Document ID: SEC-2023-0729-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Nasdaq Phlx, LLC
Posted Date: 2023-07-14T04:00Z

[Federal Register Volume 88, Number 134 (Friday, July 14, 2023)]
[Notices]
[Pages 45253-45259]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2023-14911]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-97871; File No. SR-Phlx-2023-27]

Self-Regulatory Organizations; Nasdaq Phlx LLC; Notice of Filing 
and Immediate Effectiveness of Proposed Rule Change To Amend Phlx 
Options 3 and 4A Rules

July 10, 2023.
    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 June 27, 2023, 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, II, and III 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 its Rules at Options 3, Options 
Trading Rules, at: Section 4 Entry and Display of Quotes; Section 5, 
Entry and Display of Orders; Section 7, Types of Orders and Order and 
Quote Protocols; Section 8, Options Opening Process; Section 10, 
Electronic Execution Priority and Processing in the System; Section 14, 
Complex Orders; and Section 15, Risk Protections.
    The Exchange also proposes to amend Phlx Options 4A, Sections 6, 
Position Limits, and Section 12, Terms of Index Options Contracts.
    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

[[Page 45254]]

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
    Phlx proposes to amend Options 3, Options Trading Rules, at: 
Section 4 Entry and Display of Quotes; Section 5, Entry and Display of 
Orders; Section 7, Types of Orders and Order and Quote Protocols; 
Section 8, Options Opening Process; Section 10, Electronic Execution 
Priority and Processing in the System; Section 14, Complex Orders; and 
Section 15, Risk Protections. The amendments proposed to the Options 3 
Rules seek to codify the current System functionality and will not 
result in System changes.
    The Exchange also proposes to amend Phlx Options 4A, Sections 6, 
Position Limits, and Section 12, Terms of Index Options Contracts. Each 
change will be discussed below.
Option 3, Sections 4 and 5
    The Exchange proposes to codify existing functionality that allows 
Market Makers to submit their quotes to the Exchange in block 
quantities as a single bulk message. In other words, a Market Maker may 
submit a single message to the Exchange, which may contain bids and 
offers in multiple series. The Exchange's current rules do not specify 
bulk messaging for orders. The Exchange has historically provided 
Market Makers with information regarding bulk messaging in its publicly 
available technical specifications.\3\ To promote greater transparency, 
the Exchange is seeking to codify this functionality in its Rulebook. 
Specifically, the Exchange proposes to amend Phlx Options 3, Section 
4(b)(3) to memorialize that quotes may be submitted as a bulk message. 
The Exchange also proposes to add a definition of ``bulk message'' in 
new subparagraph (i) of Options 3, Section 4(b)(3), which will provide 
that a bulk message means a single electronic message submitted by a 
Market Maker to the Exchange which may contain a specified number of 
quotations as designated by the Exchange.\4\ The bulk message, 
submitted via SQF,\5\ may enter, modify, or cancel quotes. Bulk 
messages are handled by the System in the same manner as it handles a 
single quote message. MRX recently added bulk messages to MRX Options 
3, Section 4(b)(3).\6\ The proposed amendment to the Rulebook to add 
Phlx Options 3, Section 4(b)(3) will not result in a System change.
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    \3\ See https://www.nasdaq.com/docs/2023/01/12/0054-Q23_SQF_8.2b%20akg_NAM.pdf. (specifying for bulk quoting of up to 
200 quotes per quote block message). The specifications note in 
other places the manner in which a member or member organization can 
send such quote block messages.
    \4\ Id. As noted above, quote bulk messages can presently 
contain up to 200 quotes per message. This is the maximum amount 
that is permitted in a bulk message. The Exchange would announce any 
change to these specifications in an Options Technical Update 
distributed to all members and member organizations.
    \5\ ``Specialized Quote Feed'' or ``SQF'' is an interface that 
allows Lead Market Makers, Streaming Quote Traders (``SQTs'') and 
Remote Streaming Quote Traders (``RSQTs'') to connect, send, and 
receive messages related to quotes, Immediate-or-Cancel Orders, and 
auction responses into and from the Exchange. Features include the 
following: (1) options symbol directory messages (e.g., underlying 
and complex instruments); (2) system event messages (e.g., start of 
trading hours messages and start of opening); (3) trading action 
