Document ID: SEC-2016-0216-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: NASDAQ OMX PHLX LLC
Posted Date: 2016-02-10T05:00Z

[Federal Register Volume 81, Number 27 (Wednesday, February 10, 2016)]
[Notices]
[Pages 7166-7171]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-02606]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-77054; File No. SR-Phlx-2016-10]

Self-Regulatory Organizations; NASDAQ OMX PHLX LLC; Notice of 
Filing of Proposed Rule Change Relating to Professional Customer 
Definition

February 4, 2016.
    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 January 21, 2016, NASDAQ OMX PHLX LLC (``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 Exchange Rule 1000(b)(14) 
(Applicability, Definitions and References) to add specificity to the 
definition of a Professional with respect to the manner in which the 
volume threshold will be calculated by the Exchange.
    The text of the proposed rule change is available on the Exchange's 
Web site at http://nasdaqomxphlx.cchwallstreet.com/, at the principal 
office of the Exchange, and at the Commission's Public Reference Room.

II. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    In its filing with the Commission, the Exchange included statements 
concerning the purpose of and basis for the proposed rule change and 
discussed any comments it received on the proposed rule change. The 
text of these statements may be examined at the places specified in 
Item IV below. The Exchange has prepared summaries, set forth in 
sections A, B, and C below, of the most significant aspects of such 
statements.

A. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The Exchange proposes to amend the definition of ``Professional'' 
in Rule 1000(b)(14) to specify the manner in which the Exchange 
calculates orders to determine if an order should be treated as 
Professional.
Background
    Exchange Rule 1000(b)(14) currently states, 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).\3\ In order to properly represent orders entered on the 
Exchange member organizations are required to indicate whether Customer 
orders are ``Professional'' orders.'' \4\ To

[[Page 7167]]

