Options 3, Section 4 rules governing the entry and display of 
orders and the allocation methodology in Phlx Options 3, Section 10.

[[Page 106915]]

    The Exchange's proposal to adopt a new rule in Phlx Options 3, 
Section 6 that is identical to ISE, GEMX and MRX Options 3, Section 6 
is consistent with the Act and will protect investors and the general 
public by stating in its rules the manner in which Phlx would comply 
with Rule 602 of Regulation NMS. Additionally, providing Phlx with the 
ability to act in the case of unusual market conditions to maintain 
fair and orderly markets is consistent with the Act and would allow 
Phlx to manage trading in the same manner as ISE, GEMX and MRX in the 
event of unusual market conditions.
Options 3, Section 7
    The Exchange believes that the proposed changes to the rules 
governing Exchange order types are consistent with the Act. As 
discussed above, the proposed changes consist of several functional 
enhancements to align the Exchange's order types to existing ISE, GEMX 
and MRX order types, and rule adjustments that add more specificity and 
clarity to existing order types.
Market Orders
    The Exchange believes that the proposed changes to the definition 
of Market Orders in proposed Options 3, Section 7(a) are consistent 
with the Act. The proposed intra-day cancel timer feature mirrors 
existing ISE, GEMX and MRX functionality at Options 3, Section 7(a)(5), 
and would provide member organizations with additional flexibility and 
control to bring the Market Order back to the member organization so 
they can get an execution on another venue by canceling unexecuted 
Market Orders after a certain period of time. The Exchange believes it 
is appropriate to offer this feature intra-day because the Exchange 
already has a separate opening delay timer that provides protection to 
the market during the Opening Process as discussed above.
    In addition to the amendments to the definition of Market Orders, 
the Exchange proposes to permit Lead Market Makers, Market Makers, and 
Off-Floor Broker Dealers to enter Market Orders similar to all other 
market participants on Phlx. The Exchange's proposal to no longer 
restrict Lead Market Makers, Market Makers, and Off-Floor Broker 
Dealers from transacting Market Orders on Phlx is consistent with the 
Act because it would permit all market participants on the Exchange to 
enter Market Orders. Today, ISE, GEMX and MRX do not prohibit Lead 
Market Makers, Market Makers, and Off-Floor Broker Dealers from 
entering Market Orders and those markets have not observed any adverse 
consequences. Also, current Phlx Options 2, Section 6 restricts the 
number of contracts that a Market Maker (or Lead Market Maker) may 
enter in a quarter,\132\ thereby preventing Market Makers from entering 
an unlimited quantity of orders. The Exchange does not believe there is 
any reason to restrict Lead Market Makers, Market Makers, or Off-Floor 
Broker Dealers from entering Market Orders.
---------------------------------------------------------------------------

    \132\ Pursuant to Phlx Options 2, Section 6, the total number of 
contracts executed during a quarter by a Market Maker and Lead 
Market Maker in options series to which it is not appointed may not 
exceed twenty-five percent (25%) of the total number of contracts 
executed by the Market Maker and Lead Market Maker in options 
series.
---------------------------------------------------------------------------

Limit Orders
    The Exchange's proposal to relocate ``Limit Orders'' from current 
Options 3, Section 7(b)(2) to proposed Options 3, Section 7(b) without 
change. The Exchange also proposes to break out Limit Order further to 
define a Marketable Limit Order at proposed Options 3, Section 7(b)(1) 
as a Limit Order to buy (sell) at or above (below) the best offer (bid) 
on the Exchange. Finally, the Exchange proposes to define a Fill-or-
Kill Order at proposed Options 3, Section 7(b)(2) as a Limit Order that 
is to be executed in its entirety as soon as it is received and, if not 
so executed, treated as cancelled. This proposed new rule text aligns 
this Phlx order type to ISE, GEMX and MRX Options 3, Section 7(b)(2) 
and will provide Phlx member organizations the same ability to send 
this type of IOC order as ISE, GEMX and MRX Members.
Intermarket Sweep Orders
    The Exchange's proposal to relocate an Intermarket Sweep Order from 
current Options 3, Section 7(b)(3) to proposed Options 3, Section 
7(b)(3) with some additions is consistent with the Act. The Exchange 
proposes to reorder some sentences to closely resemble ISE, GEMX and 
MRX Options 3, Section 7(b)(3). The Exchange proposes to add an 
additional sentence to make clear that ISOs must have a TIF designation 
of IOC. Additionally, the Exchange proposes to define the ``regular 
order book'' as the ``single-leg order book.'' The Exchange believes 
that its proposal will promote transparency in the Exchange's rules and 
consistency across the rules of the Nasdaq affiliated options 
exchanges. Furthermore, the proposed changes do not amend current ISO 
functionality except for the proposed stipulation that ISOs must have a 
TIF designation of IOC. Today, Options 5, Section 1(h) provides that 
ISOs may be either an IOC or an order that expires on the day it is 
entered. The Exchange believes it is appropriate to no longer allow 
non-IOC ISOs, as an ISO is generally used when trying to sweep a price 
level across multiple exchanges in an effort to post the balance of an 
order without locking an away market. The Exchange therefore believes 
that ISOs have a limited purpose and should be cancelled if they do not 
execute or do not entirely execute. This is also consistent with how 
ISE, GEMX and MRX currently handle ISOs in that they only allow ISOs to 
be entered as IOC.
All-or-None Orders
    The Exchange's proposal to relocate and amend the All-or-None 
Orders from current Options 3, Section 7(b)(5) to proposed Options 3, 
Section 7(c) is consistent with the Act. Today, Phlx restricts All-or-
None Orders to be entered only by Public Customers. At this time, the 
Exchange proposes to permit any member or member organization to submit 
an All-or-None Order similar to ISE, GEMX, and MRX Options 3, Section 
7(c). The Exchange believes that allowing all member organizations to 
utilize an All-or-None Order removes impediments to and perfects the 
mechanism of a free and open market and a national market system. 
Similar to ISE, GEMX and MRX, the Exchange proposes to modify All-or-
None Orders so that they would execute against multiple, aggregated 
orders if the executions would occur simultaneously. The proposed 
description of the handling of All-or-None Orders is consistent with 
the Exchange's allocation methodology in Options 3, Section 10 by 
making clear that because of the size contingency of the All-or-None 
Order (i.e., executed in its entirety or not at all), those orders must 
be satisfied simultaneously to avoid any priority conflict on the order 
book, which considers current displayed NBBO prices to avoid locked and 
crossed markets as well as trade-throughs. Finally, the proposed 
changes to add that AON Orders may not be submitted during the Opening 
Process will better articulate current System behavior, and aligns to 
the level of detail currently in ISE, MRX, and GEMX Options 3, Section 
7(c).
Stop and Stop Limit Orders
    The Exchange believes that the proposed changes to the definition 
of Stop Orders and Stop Limit Orders in Options 3, Sections 7(d) and 
7(e), respectively, are consistent with the Act. Today, Phlx's Stop 
Order may be a Limit or Market Order. Also, the Stop Order may not be 
elected by a trade that is reported late or out of sequence or by a 
Complex Order trading with another

[[Page 106916]]