messages (e.g., halts and resumes); (4) execution messages; (5) 
quote messages; (6) Immediate-or-Cancel Order messages; (7) risk 
protection triggers and purge notifications; (8) opening imbalance 
messages; (9) auction notifications; and (10) auction responses. The 
SQF Purge Interface only receives and notifies of purge requests 
from the Lead Market Maker, SQT or RSQT. Lead Market Makers, SQTs 
and RSQTs may only enter interest into SQF in their assigned options 
series. See Options 3, Section 7(a)(i)(B).
    \6\ See Securities Exchange Act, Release No. 95982 (October 4, 
2022), 87 FR 61391 (October 11, 2022) (SR-MRX-2022-18) (Notice of 
Filing and Immediate Effectiveness of Proposed Rule Change To Amend 
Its Rules in Connection With a Technology Migration to Enhanced 
Nasdaq Functionality) (``SR-MRX-2022-18'').
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    The Exchange also proposes to amend Phlx Options 3, Section 4(b)(6) 
to provide the following,
    A quote will not be executed at a price that trades through another 
market or displayed at a price that would lock or cross another market. 
If, at the time of entry, a quote would cause a locked or crossed 
market violation or would cause a trade-through, violation, it will be 
re-priced to the current national best offer (for bids) or the current 
national best bid (for offers) as non-displayed, and displayed at one 
minimum price variance above (for offers) or below (for bids) the 
national best price.
    Where a quote is re-priced to avoid a locked or crossed market, the 
best bid or offer will be non-displayed and the re-priced order will be 
displayed at a price that is one minimum trading increment inferior to 
the ABBO. A similar change is proposed for Options 3, Section 5(d). MRX 
recently amended Options 3, Section 4(b)(6) and Options 3, Section 5(d) 
to include this language.\7\ At this time, the Exchange proposes to 
amend Phlx's rule text to reflect that the actual price remains non-
displayed in this scenario. The proposed amendment to the Rulebook to 
add Phlx Options 3, Section 4(b)(6) will not result in a System change.
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    \7\ See Securities Exchange Act, Release No. 95807 (September 
16, 2022), 87 FR 57933 (September 22, 2022) (SR-MRX-2022-16) (Notice 
of Filing and Immediate Effectiveness of Proposed Rule Change To 
Amend Certain Rules in Connection With a Technology Migration to 
Enhanced Nasdaq Functionality) (``SR-MRX-2022-16'').
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    Similarly, the Exchange proposes to add a new Phlx Options 3, 
Section 4(b)(7) to clarify that, today, Phlx's System will 
automatically execute eligible quotes using the Exchange's displayed 
best bid and offer (``BBO'') or the Exchange's non-displayed order book 
(``internal BBO'') \8\ if the best bid and/or offer on the Exchange has 
been repriced pursuant to Options 3, Section 5(d) and Options 3, 
Section 4(b)(6). This rule text seeks to codify the current System 
function and make clear that the internal BBO is comprised of both 
orders and quotes.\9\ MRX recently amended Options 3, Section 4(b)(7) 
to include the same language.\10\ At this time, the Exchange proposes 
to align Phlx's rule text in Options 3, Section 4(b)(7) to MRX's rule 
text in Options 3, Section 4(b)(7). The proposed amendment to the 
Rulebook to add Phlx Options 3, Section 4(b)(7) will not result in a 
System change.
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    \8\ The internal BBO refers to the Exchange's non-displayed 
book.
    \9\ The Exchange also proposes to re-number current Options 3, 
Section 4(b)(7) as (8).
    \10\ See SR-MRX-2022-16.
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    Finally, the Exchange proposes to amend Phlx Options 3, Section 
5(c) to include a citation to Options 3, Section 4(b)(6) as the 
internal BBO is comprised of both orders and quotes, similar to 
MRX.\11\
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    \11\ Id.
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    The amendments proposed to Options 3, Sections 4 and 5 do not 
change the current System functionality.
Options 3, Section 7
    The Exchange proposes to amend the description of Specialized Quote 
Feed or ``SQF'' within Phlx Options 3, Section 7(a)(i)(B) to add rule 
text which states, ``Immediate-or-Cancel Orders entered into SQF are 
not subject to the Order Price Protection, Market Order Spread 
Protection, or Size Limitation Protection in Options 3, Section 
15(a)(1), (a)(2), and (b)(2) respectively.'' This rule text is 
currently noted within Options 3, Section 7(c)(2)(B). The Exchange is 
adding the same language into the description of SQF to provide