comply with this requirement, member organizations are required to 
review their Customers' activity on at least a quarterly basis to 
determine whether orders that are not for the account of a broker-
dealer should be represented as Customer orders or Professional 
orders.\5\
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    \3\ A Professional will be treated in the same manner as an off-
floor broker-dealer for purposes of Rules 1014(g)(except with 
respect to all-or-none orders, which will be treated like customer 
orders, except that orders submitted pursuant to Rule 1080(n) for 
the beneficial account(s) of Professionals with an all-or-none 
designation will be treated in the same manner as off-floor broker-
dealer orders), 1033(e), 1064.02 (except Professional orders will be 
considered customer orders subject to facilitation), 1080(n) and 
1080.07 as well as Options Floor Procedure Advices B-6 and F-5. 
Member organizations must indicate whether orders are for 
Professionals.
    \4\ The Exchange utilizes a special order origin code for 
Professional orders. The Exchange also disseminates the Professional 
designator over its new Top of Phlx Options Plus Orders (``TOPO Plus 
Orders''), which includes disseminated Exchange top-of-market data 
(including orders, quotes and trades) together with all of the data 
currently available on the Specialized Order Feed (``SOF'').
    \5\ Orders for any customer that had an average of more than 390 
orders per day during any month of a calendar quarter must be 
represented as Professional orders for the next calendar quarter. 
Member organizations will be required to conduct a quarterly review 
and make any appropriate changes to the way in which they are 
representing orders within five days after the end of each calendar 
quarter. While member organizations will only be required to review 
their accounts on a quarterly basis, if during a quarter the 
Exchange identifies a customer for which orders are being 
represented as customer orders but that has averaged more than 390 
orders per day during a month, the Exchange will notify the member 
organization and the member organization will be required to change 
the manner in which it is representing the customer's orders within 
five days.
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    The Exchange accepts orders routed from other markets that are 
marked Professional. The designation of Professional or Professional 
order does not result in any different treatment of such orders for 
purposes of Exchange rules concerning away market protection. That is, 
all non-broker or dealer orders, including those that meet the 
definition of Professional orders, are treated equally for purposes of 
Exchange away market protection rules.\6\ The Exchange continues to 
believe that identifying Professional accounts based upon the average 
number of orders entered in qualified accounts is an appropriately 
objective approach to reasonably distinguish such persons and entities 
from retail investors or market participants.
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    \6\ See Exchange Rules 1080(m), 1083, 1084, and 1086.
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Proposal
    The Exchange proposes to count each order entered by a Professional 
toward the number of orders, regardless of the options exchange to 
which the order was routed in determining Professional orders,\7\ 
except for FLEX orders.\8\
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    \7\ All order types count toward the 390 orders on average per 
day.
    \8\ The term ``FLEX option'' means a FLEX option contract that 
is traded subject to Exchange Rule 1079.
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FLEX Orders
    FLEX orders will not be counted toward the 390 threshold because 
these types of orders are non-electronic orders. Furthermore, FLEX 
orders are typically not traded by a retail Customer, but rather large 
institutional investors and therefore are not relevant to the type of 
analysis the Exchange is trying to distinguish as between retail 
investors and market Professionals.
Cancel and Replace
    A cancel and replace order is a type of order that replaces a prior 
order. The Exchange believes that the second order (the replacement 
order) should be counted as a new order. Complex Orders \9\ consisting 
of four legs or fewer will be counted as a single order, and with 
Complex Orders of five options \10\ legs or more, each leg will count 
as a separate order. The exception to the cancel and replace orders is 
with ``single-strike algorithms,'' which are a series of cancel and 
replace orders in an individual strike which track the NBBO. Orders 
resulting from a single-strike algorithm shall be counted as new 
orders,\11\ because the Customer is specifically instructing the 
executing broker in the ``single-strike algorithm'' scenario to cancel 
and replace these orders. This type of activity is akin to market 
making in a Customer account and should be counted, as a new order.
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    \9\ A Complex Order is any order involving the simultaneous 
purchase and/or sale of two or more different options series in the 
same underlying security, priced at a net debit or credit based on 
the relative prices of the individual components, for the same 
account, for the purpose of executing a particular investment 
strategy. Furthermore, a Complex Order can also be a stock-option 
order, which is an order to buy or sell a stated number of units of 
an underlying stock or exchange-traded fund (``ETF'') coupled with 
the purchase or sale of options contract(s). See Exchange Rule 1080, 
Commentary .08(a)(i). A Complex Order must meet this definition to 
be transacted on the Exchange.
    \10\ Orders that have five legs, where one leg is a stock, will 
be considered one order. Stock orders shall not count toward the 
number of legs.
    \11\ Cancel messages do not count as an order.
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Parent/Child Orders
    An order that converts into multiple subordinate orders to achieve 
an execution strategy shall be counted as one order per side and 
series, even if the order is routed away.\12\ All strategies must 
comply with Rule 1080 at Commentary .07(a)(ii). An order that cancels 
and replaces a resulting subordinate order and results in multiple 
sides/series shall be counted as a new order on each side and series. 
For purposes of counting Customer orders, the manner in which the 
Customer submitted the order and whether the order was on the same side 
and series will determine if the order will count as one order. If one 
Customer order on the same side and series is subsequently broken-up by 
a broker into multiple orders for purposes of execution or routed away, 
this order will count as one order. The Exchange believes that the 
proposed amendment will provide more certainty to market participants 
in determining the manner in which the Exchange will compute the number 
of orders in listed options per day on average during a calendar month 
for its own beneficial account(s) to determine the Professional 
designation.
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    \12\ An order which is placed for the beneficial account(s) of a 
person or entity that is not a broker or dealer in securities that 
is broken into multiple parts by a broker or dealer or by an 
algorithm housed at a broker or dealer or by an algorithm licensed 
from a broker or dealer. Strategies include Complex Orders and 
volatility orders, for example.
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    In order to make clear when orders will count as new orders, the 
Exchange offers the following scenarios as examples.
     The Exchange proposes to count multiple orders that were 
submitted by the member as separate orders as multiple orders.
     The Exchange proposes to count a single order submitted by 
a member, which was automatically executed in multiple parts by the 
trading system, as one order, because the member did not intervene to 
create multiple orders. Another example is where an order was entered 
in the trading system and only partially filled, the order would count 
as one order. The subsequent fills, which could be multiple executions, 
would not count as additional orders in determining the 390 limit. The 
manner in which the order is ultimately executed, as one order or 
multiple orders, should not itself determine whether the activity is 
that of a Professional; also the member did not intervene in that 
circumstance.
     The Exchange proposes to not count an order which 
reprices, for example because of a locked and crossed market, as a new 
order because the member did not intervene.
     The Exchange proposes to count orders, which result in 
multiple Orders due to cancel and replacement orders, as new orders. 
This is because in this situation the member did intervene to create 
the subsequent orders.
     The Exchange proposes to count an order submitted by the 
Customer as a single order, on the same side and series, as a single 
order despite the fact that a broker broke-up the order into multiple 
orders for purposes of execution.
    The Exchange notes that other options exchanges have issued notices 
which describe the manner in which those Exchanges believe thresholds 
should be computed for determining if an order qualifies as a 
Professional order.\13\ The

