Document ID: SEC-2018-0050-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Nasdaq PHLX LLC
Posted Date: 2018-01-11T05:00Z

[Federal Register Volume 83, Number 8 (Thursday, January 11, 2018)]
[Notices]
[Pages 1445-1446]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2018-00304]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-82445; File No. SR-Phlx-2017-99]

Self-Regulatory Organizations; Nasdaq PHLX LLC; Order Granting 
Accelerated Approval of a Proposed Rule Change To Amend Rule 1059 To 
Make Permanent a Program That Allows Cabinet Trade Transactions To Take 
Place at a Price Below $1 Per Option Contract

January 5, 2018.

I. Introduction

    On November 29, 2017, Nasdaq PHLX LLC (the ``Exchange'' or 
``Phlx'') filed with the Securities and Exchange Commission 
(``Commission''), pursuant to Section 19(b)(1) of the Securities 
Exchange Act of 1934 (``Act'') \1\ and Rule 19b-4 thereunder,\2\ a 
proposed rule change amending the Exchange's rules to make permanent a 
program that allows transactions to take place in open outcry trading 
at prices of at least $0 but less than $1 per option contract (``sub-
dollar cabinet trades''). The proposed rule change was published for 
comment in the Federal Register on December 14, 2017.\3\ The Commission 
received no comment letters on the proposed rule change. This order 
approves the proposed rule change on an accelerated basis.
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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. 82245 (Dec. 8, 
2017), 82 FR 58825 (Dec. 14, 2017) (SR-Phlx-2017-99) (``Notice'').
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II. Description of the Proposed Rule Change

    Prior to 2010, Phlx Rule 1059 (Accommodation Transactions) allowed 
cabinet trade transactions at a price of $1 per option contract to 
occur in open outcry trading for certain options classes.\4\ In 2010, 
the Exchange amended Phlx Rule 1059 on a pilot basis to allow sub-
dollar cabinet trades to take place at prices of at least $0 but less 
than $1 per option contract.\5\ The Exchange now proposes to amend Phlx 
Rule 1059 to make permanent its sub-dollar cabinet trade pilot program, 
which currently is scheduled to expire on January 5, 2018.\6\
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    \4\ See Phlx Rule 1059.
    \5\ See Securities Exchange Act Release No. 63626 (Dec. 30, 
2010), 76 FR 812 (Jan. 6, 2011) (SR-Phlx-2010-185).
    \6\ See Commentary .02 to Phlx Rule 1059. See also Securities 
Exchange Act Release No. 79782 (January 12, 2017), 82 FR 6667 
(January 19, 2017) (SR-Phlx-2017-01).
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    The Exchange permits sub-dollar cabinet trade transactions to be 
traded

[[Page 1446]]

pursuant to the same procedures applicable to $1 cabinet trades, except 
that for sub-dollar cabinet trades (i) bids and offers for opening 
transactions are permitted only to accommodate closing transactions, 
and (ii) transactions in option classes participating in the Penny 
Pilot Program are permitted.\7\ The Exchange believes that ``allowing a 
price of at least $0 but less than $1 better accommodates the closing 
of options positions in series that are worthless or not actively 
traded, particularly when there has been a significant move in the 
price of the underlying security, resulting in a large number of series 
being out-of-the-money.'' \8\
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    \7\ See Commentary .02 to Phlx Rule 1059.
    \8\ Notice, supra note 3, at 58826. The Exchange notes that this 
is especially true for transactions in options classes in the Penny 
Pilot Program, for which cabinet trades are not otherwise permitted. 
See id.
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III. Discussion and Commission Findings