[[Page 45255]]

a more complete description. The addition of this information would 
align the level of information of Phlx's rule text to Phlx's rule text 
at Options 3, Section 7(a)(i)(B). The proposed amendment to Phlx 
Options 3, Section 77(a)(i)(B) will not result in System changes.
    The Exchange proposes to relocate, without amendment, the Legging 
Order type from Phlx Options 3, Section 14(f)(iii)(C) to Options 3, 
Section 7(b)(10) to place the order type with other simple order book 
order types.
Options 3, Section 8
    The Exchange proposes to amend Phlx Options 3, Section 8(j)(3), 
which currently describes the determination of Opening Quote Range 
(``OQR'') boundaries in certain scenarios.\12\ Specifically, the 
Exchange proposes to replace ``are marketable against the ABBO'' with 
``cross the ABBO'' to precisely describe the specified scenario within 
this rule. The Exchange notes that this is not a System change, rather 
this amendment clarifies the applicability of the rule text. This 
change is identical to a change recently made on MRX at Options 3, 
Section 8(i)(3).\13\ The proposed amendment to Phlx Options 3, Section 
8(j)(3) will not result in a System change.
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    \12\ OQR is an additional type of boundary used in the Opening 
Process, and is intended to limit the opening price to a reasonable, 
middle ground price, thus reducing the potential for erroneous 
trades during the Opening Process.
    \13\ See SR-MRX-2022-18.
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    Next, the Exchange proposes to amend Phlx Options 3, Section 
8(k)(D) to align Phlx's rule text with that of MRX Options 3, Section 
8(j)(6)(i) by stating ``Pursuant to Options 3, Section 8(k)(C)(6), the 
System will re-price Do Not Route orders (that would otherwise have to 
be routed to the exchange(s) disseminating the ABBO for an opening to 
occur) to the current away best offer (for bids) or the current away 
best bid (for offers) as non-displayed, and display at a price that is 
one minimum trading increment inferior to the ABBO, and disseminate the 
re-priced DNR Order as part of the new PBBO.'' The proposed language 
more explicitly describes the manner in which the Exchange will re-
price orders and would mirror rule text in Phlx Options 3, Section 
4(b)(6). The proposed amendment to Phlx Options 3, Section 8(k)(D) will 
not result in a System change.
Options 3, Section 10
    The Exchange proposes to amend Options 3, Section 10(a)(1)(C) to 
add a sentence which states that ``This participation entitlement will 
be considered after the Opening Process.'' The Directed Market Maker 
entitlement requires a Market Maker to quote at or better than the 
internal BBO or NBBO. The NBBO would not be available pre-opening. The 
Exchange proposes to add this language to provide clarity. The proposed 
amendment to Phlx Options 3, Section 10(a)(1)(C) will not result in a 
System change.
Options 3, Section 15
    MRX recently amended its Order Price Protection (``OPP'') \14\ 
rule.\15\ MRX's OPP rule utilized different rule text to explain the 
OPP functionality than is currently on Phlx. At this time, the Exchange 
proposes to amend Phlx Options 3, Section 15(a)(1) to align Phlx's rule 
text to MRX's rule text within Options 3, Section 15(a)(1)(A). 
Specifically, the Exchange proposes to remove the references to ``Day 
Limit, Good til Cancelled, Immediate-or-Cancel and All-or-None Orders'' 
and, instead, simply refer to ``Limit'' Orders as that order type 
accurately captures the scope of the orders subject to OPP. Further, 
the Exchange proposes to remove ``Market Orders'' from the next 
sentence since OPP only applies to Limit Orders. The Exchange also 
proposes to capitalize ``Opening'' and add Process in Options 2, 
Section 15(a)(1)(A) to refer to the Opening Process within Options 3, 
Section 8. The proposed amendment to Options 3, Section 15(a)(1) will 
not result in a System change.
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    \14\ OPP prevents the execution of Limit Orders at prices 
outside pre-set parameters.
    \15\ See SR-MRX-2022-18.
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    Additionally, the Exchange proposes to amend its Acceptable Trade 
Range (``ATR'') Rule within Phlx Options 3, Section 15(b)(1).\16\ MRX 
recently amended its ATR rule.\17\ MRX's ATR rule utilized different 
rule text to explain the ATR functionality. At this time, the Exchange 
proposes to amend Options 3, Section 15(b)(1)(A) to add the internal 
BBO concept described above with respect to Options 3, Sections 4 and 
5. Where a quote is re-priced to avoid a locked or crossed market, the 
best bid or offer will be non-displayed and the re-priced order will be 
displayed at a price that is one minimum trading increment inferior to 
the ABBO. The best price on the order book could therefore be non-
displayed. The addition of this language makes clear the manner in 
which the System calculates the Reference Price.
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    \16\ ATR is designed to guard against the System from 
experiencing dramatic price swings by preventing the immediate 
execution of quotes and orders beyond the thresholds set by the 
protection.
    \17\ See SR-MRX-2022-16.
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    The Exchange proposes to amend Options 3, Section 15(b)(1)(B) to 
add the words ``after the Posting Period'' to explain when a new ATR 
would be calculated to provide more context to the rule. The Exchange 
also proposes to amend Options 3, Section 15(b)(1)(B) and (C) to add 
the word ``quote'' where it was omitted.
    Additionally, similar to MRX Options 3, Section 15(a)(2)(A)(v) the 
Exchange proposes to add the following rule text within Phlx Options 3, 
Section 15(b)(1)(D),
    There will be three categories of options for Acceptable Trade 
Range: (1) Penny Interval Program Options trading in one cent 
increments for options trading at less than $3.00 and increments of 
five cents for options trading at $3.00 or more, (2) Penny Interval 
Program Options trading in one-cent increments for all prices, and (3) 
Non-Penny Interval Program Options.
    This is how Phlx operates today. This rule text makes clear the 
application of Phlx Options 3, Section 3 to the ATR rule by explicitly 
stating the Exchange's ability to set different ATR values by options 
category. These ATR values are set forth in Phlx's System Settings 
document which is posted online.\18\ The Exchange believes this rule 
text will add greater clarity to the ATR rule. The proposed amendment 
to Options 3, Section 15(b)(1) will not result in a System change.
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    \18\ https://www.nasdaq.com/docs/PHLXSystemSettings.
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Options 4A, Sections 6 and 12
    The Exchange no longer lists options on the Russell indexes. 
Specifically, the Exchange has not listed options on the Full Value 
Russell 2000[supreg]Options, Reduced Value Russell 2000[supreg]Options, 
Russell 3000[supreg]Index, Russell 3000[supreg]Value Index, Russell 
3000[supreg]Growth Index, Russell 2500TM Index, Russell 
2500TM Value Index, Russell 2500TM Growth Index, 
Russell 2000[supreg]Value Index, Russell 2000[supreg]Growth Index, 
Russell 1000[supreg]Index, Russell 1000[supreg]Value Index, Russell 
1000[supreg]Growth Index, Russell Top 200[supreg]Index, Russell Top 
200[supreg]Value Index, Russell Top 200[supreg]Growth Index, Russell 
MidCap[supreg]Index, Russell MidCap[supreg]Value Index, Russell 
MidCap[supreg]Growth Index, Russell Small Cap 
Completeness[supreg]Index, Russell Small Cap Completeness[supreg]Value 
Index and the Russell Small Cap Completeness[supreg]Growth Index 
(collectively ``Russell U.S. Indexes'') in several years. At this time, 
the Exchange