[[Page 7168]]

Exchange believes that there is industry confusion as to which orders 
count toward the 390 contract threshold. The Exchange's proposal is 
intended to provide clarity and to continue to promote consistency in 
the treatment of orders as Professional orders.
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    \13\ See NYSE Arca, Inc.'s and NYSE MKT LLC's Joint Regulatory 
Bulletin (RBO-15-03 and RBO-15-06, respectively) dated September 9, 
2015; CBOE's Regulatory Circulator (RG10-126) dated December 1, 
2010; and the International Securities Exchange LLC's Regulatory 
Information Circular (2009-179) dated June 23, 2009.
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    Below are some examples of the calculation of Professional orders.

    Example #1: 
    A Customer has an order to buy 100 calls at a volatility level 
of 35. The order then generates a child order resulting in a 1.00 
bid for 100 options which is sent to exchange A. After the 
underlying stock price ticks up 2 cents the child order is then 
adjusted to reflect a 35 level volatility which in this case (50 
delta) results in a 1.01 bid sent to Exchange A replacing the 
current 1.00 bid.
    In determining the number of orders that attribute to the 390 
order count, in this case, because the child order is being canceled 
and replaced in the ``same series'' this would only count as one (1) 
order for purposes of Professional designation calculation.
    Example #2: 
    A Customer has an order to buy 20k Vega at a 35 volatility level 
in symbol XYZ. The order then generates 50 child orders across 
different strikes. Throughout the day those 50 orders are adjusted 
as the stock moves resulting in the replacement of child orders to 
the tune of 5 times per order (50 x 5 cancels) resulting in 250 
total orders generated to Exchange A.
    In determining the number of orders that attribute to the 390 
order count, in this case, because the child orders generated are 
across multiple series it would be necessary to count all 250 
orders.
    In addition to the above examples, the Exchange provides the 
below chart to demonstrate the manner in which it will count orders.

------------------------------------------------------------------------
                                            Singular         Multiple
------------------------------------------------------------------------
Single Strike Activity:
    Customer order posted to 1 SRO                   x   ...............
     order Book.......................
    Customer order posted to Multiple                x   ...............
     SRO order Books simultaneously...
    Cancel/Replace Activity...........               x   ...............
    Cancel/Replace Activity tracking    ...............               x
     NBBO.............................
Complex Order Activity (4 option
 strikes or fewer):
    Customer order posted to 1 SRO                   x   ...............
     order Book.......................
    Customer order posted to Multiple                x   ...............
     SRO Complex order Books
     simultaneously...................
    Cancel/Replace Activity...........               x   ...............
    Cancel/Replace Activity tracking                 x   ...............
     NBBO.............................
Complex Order Activity (5 option
 strikes or greater):
    Customer order posted to 1 SRO      ...............               x
     order Book.......................
    Customer order posted to Multiple   ...............               x
     SRO Complex Order Books
     simultaneously...................
    Cancel/Replace Activity...........  ...............               x
    Cancel/Replace Activity tracking    ...............               x
     NBBO.............................
------------------------------------------------------------------------
Singular--counts as a single order towards the 390 count.
Multiple--each order applies towards the 390 count.

    The Exchange proposes to implement this rule on April 1, 2016 to 
provide market participants with advance notice for their quarterly 
calculations. The Exchange will issue an Options Trader Alert in 
advance to inform market participants of such date.

2. Statutory Basis

    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act \14\ in general, and furthers the objectives of Section 
6(b)(5) of the Act \15\ 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, by promoting the consistent application of its rules by 
further defining the manner in which the Exchange will compute the 
number of orders in listed options per day on average during a calendar 
month for its own beneficial account(s) for purposes of determining the 
Professional designation. Furthermore, the Exchange believes that 
specifying the manner in which the 390 threshold will be calculated 
within its Rules will provide members with certainty and provide them 
with insight as they conduct their own quarterly reviews for purposes 
of designating orders.
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    \14\ 15 U.S.C. 78f(b).
    \15\ 15 U.S.C. 78f(b)(5).
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    The Exchange believes that counting all orders toward the number of 
orders, regardless of the options exchange to which the order was 
routed, will promote the consistent application of its rules by making 
clear that all order types shall be counted as well as all orders for 
the purpose of determining whether the definition of Professional has 
been met. The Exchange previously noted in its filing which created 
Professional orders that,