Complex Order. At this time, the Exchange proposes to amend its Stop 
Order to mirror the order type that is in use on ISE, GEMX and MRX at 
Options 3, Section 7(d) and (e). Phlx will permit all member 
organizations to utilize a Stop Order and Stop Limit Order and not 
restrict Lead Market Makers, Maker Makers, and Off-Floor Broker-Dealers 
from using the order type which removes impediments to and perfects the 
mechanism of a free and open market and a national market system. Also, 
the Exchange will not separately specify a Stop Market Limit Order, 
rather it will describe an elected Stop Order as a Market Order. 
Therefore, the Exchange will describe a Stop Order and Stop Limit 
Order. Aligning Phlx's current functionality for a Stop Order and Stop 
Market Order to that of ISE, GEMX and MRX will create consistent rules 
and will increase the understanding of the Exchange's operations for 
market participants that are also participants on the Nasdaq affiliated 
options exchanges, thereby contributing to the protection of investors 
and the public interest.
Cancel and Replace Orders
    The Exchange's proposal to relocate the Cancel and Replace Order 
description from Options 3, Section 7(b)(7) to proposed Options 3, 
Section 7(f) and mirror the functionality on ISE, GEMX and MRX at 
Options 3, Section 7(f). Aligning Phlx's current functionality for a 
Cancel and Replace Order to that of ISE, GEMX and MRX will create 
consistent rules and will increase the understanding of the Exchange's 
operations for market participants that are also participants on the 
Nasdaq affiliated options exchanges, thereby contributing to the 
protection of investors and the public interest.
Reserve Orders
    The Exchange's proposal to adopt a Reserve Order at Options 3, 
Section 7(g) that is identical to the order type in ISE, GEMX and MRX 
Options 3, Section 7(g) is consistent with the Act as it will align 
Phlx's current functionality for a Reserve Order to that of ISE, GEMX 
and MRX will create consistent rules and will increase the 
understanding of the Exchange's operations for market participants that 
are also participants on the Nasdaq affiliated options exchanges, 
thereby contributing to the protection of investors and the public 
interest. Both the displayed and non-displayed portions of a Reserve 
Order would be available for potential execution against incoming 
marketable orders. A non-marketable Reserve Order would rest on the 
order book. The displayed portion of a Reserve Order would be ranked at 
the specified limit price and the time of order entry. This new order 
type will be available to all member organizations, except Market 
Makers as noted herein. The proposed rule change will promote 
competition as Reserve Orders will provide member organizations with 
additional flexibility to manage and display their orders and 
additional control over their executions on the Exchange. This may 
encourage market participants to bring additional liquidity to the 
market, which benefits all investors.
Attributable Orders
    The Exchange's proposal to adopt Attributable Orders at Options 3, 
Section 7(h) that is identical to the order type in ISE, GEMX and MRX 
Options 3, Section 7(h) is consistent with the Act. An Attributable 
Order would be a market or limit order which displays the user firm ID 
for purposes of electronic trading on the Exchange. Use of Attributable 
Orders is voluntary. Attributable Orders may not be available for all 
Exchange Systems. This new order type will be available to all member 
organizations and the proposed rule change will promote competition, as 
Attributable Orders will provide member organizations with additional 
flexibility to manage their orders on the Exchange. This new order type 
may encourage market participants to bring additional liquidity to the 
market, which benefits all investors.
Directed Orders
    The Exchange proposes to relocate the reference to Directed Orders 
currently in Options 3, Section 7(b)(11) to Options 3, Section 7(l) 
without change aligns the Phlx order type to ISE, GEMX and MRX Options 
3, Section 7(l).
Add Liquidity Orders
    The Exchange's proposal to adopt ALOs at Options 3, Section 7(n) 
that are identical to ISE, GEMX and MRX Options 3, Section 7(n) is 
consistent with the Act. ALOs are limit orders that will only be 
executed as a ``maker'' on the Exchange. An Add Liquidity Order is a 
limit order that is to be executed in whole or in part on the Exchange 
(i) only after being displayed on the Exchange's limit order book; and 
(ii) without routing any portion of the order to another market center. 
The ALO order type would provide market participants greater control 
over the circumstances in which their orders are executed. The purpose 
of an ALO is to provide liquidity. For investors and market 
participants that elect only to provide liquidity in certain 
circumstances, such as to receive a maker fee (or rebate) upon 
execution of an order, the Exchange believes that ALOs will accommodate 
this strategy. This new order type will be available to all member 
organizations. This new order type may encourage market participants to 
bring additional liquidity to the market, which benefits all investors.
PIXL Order
    The Exchange's proposal to relocate the description of a PIXL Order 
from Options 3, Section 7(b)(9) to Options 3, Section 7(y) without 
change aligns the Phlx order type to ISE, GEMX and MRX Options 3, 
Section 7(y).
Day Order
    The Exchange's proposal to relocate Day Order from current Options 
3, Section 7(c)(1) to Supplementary Material .02(a) to Options 3, 
Section 7 with minor amendments is consistent with the Act. The 
Exchange is rewording the rule text of Day Order to mirror the text in 
ISE, GEMX and MRX Supplementary Material .02(a) to Options 3, Section 
7.
Good-Till-Cancelled
    The Exchange's proposal to relocate Good Till Cancelled from 
Options 3, Section 7(c)(4) to Supplementary Material .02(b) to Options 
3, Section 7 and amend the description is consistent with the Act. The 
Exchange's proposal to provide that a Good-Till-Canceled Order is an 
order to buy or sell entered with a TIF of ``GTC'' and remains in force 
until the order is filled, canceled or the option contract expires; 
provided, however, that GTC orders will be canceled in the event of a 
corporate action that results in an adjustment to the terms of an 
option contract would address a corporate event, noting that GTC orders 
are canceled in the event of a corporate action that results in an 
adjustment to the terms of an option contract. This rule text clarifies 
the current System behavior. The proposed GTC description is identical 
to the rule text in ISE, GEMX and MRX Supplementary Material .02(b) to 
Options 3, Section 7. There is no System change as a result of the 
change to the description of the GTC order.
Good-Till-Date
    The Exchange's proposal to adopt a new TIF designation, Good-Till-
Date Supplementary Material .02(c) to Options 3, Section 7 which is 
identical to ISE, GEMX and MRX's Good-Till-Date TIF at Supplementary 
Material .02(c) to Options 3, Section 7 is consistent with the Act. A 
Good-Till-

[[Page 106917]]

Date TIF is an order to buy or sell entered with a TIF of ``GTD,'' 
which, if not executed, would be cancelled at the sooner of the end of 
the expiration date assigned to the order, or the expiration of the 
series; provided, however, that GTD orders would be canceled in the 
event of a corporate action that results in an adjustment to the terms 
of an option contract. GTD orders may be entered through FIX. The 
Exchange believes this additional TIF will provide member organizations 
with additional opportunities when trading on Phlx.
Immediate-or-Cancel
    The Exchange's proposal to relocate Immediate-or-Cancel from 
Options 3, Section 7(c)(2) to Supplementary Material .02(d) to Options 
3, Section 7 and amend the description is consistent with the Act. 
These modifications are non-substantive and simply bring more clarity 
to the text. These changes align with rule text in ISE, GEMX and MRX, 
as applicable.
Opening Only
    The Exchange's proposal to relocate Opening Only from Options 3, 
Section 7(c)(3) to proposed Supplementary Material .02(e) of Options 3, 
Section 7 is consistent with the Act. Opening Only Orders would be 
subject to the Size Limitation and Market Wide Risk Protections thereby 
protecting investors and the general public. Of note, the Market Wide 
Risk Protection is a new protection being adopted by this proposal.
Order Entry Protocols
    The Exchange's proposal to amend the rule text currently in 
Supplementary Material .03(a) of Options 3, Section 7 is consistent 
with the Act. The addition of post trade allocation messages to the 
list of features that will be included in FIX will enhance that feature 
at no cost. Today, ISE, GEMX and MRX provides for post trade allocation 
messages through FIX.\133\
---------------------------------------------------------------------------

    \133\ See Supplementary Material .03(a) of Options 3, Section 7.
---------------------------------------------------------------------------

Routing
    The Exchange's proposal to relocate the rule text at Options 3, 
Section 7(d) to Supplementary Material .04 of Options 3, Section 7 
without change is a non-substantive amendment.
Options 3, Section 8
    The Exchange's proposal to amend Options 3, Section 8, Options 
Opening Process, at Options 3, Section 8(b) to note the eligible 
interest that will be included in the Opening Process, is consistent 
with the Act. The Exchange proposes to note that ``Eligible interest 
during the Opening Process includes Valid Width Quotes, Opening Sweeps, 
and orders, including Opening Only Orders, but excluding orders with a 
Time-In-Force of ``Immediate or Cancel'' and Add Liquidity Orders. 
Quotes, other than Valid Width Quotes, will not be included in the 
Opening Process. The displayed and non-displayed portions of the 
Reserve Orders are considered for execution and in determining the 
Opening Price throughout the Opening Process. Non-SQT Market Makers may 
submit orders.'' The Exchange notes that today, Opening Only Orders are 
eligible for the Opening Process but not Immediate or Cancel Orders. 
With the addition of the Add Liquidity Orders and the Reserve Orders, 
the Exchange is proposing to note how those order types are accepted by 
the System for the Opening Process. The proposed eligibility of these 
orders mirror ISE, GEMX and MRX Options 3, Section 8(b). Also, similar 
to ISE, GEMX and MRX Options 3, Section 8(g), the Exchange proposes to 
account for the addition of Reserve Orders with respect to the 
Potential Opening Price \134\ in Phlx Options 3, Section 8(h). The 
Exchange notes that to calculate the Potential Opening Price, the 
System will take into consideration all Valid Width Quotes and orders 
(including Opening Sweeps and displayed and non-displayed portions of 
Reserve Orders) for the option series and identify the price at which 
the maximum number of contracts can trade (``maximum quantity 
criterion''). The Exchange believes that the addition of this rule text 
will make clear the manner in which the System will handle a Reserve 
Order during the Opening Process.
---------------------------------------------------------------------------