[[Page 45256]]

proposes to remove the Russell Indexes from Options 4A, Sections 
6(a)(i), (iii) and 6(c), as well as references within Options 4A, 
Section 12(a)(2) and Supplementary Material .01 and .03 of Options 4A, 
Section 12 because options on the Russell Indexes are no longer listed 
on Phlx.
    The Exchange proposes to remove a reference to the Reduced Value 
Nasdaq 100[supreg] Index or ``MNX'' within Options 4A, Section 
12(a)(2)(I). Phlx delisted MNX on April 7, 2017 and removed references 
to MNX in its rules.\19\
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    \19\ See Securities Exchange Act Release No. 80474 (April 17, 
2017), 82 FR 18795 (April 21, 2017) (SR-Phlx-2017-30).
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    The Exchange proposes to remove the reference to ``Reduced value 
long term options, also known as LEAPS'' as this phrase is not 
necessary within Options 4A, Section 12(a)(2)(J). Options 4A, Section 
12(b)(2) addresses Long-Term Option Series or ``LEAPS'' including those 
for certain reduced value index options such as the Micro Index Long 
Term Options Series.
    The Exchange proposes to modify Options 4A, Section 12(a)(5) to 
remove Phlx's Gold/Silver Sector\SM\ Index or ``XAU''SM.\20\ 
Today, XAU has an American-style \21\ expiration and is currently 
reflected as having a European-style \22\ expiration in Options 4A, 
Section 12(a)(5). In 2021, Phlx amended Options 4A, Section 12 to 
reflect XAU as a having a European-tyle expiration; \23\ the change was 
incorrect. XAU was originally filed as having an American-style 
exercise and not a European-style-exercise.\24\ The Exchange proposes 
to re-letter the remaining subparagraphs within Options 4A, Section 
12(b)(5).
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    \20\ Phlx's Gold/Silver Sector\SM\ Index or ``XAU''\SM\ is a 
p.m.-settled capitalization-weighted index composed of the stocks of 
widely held U.S. listed companies involved in the gold/silver mining 
industry.
    \21\ American-style exercise permits option holders to exercise 
their options on any Exchange business day up to and including the 
last business day immediately prior to the expiration date.
    \22\ European-style exercise permits option holders only to 
exercise their options on the expiration date.
    \23\ See Securities Exchange Act Release No. 93898 (January 4, 
2022), 87 FR1238 (January 10, 2022) (SR-Phlx-2021-76) (Notice of 
Filing and Immediate Effectiveness of Proposed Rule Change To Adopt 
a New Options 4A, Sections 4 and 14, Related to Index Options, and 
Amend Other Phlx Rules).
    \24\ See Securities Exchange Act Release No. 20437 (December 2, 
1983), 48 FR 55229 (December 9, 1983) (SR-Phlx-83-17). See also 
Securities Exchange Act Release Nos. 37123 (April 18, 1996), 61 FR 
18554 (April 25, 1996) (SR-Phlx-96-03); 43070 (July 25, 2000), 65 FR 
47551 (August 2, 2000) (SR-Phlx-00-69); and 64549 (May 26, 2011), 76 
FR 32004 (June 2, 2011) (SR-Phlx-2011-46).
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    At this time, the Exchange proposes to add the Phlx Gold/Silver 
Index to proposed new Options 4A, Section (a)(7) which would state,
    ``American-Style Exercise.'' American-style index options, some of 
which may be A.M.-settled as provided in subparagraph (e) or P.M.-
settled as provided for in paragraph (f), are approved for trading on 
the Exchange on the following indexes:.
    The Exchange would list Phlx Gold/Silver Index within subparagraph 
(i) and would list Phlx's Semiconductor Sector\SM\ Index or ``SOX'' 
\25\ within subparagraph (ii). Currently, SOX is not listed as either 
having a European-style or American-style exercise within Options 4A, 
Section 12. SOX has an American-style expiration \26\ and the Exchange 
proposes to list the index as such.
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    \25\ Phlx's Semiconductor Sector\SM\ Index or ``SOX''\SM\ is an 
a.m.-settled modified market capitalization-weighted index composed 
of companies primarily involved in the design, distribution, 
manufacture, and sale of semiconductors.
    \26\ See Securities Exchange Act Release No. 61539 (February 18, 
2010), 75 FR 8765 (February 25, 2010) (SR-Phlx-2010-20).