[t]he Exchange believes that identifying Professional accounts based 
upon the average number of orders entered for a beneficial account 
is an appropriately objective approach that will reasonably 
distinguish such persons and entities from retail investors. The 
Exchange proposes the threshold of 390 orders per day on average 
over a calendar month, because it believes that this number far 
exceeds the number of orders that are entered by retail investors in 
a single day, while being a sufficiently low number of orders to 
cover the Professional account holders that are competing with 
broker-dealers in the Phlx marketplace. In addition, basing the 
standard on the number of orders that are entered in listed options 
for a beneficial account(s) assures that Professional account 
holders cannot inappropriately avoid the purpose of the rule by 
spreading their trading activity over multiple exchanges, and using 
an average number over a calendar month will prevent gaming of the 
390 order threshold.\16\
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    \16\ See Securities Exchange Act Release No. 61426 (January 26, 
2010), 75 FR 5360 (February 2, 2010) (SR-Phlx-2010-05).
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FLEX Orders
    FLEX orders will not be counted toward the 390 threshold because 
these types of orders are non-electronic orders. Furthermore, FLEX 
orders are typically not traded by a retail Customer, but by large 
institutional investors and are not relevant to the type of analysis 
the Exchange is trying to distinguish between retail investors and 
market Professionals. The Exchange believes that not counting FLEX 
orders toward the 390 threshold is consistent with the Act because 
these types of orders are not utilized by retail Customer and the 
proposal should assure that retail investors continue to receive the 
appropriate marketplace advantages in the Exchange marketplace, while 
furthering fair competition among marketplace Professionals.

[[Page 7169]]

Cancel and Replace
    With respect to determining the Professional designation, a cancel 
and replace order which replaces a prior order shall be counted as a 
second order. An order that is filled partially or in its entirety or 
is a replacement order that is automatically canceled or reduced by the 
number of contracts that were executed will not count as second order 
because it was not replaced.\17\ The Exchange believes that counting 
the replacement order as a second order is consistent with Exchange 
Rules because the replacement order is viewed as a new order with its 
own unique identifier.
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    \17\ See Exchange Rule 1080. A cancel with 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 not retain the priority of 
the cancelled order except when the replacement order reduces the 
size of the order and all other terms and conditions are retained.
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    The Exchange believes that counting cancel and replace orders with 
``single-strike algorithms,'' which are a series of cancel and replace 
orders in an individual strike which track the NBBO, as new orders is 
consistent with the Act because the Customer is specifically 
instructing the executing broker in the ``single-strike algorithm'' 
scenario to cancel and replace these orders. Tracking the NBBO \18\ is 
akin to market making on the Exchange in a Customer account and should 
be counted as new orders. The Exchange believes that the Customers 
order designation should be reserved for retail Customer.
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    \18\ Tracking the NBBO shall mean any parent order that consumes 
any self-regulatory organization order book data feed, or the OPRA 
feed, to generate automated child orders, and move with, or follow 
the Bid or Offer of the series in question.
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    Further, the Exchange's interpretation that Complex Orders 
consisting of four legs or fewer will be counted as a single order, and 
respecting Complex Orders of five options legs or more, each leg will 
count as a separate order is consistent with the Act, because the 
Exchange believes that five or more options legs is sufficient quantity 
to justify counting these orders separately toward the volume count. 
The initial purpose of the rule change was to distinguish retail 
investors over market Professionals. The Exchange believes that 
typically Customer orders will not be as complex as to have five legs 
and therefore using five as the threshold reasonably differentiates 
Customer orders from Professional orders. The Exchange believes that 
five or more options legs evidences the distinction between the trading 
behavior of a retail investors as compared to a market Professional 
that would engaged in Complex Orders with five or more options legs.
Parent/Child Orders
    The Exchange's adoption of the Professional order was to treat 
orders in listed options per day on average during a calendar month in 
his or her own beneficial account differently from Customer orders for 
purposes of priority within the order Book and pricing.\19\ For this 
reason, the Exchange is adopting rules concerning the computation of 
orders which convert into multiple subordinate orders for the purpose 
of determining the Professional designation. The Exchange's proposal to 
count multiple subordinate orders that achieve an execution strategy as 
one order per side and series and count an order that cancels and 
replaces a resulting subordinate order and results in multiple sides/
series as a new order is consistent with the Act, because the Exchange 
is distinguishing where the member is actively entering orders that 
result in multiple orders and canceling and replacing orders that 
result in multiple orders versus where the member had no control of the 
resulting executions. Allowing orders on the same side of the market to 
be counted as a single order is consistent with the original intent of 
the Professional order designation. The same side of market distinction 
protects retail Customers. This practice is typically the type of 
transaction Customers execute versus a Professional trader. Multiple 
related orders resulting from a large order filled in part, or an order 
which is cancelled and replaced several times are considered part of a 
related order. The Exchange does not desire to count large orders 
filled in part as multiple orders because the member did not intervene 
in the outcome of the execution. An order that results in several 
separate and unrelated orders would be counted as multiple orders 
because the member intervened in this circumstance.
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    \19\ See Exchange Rule 1080 and the Exchange's Pricing Schedule.
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    The Exchange believes that the proposed amendment will provide more 
certainty to market participants in determining the computation of the 
number of orders in listed options per day on average during a calendar 
month for its own beneficial account(s) to determine the Professional 
designation. The Exchange notes that other options exchanges have 
issued notices describing the manner in which they believe that 
Professional order should be counted when determining if an order 
qualifies as a Professional order.\20\ The Exchange believes that there 
is confusion as to which orders count toward the 390 contract 
threshold. The Exchange proposes to provide clarity to its Rules with 
specific guidance as to the computation of Professional orders, which 
it believes will promote consistency in the treatment of orders as 
Professional orders. The Exchange believes that this proposed guidance 
will promote consistency and permit the proper calculation of options 
orders to prevent members with high volume from receiving benefits 
reserved for Customer orders. The Professional designation focuses 
specifically on the number of orders generated.
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    \20\ See NYSE Arca, Inc.'s and NYSE MKT LLC's Joint Regulatory 
Bulletin (RBO-15-03 and RBO-15-06, respectively) dated September 9, 
2015; The Chicago Board Options Exchange, Incorporated's Regulatory 
Circulator (RG10-126) dated December 1, 2010; and the International 
Securities Exchange LLC's Regulatory Information Circular (2009-179) 
dated June 23, 2009.
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    Pursuant to Exchange Rule 1014(g), a Customer account is an account 
other than a controlled account; a controlled account is an account 
controlled by or under common control with a broker-dealer. Customer 
priority is one of the marketplace advantages provided to Customer 
orders on the Exchange; Customer priority means that Customer orders 
are given execution priority over non-Customer orders and quotations of 
specialists and Registered Options Traders (``ROTs'') \21\ at the same 
price. Another marketplace advantage afforded to Customer orders on the 
Exchange is that member organizations are generally not assessed 
transaction fees for the execution of Customer orders. The purpose of 
these marketplace advantages is to attract retail order flow to the 
Exchange by leveling the playing field for retail investors over market 
Professionals [sic].\22\ The Exchange

