Document ID: SEC-2018-0191-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Nasdaq PHLX, LLC
Posted Date: 2018-01-30T05:00Z

[Federal Register Volume 83, Number 20 (Tuesday, January 30, 2018)]
[Notices]
[Pages 4354-4358]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2018-01677]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-82577; File No. SR-Phlx-2018-09]

Self-Regulatory Organizations; Nasdaq PHLX LLC; Notice of Filing 
and Immediate Effectiveness of Proposed Rule Change To Relocate and 
Amend Rule 1080(l)

January 24, 2018.
    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 January 16, 2018, 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 relocate and amend Rule 1080(l), entitled 
``Directed Orders'' to new Rule 1068 with the same title. The Exchange 
is also proposing to amend Rule 1000(b) to add various definitions. The 
Exchange

[[Page 4355]]

will also update cross references to Rule 1080(l) to reflect new Rule 
1068.
    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 relocate Rule 1080(l), entitled ``Directed 
Orders'' to new Rule 1068 with the same title. The Exchange is also 
proposing to amend Rule 1000(b) to add various definitions. Both of 
these proposals will be discussed below. The Exchange will also update 
cross references to Rule 1080(l) to reflect new Rule 1068. The Exchange 
also proposes to add more detail concerning the PHLX Depth of Market 
data feed and the CTI data feed.
Directed Orders
    The rule text concerning Directed Orders is currently located at 
Rule 1080(l). The Exchange proposes to relocate this rule to Rule 1068, 
which is currently reserved, and title the new rule ``Directed 
Orders.'' The Exchange also proposes to amend the current rule to add 
clarity to the current rule text. Rule 1080 is rather lengthy and 
breaking this rule into a separate rule will make the rule easier to 
locate. A Directed Order is currently defined as any order (other than 
a stop or stop-limit order as defined in Rule 1066) to buy or sell 
which has been directed to a particular specialist, RSQT, or SQT by an 
Order Flow Provider. To qualify as a Directed Order, an order must be 
delivered to the Exchange via AUTOM.
    The Exchange proposes to delete references to the Exchange's 
trading system prior name ``AUTOM,'' which term is obsolete. The 
Exchange proposes to replace the term with System at proposed new Rule 
1068(a)(i)(A), which below the Exchange is proposing to define at new 
Rule 1000(b)(45).
    The Exchange proposes to amend the current rule text in new 
proposed Rule 1068(a)(ii), which currently states, ``[w]hen the 
Exchange's disseminated price is the NBBO at the time of receipt of the 
Directed Order, and the Directed Specialist, SQT or RSQT is quoting at 
the Exchange's disseminated price, the Directed Order shall be 
automatically executed and allocated in accordance with Rule 
1014(g)(viii).'' The Exchange proposes to replace the word 
``disseminated'' with the word ``best.'' The Exchange notes that if a 
non-displayed implied order is resting on the book at the best price, 
that order would execute against the Directed Order and therefore the 
word disseminated is not accurate. The Exchange proposes to amend the 
sentence to reflect the current operation of the System when the 
Exchange's disseminated price is the NBBO at the time of receipt of the 
Directed Order, and the Directed Specialist, SQT or RSQT is quoting at 
the Exchange's best price, the Directed Order shall be automatically 
executed and allocated in accordance with Rule 1014(g)(viii). The 
Exchange seeks to execute all orders at the best available price 
without trading through an away market.
    The Exchange is also proposing to remove the words ``by the 
specialist'' at proposed new Rule 1068(a)(iv) so that the new sentence 
states, ``If the Exchange's disseminated price is not the NBBO at the 
time of receipt of the Directed Order, the Directed Order shall be 