    \134\ The Potential Opening Price indicates a price where the 
System may open once all other Opening Process criteria is met.
---------------------------------------------------------------------------

    The Exchange's proposal to amend Options 3, Section 8(h)(A), which 
currently describes how the Potential Opening Price would be calculated 
when there is more than one Potential Opening Price is consistent with 
the Act. Today, Section 8(h)(A) provides that when two or more 
Potential Opening Prices would satisfy the maximum quantity criterion 
and leave no contracts unexecuted, the System takes the highest and 
lowest of those prices and takes the mid-point; if such mid-point is 
not expressed as a permitted minimum price variation, it will be 
rounded to the minimum price variation that is closest to the closing 
price for the affected series from the immediately prior trading 
session. If there is no closing price from the immediately prior 
trading session, the System will round up to the minimum price 
variation to determine the Opening Price. The Exchange now proposes to 
no longer round in the direction of the previous trading day's closing 
price and simply round up to the minimum price variation if the mid-
point of the high/low is not expressed as a permitted minimum price 
variation. The proposed changes are intended to simplify and bring 
greater transparency to the Opening Process, as market participants can 
now have a better sense of how the Potential Opening Price will be 
calculated without having to account for the closing price of each 
options series.
    Amending Options 3, Section 8(j)(7), which currently describes the 
determination of Opening Quote Range (``OQR'') boundaries, in certain 
scenarios is consistent with the Act. Specifically, the Exchange 
proposes to amend the last sentence of Options 3, Section 8(j)(7) which 
currently states, ``The System will route routable Public Customer and 
Professional interest pursuant to Options 3, Section 10(a)(1)(A).'' The 
Exchange proposes to remove the current limitation that only allows 
routable Public Customer and Professional interest to route during the 
Opening Process thereby permitting all market participants to route and 
removes the impediments to and perfects the mechanism of a free and 
open market and a national market system. All routable market 
participant interest will be allowed to route to align the Exchange's 
opening functionality with ISE, GEMX and MRX which does not limit 
orders that may route in the Opening Process within Options 3, Section 
8. The Exchange will also update the cross-cite to Options 3, Section 
10(a)(1)(A), currently pointing to the Public Customer priority 
overlay, to the more general priority rule in Options 3, Section 10(a).
    Similar to other changes noted herein, the Exchange proposes to 
amend Options 3, Section 8(k)(C)(6) to note how Reserve Orders will be 
handled in the Opening Process for purposes of execution. This rule 
text will add transparency to Phlx's rule text similar to ISE, GEMX and 
MRX Options 3, Section 8(j)(6). Additionally, the Exchange proposes an 
amendment to the last sentence of Options 3, Section 8(k)(C)(6) which 
currently states, ``The System will only route non-contingency Public 
Customer and Professional orders.'' In line with proposed amendments to 
permit the System to route all market participant interest, thereby 
removing the limitation that

[[Page 106918]]

only allows routable Public Customer and Professional interest to 
route, and in line with the addition of rule text related to the 
handling of Reserve Orders.
    The Exchange proposes to amend Options 3, Section 8(k)(D) to mirror 
rule text in Options 3, Section 8(j)(6)(i) which states, ``The System 
will cancel any order or quote that is priced through the Opening 
Price. All other interest will be eligible for trading after opening.'' 
Today, the System will cancel any order or quote priced through the 
Opening Price on Phlx. Also, today, all other interest will be eligible 
for trading after the Opening Process and will remain on the order 
book. The Exchange believes that this rule text will bring greater 
transparency to Phlx's Opening Process.
    Finally, the Exchange proposes to amend rule text in the Opening 
Process Cancel Timer in Options 3, Section 8(l). With the adoption of 
the Good-Til-Cancel Order and Good-Till-Date Order, the Exchange 
proposes to rename the order types in the last sentence of Options 3, 
Section 8(l) for consistency.
Options 3, Section 9
    The Exchange's proposal to amend Options 3, Section 9, Trading 
Halts, at (d)(3) to amend the manner in which a Stop Order will be 
treated during a trading halt is consistent with the Act. The Exchange 
proposes to mirror the treatment of Stop Orders in ISE, GEMX and MRX 
Options 3, Section 9(d)(3). Today, after the opening, the Exchange will 
elect Stop Orders, as defined in Options 8, Section 32(c)(2), and, 
because they become Market Orders, shall cancel them back and notify 
member organizations of the reason for such cancellation. The Exchange 
proposes to note that Stop Orders become elected as provided for in 
proposed Options 3, Section 7(d).\135\ The Exchange currently cites to 
Options 8, Section 32 erroneously, as those rules refer to Stop Orders 
on the trading floor. The Exchange proposes to instead cite proposed 
new Options 3, Section 7(d) which describes electronic Stop Orders. The 
Exchange also proposes to note that the System cancels orders. Also, 
the Exchange proposes to change the word rejection to cancellation 
because the order would be cancelled not rejected. These proposed 
changes are intended to bring greater clarity to the Exchange's rules.
---------------------------------------------------------------------------

    \135\ As proposed in Phlx Options 3, Section 7(d) a Stop Order 
becomes a Market Order when the stop price is elected. A Stop Order 
to buy is elected when the option is bid or trades on the Exchange 
at, or above, the specified stop price. A Stop Order to sell is 
elected when the option is offered or trades on the Exchange at, or 
below, the specified stop price.
---------------------------------------------------------------------------

Options 3, Section 10
    The Exchange's proposal to amend Options 3, Section 10, Electronic 
Execution Priority and Processing in the System, is consistent with the 
Act. Phlx proposes to amend its rounding methodologies to round up to 
the nearest integer throughout the Rule. The Exchange is opting to 
round up and not down, uniformly, and disclose that rounding 
methodology directly within Options 3, Section 10, so that all member 
organizations are aware of the rounding methodology that would be 
utilized by the System. In addition, if the result of an allocation is 
not a whole number, it will now be rounded up to the nearest whole 
number instead of down. Finally, with respect to rounding, because it 
is rounding up, the provisions which describe allocations for 
remainders of less than one contract cannot occur and therefore this 
rule text is being removed, as such remainders would not be 
mathematically possible. The Exchange believes that rounding up 
uniformly is consistent with the Act because it provides for the 
equitable allocation of contracts among the Exchange's market 
participants. The Exchange proposes to provide market participants with 
transparency as to the number of contracts that they are entitled to 
receive as the result of rounding. Further, the Exchange believes that 
this methodology produces an equitable outcome during allocation that 
is consistent with the protection of investors and the public interest 
because all market participants are aware of the methodology that will 
be utilized to calculate outcomes for allocation purposes. The Exchange 
proposes to amend Options 3, Section 10(a)(1)(B) to change a reference 
to ``DROT'' to ``Directed Market Maker'' for consistency.
    The Exchange proposes to amend Options 3, Section 10(a)(1)(C) to 
provide that ``After all Public Customer orders have been fully 
executed, upon receipt of a Directed Order pursuant to Options 2, 
Section 10, provided the Directed Market Maker's quote is at the better 
of the internal PBBO or the NBBO, the Directed Market Maker will be 
afforded a participation entitlement. This participation entitlement 
will be considered after the Opening Process.'' Today, a Directed 
Market Maker's quote or market maker order must be at the better of the 
internal PBBO or NBBO. The Exchange believes that similar to ISE, GEMX 
and MRX Options 3, Section 10(c)(1)(C), that market maker orders should 
not be considered when offering Directed Market Maker Priority. The 
Exchange proposes to only offer the Directed Market Maker allocation if 
a Directed Market Maker's quote is at the better of the internal PBBO 
or the NBBO and not an order. Consistent with this change, the Exchange 
proposes to remove ``or order(s)'' after quote throughout Options 3, 
Section 10(a)(1)(C). Only offering a Directed Market Maker an enhanced 
allocation on quotes is consistent with the obligations of a Directed 
Market Maker, to be quoting at the better of the internal PBBO or the 
NBBO at the time of receipt of the Directed Order.\136\
---------------------------------------------------------------------------

    \136\ See Phlx Options 2, Section 10.
---------------------------------------------------------------------------