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believes that permitting certain types of orders to be counted as a 
single order and other types of orders to be counted as multiple orders 
is consistent with the original intent of the Professional designation 
which was to continue to provide Customer accounts with marketplace 
advantages and distinguish those accounts non-Professional retail 
investors from the Professionals accounts some non-broker-dealer 
individuals and entities have access to information and technology that 
enables them to Professionally trade listed options in the same manner 
as a broker or dealer in securities.\23\
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    \21\ A ROT is a regular member or a foreign currency options 
participant of the Exchange located on the trading floor who has 
received permission from the Exchange to trade in options for his 
own account. The term ``ROT'' shall include a Streaming Quote Trader 
(``SQT''), and a Remote Streaming Quote Trader. An SQT is an ROT who 
has received permission from the Exchange to generate and submit 
option quotations electronically in options to which such SQT is 
assigned. An SQT may only submit such quotations while such SQT is 
physically present on the floor of the Exchange. An SQT may only 
trade in a market making capacity in classes of options in which the 
SQT is assigned.
    \22\ Market Professionals [sic] have access to sophisticated 
trading systems that contain functionality not available to retail 
customers, including things such as continuously updated pricing 
models based upon real-time streaming data, access to multiple 
markets simultaneously and order and risk management tools.
    \23\ For example, some broker-dealers provided their 
Professional customers with multi-screened trading stations equipped 
with trading technology that allows the trader to monitor and place 
orders on all six options exchanges simultaneously. These trading 
stations also provide compliance filters, order managements tools, 
the ability to place orders in the underlying securities, and market 
data feeds.
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    Finally, the proposed guidance is being issued to stem confusion as 
to the manner in which options exchanges compute the Professional order 
volume. The Exchange's Rules may be similar to notices issued by NYSE 
Arca, Inc, NYSE MKT LLC (``NYSE MKT'') and International Securities 
Exchange LLC (``ISE'').