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    Next, the Exchange proposes to amend Options 4A, Section 12(e)(II) 
to remove the Phlx Gold/Silver Sector Index from the list of a.m.-
settled options. In 2021, Phlx amended Options 4A, Section 12 to 
reflect XAU as a having an a.m.-settlement; \27\ the change was 
incorrect. The Phlx Gold/Silver Sector Index has always been a p.m.-
settled index option \28\ and the Exchange proposes to list the index 
as such. The Exchange proposes to re-letter the remaining subparagraphs 
within Options 4A, Section 12(e)(II).
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    \27\ See Securities Exchange Act Release No. 93898 (January 4, 
2022), 87 FR1238 (January 10, 2022) (SR-Phlx-2021-76) (Notice of 
Filing and Immediate Effectiveness of Proposed Rule Change To Adopt 
a New Options 4A, Sections 4 and 14, Related to Index Options, and 
Amend Other Phlx Rules).
    \28\ See Securities Exchange Act Release Nos. 37123 (April 18, 
1996), 61 FR 18554 (April 25, 1996) (SR-Phlx-96-03); 43070 (July 25, 
2000), 65 FR 47551 (August 2, 2000) (SR-Phlx-00-69); and 64549 (May 
26, 2011), 76 FR 32004 (June 2, 2011) (SR-Phlx-2011-46).
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    At this time, the Exchange proposes to add the Phlx Gold/Silver 
Sector Index to the list of p.m.-settled indexes within Options 4A, 
Section 12(f).
    Finally, the Exchange proposes to add a hyphen to the term ``Nasdaq 
100'' within Options 4A, Sections 6 and 12 where the hyphen is missing.
2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act,\29\ in general, and furthers the objectives of Section 
6(b)(5) of the Act,\30\ 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.
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    \29\ 15 U.S.C. 78f(b).
    \30\ 15 U.S.C. 78f(b)(5).
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Option 3, Sections 4 and 5
    The Exchange believes that its proposal to memorialize its bulk 
message functionality within Options 3, Section 4(b)(3) is consistent 
with the Act as it will codify existing functionality, thereby 
promoting transparency in the Exchange's rules and reducing any 
potential confusion.\31\ This functionality provides Market Makers with 
an additional tool to meet their various quoting obligations in a 
manner they deem appropriate, consistent with the purpose of the bulk 
message functionality to facilitate Market Makers' provision of 
liquidity. By providing Market Makers with additional control over the 
quotes they use to provide liquidity to the Exchange, this tool may 
benefit all investors through additional execution opportunities at 
potentially improved prices. Today, MRX offers this same functionality 
within Options 3, Section 4(b)(3). Further, the Exchange does not 
believe that the offering the bulk message functionality to only Market 
Makers would permit unfair discrimination. Market Makers play a unique 
and critical role in the options market by providing liquidity and 
active markets, and are subject to various quoting obligations which 
other market participants are not, including obligations to maintain 
active markets, update quotes in response to changed market conditions, 
to compete with other Market Makers in its appointed classes, and to 
provide intra-day quotes in its appointed classes.\32\ Bulk message 
functionality provides Market Makers with a means to help them satisfy 
these obligations. The proposed amendment to the Rulebook to add Phlx 
Options 3, Section 4(b)(3) will not result in a System change.
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    \31\ As discussed above, this existing functionality is 
currently described in the Exchange's publicly available technical 
specifications. See supra note 3.
    \32\ See Options 2, Sections 4 and 5.
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    The Exchange's proposal to amend Options 3, Section 4(b)(6) to make 
clear that the actual price remains non-displayed during re-pricing is 
consistent with the Act and removes impediments to and perfects the 
mechanism of a free and open market and a national market system 
because it displays a re-priced order that does not lock or cross an 
away market. The rule text clearly explains that the best bid or offer 
will