    The Exchange's proposal to amend the Entitlement for Orders of 5 
contracts or fewer to align with ISE, GEMX and MRX Options 3, Section 
10(a)(1)(D) is consistent with the Act. The Exchange proposes to amend 
the last sentence to provide, ``On a quarterly basis, the Exchange will 
evaluate what percentage of the volume executed on the Exchange is 
comprised of orders for 5 contracts or fewer allocated to Lead Market 
Makers, and will reduce the size of the orders included in this 
provision if such percentage is over 40%.'' Today, the percentage is 
25%. Phlx notes that currently Lead Market Makers are not approaching 
the 25% threshold noted in Options 3, Section 10(a)(1)(D)(ii) related 
to the quarterly review of 5 contracts or fewer by the Exchange, which 
percentage is based on total volume executed. With this proposal, Phlx 
will monitor the frequency in which Lead Market Makers receive orders 
for 5 contracts or fewer. Specifically, the Exchange will review the 
proposed provision quarterly and will maintain the orders for 5 
contracts or fewer at a level that will not allow these small size 
orders executed by Lead Market Makers to account for more than 40% of 
the volume executed on the Exchange. The Exchange does not believe the 
proposal raises any new or novel issues as other options exchanges also 
offer the same allocation for orders for 5 contracts or fewer.\137\ The 
Exchange believes that providing this benefit offers Lead Market Makers 
an incentive for vigorous quoting since a Lead Market Maker must be 
quoting at the NBBO in order to receive the allocation. Incentivizing 
Lead Market Makers to provide liquidity on Phlx, in turn, provides 
greater opportunity for executions, tighter spreads, and better pricing 
for all member organizations. While the Commission has, in the past, 
been concerned about locking up larger

[[Page 106919]]

portions of order flow from intra-market price competition, the 
Exchange believes that the enhancement would remain adequately balanced 
by the increased 40% threshold that limits the volume of orders of five 
contracts or fewer that are executed by Lead Market Makers to account 
for no more than 40% of the volume executed on the Exchange. The 
proposed increased limitation of 40% continues to strike a reasonable 
balance between encouraging vigorous price competition by Lead Market 
Makers and rewarding those Lead Market Makers for their unique duties. 
Lead Market Maker are also subject to the heightened quoting 
requirements specified in Options 2, Section 5(c)(2)(B). Finally, 
changing the percentage from 25% to 40% will align Phlx with ISE, GEMX 
and MRX and permit market makers to have the same compliance across the 
Nasdaq exchanges.\138\
---------------------------------------------------------------------------

    \137\ See ISE, GEMX and MRX Options 3, Section 10(a)(1)(D).
    \138\ BX also utilizes 40%. See Options 3, Sections 
10(a)(1)(C)(1)(c) and 10(a)(2)(iii).
---------------------------------------------------------------------------

    Similar to ISE, GEMX and MRX Options 3, Section 10(c)(1)(E), the 
Exchange proposes to account for Reserve Orders in proposed Options 3, 
Section 7(g)(3). The Exchange proposes to cite to proposed Section 
7(g)(3) which provides that the displayed portion of a Reserve Order 
will trade in accordance with Options 3, Section 10(a)(1)(A) for Public 
Customer Orders and this subparagraph (F) for non-Public Customer 
Orders. The Exchange also proposes to add a citation to 10(a) in this 
paragraph for clarity.
Options 3, Section 15
Order Price Protection
    The Exchange's proposal to amend its Order Price Protection or 
``OPP'' (also known as the fat finger check) in Options 3, Section 
15(a)(1) to align certain features with the OPP functionality currently 
offered by its affiliates, NOM and BX, is consistent with the Act. The 
Exchange believes that the proposed changes to OPP to introduce an 
alternative threshold that uses a configurable dollar amount, as 
discussed above, will allow Phlx to establish appropriate boundaries 
for rejecting potentially erroneous orders while continuing to allow 
member organizations to access liquidity. As discussed above, OPP is 
intended to prevent orders entered at clearly unintended prices from 
executing in the System to the detriment of market participants. OPP 
was not intended to reject legitimate orders which are otherwise 
capable of executing at a fair price. The Exchange's proposal will 
establish a fixed dollar amount as an alternative threshold in addition 
to the current percentage-based threshold, similar to NOM and BX 
Options 3, Section 15(a)(1). The Exchange believes its proposal will 
continue to protect investors and the public interest against erroneous 
executions while also allowing orders, including lower-priced orders, 
to execute where appropriate.
    The Exchange believes that its proposal is consistent with the Act 
because the fixed amount provides for a larger range of executions that 
would otherwise be rejected by the application of a percentage which 
would not capture the potential incremental executions. As illustrated 
above, orders could be rejected that were intentional and not 
erroneous. Similar to NOM and BX, the Exchange believes that the 
proposed approach will accomplish the goal of limiting erroneous 
executions while permitting intentional executions at reasonable 
prices.
    The Exchange also believes that its proposal to add rule text 
relating to Exchange discretion to temporarily deactivate OPP on an 
intra-day basis is consistent with the Act. As noted above, NOM and BX 
have identical language in Options 3, Section 15(a)(1)(A), and similar 
to NOM and BX, the Exchange believes that having this discretion will 
be useful if the Exchange determined that unusual market conditions 
warranted deactivation in the interest of a fair and orderly market. 
Like NOM and BX, the Exchange believes that it will be useful to have 
the flexibility to temporarily disable OPP intra-day in response to an 
unusual market event (for example, if dissemination of data was delayed 
and resulted in unreliable underlying values needed for the Reference 
BBO) to maintain a fair and orderly market. This will promote just and 
equitable principles of trade and ultimately protect investors.
    Lastly, the Exchange's proposal to amend Options 3, Section 
15(a)(1) to remove the current exclusion of ISOs and Complex Orders 
from the OPP rule is consistent with the Act. The proposed changes to 
remove the exclusion of ISOs so that OPP would apply to them going 
forward is consistent with the Act as this will promote the goal of 
limiting erroneous executions on the Exchange and in general, extend 
more protections to ISOs. As discussed above, the Exchange believes 
this is appropriate given that the proposed alternative threshold will 
permit more lower-priced ISOs to execute at reasonable prices. Finally, 
the Exchange is removing Complex Orders as the simple risk protections 
do not apply to Complex Orders, rather the Complex Order risk 
protections in Options 3, Section 16 would apply.
Market Wide Risk Protection
    The Exchange believes that the proposed rule change to adopt MWRP 
would assist with the maintenance of a fair and orderly market by 
establishing new activity based risk protections for orders. The 
proposed MWRP is similar to risk management functionality provided in 
ISE, GEMX and MRX Options 3, Section 15(a)(1)(C). Similar to ISE, GEMX 
and MRX, the Exchange believes that the proposed rule change may reduce 
member organization risk by allowing them to effectively manage their 
exposure to excessive risk. In particular, the proposed rule change 
would implement two new risk protections based on the rate of order 
entry and order execution, respectively. The Exchange believes that 
both of these new protections, which together encompass the proposed 
MWRP, would enable member organizations to better manage their risk 
when trading options on the Exchange by limiting the member 
organization's risk exposure when systems or other issues result in 
orders being entered or executed at a rate that exceeds predefined 
thresholds. In today's market, the Exchange believes that robust risk 
management is becoming increasingly more important for all member 
organizations. The proposed rule change would provide an additional 
layer of risk protection for market participants that trade on the 
Exchange.
    In particular, the MWRP is designed to reduce risk associated with 
system errors or market events that may cause member organizations to 
send a large number of orders, or receive multiple, automatic 
executions, before they can adjust their exposure in the market. 
Without adequate risk management tools, such as those proposed in this 
filing, member organizations could reduce the amount of order flow and 
liquidity that they provide. Such actions may undermine the quality of 
the markets available to customers and other market participants. 
Accordingly, the proposed functionality is designed to encourage member 
organizations to submit additional order flow and liquidity to the 
Exchange, thereby removing impediments to and perfect the mechanisms of 
a free and open market and a national market system and, in general, 
protecting investors and the public interest.
Anti-Internalization
    The Exchange believes that the proposed rule change to enhance AIQ 
is consistent with the protection of