handled in accordance with Exchange rules.'' The reference to ``by the 
specialist'' is not accurate as the specialist does not handle these 
orders. The Exchange does not permit manual handling of orders in its 
current rules. The System handles all orders entered for submission. 
Specialists used to be responsible for manual executions. The adoption 
of Phlx XL, a predecessor trading system, eliminated manual executions 
of System orders; all orders entered into the System can only executed 
automatically by the System.\3\ The removal of the words ``by the 
specialist'' makes the sentence accurate.
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    \3\ See Securities and Exchange Act Release No. 50100 (July 27, 
2004), 69 FR 46612 (August 3, 2004) (SR-Phlx-2003-59)
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Definitions
    The Exchange proposes to adopt new definitions in Rule 1000(b). 
Specifically, the Exchange proposes to adopt a definition for the word 
``System'' at Rule 1000(b)(45), which parallels the definition of 
System at The Nasdaq Options Market LLC (``NOM'') and Nasdaq BX, Inc. 
(``BX'') Rules at Chapter VI, Section 1(a). The Exchange proposes to 
define ``System'' to mean the automated system for order execution and 
trade reporting owned and operated by the Exchange which comprises: (A) 
An order execution service that enables members to automatically 
execute transactions in System Securities and provides members with 
sufficient monitoring and updating capability to participate in an 
automated execution environment; (B) a trade reporting service that 
submits ``locked-in'' trades \4\ for clearing to a registered clearing 
agency for clearance and settlement; transmits last-sale reports of 
transactions automatically to the Options Price Reporting Authority for 
dissemination to the public and industry; and provides participants 
with monitoring and risk management capabilities to facilitate 
participation in a ``locked-in'' trading environment; and (C) the 
following data feeds: \5\
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    \4\ This refers to the process of submitting both sides of a 
trade for reporting and clearing, rather than performing a 
comparison process.
    \5\ These data feeds have all been previously addressed in 
proposed rule changes and are now being codified in this rule to 
parallel NOM and BX Options rules at Chapter VI, Section 1. See 
Securities Exchange Act Release Nos. 60877 (October 26, 2009), 74 FR 
56255 (October 30, 2009) (SR-Phlx-2009-92) (addressing TOPO Plus 
Orders), 66993 (May 15, 2012), 77 FR 30043 (May 21, 2012)(SR-Phlx-
2012-63) (addressing PHLX Orders), 66967 (May 11, 2012), 77 FR 29440 
(May 17, 2012)(SR-Phlx-2012-60)(addressing PHLX Depth of Market) and 
62155 (May 24, 2010), 75 FR 30081 (May 28, 2010)(SR-Phlx-2010-
67)(addressing CTI). See also Securities Exchange Act Release No. 
68517 (December 21, 2012), 77 FR 77134 (December 31, 2012) (SR-Phlx-
2012-136) (regarding Order Exposure). The Phlx data feeds differ in 
content from the NOM and BX data feeds.
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    Top of PHLX Options (``TOPO'') is a direct data feed product that 
includes the Exchange's best bid and offer price, with aggregate size, 
based on displayable order and quoting interest on Phlx and last sale 
information for trades executed on Phlx. The data contained in the TOPO 
data feed is identical to the data simultaneously sent to the processor 
for the Options Price Regulatory Authority (``OPRA'') and subscribers 
of the data feed.
    PHLX Orders is a real-time full limit order book data feed that 
provides pricing information for orders on the PHLX limit order book. 
PHLX Orders is currently provided as part of the TOPO Plus Orders data 
product. PHLX Orders provides real-time information to enable users to 
keep track of the single order book(s), single and Complex Orders, and 
Complex Order Live Auction (``COLA'') for all symbols listed on Phlx.

