Document ID: SEC-2020-0405-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Nasdaq PHLX, LLC
Posted Date: 2020-03-20T04:00Z

[Federal Register Volume 85, Number 55 (Friday, March 20, 2020)]
[Notices]
[Pages 16157-16160]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-05843]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-88390; File No. SR-Phlx-2020-07]

Self-Regulatory Organizations; Nasdaq PHLX LLC; Notice of Filing 
and Immediate Effectiveness of Proposed Rule Change to Amendments to 
Complex Orders

March 16, 2020.
    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 March 4, 2020, 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 and II 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 3, Section 7, ``Electronic 
Acceptance of Quotes and Orders,'' Options 3, Section 14, ``Complex 
Orders,'' Options 8, Section 17, ``Limitations on Members' Trading 
Because of Customers' Orders'' and Options 8, Section 32, ``Certain 
Types of Floor-Based (Non-System) Orders Defined.''
    The text of the proposed rule change is available on the Exchange's 
website 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 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The Exchange proposes to amend Options 3, Section 7, ``Electronic 
Acceptance of Quotes and Orders,'' Options 3, Section 14, ``Complex 
Orders,'' Options 8, Section 17, ``Limitations on Members' Trading 
Because of Customers' Orders'' and Options 8, Section 32, ``Certain 
Types of Floor-Based (Non-System) Orders Defined.'' Each change is 
described below.
Options 3, Section 7 and Options 8, Section 32
    The Exchange proposes to amend Options 3, Section 7, titled 
``Electronic Acceptance of Quotes and Orders'' and Options 8, Section 
32, titled ``Certain Types of Floor-Based (Non-System) Orders Defined'' 
to complete the list of Order Types available for trading on the 
Exchange by referencing currently available Complex Order types. 
Options 3, Section 7(b) currently lists all order types that may be 
electronically submitted to the System. Options 8, Section 32(a) 
currently lists all order types that may be utilized on the trading 
floor. The Exchange lists all simple order types in both Options 3, 
Section 7(b) and Options 8, Section 32(a), but these lists do not 
include Complex Orders which are currently described within Options 3, 
Section 14, titled ``Complex Orders.'' The Exchange proposes to amend 
Options 3, Section 7(b) and Options 8, Section 32(a) to simply 
reference that a Complex Order is as described in Options 3, Section 
14(a)(i).\3\ The Exchange also proposes to amend these rules to simply 
reference that a Stock-Option Order is as

[[Page 16158]]