[[Page 45257]]

be non-displayed and the re-priced order will be displayed. A similar 
change is proposed for Phlx Options 3, Section 5(d). MRX recently 
amended Options 3, Section 4(b)(6) and Options 3, Section 5(d) to 
include the same language.\33\ The proposed change aligns Phlx's rule 
text to MRX's rule text. The proposed amendment to the Rulebook to add 
Phlx Options 3, Section 4(b)(6) will not result in a System change.
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    \33\ See SR-MRX-2022-16.
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    The Exchange's proposal to add a new Options 3, Section 4(b)(7) to 
clarify that, today, Phlx's System will automatically execute eligible 
quotes using the Exchange's displayed best bid and offer (``BBO'') or 
the Exchange's non-displayed order book (``internal BBO'') if the best 
bid and/or offer on the Exchange has been repriced pursuant to Options 
3, Section 5(d) and Options 3, Section 4(b)(6) is consistent with the 
Act and protects investors and the public interest. This rule text 
seeks to codify the current System function and make clear that the 
internal BBO is comprised or both orders and quotes, both of which are 
considered for price checks. MRX recently amended Options 3, Section 
4(b)(7) to include this language.\34\ The proposed change aligns Phlx's 
rule text to MRX's rule text. The proposed amendment to the Rulebook to 
add Phlx Options 3, Section 4(b)(7) will not result in a System change.
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    \34\ Id.
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Options 3, Section 7
    The Exchange's proposal to amend the description of SQF within 
Options 3, Section 7(e)(1)(B) is consistent with the Act as this rule 
text is currently noted within Options 3, Section 7(a)(i)(B). The 
addition of this language into the description of SQF provides a more 
complete description of this protocol. The addition of this information 
also aligns the level of information with that offered on MRX for SQF 
within Options 3, Section 7(e)(1)(B). The proposed amendment to Phlx 
Options 3, Section 7(e)(1)(B) will not result in a System change.
    The Exchange's proposal to relocate, without amendment, the Legging 
Order type from Phlx Options 3, Section 14(f)(iii)(C) to Options 3, 
Section 7(b)(10) is a non-substantive amendment that will place the 
order type with other simple order book order types.
Options 3, Section 8
    The Exchange's proposal to amend Phlx Options 3, Section 8(j)(3) to 
replace ``are marketable against the ABBO'' with ``cross the ABBO'' is 
consistent with the Act as the proposed new language precisely 
describes the specified scenario within in this rule. The Exchange 
notes that this is not a System change, rather this amendment clarifies 
the applicability of the rule text. This change is identical to a 
change recently made on MRX at Options 3, Section 8(i)(3).\35\
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    \35\ See SR-MRX-2022-18.
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    The Exchange's proposal to amend Phlx Options 3, Section 8(k)(D) to 
align Phlx's rule text with that of MRX Options 3, Section 8(j)(6)(i) 
is consistent with the Act as the proposed language more explicitly 
describes the manner in which the Exchange will re-price orders and 
would mirror rule text in Phlx Options 3, Section 4(b)(6). The proposed 
amendment to Phlx Options 3, Section 8(k)(D) will not result in a 
System change.
Options 3, Section 10
    The Exchange's proposal to amend Options 3, Section 10(a)(1)(C) to 
add a sentence which states that ``This participation entitlement will 
be considered after the Opening Process'' is consistent with the Act 
because the NBBO would not be available pre-opening. The Exchange 
proposes to add this language to provide clarity. The proposed 
amendment to Phlx Options 3, Section 10(a)(1)(C) will not result in a 
System change.
Options 3, Section 15
    The Exchange's proposal to amend Phlx Options 3, Section 15(a)(1) 
to align Phlx's OPP rule text to MRX's OPP rule text within Options 3, 
Section 15(a)(1)(A) is consistent with the Act \36\ because removing 
the references to ``Day Limit, Good til Cancelled, Immediate-or-Cancel 
and All-or-None Orders'' and, instead, referring to ``Limit'' Orders 
accurately captures the scope of the orders subject to OPP. This change 
would also make unnecessary the reference to Market Orders. The 
proposed amendment to Options 3, Section 15(a)(1) will not result in a 
System change.
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    \36\ MRX recently amended its Order Price Protection (``OPP'') 
rule. See SR-MRX-2022-18.
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    The Exchange's proposal to amend the ATR Rule within Options 3, 
Section 15(b)(1) is consistent with the Act. MRX recently amended its 
ATR rule.\37\ MRX's ATR rule utilized different rule text to explain 
the ATR functionality. Amending Options 3, Section 15(b)(1)(A) to add 
the internal BBO concept similar to language proposed for Options 3, 
Sections 4 and 5 is consistent with the Act. Where a quote is re-priced 
to avoid a locked or crossed market, the best bid or offer will be non-
displayed and the re-priced order will be displayed at a price that is 
one minimum trading increment inferior to the ABBO. The best price on 
the order book could therefore be non-displayed. The addition of this 
language makes clear the manner in which the System calculates the 
Reference Price.
---------------------------------------------------------------------------

    \37\ See SR-MRX-2022-16.
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    Amending Phlx Section 15(b)(1) to add the words ``after the Posting 
Period'' to explain when a new ATR would be calculated provides more 
context to the rule will provide greater context to the sentence. 
Additionally, adding the word ``quote'' in Options 3, Section 
15(b)(1)(B) and (C), where it is omitted, will add clarity. The 
proposed amendment to Options 3, Section 15(b)(1) will not result in a 
System change. Also, adding rule text within Phlx Options 3, Section 
15(b)(1)(D) to make clear the Exchange's ability to set different ATR 
values by options category is consistent with the Act because the ATR 
risk protection limits the range of prices at which an order and quote 
trades and would take into account the minimum increment. The ability 
for the Exchange to set the ATR based on the increment allows the 
Exchange to set appropriate limits. The Exchange believes this rule 
text will add greater clarity to the ATR rule. The proposed amendment 
to Options 3, Section 15(b)(1) will not result in a System change.
Options 4A, Sections 6 and 12
    The Exchange's proposal to remove the Russell Indexes from Options 
4A, Sections 6(a)(i), (iii) and 6(c), as well as references within 
Options 4A, Section 12(a)(2) and Supplementary Material .01 and .03 of 
Options 4A, Section 12 is consistent with the Act and protect investors 
and the public interest because options on the Russell Indexes are no 
longer listed on Phlx.
    The Exchange's proposal to remove a reference to the Reduced Value 
Nasdaq 100[supreg] Index or ``MNX'' within Options 4A, Section 
12(a)(2)(I) is consistent with the Act because Phlx delisted MNX on 
April 7, 2017 \38\ and no longer trades MNX.
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    \38\ See Securities Exchange Act Release No. 80474 (April 17, 
2017), 82 FR 18795 (April 21, 2017) (SR-Phlx-2017-30).
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    The Exchange's proposal to remove the reference to ``Reduced value 
long term options, also known as LEAPS'' is consistent with the Act 
because Options 4A, Section 12(b)(2) addresses Long-Term Option Series 
or ``LEAPS'' including those for certain reduced

