Document ID: SEC-2021-1214-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Nasdaq PHLX, LLC
Posted Date: 2021-09-09T04:00Z

[Federal Register Volume 86, Number 172 (Thursday, September 9, 2021)]
[Notices]
[Pages 50584-50586]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2021-19423]

[[Page 50584]]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-92873; File No. SR-Phlx-2021-48]

Self-Regulatory Organizations; Nasdaq PHLX LLC; Notice of Filing 
and Immediate Effectiveness of Proposed Rule Change To Amend Various 
Phlx Rules

September 2, 2021.
    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 August 23, 2021, 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 Phlx Options 2, Section 5, 
Electronic Market Maker Obligations and Quoting Requirements, Options 
2, Section 10, Directed Orders, Options 3, Section 13, Price 
Improvement XL (``PIXL''), and Options 3, Section 26, Message Traffic 
Mitigation.
    The text of the proposed rule change is available on the Exchange's 
website at https://listingcenter.nasdaq.com/rulebook/phlx/rules, 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 Phlx Rules at Options 2, Section 5, 
Electronic Market Maker Obligations and Quoting Requirements, Options 
2, Section 10, Directed Orders, Options 3, Section 13, Price 
Improvement XL (``PIXL''), and Options 3, Section 26, Message Traffic 
Mitigation. Each change is described below.
Options 2, Section 5
    The Exchange proposes to amend Options 2, Section 5, which 
describes quoting obligations for Market Makers \3\ and Lead Market 
Makers,\4\ to conform the description of a LEAP for index options with 
Options 4A, Section 12(b)(2). Today, SQTs and RSQTs are not required to 
make two-sided markets in any Quarterly Option Series, any adjusted 
option series, and any option series with an expiration of nine months 
or greater, otherwise known as long-term options series or ``LEAPs.'' 
Current Options 2, Section 5(c)(2)(A) describes a LEAP as any option 
series with an expiration of nine months or greater, while Options 4A, 
Section 12(b)(2) describes a LEAP on an index option as a series of 
options having not less than twelve and up to 60 months to 
expiration.\5\ The Exchange proposes to amend Options 2, Section 
5(c)(2)(A) to explicitly define a LEAP by product. Specifically, the 
Exchange proposes to add the following phrase to end of the paragraph, 
``for options on equities and exchange-traded funds (``ETFs'') or with 
an expiration of twelve months or greater for index options'' to 
distinguish LEAPs for options on equities and ETFs, which have an 
opening month of 9 months, from LEAPS for index options, which have an 
opening month of 12 months. This proposal is non-substantive as Options 
4A, Section 12(b)(2) already defines a LEAP on an index option. The 
Exchange is simply conforming Options 2, Section 5(c)(2)(A) to Options 
4A, Section 12(b)(2).
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    \3\ A ``Market Maker'' means a Streaming Quote Trader or a 
Remote Streaming Quote Trader who enters quotations for his own 
account electronically into the System. See Options 1, Section 
1(b)(28). A ``Streaming Quote Trader'' or ``SQT'' means a Market 
Maker 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 trading floor of the Exchange. An SQT 
may only submit quotes in classes of options in which the SQT is 
assigned. See Options 1, Section 1(b)(54). A ``Remote Streaming 
Quote Trader'' or ``RSQT'' means a Market Maker that is a member 
affiliated with an Remote Streaming Quote Trader Organization with 
no physical trading floor presence who has received permission from 
the Exchange to generate and submit option quotations electronically 
in options to which such RSQT has been assigned. A qualified RSQT 
may function as a Remote Lead Market Maker upon Exchange approval. 
An RSQT is also known as a Remote Market Maker (``RMM'') pursuant to 
Options 2, Section 11. A Remote Streaming Quote Organization 
(``RSQTO'') or Remote Market Maker Organization (``RMO'') are 
Exchange member organizations that have qualified pursuant to 
Options 2, Section 1. See Options 1, Section 1(b)(49).
    \4\ A ``Lead Market Maker'' means a member who is registered as 
an options Lead Market Maker pursuant to Options 2, Section 12(a). A 
Lead Market Maker includes a Remote Lead Market Maker which is 
defined as a Lead Market Maker in one or more classes that does not 
have a physical presence on an Exchange's trading floor and is 
approved by the Exchange pursuant to Options 2, Section 11. See 
Options 1, Section 1(b)(27).
    \5\ Phlx previously amended its Options 4A, Section 12, Terms of 
Option Contracts, to change the number of expirations that the 
Exchange may open for trading in series of options related to Long-
Term Options Series of index options. See Securities Exchange Act 
Release No. 88460 (March 23, 2020), 85 FR 17146 (March 26, 2020) 
(SR-Phlx-2020-10) (Notice of Filing and Immediate Effectiveness of 
Proposed Rule Change To Amend Options 4A, Section 12, Terms of 
Option Contracts). This proposal amended Phlx's current expiration 
for long-term index options from those series not having less than 
nine and up to 60 months to expirations to a number of expirations 
not having less than twelve and up to 60 months to expiration with 
respect to Long-Term Options Series.
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    Similar changes to distinguish terms for LEAPs on index options are 
proposed for Options 2, Section 5(c)(2)(B) and (C) which are applicable 
to Lead Market Makers,\6\ and Directed SQTs and Directed RSQTs.\7\ 
Also, a similar change is proposed to be added to Options 2, Section 
5(c)(2)(D) which generally describes the manner in which the Exchange 
calculates quoting obligations. This amendment will bring greater 
clarity to the Exchange's rules.
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    \6\ Lead Market Makers are required to make two-sided markets in 
any Quarterly Option Series, any Adjusted Option Series, and any 
LEAP. See Options 2, Section 5(c)(2)(B).
    \7\ Directed SQTs and Directed RSQTs are not required to make 
two-sided markets in any Quarterly Option Series, any Adjusted 
Option Series, and any LEAP. See Options 2, Section 5(c)(2)(C).
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Options 2, Section 10
    The Exchange proposes to correct an improper citation within 
Options 2, Section 10(a)(iii) to Options 10, Section 11(a)(1)(C). The 
citation should refer to the allocation rule at Options 3, Section 
10(a)(1).
Options 3, Section 13
    The Exchange proposes to amend Options 3, Section 13, Price 
Improvement XL (``PIXL''). Specifically, the Exchange proposes to 
update rule citations within Options 3, Section