[[Page 106920]]

investors and the public interest as it is designed to provide Market 
Makers with additional flexibility with respect to how to implement 
self-trade protections provided by AIQ. Currently, all Market Makers 
are provided functionality that prevents quotes and orders from one 
market participant identifier from trading with quotes and orders from 
the same market participant identifier. This allows Market Makers to 
better manage their order flow and prevent undesirable executions where 
the Market Maker, using the same market participant identifier, would 
be on both sides of the trade. While this functionality is helpful to 
member organizations, some member organizations may prefer not to trade 
with quotes and orders entered by different market participant 
identifiers within the same Exchange account or member organization 
firm. The Exchange is therefore proposing to provide member 
organizations with flexibility with respect to how AIQ is implemented. 
As such, member organizations can continue to use current 
functionality, or member organizations that prefer to prevent self-
trades across different market participant identifiers within the same 
Exchange account or at the member organizations firm level will now be 
provided with the means to do so under this proposal. Similar 
flexibility is offered on ISE, GEMX and MRX.\139\ Similar to ISE, GEMX 
and MRX, the Exchange believes that flexibility to apply AIQ at the 
Exchange account or member organization firm level would be useful for 
the Exchange's member organizations as well. The Exchange believes that 
the proposed rule change is designed to promote just and equitable 
principles of trade and will remove impediments to and perfect the 
mechanisms of a free and open market as it will further enhance self-
trade protections provided to Market Makers similar to those 
protections provided on other markets.
---------------------------------------------------------------------------

    \139\ See ISE Options 3, Section 15(a)(3)(A). See also NOM and 
BX Options 3, Section 15(c)(1), which provide similar flexibility.
---------------------------------------------------------------------------

Quotation Adjustments
    The Exchange believes that the proposed rule change is consistent 
with the Act because it will enhance the risk protection tools 
available to Market Makers by introducing new Delta and Vega Thresholds 
that will be offered in conjunction with the current Percentage and 
Volume Thresholds, thereby strengthening a Market Maker's ability to 
manage their risk on the Exchange. The proposed thresholds are 
functionally identical to the Delta and Vega Thresholds provided in 
ISE, GEMX and MRX Options 3, Section 15(a)(3)(B). Similar to ISE, GEMX 
and MRX, the Exchange believes that the proposed rule change may reduce 
Market Maker risk by allowing them to effectively manage their exposure 
to excessive risk. Accordingly, the Exchange believes that the proposal 
removes impediments to, and perfects the mechanism of, a free and open 
market and a national market system, and protects investors and the 
public interest.
    The proposed changes to amend when Rapid Fire and Multi-Trigger 
will be triggered and the modification to the Specified Time Periods, 
as discussed above, will bring greater harmonization between the 
Exchange's rules and ISE's, GEMX's and MRX's rules. Amending the 
current Rapid Fire functionality to no longer remove IOC Orders 
submitted through SQF, identical to ISE, GEMX, MRX and BX, is 
consistent with the Act as Market Makers quote to provide liquidity on 
the Exchange and the risk protection is intended to provide a 
protection to those participants when acting as liquidity providers. 
Market Makers utilizing IOC Orders may also provide liquidity but to a 
lesser extent. The Exchange believes that limiting the risk protection 
to quotes, similar to other Nasdaq affiliated markets, continues to 
protect investors while not also purging IOC orders which may interact 
against other interest on the Exchange. With the proposed changes, 
Phlx's Rapid Fire and Multi-Trigger will be triggered when their 
respective thresholds are exceeded (instead of when they are met or 
exceeded, as is currently the case) and the Specified Time Periods will 
be amended from 15 to 30 seconds, all of which will be substantially 
similar to ISE's, GEMX's and MRX's current approach. The Exchange 
believes that having more consistent rules will result in greater 
uniformity as well as less burdensome and more efficient regulatory 
compliance. In addition, offering more consistent functionality across 
Phlx, ISE, GEMX and MRX will contribute to less complexity and reduce 
potential confusion for market participants on Phlx that are also 
participants on ISE, GEMX and MRX. As such, the Exchange believes that 
the proposed changes would foster cooperation and coordination with 
persons engaged in facilitating transactions in securities and would 
remove impediments to and perfect the mechanism of a free and open 
market and a national market system.
Active Quote Protection
    The Exchange believes that the proposed Active Quote Protection 
risk protection is consistent with the Act because it will enhance the 
risk protection tools available to Market Makers and Groups by 
introducing a new method of establishing and monitoring for risk 
parameters that will be offered as an alternative to existing Rapid 
Fire risk parameters, thereby supporting a Market Maker's ability to 
manage their risk on the Exchange, and also providing them with 
flexibility to use additional tools to manage risk. As noted above, 
while the passive (Rapid Fire) and active (Active QP) risk counter 
functionality will be mutually exclusive on each badge, Market Makers 
will still be able to use both to cover their activity on the Exchange 
by getting multiple badges and setting each risk counter by badge. The 
Exchange believes that offering more risk management tools to Market 
Makers would mitigate their exposure to excessive risk. The Exchange 
further believes that having the new Active Quote Protection 
functionality leverage the existing Multi-Trigger functionality will 
similarly support a Market Maker's ability to manage their risk on the 
Exchange by including Active Quote Protection purge events to the 
Multi-Trigger counter. As noted above, the risk to Market Makers is not 
limited to a single series in an option or even multiple series in an 
option as Market Makers that quote in multiple series of multiple 
options have significant exposure, requiring them to offset or hedge 
their overall positions. Market Makers are required to continuously 
quote in assigned options, and quoting across many series in an option 
or multiple options creates the possibility of executions that can 
create large, unintended principal positions that could expose Market 
Makers to unnecessary risk. Today, Multi-Trigger is designed to assist 
Market Makers or a Group in managing their market risk by tracking the 
number of Purge Events relative to the market-wide parameter set by the 
Market Maker or the Group. The Exchange therefore believes that 
tracking the number of Active Quote Protection purge events for a 
Market Maker against its Multi-Trigger Threshold would be similarly 
useful for managing market risk so that they can provide deep and 
liquid markets to the benefit of all investors. Ultimately, the 
Exchange believes that providing Market Makers with additional tools in 
the manner described above to manage their risk parameters serves to 
perfect the mechanism of a free and open

[[Page 106921]]

market and a national market system, and, in general to protect 
investors and the public interest because Market Makers will be better 
able to manage risks with these tools.
    The Exchange further represents that its proposal will continue to 
operate consistently with the firm quote obligations of a broker-dealer 
pursuant to Rule 602 of Regulation NMS. Specifically, any marketable 
interest that is executable against a Market Maker's quotes that are 
received \140\ by the Exchange prior to the time this functionality is 
triggered will be automatically executed at the price up to the Market 
Maker's size, regardless of whether such execution results in 
executions in excess of the Market Maker's pre-set Contract Limit.\141\ 
As discussed above, this is also in line with how current Rapid Fire 
operates today. The Exchange believes that the proposed changes in 
proposed sub-paragraph (D)(ii) to specify that this Rule will apply to 
marketable orders and quotes (currently silent on marketable orders), 
and to specify the time of receipt of such marketable interest that is 
executable against the size of the Market Maker's quote, will promote 
clarity in how the System currently operates for Rapid Fire and will 
operate for Active Quote Protection. As noted above, the proposed 
Active Quote Protection functionality is similar to existing active 
risk counter functionality on ISE, GEMX and MRX Options 3, Section 
15(c)(2)(B).
---------------------------------------------------------------------------

    \140\ The time of receipt for an order or quote is the time such 
message is processed by the Exchange's order book.
    \141\ See proposed subparagraph (D)(ii) of Phlx Options 3, 
Section 15(c)(2).
---------------------------------------------------------------------------