[[Page 4356]]

    PHLX Depth of Market is a data product that provides: (1) Order and 
quotation information for individual quotes and orders on the PHLX 
book; (2) last sale information for trades executed on Phlx; (3) 
auction and option symbol directory information; and (4) an Imbalance 
Message which includes the symbol, side of the market, size of matched 
contracts, size of the imbalance, and price of the affected series.
    Clearing Trade Interface (``CTI'') is a real-time clearing trade 
update message that is sent to a member after an execution has occurred 
and contains trade details (e.g. trade corrections, trade cancels, 
options directory messages, Complex Order Strategy messages, trading 
action messages, halt and system event messages). The information 
includes, among other things, the following: (1) The Clearing Member 
Trade Agreement or ``CMTA'' or OCC number; (2) Exchange badge or house 
number; (3) the Exchange internal firm identifier; and (4) an indicator 
which will distinguish electronic and non-electronically delivered 
orders; (5) liquidity indicators and transaction type for billing 
purposes; (6) capacity.\6\
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    \6\ With respect to the CTI feed, the Exchange notes that that 
CTI is a tool for members to receive real-time trade details. The 
Exchange is adding information to demonstrate examples of trade 
details (e.g. trade corrections, trade cancels, options directory 
messages, Complex Order Strategy messages, trading action messages, 
halt and system event messages). The Exchange notes that this 
additional language is intended to provide more specificity 
regarding the CTI data feed product. This is not new information, 
rather the original rule change noted that real time trade details 
are included in the feed. See Securities and Exchange Act Release 
No. 75 FR 30081 (May 28, 2010) (SR-Phlx-2010-67).
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    This description tracks the language in NOM and BX Rules, Chapter 
VI, Section 1, except it reflects the data feeds applicable to Phlx. 
These data feeds are available to subscribers, subject to the 
Exchange's Pricing Schedule.\7\ Specifically, with respect to the PHLX 
Depth of Market data product, the Exchange is proposing to add more 
detail concerning auction and option symbol directory information that 
is contained in the PHLX Depth of Market data product. The Exchange 
notes that this information was contained in the data feed at the time 
the data feed was filed. In addition to order and quotation 
information, auction information was available as well as the options 
symbol directories. The Exchange believes that this information is more 
specific to identify the content in the feed. The Exchange notes that 
any market participant may subscribe to this data feed. The Exchange 
also proposes to adopt the definition of ``System Securities'' at Rule 
1000(b)(46). The Exchange proposes to describe System Securities to 
mean all options that are currently trading on the System. All other 
options shall be ``Non System Securities.'' This also parallels the 
comparable NOM and BX provisions,\8\ although the Exchange does not at 
this time use the term Non System Securities in its rules.
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    \7\ See Phlx's Pricing Schedule at Chapter IX.
    \8\ The NOM and BX definitions at Chapter VI, Section 1(b) refer 
to options traded pursuant to Chapter IV, which contains listing-
like provisions. The Exchange does not believe this language is 
necessary, as all options must be listed pursuant to applicable 
listing rules.
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    The Exchange proposes to define the term ``Order'' at proposed Rule 
1000(b)(47). The Exchange proposes to define Order as a single order 
submitted to the System by a member that is eligible to submit such 
orders. This is the same definition as contained in NOM and BX Rules at 
Chapter VI, Section 1(d).
    The Exchange proposes to define the term ``System Book Feed'' at 
proposed Rule 1000(b)(48). The Exchange proposes to define System Book 
Feed as a data feed for System securities. This definition is similar 
to the definition contained in NOM and BX Rules, at Chapter VI, Section 
1(h), and refers to the general process of gathering the Exchange's 
best bid and offer for dissemination to the OPRA.
    The Exchange proposes to define the term ``Agency Order'' at 
proposed Rule 1000(b)(49). The term Agency Order shall mean any order 
entered on behalf of a public customer (which includes an order entered 
on behalf of a professional), and does not include any order entered 
for the account of a broker-dealer, or any account in which a broker-
dealer or an associated person of a broker-dealer has any direct or 
indirect interest. An agency order is currently defined in Rule 
1080(b)(i)(A) as any order entered on behalf of a public customer, and 
does not include any order entered for the account of a broker-dealer, 
or any account in which a broker-dealer or an associated person of a 
broker-dealer has any direct or indirect interest. The Exchange is 
making clear that professional orders are included in this general 
definition. The Exchange intends to remove the definition in Rule 
1080(b)(i)(A) by filing a separate rule change.
    Finally, the Exchange proposes to copy the definition of ``Off-
Floor Broker Dealer Order'' currently contained in Rule 1080(b)(i)(C) 
to proposed Rule 1000(b)(50). The Exchange believes that the 
definition, which is utilized in other rules including Rule 1014 is 
better placed in Rule 1000. The Exchange intends to remove the 
definition in Rule 1080(b)(i)(C) by filing a separate rule change.
    The Exchange believes that these definitions will serve to define 
key terms within the Rulebook to the benefit of the members. The 
Exchange also proposes to update a cross-reference to Rule 1080(l) 
within Rule 1014(g)(viii) to new Rule 1068.
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 by updating Rule 1080(l) and relocating it to 
new Rule 1068 to make it easier to locate and clarifying the current 
rule text. In addition, the Exchange proposes to add definitions to 
Rule 1000(b) to define key terms within the Rulebook to the benefit of 
the members.
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    \9\ 15 U.S.C. 78f(b).
    \10\ 15 U.S.C. 78f(b)(5).
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    The Exchange's proposal to update cross references to Rule 1080(l) 
to reflect new Rule 1068 are consistent with the Act because the new 
cross references will update the accuracy of the Rulebook with respect 
to the rule numbering.
    The Exchange's proposal to delete obsolete references to the 
Exchange's trading system prior name ``AUTOM'' and utilize the term 
System, which is being defined in Rule 1000, is consistent with the Act 
because the replacement of a defined term will add clarity to the 
intended rule text. The Exchange's proposal to replace the word 
``disseminated'' with the word ``best'' in new proposed Rule 
1068(a)(ii), is consistent with the Act because the Exchange seeks to 
execute all orders at the best available price without trading through 
an away market. The current sentence is not accurate. The proposed text 
reflects the current operation of the System. The elimination of the 
words ``by the specialist'' at proposed new Rule 1068(a)(iv) is 
consistent with the Act because the elimination of the words will 
correct a current reference to a manual process which no longer exists 
today. The Exchange does not permit manual handling of orders in its 
current rules. The System handles all orders entered for submission. 
The removal of the words ``by the specialist'' makes the sentence 
accurate and clarifies the current operation of the System to the 
benefit of members.

