Document ID: SEC-2019-1899-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Nasdaq PHLX LLC
Posted Date: 2019-12-18T05:00Z

[Federal Register Volume 84, Number 243 (Wednesday, December 18, 2019)]
[Notices]
[Pages 69405-69412]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-27204]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-87728; File No. SR-Phlx-2019-51]

Self-Regulatory Organizations; Nasdaq PHLX LLC; Notice of Filing 
and Immediate Effectiveness of Proposed Rule Change Relating to 
Securities Traded Pursuant to Unlisted Trading Privileges

December 12, 2019.
    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 December 3, 2019, Nasdaq PHLX LLC (``Phlx'' or ``Exchange'') filed 
with the Securities and Exchange Commission (``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 delete Phlx Rules 800-853, 867 and 868, 
under the title ``Standards for Trading Securities Pursuant to Unlisted 
Trading Privileges.'' Phlx Rules 860-866 are being relocated to new PSX 
Rules 3236-3242, respectively. The Exchange proposes to amend Phlx Rule 
1000, titled ``Applicability, Definitions and References,'' PSX Rule 
3100, titled ``Limit Up-Limit Down Plan and Trading Halts on PSX,'' and 
Rule 3202, titled ``Application of Other Rules of the Exchange.'' The 
Exchange proposes to adopt a new PSX Rule 3204, titled ``Securities 
Traded under Unlisted Trading Privileges,'' PSX Rule 3232, titled 
``Advertising Practices,'' PSX Rule 3233, titled ``Prevention of the 
Misuse of Material, Nonpublic Information'' and PSX Rule 3234, titled 
``Additional Requirements for Securities Issued by Nasdaq or its 
Affiliates.'' Phlx Rule 136, titled ``Trading Halts in Certain Exchange 
Traded Funds,'' is being deleted and replaced with new proposed rules. 
PSX Rule 3234 is being added to the PSX Rules to specify that equity 
Affiliate Securities will not be listed on the Exchange. Finally, the 
Exchange is amending Phlx Rule 990, ``Additional Requirements for 
Securities Listed on the Exchange Issued by Nasdaq or its Affiliates'' 
to make clear the rule is applicable to equities and options.
    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.

[[Page 69406]]