[[Page 50585]]

13(c)--(e) to Options 9. The rule citations to ``Options 9, Section 1'' 
and ``Options 9, Section'' are being replaced with ``General 9, Section 
1(c).'' The Exchange previously relocated Options 9, Section 1, Conduct 
Inconsistent with Just and Equitable Principles of Trade, to General 9, 
Section 1(c).\8\ Certain citations were missing the Section ``1'' as 
well. The Exchange also proposes to make ``exceed'' plural within 
Options 3, Section 13(d).
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    \8\ See Securities Exchange Act Release No. 91058 (February 4, 
2021), 86 FR 8966 (February 10, 2021) (SR-Phlx-2021-04) (Notice of 
Filing and Immediate Effectiveness of Proposed Rule Change To 
Relocate Its PSX Equity and General Rules From Its Current Rulebook 
Into Its New Rulebook Shell and Make Other Changes to the Phlx 
Rules).
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Options 3 Section 26
    The Exchange proposes to amend Options 3, Section 26, Message 
Traffic Mitigation. Specifically, the Exchange proposes to amend 
Options 3, Section 26(a)(3) which currently provides, ``The Exchange 
shall disseminate an updated bid and offer price, together with the 
size associated with such bid and offer, when:. . . the size associated 
with the Exchange's bid (offer) increases by an amount greater than or 
equal to a percentage (never to exceed 20%) of the size associated with 
previously disseminated bid (offer). Such percentage, which shall never 
exceed 20%, shall be determined on an issue-by-issue basis by the 
Exchange and announced to membership via Exchange circular.'' The 
Exchange proposes to make some non-substantive amendments to the 
sentence, such as changing ``shall'' to ``will'' and moving the phrase 
``by the Exchange''. The Exchange also proposes to amend the practice 
of issuing a circular to announce the percentage specified in Options 
3, Section 26(a)(3) to instead posting the percentage on the Exchange's 
website. The Exchange believes that posting the information on the 
Exchange's website will provide members and member organizations a 
reference to the current percentage provided for within Options 3, 
Section 26(a)(3) without the need to locate a notice that was 
previously issued. Further, this practice will continue to provide 
transparency to members and member organizations.
2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act,\9\ in general, and furthers the objectives of Section 
6(b)(5) of the Act,\10\ in particular, in that it is designed to 
promote just and equitable principles of trade and to protect investors 
and the public interest.
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    \9\ 15 U.S.C. 78f(b).
    \10\ 15 U.S.C. 78f(b)(5).
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Options 2, Section 5
    The proposed amendment to Options 2, Section 5 is consistent with 
the Act because it will distinguish LEAPs for options on equities and 
ETFs, which have an opening month of 9 months, from LEAPS for index 
options, which have an opening month of 12 months. This proposal is 
non-substantive as Options 4A, Section 12(b)(2) already defines a LEAP 
on an index option. The Exchange is simply conforming Options 2, 
Section 5(c)(2)(A) to Options 4A, Section 12(b)(2). This amendment will 
bring greater clarity to the Exchange's rules.
Options 2, Section 10
    The Exchange's proposal to correct an improper citation within 
Options 2, Section 10(a)(iii) is consistent with the Act and will bring 
greater clarity to the Exchange's rules.
Options 3, Section 13
    The Exchange's proposal to update rule citations within Options 3, 
Section 13(c)--(e) from ``Options 9'' or ``Options 9, Section 1'' to 
``General 9, Section 1(c)'' is consistent with the Act and will bring 
greater clarity to the Exchange's Rulebook.
Options 3 Section 26
    The Exchange's proposal to amend Options 3, Section 26(a)(3) to 
make some non-substantive amendments, such as changing ``shall'' to 
``will'' and moving the phrase ``by the Exchange'' and amending the 
practice of issuing a circular to instead posting the percentage on the 
Exchange's website are consistent with the Act. The Exchange believes 
that posting the information on the Exchange's website will provide 
members and member organizations a reference to the current percentage 
within Options 3, Section 26(a)(3) without the need to locate a notice 
that was previously issued. Further, this practice will continue to 
provide transparency to members and member organizations.