described in Options 3, Section 14(a)(i).\4\
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    \3\ Options 3, Section 14(a)(i) provides, ``a Complex Order is 
an order involving the simultaneous purchase and/or sale of two or 
more different options series in the same underlying security, 
priced as 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. With respect to Mini 
Options, a Complex Order is an order involving the simultaneous 
purchase and/or sale of two or more different Mini Options series in 
the same underlying security, priced as 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. Mini Options may only be part of a Complex Order that 
includes other Mini Options.''
    \4\ Options 3, Section 14(a)(i) provides, ``Except respecting 
Mini Options, 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 security (stock or Exchange Traded Fund Share (``ETF'')) 
coupled with the purchase or sale of options contract(s). The 
underlying security must be the deliverable for the options 
component of that Complex Order and represent exactly 100 shares per 
option for regular way delivery. Stock-option orders can only be 
executed against other stock-option orders and cannot be executed by 
the System against orders for the individual components. Member 
organizations may only submit Complex Orders with a stock/ETF 
component if such orders comply with the Qualified Contingent Trade 
Exemption from Rule 611(a) of Regulation NMS. Member organizations 
submitting such Complex Orders with a stock/ETF component represent 
that such orders comply with the Qualified Contingent Trade 
Exemption. Members of FINRA or The Nasdaq Stock Market (``Nasdaq'') 
are required to have a Uniform Service Bureau/Executing Broker 
Agreement (``AGU'') with Nasdaq Execution Services, LLC (``NES'') in 
order to trade Complex Orders containing a stock/ETF component; 
firms that are not members of FINRA or Nasdaq are required to have a 
Qualified Special Representative (``QSR'') arrangement with NES in 
order to trade Complex Orders containing a stock/ETF component.''
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    The Exchange believes that adding reference to Complex Orders and 
Stock-Option Orders to Options 3, Section 7(b) and Options 8, Section 
32(a) will make clear to market participants the various types of 
orders that may be transacted both electronically in the System and on 
the Exchange's trading floor.
Options 3, Section 14
    The Exchange recently relocated its Rulebook into a new Rulebook 
Shell.\5\ Prior to that relocation, the Exchange filed a rule proposal 
\6\ which adopted rule text within Phlx Rule 1080(f), which stated, 
``Orders may not be unbundled, nor may a firm solicit a customer to 
unbundle an order for this purpose.'' The Phlx Rulebook Relocation Rule 
Change inadvertently removed the rule text in the Prior Rule Change at 
Rule 1080(f). At this time, the Exchange proposes to restore the Rule 
1080(f) rule text within its current rules at Options 3, Section 7(f). 
Similarly, the Exchange inadvertently deleted rule text within the 
Prior Rule Change at Rule 1098(b)(v), which stated ``Complex Orders may 
be submitted as: All-or-None Orders, Cancel-Replacement Orders, 
Directed Orders, Limit Orders or Market Orders as those terms are 
defined in Rule 1080(b).'' At this time, the Exchange proposes to 
restore the Rule 1098(b)(v) rule text within its current rules at 
Options 3, Section 14(b)(v).
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    \5\ See Securities Exchange Act Release No. 88213 (February 14, 
2020), 85 FR 9859 (February 20, 2020) (SR-Phlx-2020-03) (``Phlx 
Rulebook Relocation Rule Change'').
    \6\ See Securities Exchange Act Release No. 87691 (December 9, 
2019), 84 FR 68197 (December 13, 2019) (SR-Phlx-2019-52) (``Prior 
Rule Change'').
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Options 8, Section 17
    The Exchange proposes to delete the current rule at Options 8, 
Section 17, ``Limitations on Members' Trading Because of Customers' 
Orders.'' The Exchange notes that this rule describes a prohibition 
against trading ahead of Customer Orders. The Exchange currently has 
such a prohibition within its rules at General 9, Section 1(a) which 
provides, ``Prohibition Against Trading Ahead of Customer Orders. Phlx 
members and persons associated with a member shall comply with FINRA 
Rule 5320 as if such Rule were part of Phlx's rules.'' The Exchange 
notes that General 9, Section 1 applies to all Phlx members including 
members transacting options on the trading floor. The Exchange believes 
that Options 8, Section 17 is redundant because a trading ahead 
prohibition already exists in the Rules and applies to the options 
trading floor. The Exchange proposes to reserve Options 8, Section 17.
2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act,\7\ in general, and furthers the objectives of Section 
6(b)(5) of the Act,\8\ in particular, in that it is designed to promote 
just and equitable principles of trade and to protect investors and the 
public interest by amending its rules to provide greater transparency.
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    \7\ 15 U.S.C. 78f(b).
    \8\ 15 U.S.C. 78f(b)(5).
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Options 3, Section 7 and Options 8, Section 32
    The Exchange's proposal to amend Options 3, Section 7, titled 
``Electronic Acceptance of Quotes and Orders'' and Options 8, Section 
32, titled ``Certain Types of Floor-Based (Non-System) Orders Defined'' 
to complete the list of Order Types by referencing existing Complex 
Order types is consistent with the Act. Options 3, Section 7(b) 
currently lists all order types that may be electronically submitted to 
the System. Options 8, Section 32(a) currently lists all order types 
that may be utilized on the trading floor. However, these lists do not 
include Complex Orders which are described within Options 3, Section 
14, titled ``Complex Orders.'' The Exchange believes amending Options 
3, Section 7(b) and Options 8, Section 32(a) to reference Complex 
Orders and Stock-Option Orders, which are currently described in 
Options 3, Section 14(a)(i), will make clear to market participants the 
various types of orders that may be transacted both electronically in 
the System and on the Exchange's trading floor.
Options 3, Section 14
    The Exchange's proposal to restore inadvertently deleted rule text 
within Options 3, Section 7(f) and Section 14(b)(v) from a Prior Rule 
Change will correct Phlx's rules to reflect previously adopted rule 
text that was inadvertently omitted when it adopted its shell Rulebook 
as explained above.\9\
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    \9\ See notes 5 and 6 above.
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Options 8, Section 17
    The Exchange's proposal to delete the current rule at Options 8, 
Section 17, ``Limitations on Members' Trading Because of Customers' 
Orders'' is consistent with the Act because this rule is redundant. 
General 9, Section 1(a) and Options 8, Section 17 both contain a 
prohibition against trading ahead of Customer Orders. The Exchange 
proposes to delete the redundant rule text within Options 8, Section 
17. The rule text within General 9, Section 1 applies to all Phlx 
members, including members transacting options on the trading floor. 
The deletion of Options 8, Section 17 is a non-substantive amendment to 
eliminate redundancy within the rules.