B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange does not believe that the proposed rule change will 
impose any burden on competition not necessary or appropriate in 
furtherance of the purposes of the Act because the Exchange will 
uniformly apply the rules to calculate volume on all member 
organizations in determining Professional orders. The designation of 
Professional orders would not result in any different treatment of such 
orders for purposes of the Exchange's Rules concerning order protection 
or routing to away exchanges. Also, SIFMA supports the guidance issued 
by NYSE Arca and NYSE MKT. The guidance is being issued to stem 
confusion as to the manner in which options exchanges compute the 
Professional order volume.
    The Exchange is adopting similar counting methods the Exchange 
believes is currently being utilized by NYSE MKT, NYSE ARCA and ISE 
related to designation of Professional orders.
Counting All Orders
    The Exchange believes that counting all orders entered by a 
Professional toward the number of orders, regardless of the options 
exchange to which the order was routed, does not create an undue burden 
on intra-market competition because this proposed rule change will be 
consistently applied to all members in determining Professional orders. 
FLEX orders will not be counted toward the 390 threshold because these 
types of orders are non-electronic orders.
Cancel and Replace
    The Exchange believes that its application of cancel and replace 
orders does not create an undue burden on intra-market competition 
because this application is consistent with Exchange Rules, where the 
replacement order is viewed as a new order. This treatment is 
consistent with the manner in which this order type is applied today 
within the order Book.
    The Exchange's interpretation that Complex Orders consisting of 
four legs or fewer will be counted as a single order, and respecting 
Complex Orders of five legs or more, each leg will count as a separate 
order does not create an undue burden on intra-market competition 
because the Exchange will apply this method of calculation uniformly 
among its member organizations.
Parent/Child Orders
    The Exchange's treatment of subordinate orders does not create an 
undue burden on intra-market competition because allowing orders on the 
same side of the market to be counted as a single order is consistent 
with the original intent of the Professional order designation which is 
to count distinct orders and focus on the number of orders generated.
    The Exchange does not believe that the proposed rule change will 
impose an undue burden on inter-market competition because other 
exchanges have announced the intent to adopt similar guidance.\24\ The 
Exchange believes that disparate rules regarding Professional order 
designation, and a lack of uniform application of such rules, does not 
promote the best regulation and may, in fact, encourage regulatory 
arbitrage. The Exchange believes that it is therefore prudent and 
necessary to conform its rules to that of other options exchanges for 
purposes of calculating the threshold volume of orders to be designated 
as a Professional. This is particularly true where the Exchange's 
third-party routing broker-dealers are members of several exchanges 
that have rules requiring Professional order designations.
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    \24\ See supra note 13.
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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

    Within 45 days of the date of publication of this notice in the 
Federal Register or within such longer period (i) as the Commission may 
designate up to 90 days of such date if it finds such longer period to 
be appropriate and publishes its reasons for so finding or (ii) as to 
which the Exchange consents, the Commission shall: (a) By order approve 
or disapprove such proposed rule change, or (b) institute proceedings 
to determine whether the proposed rule change should be disapproved.

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether the proposed rule 
change is consistent with the Act. Comments may be submitted by any of 
the following methods:

Electronic Comments

     Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to rule-comments@sec.gov. Please include 
File No. SR-Phlx-2016-10 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 No. SR-Phlx-2016-10. 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 Web site (http://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, all 
written statements with respect to the proposed rule change that are 
filed with the Commission, and all written communications relating to 
the proposed rule change between the Commission and any person, other 
than those that may be withheld from the public in accordance with the 
provisions of 5 U.S.C. 552, will be available for Web site viewing and

[[Page 7171]]

printing in the Commission's Public Reference Room, 100 F Street NE., 
Washington, DC 20549, on official business days between the hours of 
10:00 a.m. and 3:00 p.m. Copies of such filing will also be available 
for inspection and copying at the principal office of the Exchange. All 
comments received will be posted without change; the Commission does 
not edit personal identifying information from submissions. You should 
submit only information that you wish to make available publicly. All 
submissions should refer to File No. SR-Phlx-2016-10 and should be 
submitted on or before March 2, 2016.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\25\
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    \25\ 17 CFR 200.30-3(a)(12).
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Robert W. Errett,
Deputy Secretary.
[FR Doc. 2016-02606 Filed 2-9-16; 8:45 am]
 BILLING CODE 8011-01-P