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

1. Purpose
    The Exchange proposes to delete Phlx Rules 800-853, 867 and 868, 
under the title ``Standards for Trading Securities Pursuant to Unlisted 
Trading Privileges.'' Phlx Rules 860-866 are being relocated to new PSX 
Rules 3236-3242, respectively. The Exchange proposes to amend Phlx Rule 
1000, titled ``Applicability, Definitions and References,'' PSX Rule 
3100, titled ``Limit Up-Limit Down Plan and Trading Halts on PSX,'' and 
Rule 3202, titled ``Application of Other Rules of the Exchange.'' The 
Exchange proposes to adopt a new PSX Rule 3204, titled ``Securities 
Traded under Unlisted Trading Privileges,'' PSX Rule 3232, titled 
``Advertising Practices,'' PSX Rule 3233, titled ``Prevention of the 
Misuse of Material, Nonpublic Information'' and PSX Rule 3234, titled 
``Additional Requirements for Securities Issued by Nasdaq or its 
Affiliates.'' Phlx Rule 136, titled ``Trading Halts in Certain Exchange 
Traded Funds,'' is being deleted and replaced with new proposed rules. 
PSX Rule 3234 is being added to the PSX Rules to specify that equity 
Affiliate Securities will not be listed on the Exchange. Finally, the 
Exchange is amending Phlx Rule 990, ``Additional Requirements for 
Securities Listed on the Exchange Issued by Nasdaq or its Affiliates'' 
to make clear the rule is applicable to equities and options.
    Today, Nasdaq PSX (``PSX'') does not list equity securities. 
Rather, PSX trades NMS stocks listed on other exchanges on an unlisted 
trading privileges basis. PSX Rule 3202 notes that Phlx Rule 803, 
titled ``Listing Standards for Unlisted Trading Privileges,'' is 
applicable to market participants trading on PSX. Phlx Rule 803 
supports unlisted trading privileges for NMS stocks on PSX, but it also 
contains listing standards that are not currently applicable because 
PSX does not list equity securities. The Exchange proposes to delete 
Phlx Rule 803 and remove cross-references to this Rule within Phlx Rule 
1000 and PSX Rule 3202. The Exchange notes that it is retaining the 
rule text within Phlx Rule 803(o)(2) and relocating that rule text 
within PSX Rule 3204(a)(3) as described below in greater detail.
    In addition to deleting Rule 803 and the cross-reference to Rule 
803 from PSX Rule 1000 and 3202, the Exchange proposes to delete Phlx 
Rules 800, 802, 804-853,\3\ 867 and 868 which contain listing standards 
for equity securities. The Exchange's proposal to adopt proposed PSX 
Rule 3204 will provide for the trading of equity securities pursuant to 
unlisted trading privileges. If at a later date PSX determines to list 
equity securities, it would file a proposed rule change with the 
Commission.
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    \3\ The Exchange notes that Phlx Rules 800-868 do not apply to 
the options market. The rule text of Phlx Rules 801, 803(o)(2) and 
860-866 are being relocated within the new rule text.
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Proposed Rule 3204
    PSX proposes to adopt a new PSX Rule 3204, titled ``Securities 
Traded under Unlisted Trading Privileges'' to describe the manner in 
which PSX will trade securities pursuant to unlisted trading 
privileges. As noted above, while today Phlx Rule 803 permits the 
trading of securities pursuant to unlisted trading privileges, proposed 
new PSX Rule 3204 will make clear the applicability of PSX's unlisted 
trading privileges to any security that is an NMS Stock (as defined in 
Rule 600 of Regulation NMS under the Act) that is listed on another 
national securities exchange. Proposed Rule 3204 is similar to NYSE 
National, Inc. (``NYSE National'') Rule 5.1.
    Proposed PSX Rule 3204(a) provides ``Only such securities admitted 
pursuant to unlisted trading privileges shall be dealt in on the 
Exchange. The Exchange will not list equity securities pursuant to any 
Rule until the Exchange files a proposed rule change under Section 
19(b)(2) under the Exchange Act to amend its Rules to make any changes 
needed to comply with Rules 10A-3 and 10C-1 under the Exchange Act and 
to incorporate additional qualitative and other listing criteria, and 
such proposed rule change is approved by the Commission. Therefore, the 
provisions of the Exchange's Rules are not effective to permit the 
listing of equity securities.'' This is the case today and this 
proposed new rule text, which replaces current Phlx Rule 803, makes 
clear that PSX is not a listing venue. The rule would further specify 
in proposed Rule 3204(a)(1) that the Exchange may extend unlisted 
trading privileges to any security that is an NMS Stock that is listed 
on another national securities exchange or with respect to which 
unlisted trading privileges may otherwise be extended in accordance 
with Section 12(f) of the Exchange Act and any such security shall be 
subject to all Exchange rules applicable to trading on the Exchange, 
unless otherwise noted.
    This proposed rule text states the Exchange's authority to trade 
securities on an UTP basis and provides that the Exchange may extend 
UTP to any security that is an NMS Stock that is listed on another 
national securities exchange or with respect to which UTP may otherwise 
be extended in accordance with Section 12(f) of the Exchange Act.\4\ 
This proposed text is based on NYSE National Rule 5.1.
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    \4\ 15 U.S.C. 78l(f).
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    The proposed rule defines a UTP Security within proposed Rule 
3100(b)(7) as a security that is listed on a national securities 
exchange other than the Exchange and that trades on the Exchange 
pursuant to unlisted trading privileges. The Exchange describes the 
manner in which it distributes an information circular prior to the 
commencement of trading in each UTP Exchange Traded Product within Rule 
3204(a)(2). The circular would generally include the same information 
as is contained in the information circular provided by the listing 
exchange, including (a) the special risks of trading the new Exchange 
Traded Product, (b) the Exchange Rules that will apply to the new 
Exchange Traded Product, and (c) information about the dissemination of 
value of the underlying assets or indices.
    Proposed Rule 3204(a)(2)(B) also sets forth member organization 
prospectus delivery requirements. In addition, the Exchange requires 
that member organizations provide each purchaser of UTP Exchange Traded 
Products a written description of the terms and characteristics of 
those securities, in a form approved by the Exchange or prepared by the 
open-ended management company issuing such securities, not later than 
the time a confirmation of the first transaction in such securities is 
delivered to such purchaser. A member organization carrying an omnibus 
account for a non-member organization is required to inform such non-
member organization that execution of an order to purchase UTP Exchange 
Traded Products for such omnibus account will be deemed to constitute 
an agreement by the non- member organization to make such written 
description available to its customers on the same terms as are 
directly applicable to the member organization under this Rule. Upon 
request of a customer, a member organization will also provide a 
prospectus for the particular UTP Exchange Traded Product.
    Proposed Rule 3204(a)(2)(C) indicates that trading halts for UTP 
Exchange Traded Products will be pursuant to

[[Page 69407]]