Post-Only Quoting Protection
    The Exchange's proposal to amend Options 3, Section 15, Risk 
Protections, to codify new paragraph (c)(3) to permit Phlx Market 
Makers to prevent their quotes from removing liquidity from the 
Exchange's order book promotes equitable principles of trade and 
protects investors and the public interest by enhancing the risk 
protections available to Phlx Market Makers. The proposal also promotes 
the policy goals of the Commission which has encouraged execution 
venues, exchanges, and non-exchanges alike, to enhance risk protection 
tools and other mechanisms to decrease risk and increase stability. 
While Market Makers may manage their risk by utilizing the Post-Only 
Quote Configuration to avoid removing liquidity from the Exchange's 
order book if their quote would otherwise lock or cross any resting 
order or quote on the Phlx order book upon entry, there are also 
downstream benefits to market participants. Additionally, the benefits 
of enhanced risk protections flow downstream to counterparties both 
within and away from the Exchange, thereby increasing systemic 
protections as well.
    The proposed risk protection allows Market Makers the ability to 
avoid removing liquidity from the Exchange's order book if their quote 
would otherwise lock or cross any resting order or quote on Phlx's 
order book upon entry, thereby protecting investors and the general 
public as Phlx Market Makers transact a large number of orders on the 
Exchange and bring liquidity to the marketplace. Market Makers would 
utilize the proposed risk protection to avoid unexpectedly taking 
liquidity off of the order book. As a result of taking liquidity, 
Market Makers would incur a taker fee that may impact the Market 
Maker's ability to provide liquidity and meet quoting obligations. Phlx 
Market Makers are required to add liquidity on the Exchange and, in 
turn, are rewarded with lower pricing and enhanced allocations. 
Specifically, the risk protection would permit Market Makers to add 
liquidity only and avoid removing interest on the order book thereby 
maximizing the benefit of their quoting to bring liquidity to Phlx by 
allowing Market Makers to provide as much liquidity as possible, 
thereby removing impediments to and perfecting the mechanism of a free 
and open market and a national market system and protecting investors 
and the public interest. There is no impact to other market 
participants by introducing this Post-Only Quote Configuration as other 
non-Market Makers may utilize the proposed Add Liquidity Only order 
type that will continue to benefit downstream counterparties, both 
within and away from the Exchange, who may interact with interest on 
Phlx's order book and thereby interact with order flow that is priced 
better than the NBBO. Also, other market participants may interact with 
the liquidity provided by Market Makers.
    Unlike other market participants, Market Makers have certain 
obligations on the market. Market Makers are required to provide 
continuous two-sided quotes on a daily basis \142\ and are subject to 
various obligations associated with providing liquidity on the 
market.\143\ Market Makers are the sole liquidity providers on the 
Exchange and, therefore, are offered certain quote risk protections 
noted within Phlx Options 3, Section 15 to allow them to manage their 
risk more effectively. The proposed Post-Only Quote Configuration is 
another risk protection afforded to Market Makers to assist them in 
managing their risk while continuing to comply with their obligations. 
The Exchange notes that enhancing the ability of Market Makers to add 
liquidity and avoid taking liquidity from the order book promotes just 
and equitable principles of trade on the Exchange and protects 
investors and the public interest, thereby enhancing market structure 
by allowing Market Makers to add liquidity only. Greater liquidity 
benefits all market participants by providing more trading 
opportunities and attracting greater participation by Market Makers. 
Also, an increase in the activity of Market Makers in turn facilitates 
tighter spreads.
---------------------------------------------------------------------------

    \142\ See Phlx Options 2, Section 5.
    \143\ See Phlx Options 2, Section 4.
---------------------------------------------------------------------------

Options 3, Section 23
    The Exchange's proposal to amend Phlx Options 3, Section 23, Data 
Feeds and Trade Information, is consistent with the Act. Amending the 
name of various market data feeds in Phlx Options 3, Section 23(a) is a 
non-substantive amendment that will harmonize the names of the feeds to 
ISE, GEMX and MRX Options 3 Section 23(a).
    The Exchange believes that it is consistent with the Act to no 
longer offer TradeInfo when the Exchange migrates over the enhanced 
Nasdaq functionality, as there is a lack of demand from member 
organizations.\144\ As noted above, member organizations use FIX and 
CTI to obtain order information currently available in TradeInfo, and 
to cancel orders through FIX. The Exchange further believes that the 
proposed decommission of TradeInfo will remove impediments to and 
perfect the mechanism of a free and open market and a national market 
system by allowing the Exchange to reallocate System capacity and 
resources currently used to maintain this functionality to the 
development and maintenance of other business initiatives and risk 
management products.
---------------------------------------------------------------------------

    \144\ As noted above, the Exchange will provide prior notice of 
the decommission to all member organizations through an Options 
Trader Alert.
---------------------------------------------------------------------------

    Further, the Exchange's proposal to eliminate TradeInfo pricing 
from Options 7, Section 9B in its entirety is reasonable, equitable, 
and not unfairly discriminatory because TradeInfo would no longer be 
available to any member organization. It is reasonable to remove all 
references to TradeInfo pricing from the Exchange's Pricing Schedule as 
the Exchange is removing this functionality

[[Page 106922]]

from its Rulebook. Additionally, it is equitable and not unfairly 
discriminatory to remove the references to TradeInfo pricing from the 
Pricing Schedule because no member organization would be able to 
utilize this functionality once it is removed from the System.
Options 3, Section 28
    The Exchange believes that introducing the optional risk 
protections as described above will protect investors and the public 
interest, and maintain fair and orderly markets, by providing market 
participants with another tool to manage their order risk. In addition, 
providing member organizations with more tools for managing risk will 
facilitate transactions in securities because member organizations will 
have more confidence that risk protections are in place. As a result, 
the new functionality has the potential to promote just and equitable 
principles of trade. ISE, GEMX and MRX offer identical optional risk 
protections at Options 3, Section 28.
Options 5, Section 4
    The Exchange's proposal to amend Options 5, Section 4, Order 
Routing, to align Phlx's routing to ISE Options 4, Section 5 is 
consistent with the Act. The Exchange's proposal to align its rules 
with ISE will provide Phlx member organizations the same flexibility 
for routing orders that is afforded to ISE Members today.
    With respect to FIND and SRCH, the Exchange is adding more detail 
to its routing rule to provide market participants with greater 
transparency. The Exchange believes the added scenarios will provide 
more context to routing in general and for the specific routing 
strategies for the benefit of investors and the public interest. The 
Exchange continues to offer various choices to its market participants 
with respect to routing. A member organization may elect either (1) to 
not route their orders and mark those orders ``DNR''; or (2) to route 
their orders. If a member organization elects to route their orders, 
then a member organization may select to mark their orders as ``FIND'' 
or ``SRCH'' Orders, as proposed herein. Once booked, a FIND Order that 
is not marketable with the ABBO upon receipt will be treated as DNR for 
the remainder of the trading day, even in the event that there is a new 
Opening Price after a trading halt.
    The FIND Order would route once and then post to the Order Book. A 
SRCH Order may route during and after an Opening Process. A SRCH Order 
on the Order Book may be routed to an away market if it is locked or 
crossed by an away market. With respect to the addition of FIND Orders, 
the Exchange proposes various scenarios related to FIND Orders to 
account for various routing scenarios, as is the case today with 
respect to SEEK Orders. Various scenarios are also proposed to explain 
System functionality in locked and crossed markets and organized in 
such a manner to make the rule text efficient and organized. The 
Exchange also accounts for scenarios both during and after the Opening 
Process. The Exchange notes that it is consistent with the Act to 
account for the behavior of FIND Orders with respect to locked and 
crossed markets. The Exchange will not trade-through an away market's 
price. This behavior is consistent with the protection of investors and 
the general public because it affords member organizations the ability 
to obtain the best price offered among the various options markets.
    The Exchange's proposal to amend Options 5, Section 4(a) to include 
Stop-Limit Orders in addition to Stop Orders in the list of order types 
that are not included in the PBBO because they have not been triggered 
is consistent with the Act as the Exchange's proposal adopts the Stop 
Order at ISE Options 3, Section 7(d) and Stop Limit Order at ISE 
Options 3, Section 7(e). The Exchange proposes to reflect both order 
types. As is the case today, the Exchange proposes to note, similar to 
ISE Options 4, Section 5(a) that when checking the order book, the 
System will seek to execute at the price at which it would send the 
order to an away market. The Exchange believes that this sentence will 
bring greater clarify to the Exchange's rule. Similarly, the Exchange 
proposes to add text to clarify its current System behavior for TIFs. 
Today, routing options may be combined with all available order types 
and times-in-force, with the exception of order types and times-in-
force whose terms are inconsistent with the terms of a particular 
routing option. The Exchange also believes this sentence will clarify 
the current operation of the routing System. Finally, as is the case 
today, the Exchange proposes to note the time the routing System is 
available, the ability to list an order as non-routable and cross-
reference the locked and crossed rules. The Exchange would state, ``The 
order routing process shall be available to members from 9:30 a.m. 
Eastern Time until market close and shall route orders as described 
below. Member organizations can designate orders as either available 
for routing or not available for routing. All routing of orders shall 
comply with Options 5, Options Order Protection and Locked and Crossed 
Market Rules.'' This proposed rule text merely provides greater 
transparency to the Exchange's current System operation and harmonizes 
Phlx's rule text to ISE Options 4, Section 5(a).
Options 6, Section 1
    The Exchange's proposal to amend Options 6, Section 1, 
Authorization to Give Up, to align Phlx's process to that of ISE, GEMX 
and MRX Options 6, Section 1 by permitting electronic only members to 
systematically indicate a Give-Up at the time of trade, instead of in 
the post allocation process, is consistent with the Act as it will 
remove impediments to and perfect the mechanism of a free and open 
market and a national market system and align the process for 
electronic members to that of floor members while continuing to honor 
the Clearing Member's instruction. The Exchange's alignment of its 
process will continue to provide proper safeguards and protections for 
Clearing Members as well as controls for Clearing Members to restrict 
access to their OCC clearing numbers, allowing access only to those 
Authorized Members upon their request. The proposal will harmonize 
Phlx's Options 6, Section 1 rule to ISE, GEMX and MRX Options 6, 
Section 1.
Options 8, Section 32
    The Exchange's proposal to amend an All-Or None Order at current 
Options 8, Section 32(b)(3) to remove the restriction that only a 
Public Customer can submit it is consistent with the Act. The Exchange 
proposes to remove this restriction so that any market participant may 
enter this order type. The Exchange believes that making these order 
types available to all market participants removes impediments to and 
perfects the mechanism of a free and open market and a national market 
system. The Exchange's proposal to add an OPG TIF as an available TIF 
for the trading floor will provide greater clarity to the Exchange's 
rules as this TIF is available on the trading floor and was erroneously 
omitted from the list of order types. Today, the TIF is available for 
floor participants. Any floor participant may enter the TIF of OPG on 
the trading floor. The remainder of the proposed changes are non-
substantive numbering amendments.