[[Page 45258]]

value index options such as the Micro Index Long Term Options Series.
    The Exchange's proposal to modify Options 4A, Section 12(a)(5) to 
XAU from Options 4A, Section 12(a)(5) and add it to proposed new 
Options 4A, Section (a)(7), relating to American-style exercise is 
consistent with the Act and protect investors and the public interest 
because it would reflect the indexes correct exercise style. XAU was 
originally filed as having an American-style exercise and not a 
European-style-exercise.\39\
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    \39\ See Securities Exchange Act Release No. 20437 (December 2, 
1983), 48 FR 55229 (December 9, 1983) (SR-Phlx-83-17). See also 
Securities Exchange Act Release Nos. 37123 (April 18, 1996), 61 FR 
18554 (April 25, 1996) (SR-Phlx-96-03); 43070 (July 25, 2000), 65 FR 
47551 (August 2, 2000) (SR-Phlx-00-69); and 64549 (May 26, 2011), 76 
FR 32004 (June 2, 2011) (SR-Phlx-2011-46).
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    The Exchange's proposal to list SOX within proposed new Options 4A, 
Section (a)(7) is consistent with the Act and protect investors and the 
public interest because it would reflect the indexes exercise style. 
SOX has an American-style expiration \40\ and the Exchange proposes to 
list the index as such.
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    \40\ See Securities Exchange Act Release No. 61539 (February 18, 
2010), 75 FR 8765 (February 25, 2010) (SR-Phlx-2010-20).
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    The Exchange's proposal to amend Options 4A, Section 12(e)(II) to 
remove XAU from the list of a.m.-settled options and add it to the list 
of p.m.-settled indexes within Options 4A, Section 12(f) is consistent 
with the Act and protect investors and the public interest because it 
would reflect the indexes correct settlement style. XAU has always been 
a p.m.-settled index option.\41\
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    \41\ See Securities Exchange Act Release Nos. 37123 (April 18, 
1996), 61 FR 18554 (April 25, 1996) (SR-Phlx-96-03); 43070 (July 25, 
2000), 65 FR 47551 (August 2, 2000) (SR-Phlx-00-69); and 64549 (May 
26, 2011), 76 FR 32004 (June 2, 2011) (SR-Phlx-2011-46).
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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.
Option 3, Sections 4 and 5
    The Exchange believes that its proposal to memorialize its bulk 
message functionality within Options 3, Section 4(b)(3) does not impose 
an undue burden on intra-market competition. While the Exchange 
currently offers this functionality to Market Makers only, bulk 
messaging is intended to provide Market Makers with an additional tool 
to meet their various quoting obligations in a manner they deem 
appropriate. As such, the Exchange believes that this functionality may 
facilitate Market Makers' provision of liquidity, thereby benefiting 
all market participants through additional execution opportunities at 
potentially improved prices. Furthermore, while the Exchange will offer 
the proposed Post-Only Quote Configuration to Market Makers only, the 
proposed risk protection will enhance the ability of Market Makers to 
add liquidity and avoid removing liquidity from the Exchange's order 
book in the manner described above. Greater liquidity benefits all 
market participants by providing more trading opportunities and 
attracting greater participation by Market Makers. The Exchange 
believes that its proposal to memorialize its bulk message 
functionality within Options 3, Section 4(b)(3) does not impose an 
undue burden on inter-market competition as other options exchanges may 
adopt this functionality.
    The Exchange's proposal to amend Phlx's rules at Options 3, Section 
4(b)(6) and Options 3, Section 4(b)(7) do not impose an undue burden on 
competition because all options markets must not trade-through other 
orders on their markets as well as away markets. The proposed change 
aligns Phlx's rule text to MRX's rule text.
Options 3, Section 7
    Amending the description of SQF within Options 3, Section 
7(e)(1)(B) does not impose an undue burden on competition The addition 
of this language into the description of SQF provides a more complete 
description of this protocol.
    The Exchange's proposal to relocate, without amendment, the Legging 
Order type from Phlx Options 3, Section 14(f)(iii)(C) to Options 3, 
Section 7(b)(10) is a non-substantive amendment that will place the 
order type with other simple order book order types.
Options 3, Section 8
    The Exchange's proposal to amend Phlx Options 3, Section 8(j)(3) to 
replace ``are marketable against the ABBO'' with ``cross the ABBO'' 
does not impose an undue burden on competition, rather this proposed 
new language precisely describes the specified scenario within in this 
rule.
    The Exchange's proposal to amend Phlx Options 3, Section 8(k)(D) to 
align Phlx's rule text with that of MRX Options 3, Section 8(j)(6)(i) 
does not impose an undue burden on competition, rather the proposed 
language more explicitly describes the manner in which the Exchange 
will re-price orders and would mirror rule text in Phlx Options 3, 
Section 4(b)(6).
Options 3, Section 10
    The Exchange's proposal to amend Options 3, Section 10(a)(1)(C) to 
add a sentence which states that ``This participation entitlement will 
be considered after the Opening Process'' is consistent with the Act 
because the NBBO would not be available pre-opening. The Exchange 
proposes to add this language to provide clarity. The proposed 
amendment to Phlx Options 3, Section 10(a)(1)(C) will not result in a 
System change.
Options 3, Section 15
    The Exchange's proposal to amend Phlx Options 3, Section 15(a)(1) 
to align Phlx's OPP rule text to MRX's OPP rule text within Options 3, 
Section 15(a)(1)(A) does not impose an undue burden on competition 
because removing the references to ``Day Limit, Good til Cancelled, 
Immediate-or-Cancel and All-or-None Orders'' and, instead, referring to 
``Limit'' Orders accurately captures the scope of the orders subject to 
OPP. This change would also make unnecessary the reference to Market 
Orders.
    The Exchange's proposal to amend the ATR Rule within Options 3, 
Section 15(b)(1) does not impose an undue burden on competition. 
Amending Options 3, Section 15(b)(1)(A) to add the internal BBO concept 
similar to language proposed for Options 3, Sections 4 and 5 does not 
impose an undue burden on competition. Where a quote is re-priced to 
avoid a locked or crossed market, the best bid or offer will be non-
displayed and the re-priced order will be displayed at a price that is 
one minimum trading increment inferior to the ABBO. The best price on 
the order book could therefore be non-displayed. The addition of this 
language makes clear the manner in which the System calculates the 
Reference Price.
    Amending Phlx Section 15(b)(1) to add the words ``after the Posting 
Period'' to explain when a new ATR would be calculated provides more 
context to the rule will provide greater context to the sentence. 
Additionally, adding the word ``quote'' in Options 3, Section 
15(b)(1)(B) and (C), where it is omitted, will add clarity. Adding rule 
text within Phlx Options 3, Section 15(b)(1)(D) to make clear the 
Exchange's ability to set different ATR values by options category does 
not impose an undue burden on competition because the ability for the 
Exchange to set the ATR based on the increment allows the Exchange to 
set appropriate limits. The