PSX Rule 3100, which is described below. Proposed Rule 3204(a)(2)(D) 
provides for certain Market Maker restrictions that exist today for 
market makers. Proposed Rule 3204(a)(2)(D) requires certain 
restrictions for any member organization registered as a market maker 
in an UTP Exchange Traded Product that derives its value from one or 
more currencies, commodities, or derivatives based on one or more 
currencies or commodities, or is based on a basket or index composed of 
currencies or commodities (collectively, ``Reference Assets''). 
Specifically, such a Market Maker must file with the Exchange and keep 
current a list identifying all accounts for trading the underlying 
physical asset or commodity, related futures or options on futures, or 
any other related derivatives (collectively with Reference Assets, 
``Related Instruments''), which the member organization acting as 
registered market maker may have or over which it may exercise 
investment discretion.\5\ As noted above, these restrictions are 
applicable today.
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    \5\ The proposed rule would also, more specifically, require a 
market maker to file with the Exchange and keep current a list 
identifying any accounts (``Related Instrument Trading Accounts'') 
for which related instruments are traded (1) in which the market 
maker holds an interest, (2) over which it has investment 
discretion, or (3) in which it shares in the profits and/or losses. 
In addition, a market maker would not be permitted to have an 
interest in, exercise investment discretion over, or share in the 
profits and/or losses of a Related Instrument Trading Account that 
has not been reported to the Exchange as required by the proposed 
rule.
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    Proposed Rule 3204(a)(2)(E) provides that the Exchange will enter 
into comprehensive surveillance sharing agreements with markets that 
trade components of the index or portfolio on which the UTP Exchange 
Traded Product is based to the same extent as the listing exchange's 
rules require the listing exchange to enter into comprehensive 
surveillance sharing agreements with such markets.
    The Exchange proposes to relocate rule text from Phlx Rule 
803(o)(2) into proposed new PSX Rule 3204(a)(3). This rule text 
provides that prior to the commencement of trading of contingent value 
rights (``CVRs'') on the Exchange, the Exchange will distribute a 
circular providing guidance to its member organizations regarding 
compliance responsibilities (including suitability recommendations and 
account approval) when handling transactions in CVRs.
PSX Rule 3100
    The Exchange proposes to amend Rule 3100, ``Limit Up-Limit Down 
Plan and Trading Halts on PSX''. The Exchange proposes to amend PSX 
Rule 3100(a)(1) to remove the following provision, ``(A) during a 
trading halt imposed by such exchange to permit the dissemination of 
material news; or (B).'' A provision regarding dissemination of 
material news is included in proposed Rule 3100(d). Further, the 
Exchange proposes to amend the next sentence to clarify the sentence by 
stating, ``In the event that the Exchange initiates a trading halt 
based on another exchange's operational trading halt, PSX may resume 
trading and permit PSX Participants to commence entry of orders and 
quotations and trading at any time following initiation of the other 
exchange's operational trading halt.'' The Exchange is not 
substantively amending this rule text, rather the rule text is being 
clarified. The Exchange proposes to remove the ``without regard to 
procedures for resuming trading set forth in paragraph (c),'' because 
the Exchange would follow the procedure in subparagraph (c) in the 
event that a trading halt were initiated.
    The Exchange proposes to eliminate the rule text within Rule 
3100(a)(2) \6\ and (4).\7\ The rule text within Rule 3100(a)(2) applies 
to listed securities which are no longer applicable. The rule text 
within Rule 3100(a)(4) is outdated.
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    \6\ PSX Rule 3100(a)(2) provides, ``The Exchange may halt 
trading in an index warrant on PSX whenever Exchange staff shall 
conclude that such action is appropriate in the interests of a fair 
and orderly market and to protect investors. Among the factors that 
may be considered are the following: (A) Trading has been halted or 
suspended in underlying stocks whose weighted value represents 20% 
or more of the index value; (B) the current calculation of the index 
derived from the current market prices of the stocks is not 
available; (C) other unusual conditions or circumstances detrimental 
to the maintenance of a fair and orderly market are present; or''
    \7\ PSX Rule 3100(a)(4) provides, ``If a primary listing market 
issues an individual stock trading pause in any of the Circuit 
Breaker Securities, as defined herein, the Exchange will pause 
trading in that security until trading has resumed on the primary 
listing market. If, however, trading has not resumed on the primary 
listing market and ten minutes have passed since the individual 
stock trading pause message has been received from the responsible 
single plan processor, the Exchange may resume trading in such 
stock. The provisions of this paragraph (a)(4) shall be in effect 
during a pilot set to end on February 4, 2014. During the pilot, the 
term ``Circuit Breaker Securities'' shall mean all NMS stocks other 
than NMS stocks subject to the Regulation NMS Plan to Address 
Extraordinary Market Volatility.''
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    Halting of securities is covered by Rule 3100(a)(1) and (2) as well 
as proposed rule text within 3100(d) through (f). The Exchange proposes 
to eliminate the rule text within Rule 3100(a)(3) \8\ because that rule 
is being replaced by Rule 3100(f) which is substantially similar to 
NYSE National Rule 7.18(c) and describes the halting of trading in a 
UTP Exchange Traded Product. Removing repetitive and outdated rule text 
will bring greater clarity to the manner in which PSX may halt pursuant 
to Rule 3100. The Exchange proposes to renumber PSX Rule 3100(a)(5) as 
(a)(2).
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    \8\ PSX Rule 3100(a)(3) provides, ``The Exchange shall halt 
trading in Derivative Securities Products (as defined in Rule 
3100(b)(4)(A)) for which a net asset value (``NAV'') (and in the 
case of Managed Fund Shares or actively managed exchange-traded 
funds, a Disclosed Portfolio, as defined in Rule 803(n)) is 
disseminated if the Exchange becomes aware that the NAV (or, if 
applicable, the Disclosed Portfolio) is not being disseminated to 
all market participants at the same time. The Exchange will maintain 
the trading halt until such time as trading resumes in the listing 
market.''
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    The Exchange proposes to delete the text currently in Rule 
3100(b)(1)-(3) and retain the text currently in Rule 3100(b)(4) as new 
``(b)'' as the new proposed rule text within Rule 3100(f) is generally 
duplicative of the rule text within Rule 3100(b)(1)-(3) as explained 
below. The Exchange is replacing references to ``Trust Shares,'' 
``Index Fund Shares,'' ``Managed Fund Shares,'' and ``Trust Issued 
Receipts'' within Rule 803(i), (j), (l), and (n), with definitions of 
those terms,\9\ which are proposed to be added to Rule 3100(b)(1)(A)-
(D). Further, the definition of ``Required Value'' is being removed as 
this definition is obsolete and is not utilized within the PSX Rules 
with the addition and deletion of rule text as proposed herein. The 
Exchange proposes to define the term ``UTP Listing Market'' the same as 
NYSE National Rule 1.1(jj) within Rule 3100(b)(5). The Exchange 
proposes to define the term ``UTP Regulatory Halt'' the same as NYSE 
National 1.1(kk) within Rule 3100(b)(6). Also, the Exchange proposes to 
define the term ``UTP Security'' the same as NYSE National 1.1(ii) 
within Rule 3100(b)(7).\10\
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    \9\ The definitions are unchanged from the rules which are being 
deleted.
    \10\ While the definitions of ``UTP Listing Market,'' ``UTP 
Regulatory Halt,'' and ``UTP Security'' are new, these concepts are 
contained within existing PSX Rules.
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    The Exchange proposes to add a new Rule 3100(d) which provides for 
UTP Regulatory Halts. Substantially identical to NYSE National Rule 
7.18, the Exchange proposes that if the UTP Listing Market declares a 
UTP Regulatory Halt, the Exchange will halt trading in that security 
until it receives notification from the UTP Listing Market that the 
halt or suspension is no longer in effect or as provided for in Rule 
3100(a)(2) and Phlx Rule 133 provided that, during Regular Market 
Session, the Exchange will halt trading