    After careful review, the Commission finds that the proposed rule 
change is consistent with the requirements of the Act \9\ and the rules 
and regulations thereunder applicable to a national securities 
exchange.\10\ In particular, the Commission finds that the proposed 
rule change is consistent with Section 6(b)(5) of the Act,\11\ 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, in general, to protect investors and the public interest.
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    \9\ 15 U.S.C. 78f.
    \10\ In approving this proposed rule change, the Commission has 
considered the proposed rule's impact on efficiency, competition, 
and capital formation. See 15 U.S.C. 78c(f).
    \11\ 15 U.S.C. 78f(b)(5).
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    In the Notice, the Exchange explains that it initially adopted the 
sub-dollar cabinet trade rule on a pilot basis to ``evaluate the 
efficacy of the change and to address any operational issues that might 
arise in processing [c]abinet trades.'' \12\ The Exchange represents 
that at the time it adopted the pilot, its system permitted reporting 
cabinet trades at prices as small as $0.0001, as it does today.\13\ 
Based on its experience with these types of trades, the Exchange 
represents that its system ``allows [c]abinet trades to be processed in 
a manner similar to how all other trades are processed by the 
[E]xchange.'' \14\
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    \12\ See Notice, supra note 3, at 58826.
    \13\ See id.
    \14\ Id. See also id. at 58826 (noting that ``in 2016, there 
were a total of 442 [c]abinet [t]rades'' on the Exchange 
``comprising 244,734 contracts,'' and ``[e]ach contract was executed 
at a price of $0.01.'').
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    In support of making the pilot program permanent, the Exchange 
represents that ``there are no operational issues in processing and 
clearing [c]abinet [t]rades in penny and sub-penny increments.'' \15\ 
The Exchange also represents that ``members and member organizations 
have not raised any concerns with the processing of [c]abinet trades.'' 
\16\ Finally, the Exchange represents that it is ``not aware of the 
Options Clearing Corporation (``OCC'') having operational issues with 
processing [c]abinet trades submitted by the Exchange.'' \17\
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    \15\ See Notice, supra note 3, at 58826.
    \16\ Id.
    \17\ Id.
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    Based on the representations of the Exchange, the Commission 
believes that permanent approval of the sub-dollar cabinet trade pilot 
is consistent with the Act. In particular, the Commission notes that 
the Exchange's system allows it to process cabinet trades in the normal 
course. Further, the Exchange has not observed any issues or concerns 
with sub-dollar cabinet trades at the Exchange level, with and among 
its members, or in processing the trades through OCC. Accordingly, the 
Exchange's rule appears reasonably designed to remove impediments, 
prevent fraudulent and manipulative acts and practices, and foster 
cooperation and coordination with persons engaged in facilitating 
transactions in securities. Further, permanent approval will continue 
to provide investors with choice when considering a cabinet trade, 
including the ability to price such trades below $1 per contract.

IV. Accelerated Approval of Proposed Rule Changes

    The Commission finds good cause, pursuant to Section 19(b)(2) of 
the Act,\18\ to approve the proposed rule changes prior to the 30th day 
after the date of publication of the Notice in the Federal 
Register.\19\ The Commission believes that the proposed rule change 
does not raise novel regulatory issues. The Commission notes that 
earlier this year it approved similar proposed rule changes from NYSE 
Arca, Inc.\20\ and NYSE American LLC (formerly known as NYSE MKT LLC) 
\21\ making permanent sub-dollar cabinet trade pilot programs. The 
Exchange has represented that its system is able to process cabinet 
trades similar to the processing of its other trades, it has not 
experienced any issues processing cabinet trades at the Exchange or 
through OCC, and its members have not expressed concerns. In addition, 
the Commission did not receive any comments on the proposed changes. 
Accordingly, the Commission finds that good cause exists to approve the 
proposed rule changes on an accelerated basis.
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    \18\ 15 U.S.C. 78s(b)(2).
    \19\ As noted above, the Notice was published for comment in the 
Federal Register on December 14, 2017 and the comment period closed 
on December 29, 2017. Accordingly, the 30th day after publication of 
the Notice is January 13, 2018.
    \20\ See Securities Exchange Act Release No. 80615 (May 5, 
2017), 82 FR 22036 (May 11, 2017) (SR-NYSEArca-2017-24).
    \21\ See Securities Exchange Act Release No. 80616 (May 5, 
2017), 82 FR 22033 (May 11, 2017) (SR-NYSEMKT-2017-13).
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V. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\22\ that the proposed rule change (SR-Phlx-2017-99) be, and hereby 
is, approved on an accelerated basis.
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    \22\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\23\
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    \23\ 17 CFR 200.30-3(a)(12).
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Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2018-00304 Filed 1-10-18; 8:45 am]
 BILLING CODE 8011-01-P