[[Page 45259]]

Exchange believes this rule text will add greater clarity to the ATR 
rule.
Options 4A, Sections 6 and 12
    The Exchange's proposal to remove the Russell Indexes from Options 
4A, Sections 6(a)(i), (iii) and 6(c), as well as references within 
Options 4A, Section 12(a)(2) and Supplementary Material .01 and .03 of 
Options 4A, Section 12 does not impose an undue burden on competition 
because no Phlx member or member organization would be able to trade 
Russell Indexes.
    The Exchange's proposal to remove a reference to the Reduced Value 
Nasdaq 100[supreg] Index or ``MNX'' within Options 4A, Section 
12(a)(2)(I) does not impose an undue burden on competition because Phlx 
delisted MNX on April 7, 2017 \42\ and no member or member organization 
may trade MNX.
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    \42\ See Securities Exchange Act Release No. 80474 (April 17, 
2017), 82 FR 18795 (April 21, 2017) (SR-Phlx-2017-30).
---------------------------------------------------------------------------

    The Exchange's proposal to remove the reference to ``Reduced value 
long term options, also known as LEAPS'' does not impose an undue 
burden on competition because all members and member organizations may 
trade LEAPs on certain reduced value index options such as the Micro 
Index Long Term Options Series pursuant to Options 4A, Section 
12(b)(2).
    The Exchange's proposal to modify Options 4A, Section 12(a)(5) to 
XAU from Options 4A, Section 12(a)(5) and add it to proposed new 
Options 4A, Section (a)(7), relating to American-style exercise does 
not impose an undue burden on competition because it would reflect the 
indexes correct exercise style. All Phlx members and member 
organizations would be able to transact XAU with an American-style 
exercise. The Exchange's proposal to list SOX within proposed new 
Options 4A, Section (a)(7) does not impose an undue burden on 
competition because it would reflect the indexes exercise style. All 
Phlx members and member organizations would be able to transact SOX 
with an American-style exercise. The Exchange's proposal to amend 
Options 4A, Section 12(e)(II) to remove XAU from the list of a.m.-
settled options and add it to the list of p.m.-settled indexes within 
Options 4A, Section 12(f) does not impose an undue burden on 
competition because it would reflect the indexes correct settlement 
style. All Phlx members and member organizations would be able to 
transact XAU with a p.m.-settlement.

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 \43\ and 
subparagraph (f)(6) of Rule 19b-4 thereunder.\44\
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    \43\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \44\ 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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    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 (https://www.sec.gov/rules/sro.shtml); or
     Send an email to [email protected]. Please include 
file number SR-Phlx-2023-27 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-2023-27. 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 (https://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 
a.m. and 3 p.m. Copies of the filing also will be available for 
inspection and copying at the principal office of the Exchange. Do not 
include personal identifiable information in submissions; you should 
submit only information that you wish to make available publicly. We 
may redact in part or withhold entirely from publication submitted 
material that is obscene or subject to copyright protection. All 
submissions should refer to file number SR-Phlx-2023-27 and should be 
submitted on or before August 4, 2023.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\45\
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    \45\ 17 CFR 200.30-3(a)(12).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2023-14911 Filed 7-13-23; 8:45 am]
BILLING CODE 8011-01-P