[[Page 69408]]

until it receives the first Price Band \11\ in that security. If a UTP 
Regulatory Halt was issued for the purpose of dissemination of material 
news, the Exchange will assume that adequate publication or 
dissemination has occurred upon the expiration of one hour after 
initial publication in a national news dissemination service of the 
information that gave rise to an UTP Regulatory Halt and may, at its 
discretion, reopen trading at that time, notwithstanding notification 
from the UTP Listing Market that the halt or suspension is no longer in 
effect.
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    \11\ Price Band shall mean the Price Band as described within 
PSX Rule 3100(a)(2).
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    The Exchange proposes new rule text at Rule 3100(e) to provide that 
there would be no halt cross or re-opening cross in a UTP Security. 
NYSE National Rule 7.18 provides for detail concerning orders' 
acceptance and cancellations following a UTP Regulatory Halt. PSX 
similarly proposes a rule to describe the manner in which its system 
will handle interest in the event of a trading halt. PSX's rules differ 
from NYSE National in that each market has different order types and 
system handling related to each respective equity market. The Exchange 
proposes herein to provide similar information with respect to the 
manner in which PSX would conduct a re-opening in a UTP Security. The 
Exchange will process new and existing orders in a UTP Security during 
a trading halt as follows:
    (1) Cancel any unexecuted portion of Midpoint Peg and Midpoint Peg 
Post-Only Orders;
    (2) maintain all other resting Orders in the Exchange Book at their 
last ranked price and displayed price;
    (3) accept and process all cancellations; and
    (4) Orders, including Order modifications, entered during the 
trading halt or pause will not be accepted.
    The Exchange believes that providing this detail will bring greater 
transparency to the Exchange's Rules with respect to trading halts and 
the handling of Orders.
    Today, the Exchange does not cancel Midpoint Peg \12\ and Midpoint 
Peg Post-Only \13\ Orders during a trading halt. At this time, the 
Exchange proposes to begin to cancel Midpoint Peg and Midpoint Peg 
Post-Only Orders in conjunction with a trading halt similar to The 
Nasdaq Stock Market LLC (``Nasdaq'').\14\ Midpoint Peg and Midpoint Peg 
Post-Only Orders are pegged to the midpoint of the NBBO, relying on 
current market conditions. During a trading halt, there is no updated 
NBBO and therefore information becomes stale. Today Nasdaq does not 
accept these Orders when there is no NBBO.\15\ Further, today PSX 
rejects these Orders if there is no NBBO.\16\ Once a trading halt 
occurs, and some time has passed, market conditions can change and 
expose a market participant to risk. The Exchange believes that 
cancelling Midpoint Peg and Midpoint Peg Post-Only Orders after a 
trading halt will reduce risk for market participants as it does today 
on Nasdaq.
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    \12\ See PSX Rule 3301B(d) which provides, ``Pegging is an Order 
Attribute that allows an Order to have its price automatically set 
with reference to the NBBO; provided, however, that if PSX is the 
sole market center at the Best Bid or Best Offer (as applicable), 
then the price of any Displayed Order with Primary Pegging (as 
defined below) will be set with reference to the highest bid or 
lowest offer disseminated by a market center other than PSX. An 
Order with a Pegging Order Attribute may be referred to as a 
``Pegged Order.'' For purposes of this rule, the price to which an 
Order is pegged will be referred to as the Inside Quotation, the 
Inside Bid, or the Inside Offer, as appropriate.'' Further, PSX Rule 
3301B(d) provides, ``Midpoint Pegging means Pegging with reference 
to the midpoint between the Inside Bid and the Inside Offer (the 
``Midpoint'').''
    \13\ See PSX Rule 3301A(b)(6)(A) which provides, ``A ``Midpoint 
Peg Post-Only Order'' is an Order Type with a Non-Display Order 
Attribute that is priced at the midpoint between the NBBO and that 
will execute upon entry only in circumstances where economically 
beneficial to the party entering the Order. The Midpoint Peg Post-
Only Order is available during the Regular Market Session only.''
    \14\ See Nasdaq Rule 4702(b)(5)(C), which provides that Midpoint 