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.
Options 2, Section 5
    The proposed amendment to Options 2, Section 5 does not impose an 
undue burden on competition because the proposal is a non-substantive 
amendment to add specificity to the rule by distinguishing LEAPs for 
options on equities and ETFs, which have an opening month of 9 months, 
from LEAPS for index options, which have an opening month of 12 months. 
This proposal will conform Options 2, Section 5(c)(2)(A) to Options 4A, 
Section 12(b)(2).
Options 2, Section 10
    The Exchange's proposal to correct an improper citation within 
Options 2, Section 10(a)(iii) does not impose an undue burden on 
competition, rather it will bring greater clarity to the Exchange's 
rules.
Options 3, Section 13
    The Exchange's proposal to update rule citations within Options 3, 
Section 13(c)--(e) from ``Options 9'' or ``Options 9, Section 1'' to 
``General 9, Section 1(c)'' does not impose an undue burden on 
competition, rather the proposal will bring greater clarity to the 
Exchange's Rulebook.
Options 3 Section 26
    The Exchange's proposal to amend Options 3, Section 26(a)(3) to 
make some non-substantive amendments, such as changing ``shall'' to 
``will'' and moving the phrase ``by the Exchange'' and amending the 
practice of issuing a circular to instead posting the percentage within 
Options 3, Section 26(a)(3) on the Exchange's website does not impose 
an undue burden on competition. The Exchange believes that posting the 
information on the Exchange's website will continue to provide 
transparency to members and member organizations.

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 \11\ and

[[Page 50586]]

subparagraph (f)(6) of Rule 19b-4 thereunder.\12\
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    \11\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \12\ 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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    A proposed rule change filed under Rule 19b-4(f)(6) \13\ normally 
does not become operative prior to 30 days after the date of the 
filing. However, Rule 19b-4(f)(6)(iii) \14\ permits the Commission to 
designate a shorter time if such action is consistent with the 
protection of investors and the public interest. The Exchange has asked 
that the Commission waive the operative delay to permit the Exchange to 
immediately amend Options 2, Section 5 to distinguish LEAPs for options 
on equities and ETFs, which have an opening month of 9 months or 
greater, from LEAPS for index options, which have an opening month of 
12 months or greater, thereby conforming Options 2, Section 5(c)(2)(A) 
to Options 4A, Section 12(b)(2). Further, the Exchange states that 
amending Options 3, Section 26(a)(3) will continue to provide 
transparency to members and member organizations with respect to the 
manner in which the Exchange manages quote traffic. The Commission 
believes that waiving the 30-day operative delay is consistent with the 
protection of investors and the public interest because (1) it will 
allow the Exchange to immediately implement the proposed changes which 
are designed to add clarity and consistency to the Exchange's rules 
concerning LEAPs and (2) it will allow the Exchange to immediately 
implement a change designed to better communicate to market 
participants information concerning quote mitigation. Therefore, the 
Commission hereby waives the 30-day operative delay and designates the 
proposed rule change as operative upon filing.\15\
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    \13\ 17 CFR 240.19b-4(f)(6).
    \14\ 17 CFR 240.19b-4(f)(6)(iii).
    \15\ For purposes only of waiving the 30-day operative delay, 
the Commission has also 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 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-2021-48 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-2021-48. 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-2021-48 and 
should be submitted on or before September 30, 2021.
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    \16\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\16\
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2021-19423 Filed 9-8-21; 8:45 am]
BILLING CODE 8011-01-P