Document ID: SEC-2017-0332-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: NASDAQ PHLX, LLC
Posted Date: 2017-03-02T05:00Z

[Federal Register Volume 82, Number 40 (Thursday, March 2, 2017)]
[Notices]
[Pages 12383-12385]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2017-04036]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-80109; File No. SR-Phlx-2017-16]

Self-Regulatory Organizations; NASDAQ PHLX LLC; Notice of Filing 
and Immediate Effectiveness of Proposed Rule Change To Amend Rule 1014 
of the Options Rules Relating to Market Maker Quotations

February 24, 2017.
    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 February 14, 2017, 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 Rule 1014 of the Options Rules 
relating to Market Maker Quotations.
    The text of the proposed rule change is available on the Exchange's 
Web site at http://nasdaqphlx.cchwallstreet.com/, at the principal 
office of the Exchange, and at the Commission's Public Reference Room.

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

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

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

1. Purpose
    Phlx is proposing to amend Rule 1014(c)(i)(A)(1) of the Options 
Rules relating to Market Maker Quotations to amend the quote spread 
parameters for in-the-money series where the market for the underlying 
security is wider than the differentials set forth in the Rule. 
Currently, Rule 1014(c)(i)(A)(1)(a) provides the following bid/ask 
differentials for options on equities and index options: No more than 
$.25 between the bid and the offer for each option contract for which 
the prevailing bid is less than $2; no more than $.40 where the 
prevailing bid is $2 or more but less than $5; no more than $.50 where 
the prevailing bid is $5 or more but less than $10; no more than $.80 
where the prevailing bid is $10 or more but less than $20; and no more 
than $1 where the prevailing bid is $20 or more, provided that, in the 
case of equity options, the bid/ask differentials stated above shall 
not apply to in-the-money series where the market for the underlying 
security is wider than the differentials set forth above. For such 
series, the bid/ask differentials may be as wide as the quotation for 
the

[[Page 12384]]

underlying security on the primary market, or its decimal equivalent 
rounded up to the nearest minimum increment. The Exchange may establish 
differences other than the above for one or more series or classes of 
options.
    Phlx proposes to change this provision so that, in the case of in-
the-money series of equity options where the market for the underlying 
security is wider than the differentials set forth above, the bid/ask 
differential may be as wide as the spread between the national best bid 
and offer (``NBBO'') in the underlying security.
    Phlx is proposing this change so that Rule 1014(c)(i)(A)(1)(a) will 
be consistent with Rule 803(b)(4)(i) of the International Securities 
Exchange, LLC (``ISE'') in this regard.\3\ Pursuant to the acquisition 
of the indirect parent company of ISE by Nasdaq, Inc.,\4\ Nasdaq is 
migrating ISE platforms to Nasdaq platforms, and proposing consistent 
rules where appropriate. In addition to making the Phlx and ISE rules 
consistent with one another in this regard, Phlx believes that 
measuring the permissible width of a market maker's quote against the 
NBBO more accurately reflects the current trading environment where 
multiple trading venues contribute to the prevailing market price of a 
security underlying an options series traded on Phlx.\5\
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    \3\ ISE Rule 803(b)(4)(i) rule provides that (i) the bid/offer 
differentials stated in subparagraph (b)(4) of this Rule shall not 
apply to in-the-money options series where the underlying securities 
market is wider than the differentials set forth above. For these 
series, the bid/ask differential may be as wide as the spread 
between the national best bid and offer in the underlying security.
    \4\ See Securities Exchange Act Release No. 78119 (June 21, 
2016), 81 FR 41611 (June 27, 2016) (SR-ISE-2016-11).
    \5\ For example, if the primary market for ABC has a quote of 
$65 (bid)-$73 (offer), Phlx market makers currently may quote in-
the-money option series on that security with a bid/offer 
differential of $8, even if other exchanges that trade ABC may 
collectively have a higher bid of $66 and a lower offer of $72. 
Under the proposed rule, Phlx market makers would be required to 
quote in-the-money option series on ABC with a bid/offer 
differential of no more than $6.
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2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act,\6\ in general, and furthers the objectives of Section 
6(b)(5) of the Act,\7\ in particular, in that it is designed to promote 
just and equitable principles of trade, to remove impediments to and 
perfect the mechanism of a free and open market and a national market 
system, and, in general to protect investors and the public interest. 
The proposed change adopts a bid/ask differential for market makers for 
in-the-money series, where the market for the underlying security is 
wider than the differentials set forth in the Rule, that is consistent 
with ISE Rule 803(b)(4)(i). Phlx also believes that the proposal is 
consistent with the Act because measuring the permissible width of a 
market maker's quote against the NBBO more accurately reflects the 
current trading environment where multiple trading venues contribute to 
the prevailing market price of a security underlying an options series 
traded on Phlx.
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    \6\ 15 U.S.C. 78f(b).
    \7\ 15 U.S.C. 78f(b)(5).
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B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange does not believe that the proposed rule change will 
impose any burden on competition not necessary or appropriate in 
furtherance of the purposes of the Act. The proposed change will adopt 
the same requirement as ISE Rule 803(b)(4)(i), and will apply the same 
standard to all Market Makers for in-the-money series where the market 
for the underlying security is wider than the differentials set forth 
in the Rule.

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 \8\ and 
subparagraph (f)(6) of Rule 19b-4 thereunder.\9\
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    \8\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \9\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6) 
requires a self-regulatory organization to give the Commission 
written notice of its intent to file the proposed rule change at 
least five business days prior to the date of filing of the proposed 
rule change, or such shorter time as designated by the Commission. 
The Exchange has satisfied this requirement.
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    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: (i) 
Necessary or appropriate in the public interest; (ii) for the 
protection of investors; or (iii) otherwise in furtherance of the 
purposes of the Act. If the Commission takes such action, the 
Commission shall institute proceedings to determine whether the 
proposed rule should be approved or disapproved.

IV. Solicitation of Comments

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

Electronic Comments

     Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to rule-comments@sec.gov. Please include 
File Number SR-Phlx-2017-16 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-2017-16. 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 
printing in the Commission's Public Reference Room, 100 F Street NE., 
Washington, DC 20549, on official business days between the hours of 
10:00 a.m. and 3:00 p.m. Copies of the filing also will be available 
for inspection and copying at the principal office of the Exchange. All 
comments received will be posted without change; 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 Number SR-Phlx-2017-16, and should be 
submitted on or before March 23, 2017.

[[Page 12385]]

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\10\
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    \10\ 17 CFR 200.30-3(a)(12).
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Robert W. Errett,
Deputy Secretary.
[FR Doc. 2017-04036 Filed 3-1-17; 8:45 am]
 BILLING CODE 8011-01-P