Peg Post-Only Orders will be cancelled by the System when a trading 
halt is declared, and any Midpoint Peg Post-Only Orders entered 
during a trading halt will be rejected. See also Nasdaq Rule 
4703(d).
    \15\ See Nasdaq Rule 4702(b)(5)(A), which provides, ``A Midpoint 
Peg Post-Only Order must be assigned a limit price. When a Midpoint 
Peg Post-Only Order is entered, it will be priced at the midpoint 
between the NBBO, unless such midpoint is higher than (lower than) 
the limit price of an Order to buy (sell), in which case the Order 
will be priced at its limit price. If the NBBO is locked, the 
Midpoint Peg Post-Only Order will be priced at the locking price, if 
the NBBO is crossed or if there is no NBBO, the Order will not be 
accepted.'' See also Nasdaq Rule 4703(d).
    \16\ See PSX Rule 3301A(b)(6), which states, ``When a Midpoint 
Peg Post-Only Order is entered, it will be priced at the midpoint 
between the NBBO, unless such midpoint is higher than (lower than) 
the limit price of an Order to buy (sell), in which case the Order 
will be priced at its limit price. If the NBBO is locked, the 
Midpoint Peg Post-Only Order will be priced at the locking price, if 
the NBBO is crossed, it will nevertheless be priced at the midpoint 
between the NBBO (provided, however, that the Order may execute as 
described below), and if there is no NBBO, the Order will be 
rejected.'' See also PSX Rule 3301(B)(d).
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    With respect to the remainder of proposed Rule 3100(e), the 
Exchange notes that today resting Orders are maintained in the Exchange 
Book, cancellations are processed and Orders, including Order 
modifications, are not accepted. The Exchange is memorializing this 
system behavior within Rule 3100(e).
    Finally, the Exchange proposes new rule text within Rule 3100(f) 
which describes trading halts for UTP Exchange Traded Products, which 
the Exchange has defined within the Rule similar to NYSE National 
1.1(m).\17\ Rules proposed within the provisions of 3100(f) are similar 
to NYSE National Rule 7.18(c). The Exchange provides in Rule 
3100(f)(1), ``If a UTP Exchange Traded Product begins trading on the 
Exchange in the Pre-Market Session and subsequently a temporary 
interruption occurs in the calculation or wide dissemination of the 
Intraday Indicative Value (``IIV'') or the value of the underlying 
index, as applicable, to such UTP Exchange Traded Product, by a major 
market data vendor, the Exchange may continue to trade the UTP Exchange 
Traded Product for the remainder of the Pre-Market Session.'' The 
Exchange provides in Rule 3100(f)(2), ``Regular Market Session. During 
the Regular Market Session, if a temporary interruption occurs in the 
calculation or wide dissemination of the applicable IIV or value of the 
underlying index by a major market data vendor and the listing market 
halts trading in the UTP Exchange Traded Product, the Exchange, upon 
notification by the primary listing market of such halt due to such 
temporary interruption, also shall immediately halt trading in the UTP 
Exchange Traded Product on the Exchange.''
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    \17\ The proposed definition of UTP Exchange-Traded Products is 
substantially similar to NYSE National Rule 1.1(m), except that it 
also includes Index Fund Shares and NextShares within its definition 
of a UTP Exchange Traded Product because these are also ETPs that 
the Exchange can trade on a UTP basis.
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    The Exchange also proposes to adopt Post-Market Session and Pre-
Market Session rules which provide if the IIV or the value of the 
underlying index continues not to be calculated or widely available 
after the close of the Regular Market Session, the Exchange may trade 
the UTP Exchange Traded Product in the Post-Market Session only if the 
listing market traded such securities until the close of its regular 
trading session without a halt. Further, if the IIV or the value of the 
underlying index continues not to be calculated or widely available as 
of the commencement of the Pre-Market Session on the next business day, 
the Exchange shall not commence trading of the UTP Exchange Traded 
Product in the Pre-Market Session that day. If an interruption in the 
calculation or wide dissemination of the IIV or the value of the 
underlying index continues, the Exchange may resume trading in the

[[Page 69409]]