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

[[Page 106923]]

necessary or appropriate in furtherance of the purposes of the Act. As 
discussed above, the Exchange is re-platforming its System in 
connection with the technology migration to enhanced Nasdaq 
functionality, which the Exchange believes would promote competition 
among options exchanges by potentially attracting additional order flow 
to the Exchange with the enhanced trading platform. The basis for the 
majority of the proposed rule changes are the rules of the Nasdaq 
affiliated options exchanges, which have been previously filed with the 
Commission as consistent with the Act.
Options 2, Section 6
    The Exchange believes that this proposal does not impose an undue 
burden on inter-market competition because each options exchange 
generally determines permissible order types for market makers in its 
trading environment based on the exchange's individual business policy, 
objectives, and trading system.
    The Exchange's proposal reflects its policy and objectives, and 
does not impose an undue burden on intra-market competition because it 
treats all Market Makers uniformly with respect to permissible order 
types. Market Makers, unlike other market participants, are required to 
abide by certain quoting requirements in the options classes in which 
they are appointed pursuant to Options 2, Section 5, in order to 
maintain the status of a Market Maker. The Exchange also notes that 
Options 2, Section 6(b) restricts the number of orders that a Market 
Maker may enter in an options class to which the Market Maker is not 
appointed. The Exchange believes that permitting a Market Maker to 
enter additional eligible order types, except Customer Cross Orders and 
Reserve Orders, in their appointed options class will permit Market 
Makers additional latitude to conduct business on Phlx and effectively 
compete with other market makers on other options exchanges.
Options 3, Section 4
    Phlx's proposal to amend Options 3, Section 4(b)(6) to permit 
member organizations to configure their ports to instruct the Exchange 
to immediately cancel a quote that would otherwise cause a locked or 
crossed market violation in lieu of re-pricing the quote does not 
impose an undue burden on inter-market competition because other 
options exchanges may offer similar functionality.
    The proposal does not impose an undue burden on intra-market 
competition because all Market Makers may utilize the functionality 
when entering quotes into the System.
Options 3, Section 6
    The Exchange's proposal to discontinue Quote Exhaust does not 
impose an inter-market burden on competition as other exchanges may 
determine to adopt or discontinue a similar functionality.
    The Exchange's proposal to discontinue Quote Exhaust does not 
impose an intra-market burden on competition as no member organization 
would be subject to the Quote Exhaust functionality. Further, with 
respect to the interaction between the Quote Exhaust and risk 
protections, the proposal does not impose an intra-market burden on 
competition because instead of first being posted at the Quote Exhaust 
Reference Price, aggressively priced orders would be able to post to 
the order book immediately at the ATR Threshold, which would allow for 
quicker order execution while still providing order exposure and pauses 
between price bands, which continues to allow for risk mitigation. Once 
discontinued, the Exchange's quoting functionalities will abide by Phlx 
Options 3, Section 4 which governs the entry and display of orders and 
the allocation methodology in Options 3, Section 10. Finally, Phlx 
offers other risk protections to member organizations including an 
Acceptable Trade Range protection at Options 3, Section 15(b)(1), an 
Anti-Internalization protection at Options 3, Section 15(c)(1), and an 
Automated Quotation Adjustments protection at Options 3, Section 
15(b)(2).
    The Exchange's proposal to adopt a new rule in Options 3, Section 6 
that is identical to ISE, GEMX and MRX Options 3, Section 6 does not 
impose an inter-market burden on competition as other exchanges may 
adopt a similar rule.
    The Exchange's proposal to adopt a new rule in Options 3, Section 6 
that is identical to ISE, GEMX and MRX Options 3, Section 6 does not 
impose an intra-market burden on competition as this rule will apply 
uniformly to all quotations entered on the Exchange.
Options 3, Section 7
    The Exchange's proposal to amend Phlx's existing order types so 
that they are identical to order types available on ISE, GEMX and MRX 
Options 3, Section 7 and to adopt new order types such as a Fill-or-
Kill Order, Reserve Order, and Attributable Order does not impose an 
inter-market burden on competition as other exchanges may determine to 
adopt similar order types.
    The Exchange's proposal to amend Phlx's existing order types so 
that they are identical to order types available on ISE, GEMX and MRX 
Options 3, Section 7 and to adopt new order types such as a Fill-or-
Kill Order, Reserve Order, and Attributable Order does not impose an 
intra-market burden because all market participants would be able to 
utilize all of the order types, except Market Makers with respect to 
Reserve Orders. The Exchange's proposal would permit Market Makers (and 
Lead Market Makers) to enter Market Orders and Stop Orders. All non-
Public Customers would be permitted to enter AON Orders and Off-Floor 
Broker Dealers would not be restricted from entering AON Orders, Market 
Orders, Stop Market Orders, and public customer-to-public customer 
cross orders. Restricting Market Makers (and Lead Market Makers) from 
entering Reserve Orders does not impose an intra-market burden on 
competition because Market Maker (and Lead Market Maker) liquidity 
should be displayed, and Reserve Orders have non-displayed portions of 
liquidity.
    Finally, the Exchange would no longer classify a market participant 
as an Off-Floor Broker Dealer because it is eliminating that category.
Options 3, Section 8
    The Exchange's proposal to amend Options 3, Section 8, Options 
Opening Process, to make clarifying rule changes, add System detail 
concerning new order types, and adjust rounding does not impose an 
inter-market burden because other exchanges may adopt similar 
functionality. Today, ISE, GEMX and MRX Options 3, Section 8 contains 
similar functionality.
    The Exchange's proposal to amend Options 3, Section 8, Options 
Opening Process, to make clarifying rule changes, add System detail 
concerning new order types, and adjust rounding does not impose an 
intra-market burden because all market participants would be subject to 
the Opening Process. The Exchange is removing limitations to routing 
Public Customer and Professional interest from the Opening Process.
Options 3, Section 9
    The Exchange's proposal to amend Options 3, Section 9, Trading 
Halts, to mirror the treatment of Stop Orders in ISE, GEMX and MRX 
Options 3, Section 9(d)(3) and make other minor changes does not impose 
an inter-market burden because other exchanges may adopt similar 
functionality.

