Document ID: SEC-2019-0920-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Nasdaq PHLX, LLC
Posted Date: 2019-06-28T04:00Z

[Federal Register Volume 84, Number 125 (Friday, June 28, 2019)]
[Notices]
[Pages 31131-31132]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-13775]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-86191; File No. SR-Phlx-2019-20]

Self-Regulatory Organizations; Nasdaq PHLX LLC; Order Granting 
Approval of Proposed Rule Change Relating to the Allocation and 
Prioritization of Automatically Executed Trades

June 24, 2019.

I. Introduction

    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 May 15, 2019, Nasdaq PHLX LLC (``Phlx'' or ``Exchange'') filed with 
the Securities and Exchange Commission (``SEC'' or ``Commission'') the 
proposed rule change relating to the allocation and prioritization of 
automatically executed trades. The proposed rule change was published 
for comment in the Federal Register on May 22, 2019.\3\ The Commission 
received no comments on the proposed rule change. This order approves 
the proposed rule change.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Securities Exchange Act Release No. 85876 (May 16, 
2019), 84 FR 23595 (``Notice'').
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II. Description of the Proposal

    The Exchange proposes to adopt new Rule 1089 to describe in greater 
detail the manner in which Phlx will process, prioritize and allocate 
transactions. The current Phlx rule, Rule 1014(g)(vii) and (viii), 
describes the allocation process generally and relies on a calculation 
to describe how different market participants may be allocated. The 
Exchange now proposes to sequentially describe the manner in which an 
order would be allocated, including the allocation method, rounding and 
all potential allocation scenarios. The proposal generally codifies the 
Exchange's current practices while adding more explicit language to the 
rule text. In addition, the Exchange proposes to codify its round robin 
allocation of odd lots that is not set forth in its current rules.
    The Exchange proposes to retain its existing allocation methodology 
and priorities in the new rule. For example, Public Customer orders 
will continue to have priority over non-Public Customer interest at the 
same price, provided the Public Customer order is an executable order. 
Generally, the Specialist and/or Directed Registered Option Trader 
(``DROT'') priority is then applied, before the ROT priority \4\ and 
remaining interest. The proposed rule also codifies the manner in which 
rounding will be handled and makes conforming changes to the Exchange's 
rules.
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    \4\ After the DROT Priority is applied, the System excludes the 
Specialist/DROT from the total number of contracts that is utilized 
(denominator) in calculating the ROT Priority in proposed Rule 
1089(a)(1)(E).
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    In its proposal, the Exchange proposes one change to its existing 
allocation scheme. Specifically, the Exchange proposes to amend the 
current allocation a Specialist is entitled to receive when a 
Specialist is also the DROT, and the order is directed to a particular 
market maker (a ``Directed Order'') for 5 contracts or fewer. Today, a 
Specialist is entitled to the allocation of orders of 5 contracts or 
fewer only when such order is either not a Directed Order or is a 
Directed order for 5 contracts or fewer, but the DROT is not quoting at 
the inside price. If the order for 5 contracts or fewer is a Directed 
Order and the DROT is also the Specialist, then the Specialist 
currently is entitled to receive only the DROT allocation of 40% of the 
order, rather than the full size of the allocation of the order for 5 
contracts or fewer.
    The Exchange proposes that, assuming there is no Public Customer 
interest present at the same price, the Specialist would be entitled to 
the entire allocation of the order of 5 contracts or fewer where the 
Specialist is also the DROT and the Specialist receives the Directed 
Order and has a quote at the best price when the Directed Order is 
received. This specialist entitlement for orders of 5 contracts or 
fewer would apply only after the Opening Process and would not apply to 
auctions.

III. Discussion and Commission Findings

    After careful review of the proposed rule change, the Commission 
finds that the proposal is consistent with the requirements of the Act 
and the rules and regulations thereunder that are applicable to a 
national securities exchange.\5\ Specifically, the Commission finds 
that the proposed rule change is consistent with Section 6(b)(5) of the 
Act,\6\ which requires, among other things, that the rules of a 
national securities exchange be designed to prevent fraudulent and 
manipulative acts and practices, to promote just and equitable 
principles of trade, to foster cooperation and coordination with 
persons engaged in regulating, clearing, settling, processing 
information with respect to, and facilitating transactions in 
securities, to remove impediments to and perfect the mechanism of a 
free and open market and a national market system, and to protect 
investors and the public interest.
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    \5\ In approving this rule change, the Commission has considered 
the rule's impact on efficiency, competition, and capital formation. 
See 15 U.S.C. 78c(f).
    \6\ 15 U.S.C. 78f(b)(5).
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    The Commission notes that the Exchange proposes to revise its rules 
governing how it processes, prioritizes, and allocates transactions, 
including by codifying practices that were not set forth in the 
Exchange's rules, by deleting its existing rules and adopting a new 
rule. The Commission believes that the Exchange's proposal protects 
investors and the public interest because it enhances the transparency 
of its transaction allocation process for market participants using its 
facilities. Therefore, the Commission finds that this enhanced 
transparency is consistent with the Act.
    With respect to the Exchange's proposal to modify the specialist 
allocation to provide the Directed Specialist with the entire 
allocation of a Directed Order where the order is for 5 contracts or 
fewer, the Commission notes that the Directed Specialist will not be 
entitled to this allocation when there is a Public Customer present at 
the same price or when the Specialist is not quoting at the inside when 
the order is received. The Commission further notes that the modified 
specialist entitlement is identical to the existing specialist 
allocation of orders of 5 contracts or fewer where the order is not a 
Directed Order, which is provided to specialists in recognition of the 
specialists' affirmative market making obligations. The Commission 
finds that the proposed specialist allocation for Directed Orders of 5 
contracts or fewer is consistent with the Act in that the proposal 
should promote just and equitable principles of trade.

[[Page 31132]]

IV. Conclusion

    It is therefore ordered that, pursuant to Section 19(b)(2) of the 
Act,\7\ the proposed rule change (SR-Phlx-2019-20) be approved.
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    \7\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\8\
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    \8\ 17 CFR 200.30-3(a)(12).
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Jill M. Peterson,
Assistant Secretary.
[FR Doc. 2019-13775 Filed 6-27-19; 8:45 am]
 BILLING CODE 8011-01-P