UTP Exchange Traded Product only if calculation and wide dissemination 
of the IIV or the value of the underlying index resumes or trading in 
the UTP Exchange Traded Product resumes in the primary listing market. 
The Exchange believes that adopting new rule text and eliminating 
obsolete and redundant rule text within PSX Rule 3100 will bring 
greater transparency to UTP trading on the Exchange.
PSX Rule 3232
    The Exchange also proposes to adopt new PSX Rule 3232 to govern 
advertising practices, which is substantively identical to NYSE 
National Rule 11.3.5. The rule provides that no member organization 
either directly or indirectly, in connection with the purchase or sale 
of any security that has listed or unlisted trading privileges on the 
Exchange, may publish, circulate or distribute any advertisement, sales 
literature or market letter or make oral statements or presentations 
which the member organization knows, or in the exercise of reasonable 
care should know, contain any untrue statement of material fact or 
which is otherwise false or misleading. Exaggerated or misleading 
statements or claims are prohibited.
    Advertisements, sales literature and market letters shall contain 
the name of the member organization, the person or firm preparing the 
material, if other than the member organization, and the date on which 
it was first published, circulated or distributed (except that in 
advertisements only the name of the member organization need be 
stated). No cautionary statements or caveats, often called hedge 
clauses, may be used if they could mislead the reader or are 
inconsistent with the content of the material. Advertising, sales 
literature, and market letter must be approved by a designated officer, 
partner or other official of the member organization. A file of the 
advertising, sales literature, and market letter and the preparer and 
approver need to be retained for 3 years. Member organizations must 
file with the Exchange, or the designated self-regulatory organization, 
within 5 business days after initial use, each advertisement unless 
such advertisement may be published under the rules of another self-
regulatory organization regulating the member organization under the 
Act. Testimonial material based on experience with the member 
organization or concerning any advice, analysis, report or other 
investment related service rendered by the member organization must 
make clear that such testimony is not necessarily indicative of future 
performance or results obtained by others. Testimonials also shall 
state whether any compensation has been paid to the maker, directly or 
indirectly, and if the material implies special experience or expert 
opinion, the qualifications of the maker of the testimonial should be 
given. Any statement to the effect that a report or analysis or other 
service will be furnished free or without any charge shall not be made 
unless it will be furnished entirely free and without condition or 
obligation. Finally, no claim or implication may be made for research 
or other facilities beyond those which the member organization actually 
possesses or has reasonable capacity to provide.
    The Exchange believes that this Rule will guide member 
organizations as to the manner in which they may advertise, including 
specifically with respect to UTP Securities. The rule is intended to 
prevent misleading, confusing or untrue statements from enticing sales 
of products. The Exchange would bring action against a member 
organization that violated this rule pursuant to the Exchange's 
disciplinary rules within the Phlx 8000 and 9000 series.
PSX Rule 3233
    The Exchange also proposes to adopt new PSX Rule 3233, titled 
``Prevention of the Misuse of Material, Nonpublic Information,'' which 
is substantively identical to NYSE National Rule 11.5.5. Proposed PSX 
Rule 3233 would require every member organization to establish, 
maintain, and enforce written policies and procedures reasonably 
designed to prevent the misuse of material, non-public information by 
such member or member organizations. For purposes of this requirement, 
the misuse of material, nonpublic information would include, without 
limitation, the following: (a) Trading in any securities issued by a 
corporation, or in any related securities or related options or other 
derivatives securities while in possession of material, non-public 
information concerning that issuer; or (b) trading in a security or 
related options or other derivatives securities, while in possession of 
material, non-public information concerning imminent transactions in 
the security or related securities; or (c) disclosing to another person 
or entity any material, non-public information involving a corporation 
whose shares are publicly traded or an imminent transaction in an 
underlying security or related securities for the purpose of 
facilitating the possible misuse of such material, non-public 
information.
    Further, the Rule provides that each member organization for which 
the Exchange is the DEA should establish, maintain, and enforce written 
policies and procedures similar to the following, as applicable: All 
members must be advised in writing of the prohibition against the 
misuse of material, non-public information; and all members must sign 
attestations affirming their awareness of, and agreement to abide by 
the aforementioned prohibitions. These signed attestations must be 
maintained for at least three years, the first two years in an easily 
accessible place; and each member organization must receive and retain 
copies of trade confirmations and monthly account statements for each 
account in which a member: Has a direct or indirect financial interest 
or makes investment decisions. The activity in such brokerage accounts 
should be reviewed at least quarterly by the member organization for 
the express purpose of detecting the possible misuse of material, non-
public information; and all members must disclose to the member 
organization whether they, or any person in whose account they have a 
direct or indirect financial interest, or make investment decisions, 
are an officer, director or 10% shareholder in a company whose shares 
are publicly traded. Any transaction in the stock (or option thereon) 
of such company shall be reviewed to determine whether the transaction 
may have involved a misuse of material non-public information.
    Finally, the Exchange notes that member organizations acting as a 
registered Market Maker in UTP Exchange Traded Products, and their 
affiliates, shall also establish, maintain and enforce written policies 
and procedures reasonably designed to prevent the misuse of any 
material nonpublic information with respect to such products, any 
components of the related products, any physical asset or commodity 
underlying the product, applicable currencies, underlying indexes, 
related futures or options on futures, and any related derivative 
instruments.
    This rule is intended to prevent misuse of material information by 
member organizations, including specifically with respect to UTP 
Exchange Traded Products. The Exchange would bring action against a 
member organization that violated this rule pursuant to the Exchange's 
disciplinary rules within the Phlx 8000 and 9000 series.
PSX Rule 3234
    The Exchange proposes to replicate the term ``Nasdaq Affiliate'' 
from Phlx Rule 990(a)(1) into PSX Rule 3234(a)(1)