[[Page 106924]]

    The Exchange's proposal to amend Options 3, Section 9, Trading 
Halts, to mirror the treatment of Stop Orders in ISE, GEMX and MRX 
Options 3, Section 9(d)(3) and make other minor changes does not impose 
an intra-market burden because all market participants would be subject 
to the Trading Halts rule.
Options 3, Section 10
    The Exchange's proposal to amend Options 3, Section 10, Electronic 
Execution Priority and Processing in the System, to round up does not 
impose an inter-market burden because other exchanges may adopt similar 
rounding. The Exchange's proposal to amend Options 3, Section 10, to 
only offer the Directed Market Maker allocation if a Directed Market 
Maker's quote is at the better of the internal PBBO or the NBBO and not 
an order does not impose an inter-market burden because ISE, GEMX and 
MRX Options 3, Section 10(c)(1)(C) also allocate the Directed Market 
Maker enhancement in this manner. The Exchange's proposal to amend the 
Entitlement for Orders of 5 contracts or fewer to increase the 
percentage from 25% to 40% does not impose an inter-market burden on 
competition because ISE, GEMX and MRX Options 3, Section 10(a)(1)(D) 
provides for the same percentage.
    The Exchange's proposal to amend Options 3, Section 10, Electronic 
Execution Priority and Processing in the System, to round up does not 
impose an intra-market burden because the Exchange is opting to round 
up and not down, uniformly and the proposed rounding methodology 
provides for the equitable allocation of contracts among the Exchange's 
market participants. The Exchange's proposal to amend Options 3, 
Section 10, to only offer the Directed Market Maker allocation if a 
Directed Market Maker's quote is at the better of the internal PBBO or 
the NBBO and not an order does not impose an intra-market burden 
because the Directed Market Maker only has corresponding obligations 
related to quoting. The Exchange's proposal to amend the Entitlement 
for Orders of 5 contracts or fewer to increase the percentage from 25% 
to 40% does not impose an intra-market burden on competition because 
the Exchange will continue to evaluate all Market Makers in accordance 
with the proposed new obligation which is the same obligation that 
exists on other options exchanges today such as ISE, GEMX and MRX 
Options 3, Section 10(a)(1)(D). If Phlx were to continue to review its 
member organizations for compliance with the 25% threshold it would 
remain at a competitive disadvantage to other options markets that have 
a 40% threshold thereby making Phlx a less attractive venue for market 
making.
Options 3, Section 15
    As it relates to inter-market competition, the Exchange notes that 
the basis for the majority of the proposed rule changes in this filing 
are aligning with the rules of BX, NOM, ISE, GEMX or MRX, which have 
been previously filed with the Commission, and therefore promotes fair 
competition among the options exchanges. As noted above, the proposed 
changes to the risk protections will provide more consistent technology 
offerings across the Nasdaq affiliated exchanges, and for this reason, 
the Exchange does not believe its proposal will impose an undue burden 
on intermarket competition. The Exchange also notes that market 
participants on other exchanges are welcome to become participants on 
the Exchange if they determine if this proposed rule change has made 
Phlx a more attractive or favorable venue.
    All of the proposed changes related to the risk protections (OPP, 
MWRP, Acceptable Trade Range, Anti-Internalization, Quotation 
Adjustments, Post-Only Quoting Protection and Active Quote Protection) 
do not impose an undue burden on intra-market competition as they are 
all aimed at mitigating market participant risk associated with trading 
on the Exchange. The proposed changes are designed to benefit market 
participants in that they will provide a more consistent technology 
offering for market participants on Nasdaq affiliated exchanges. The 
Exchange also notes that some of the proposed risk controls (e.g., 
Delta and Vega Thresholds and Post Only Quoting Protection) are 
completely voluntary. The Post-Only Quoting Protection proposal does 
not impose a burden on inter-market competition, because member 
organizations may choose to become market makers on a number of other 
options exchanges, which may have similar but not identical features. 
The Exchange does not believe that the proposed Active Quote Protection 
functionality will impose any undue burden on intra-market competition 
as it is aimed at mitigating exposure to excessive risk when trading on 
the Exchange. While the Exchange will offer the proposed functionality 
to Market Makers only, the proposed risk protection is intended to 
provide Market Makers with an additional tool to manage their risk 
parameters in a manner they deem appropriate. As such, the Exchange 
believes that the proposed functionality may facilitate Market Makers' 
provision of liquidity on the Exchange, thereby benefitting all market 
participants through additional execution opportunities at potentially 
improved prices. Offering Market Makers the ability to configure their 
quotes as Post-Only will allow all market participants on Phlx to add 
liquidity only if desired. Further, the proposed risk protection allows 
Market Makers the ability to avoid removing liquidity from the 
Exchange's order book if their quote would otherwise lock or cross any 
resting order or quote on the order book upon entry, thereby protecting 
investors and the general public as Market Makers transact a large 
number of orders on the Exchange and bring liquidity to the 
marketplace. Market Makers are required to add liquidity on the 
Exchange and, in turn, are rewarded with lower pricing and enhanced 
allocations. Specifically, the risk protection would permit Market 
Makers to add liquidity only and avoid removing interest on the order 
book thereby maximizing the benefit of their quoting to bring liquidity 
to Phlx by allowing Market Makers to provide as much liquidity as 
possible. Unlike other market participants, Market Makers have certain 
obligations on the market. Market Makers are required to provide 
continuous two-sided quotes on a daily basis \145\ and are subject to 
various obligations associated with providing liquidity on the 
market.\146\ Market Makers are the sole liquidity providers on the 
Exchange and, therefore, are offered certain quote risk protections 
noted within Options 3, Section 15 to allow them to manage their risk 
more effectively.
---------------------------------------------------------------------------

    \145\ See Phlx Options 2, Section 5.
    \146\ See Phlx Options 2, Section 4.
---------------------------------------------------------------------------

Options 3, Section 23
    As it relates to the elimination of fees for TradeInfo from Options 
7, the Exchange believes that its proposal does not impose an undue 
burden on competition because TradeInfo would no longer be available to 
any Members. The Exchange notes that members can continue to receive 
similar information through CTI, which is available to all member 
organizations, and FIX can be used to cancel orders today, which is 
also available to all members.
Options 3, Section 28
    The Exchange believes that introducing the optional quantity and 
notional value risk protections does not impose an undue burden on 
inter-market competition as the identical functionality exists on ISE, 
GEMX and MRX at Options 3, Section 28.

[[Page 106925]]

    The Exchange believes that introducing the optional quantity and 
notional value risk protections does not impose an undue burden on 
intra-market competition as it will provide market participants with 
another tool to manage their order risk.
Options 5, Section 4
    The Exchange's proposal to amend its routing rule, similar to ISE 
Options 5, Section 4, with respect to FIND Orders and SRCH Orders, does 
not impose an undue burden on inter-market competition because the 
Exchange will provide Phlx member organizations the same choices with 
respect to routing that is afforded to ISE members today.
    The Exchange's proposal to amend its routing rule, similar to ISE 
Options 5, Section 4, with respect to FIND Orders and SRCH Orders does 
not impose an undue burden on intra-market competition because the 
proposed routing rules apply to all market participants including 
routing during an Opening Process. The Exchange believes that adding 
greater detail to its rules does not impose an undue burden on intra-
market competition, rather it provides greater transparency as to the 
potential outcomes when utilizing different routing strategies. As is 
the case today, market participants may elect not to route their 
orders.
Options 6, Section 1
    The Exchange's proposal to amend Options 6, Section 1, 
Authorization to Give Up, does not impose an undue burden on inter-
market competition because other market today have the same Give-Up 
process.\147\
---------------------------------------------------------------------------

    \147\ See ISE, GEMX and MRX Options 6, Section 1.
---------------------------------------------------------------------------

    The Exchange's proposal to amend Options 6, Section 1, 
Authorization to Give Up, does not impose an undue burden on intra-
market competition, rather it will permit both floor and electronic 
members to indicate a Give-Up at the time of trade. Today, electronic 
trading members indicate a Give-Up in the post allocation process. The 
proposal will create a uniform process for Give-Up for all member 
organizations and harmonize Phlx's Options 6, Section 1 rule to ISE, 
GEMX and MRX Options 6, Section 1.
Options 8, Section 32
    The Exchange's proposal to amend an All-Or None Order at current 
Options 8, Section 32(b)(3) to remove the restriction that it can only 
be submitted by a Public Customer does not impose an undue burden on 
inter-market competition because other markets today offer the All-or-
None Order to all market participants.\148\
---------------------------------------------------------------------------

    \148\ ISE, GEMX and MRX offer All-or-None Orders to all market 
participants. See ISE, GEMX and MRX Options 3, Section 7(c).
---------------------------------------------------------------------------

    The Exchange's proposal to amend an All-Or None Order at current 
Options 8, Section 32(b)(3) to remove the restriction that it can only 
be submitted by a Public Customer does not impose an undue burden on 
intra-market competition because all Phlx members will be able to 
utilize this order type. The Exchange's proposal to add an OPG TIF as 
an available TIF for the trading floor does not impose an undue burden 
on intra-market competition because all Phlx members will be able to 
utilize this TIF.

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 \149\ and 
subparagraph (f)(6) of Rule 19b-4 thereunder.\150\
---------------------------------------------------------------------------

    \149\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \150\ 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-2024-71 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-2024-71. 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-2024-71 and should be 
submitted on or before January 21, 2025.
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    \151\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\151\
Vanessa A. Countryman,
Secretary.
[FR Doc. 2024-30904 Filed 12-27-24; 8:45 am]
BILLING CODE 8011-01-P`