[[Page 4357]]

    The Exchange's proposal to add definitions for System, System 
Securities, Order, System Book Feed which are similar to definitions 
contained in BX and NOM Rules and also are specific to operation of 
Phlx is consistent with the Act because these definitions will bring 
greater clarity to the use of those terms within the Rulebook. The 
Exchange's proposal to copy the current terms, Agency Order and Off-
Floor Broker-Dealer Order, to Rule 1000(b) is consistent with the Act 
because these terms are universal to the Rulebook and can be more 
easily located within the general definitions.
    The Exchange's proposal to memorialize the data feeds, which were 
previously filed with the Commission, within the text of its rules is 
consistent with the Act because the new rule text will bring greater 
clarity to the Rulebook. Specifically, with respect to the PHLX Depth 
of Market data product, the Exchange is proposing to add more detail 
concerning auction and option symbol directory information that is 
contained in the PHLX Depth of Market data product. The Exchange notes 
that this information was available in the data feed at the time the 
feed was filed. In addition to order and quotation information, auction 
information was available as well as the options symbol directories. 
The Exchange believes that adding this additional information is 
consistent with the Act because the new information is more specific to 
identify the content in the feed. The Exchange notes that any market 
participant may subscribe to this data feed.
    The Exchange noted in the original filing \11\ that CTI is a tool 
for members to receive real-time trade details. The Exchange is adding 
information to demonstrate examples of trade details (e.g. trade 
corrections, trade cancels, options directory messages, Complex Order 
Strategy messages, trading action messages, halt and system event 
messages). The Exchange believes that this additional language is 
consistent with the Act because it provides more specificity regarding 
the CTI data feed product and provides greater transparency as to the 
information contained in the data product.
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    \11\ See Securities and Exchange Act Release No. 75 FR 30081 
(May 28, 2010) (SR-Phlx-2010-67).
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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. The proposed rule changes to 
new Rule 1068 serve to relocate and update the current rule text to 
eliminate an obsolete term, correct the text to reflect the current 
operation of the System and eliminate a reference to a manual 
Specialist process which no longer exists today. The addition of 
definitions to Rule 1000(b) does not impose an undue burden on 
competition, rather the definitions will bring greater clarity to the 
use of those terms within the Rulebook.
    The Exchange also notes that in addition to the rule text which was 
previously filed for the PHLX Depth of Market data product, the 
Exchange is proposing to add more detail concerning auction and option 
symbol directory information that is contained in the PHLX Depth of 
Market data product. The Exchange notes that this detail concerning 
auctions and options symbol directories is more specific and although 
not noted in the prior rule change, adds more detail to the type of 
information that is disseminated in the data feed. The Exchange notes 
that any market participant may subscribe to this data feed.
    The Exchange's additional detail in the CTI data feed product adds 
more detail to the description in the original filing \12\ concerning 
real-time trade details. The Exchange offers examples of trade details 
(e.g. trade corrections, trade cancels, options directory messages, 
Complex Order Strategy messages, trading action messages, halt and 
system event messages) in this proposal. The Exchange believes that 
this additional language does not impose an undue burden on competition 
because the greater detail adds more specificity to the CTI data feed 
product and provides greater transparency as to the information 
contained in the data product. Further, the Exchange notes that any 
market participant may subscribe to this data feed.
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    \12\ See Securities and Exchange Act Release No. 75 FR 30081 
(May 28, 2010) (SR-Phlx-2010-67).
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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 \13\ and 
subparagraph (f)(6) of Rule 19b-4 thereunder.\14\
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    \13\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \14\ 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, 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) normally does 
not become operative for 30 days after the date of its filing. However, 
Rule 19b-4(f)(6)(iii) \15\ 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 proposed rule 
change will become operative on filing. The Exchange stated that the 
proposed rule change promotes the protection of investors and the 
public interest by improving the organization and clarity of the 
Exchange's rules. Waiver of the operative delay would allow the 
Exchange, without delay, to utilize the proposed definitions in other 
rules and to continue to amend other sections of Rule 1080 for improved 
readability, therefore, 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.\16\
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    \15\ 17 CFR 240.19b-4(f)(6)(iii).
    \16\ 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).
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    At any time within 60 days of the filing of such 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,

[[Page 4358]]

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 [email protected]. Please include 
File Number SR-Phlx-2018-09 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-2018-09. 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-2018-09, and should be submitted on 
or before February 20, 2018.

    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).
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Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2018-01677 Filed 1-29-18; 8:45 am]
 BILLING CODE 8011-01-P