[[Page 69410]]

and replicate and amend the term ``Affiliate Security'' from Rule 
990(a)(2) into PSX Rule 3234(a)(2). The Exchange proposes to not 
include the exception for Trust Shares and Index Fund Shares in the 
proposed definition of Affiliate Security. The Exchange also proposes 
to add new PSX Rule 3234(b) to specify that equity Affiliate Securities 
will not be listed on the Exchange. Finally, the Exchange proposes to 
add rule text to PSX Rule 3234(c) to note that throughout the trading 
of the Affiliate Security on the Exchange, the Exchange will prepare a 
quarterly report on the Affiliate Security for the Exchange's 
Regulatory Oversight Committee that describes Exchange regulatory 
staff's monitoring of the trading of the Affiliate Security including 
summaries of all related surveillance alerts, complaints, regulatory 
referrals, adjusted trades, investigations, examinations, formal and 
informal disciplinary actions, exception reports and trading data used 
to ensure the Affiliate Security's compliance with the Exchange's 
trading rules. This proposed rule is substantively identical to NYSE 
National Rule 3.1.
    The Exchange will retain current Phlx Rule 990 with some amendments 
to reflect that Phlx Rule 990 is applicable to both equities and 
options. In addition, references to Rule 803(i) and (l) are being 
replaced with definitions for Trust Shares and Index Fund Shares from 
those portions of the rule. Finally, references to the 800 series are 
removed from the rule text.
Rulebook Reorganization
    The Exchange has undertaken a Rulebook reorganization. As part of 
this reorganization, the Exchange has filed a new Rulebook shell that 
clearly identifies rules associated with its equity product separate 
from rules applicable to options products. The Exchange proposes to 
relocate rules applicable to PSX within the equity portions of the 
Rules. The relocation of the new rules into PSX Rules will make clear 
the applicability of these rules to the equity product.
Deletions and Cross-References
    The Exchange proposes to delete Phlx Rule 136, titled ``Trading 
Halts in Certain Exchange Traded Funds,'' which is obsolete as it 
applies to listed securities.
2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act,\18\ in general, and furthers the objectives of Section 
6(b)(5) of the Act,\19\ 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, by adopting a new PSX Rule that governs UTP trading. 
Currently, Phlx Rule 803 governs PSX's trading of securities pursuant 
to unlisted trading privileges but also includes listing standards that 
are not applicable to PSX because PSX does not list equity 
securities.\20\ The Exchange's proposal to adopt proposed PSX Rule 3204 
will more concisely provide for UTP trading. The Exchange believes that 
adopting proposed PSX Rule 3204 is consistent with the Act because the 
proposed rule will provide greater transparency as to the manner in 
which PSX will trade securities pursuant to unlisted trading privileges 
and the type of information that will be provided to Members. In 
addition, the rule provides information as to other relevant 
requirements that Members must abide by when trading in securities 
pursuant to unlisted trading privileges. Finally, the Exchange's 
obligation with respect to surveillance is specified.
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    \18\ 15 U.S.C. 78f(b).
    \19\ 15 U.S.C. 78f(b)(5).
    \20\ Current Phlx Rule 803 provides for certain initial and 
continued listing requirements which do not apply today.
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    The Exchange's proposal to delete Phlx Rules 800-853, 867 and 868 
is consistent with the Act because these rules do not currently reflect 
PSX's practice of trading securities pursuant to unlisted trading 
privileges, with the exception of Phlx Rule 801 which rule text is 
being retained and relocated within the proposed rules. The Exchange's 
proposal to relocate Phlx Rules 860-866 into PSX Rules 3236-3242, 
respectively, will bring greater transparency to these equity rules 
which would now be located within the PSX Rules. The Exchange's 
proposal to amend PSX Rules 1000 and 3202 to remove the cross-reference 
to Phlx Rule 803 is a conforming change because the Exchange is 
deleting Phlx Rule 803, except for the text within Rule 803(o)(2) which 
is being relocated to PSX Rule 3204(a)(3).
    The Exchange has undertaken a Rulebook reorganization. As part of 
this reorganization, the Exchange has filed a new Rulebook shell that 
clearly identifies rules associated with its equity product separate 
from rules applicable to options products. The Exchange proposes to 
delete obsolete text and adopt new PSX Rule 3204 for trading securities 
pursuant to unlisted trading privileges in the PSX portion of the 
Rulebook to clarify the applicability of these rules to equity trading 
thereby protecting investors and the public interest. The Exchange 
notes that if at a later date PSX determines to list securities, it 
would file a proposed rule change with the Commission.
    The Exchange's proposal to amend Rule 3100 to remove obsolete rule 
text and add rule text to describe UTP Regulatory Halts, the processing 
of new and existing orders in a UTP Security during a trading halt, and 
halts in UTP Exchange Traded Products will provide Members with greater 
transparency in each of these circumstances. Phlx Rule 136 is no longer 
necessary as the Rule applies to listed securities. This rule is being 
deleted and replaced with new proposed rules. The rule text within 
proposed Rule 3100(e) proposes a change to the treatment of Midpoint 
Peg and Midpoint Peg Post-Only Orders during a trading halt. Today, the 
Exchange does not cancel Midpoint Peg and Midpoint Peg Post-Only Orders 
during a trading halt. With this proposal, the Exchange proposes to 
begin to cancel Midpoint Peg and Midpoint Peg Post-Only Orders in 
conjunction with a trading halt similar to Nasdaq.\21\ Midpoint Peg and 
Midpoint Peg Post-Only Orders are pegged to the midpoint of the NBBO. 
These Orders rely on current market conditions. During a trading halt, 
there is no updated NBBO and therefore information becomes stale. Today 
Nasdaq does not accept these orders when there is no NBBO.\22\ Further, 
today PSX rejects these Orders if there is no NBBO.\23\ Once a trading 
halt occurs, and some time has passed, market conditions can change and 
expose a market participant to risk. The Exchange believes that 
cancelling Midpoint Peg and Midpoint Peg Post Only Orders after a 
trading halt is consistent with the Act and the protection of investors 
and the public interest because it will reduce risk for market 
participants as it does today on Nasdaq.
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    \21\ See note 14 above.
    \22\ See note 15 above.
    \23\ See note 16 above.
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    With respect to the remainder of proposed Rule 3100(e), the 
Exchange notes that today resting Orders are maintained in the Exchange 
Book, cancellations are processed and Orders, including Order 
modifications,\24\ are not accepted. The Exchange's proposal 
memorializes current system behavior