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

    The Exchange does not believe that the proposed rule change will 
impose an unnecessary burden on intra-market competition as explained 
below.
Options 3, Section 7 and Options 8, Section 32
    The Exchange's proposal to amend Options 3, Section 7, titled 
``Electronic Acceptance of Quotes and Orders'' and Options 8, Section 
32, titled ``Certain Types of Floor-Based (Non-System) Orders Defined'' 
to complete the list of Order Types by referencing Complex Order types, 
which are currently described in Options 3, Section 14(a)(i), does not 
impose an undue burden on inter-market or intra-market competition. The 
Exchange is referencing Complex Orders and Stock-Options Orders within 
Options 3, Section 14(a)(i) within the Options 3, Section 7(b) and 
Options 8, Section 32(a) lists of order types for greater transparency 
as to the various types of orders that may be transacted both 
electronically in the System and on the Exchange's trading floor.

[[Page 16159]]

Options 3, Section 14
    The Exchange's proposal to restore inadvertently deleted rule text 
within Options 3, Section 7(f) and Section 14(b)(v) does not impose an 
undue burden on inter-market or intra-market competition, rather 
restoring the rule text will correct the current Phlx Rules to reflect 
previously adopted rule text, as explained herein.
Options 8, Section 17
    The Exchange's proposal to delete the current rule at Options 8, 
Section 17, ``Limitations on Members' Trading Because of Customers' 
Orders'' does not impose an undue burden on inter-market or intra-
market competition. A prohibition against trading ahead of Customer 
Orders, is currently contained within General 9, Section 1(a) and 
applies to all Phlx members, including members transacting business on 
the trading floor. The deletion of Options 8, Section 17 is a non-
substantive amendment to avoid redundancy within the rules.

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

    The Exchange has filed the proposed rule change pursuant to Section 
19(b)(3)(A)(iii) of the Act \10\ and Rule 19b-4(f)(6) thereunder.\11\ 
Because the 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, if consistent with the protection of 
investors and the public interest, the proposed rule change has become 
effective pursuant to Section 19(b)(3)(A) of the Act \12\ and Rule 19b-
4(f)(6) thereunder.\13\
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    \10\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \11\ 17 CFR 240.19b-4(f)(6).
    \12\ 15 U.S.C. 78s(b)(3)(A).
    \13\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)(iii) 
requires the Exchange to give the Commission written notice of the 
Exchange's intent to file the proposed rule change, along with a 
brief description and text of 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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    A proposed rule change filed under Rule 19b-4(f)(6) \14\ normally 
does not become operative for 30 days after the date of the filing. 
However, pursuant to Rule 19b-4(f)(6)(iii),\15\ the Commission may 
designate a shorter time if such action is consistent with the 
protection of investors and the public interest. The Exchange has asked 
the Commission to waive the 30-day operative delay so that the proposed 
rule change may become operative immediately. The Exchange believes 
that the proposal to amend Options 3, Section 7, titled ``Electronic 
Acceptance of Quotes and Orders'' and Options 8, Section 32, titled 
``Certain Types of Floor-Based (Non-System) Orders Defined'' to include 
Complex Orders and Stock-Options Orders, which are described within 
Options 3, Section 14, will make clear to market participants the 
various types of orders that may be transacted both electronically in 
the System and on the Exchange's trading floor. The Exchange also notes 
that the proposal to restore inadvertently deleted rule text from a 
Prior Rule Change within Options 3, Section 7(f) and Section 14(b)(v) 
will correct the current Phlx Rules to include previously adopted rule 
text as described above and views this as a non-substantive rule 
change. In addition, the Exchange states that deleting Options 8, 
Section 17, ``Limitations on Members' Trading Because of Customers' 
Orders'' is a non-substantive amendment designed to eliminate a 
redundant prohibition in Phlx's Rules, and notes that a prohibition 
against trading ahead of Customer Orders on the options floor is 
currently contained within General 9, Section 1(a) and applies to all 
Phlx members, including members transacting business on the trading 
floor. For these reasons, the Commission believes that waiver of the 
30-day operative delay is consistent with the protection of investors 
and the public interest. Accordingly, the Commission hereby waives the 
30-day operative delay and designates the proposal operative upon 
filing.\16\
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    \14\ 17 CFR 240.19b-4(f)(6).
    \15\ 17 CFR 240.19b-4(f)(6)(iii).
    \16\ For purposes only of waiving the 30-day operative delay, 
the Commission has considered the proposed rule's impact on 
efficiency, competition, and capital formation. See 15 U.S.C. 
78c(f).
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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 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 change 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-2020-07 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-2020-07. 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 (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 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 10:00 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. Persons submitting comments are 
cautioned that we do not redact or edit personal identifying 
information from comment submissions. You should submit only 
information that you wish to make available publicly. All submissions 
should refer to File Number SR-Phlx-2020-07, and should

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be submitted on or before April 10, 2020.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\17\
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    \17\ 17 CFR 200.30-3(a)(12), (59).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-05843 Filed 3-19-20; 8:45 am]
BILLING CODE 8011-01-P