[[Page 69411]]

within Rule 3100(e). While the Exchange does not cancel all Orders it 
does allow a market participant to elect which Orders to cancel. 
Providing this information within proposed PSX Rule 3100(e) is 
consistent with the Act and the protection of investors and the public 
interest because all market participants will have more transparency as 
to the expected system behavior during a trading halt. This information 
will allow market participants to make informed decisions about their 
Orders on PSX.
---------------------------------------------------------------------------

    \24\ Order modifications are comprised of a cancellation and 
resubmission of a new Order.
---------------------------------------------------------------------------

    The adoption of new PSX Rules 3232 (Advertising Practices) and PSX 
Rule 3233 (Prevention of the Misuse of Material, Nonpublic Information) 
will provide clear guidance within PSX Rules for Members with respect 
to advertising practices and utilization of non-public information for 
the protection of investors and the general public who are harmed by 
such behavior.
PSX Rule 3234
    The Exchange's proposal to adopt a new PSX Rule 3234 to define the 
terms ``Nasdaq Affiliate'' and ``Affiliate Security'' similar to Phlx 
Rule 990(a)(1) and (2) and not include the exception for Trust Shares 
and Index Fund Shares in the relocated definition of Affiliate Security 
will bring greater transparency to the proposed new rule which seeks to 
specify that equity Affiliate Securities (including any Trust Shares 
and Index Fund Shares) will not be listed on the Exchange.
    The amendments to current Phlx Rule 990 are consistent with the Act 
because they properly reflect the applicability of the rule to both 
equities and options. The remainder of the rule changes to Phlx Rule 
990 are non-substantive.

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. Specifically, the Exchange 
believes that clarifying the Phlx Rules that are applicable to the 
equity product and removing obsolete rules will bring greater 
transparency to the Rulebook. The rules regarding unlisted trading 
privileges, advertising practices and use of non-public information 
apply equally to all PSX Members. Further, updating PSX Rule 3100 will 
bring greater information to the manner in which the system handles 
trading halts for all PSX Members.

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) of the Act \25\ and Rule 19b-
4(f)(6) thereunder.\26\
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    \25\ 15 U.S.C. 78s(b)(3)(A).
    \26\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)(iii) 
requires a self-regulatory organization to give the Commission 
written notice of its 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 pursuant to Rule 19b-4(f)(6) under the 
Act \27\ normally does not become operative for 30 days after the date 
of its filing. However, Rule 19b-4(f)(6)(iii) \28\ 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 requested that the Commission waive the 30-day operative delay so 
that the Exchange may immediately adopt rules that govern UTP trading, 
delete obsolete rules in its rulebook, and reorganize its rules for 
greater clarity. The Commission also notes that, as discussed above, 
certain proposed rules are substantially similar to NYSE National Rules 
1.1, 3.1, 5.1, 7.18, 11.3.5 and 11.5.5, and NYSE National is similar to 
PSX in that it trades securities only pursuant to unlisted trading 
privileges. Moreover, as discussed above, the proposal to cancel 
Midpoint Peg and Midpoint Peg Post-Only Orders during a trading halt is 
based on current Nasdaq functionality. The Commission believes that the 
proposal does not raise any new or novel regulatory issues. 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 operative delay 
and designates the proposed rule change operative upon filing.\29\
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    \27\ 17 CFR 240.19b-4(f)(6).
    \28\ 17 CFR 240.19b-4(f)(6)(iii).
    \29\ For purposes only of waiving the 30-day operative delay, 
the Commission also has considered the proposed rule's impact on 
efficiency, competition, and capital formation. See 15 U.S.C. 
78c(f).
---------------------------------------------------------------------------

    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-2019-51 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-2019-51. 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

[[Page 69412]]

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-2019-51, and should be submitted on or before January 8, 2020.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\30\
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    \30\ 17 CFR 200.30-3(a)(12).
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Jill M. Peterson,
Assistant Secretary.
[FR Doc. 2019-27204 Filed 12-17-19; 8:45 am]
 BILLING CODE 8011-01-P