Document ID: SEC-2020-0702-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Nasdaq PHLX, LLC
Posted Date: 2020-05-01T04:00Z

[Federal Register Volume 85, Number 85 (Friday, May 1, 2020)]
[Notices]
[Pages 25500-25503]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-09249]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-88753; File No. SR-Phlx-2020-21]

Self-Regulatory Organizations; Nasdaq PHLX LLC; Notice of Filing 
and Immediate Effectiveness of Proposed Rule Change To Amend Various 
Phlx Rules Related to Routing, Remote Specialist, and Assistant Lead 
Market Maker

April 27, 2020.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that 
on April 15, 2020, 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 amend Phlx Rules at Options 2, Section 3, 
Allocation Application, Allocation, Reallocation, Transfer and 
Voluntary Resignation''; Options 2, Section 4, Obligations of Market 
Makers; Options 2, Section 11, Lead Market Maker Appointments; Options 
5, Section 4, Order Routing; Options 8, Section 11, Floor Market Maker 
and Lead Market Maker Appointment; Options 8, Section 25, Floor 
Allocation; and Options 8, Section 39, Option Minor Rule Violations and 
Order and Decorum Regulations at E-2, Allocation, Time Stamping, 
Matching and Access to Matched Trades.
    The text of the proposed rule change is available on the Exchange's 
website at http://nasdaqphlx.cchwallstreet.com/, at the principal 
office of the Exchange, and at the Commission's Public Reference Room.

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

    In its filing with the Commission, the Exchange included statements 
concerning the purpose of and basis for the proposed rule change and 
discussed any comments it received on the proposed rule change. The 
text of these statements may be examined at the places specified in 
Item IV below. The Exchange has prepared summaries, set forth in 
sections A, B, and C below, of the most significant aspects of such 
statements.

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

1. Purpose
    The Exchange proposes to amend Phlx Rules at Options 2, Section 3, 
Allocation Application, Allocation, Reallocation, Transfer and 
Voluntary Resignation''; Options 2, Section 4, Obligations of Market 
Makers; Options 2, Section 11, Lead Market Maker Appointments; Options 
5, Section 4, Order Routing; Options 8, Section 11, Floor Market Maker 
and Lead Market Maker Appointment; Options 8, Section 25, Floor 
Allocation; and Options 8, Section 39, Option Minor Rule Violations and 
Order and Decorum Regulations at E-2, Allocation, Time Stamping, 
Matching and Access to Matched Trades. Each change is described below.
Remote Specialist
    The Exchange proposes to amend Options 2, Section 4, Obligations of 
Market Maker, to replace rule text currently within Options 2, Section 
4(b)(2) with more precise rule text. Currently, the rule text in the 
last two sentences of Options 2, Section 4(b)(2) provides, ``An RSQT 
shall not submit option quotations in eligible options to which such 
RSQT is assigned to the extent that the RSQT is also approved as a 
Remote Lead Market Maker in the same options. An RSQT may only trade in 
a market making capacity in classes of options in which he is assigned 
or approved as a Remote Lead Market Maker.'' The Exchange would like to 
replace this text with more precise language which it believes more 
clearly conveys the meaning of those sentences. The Exchange proposes 
to state, ``An RSQT may not simultaneously quote both as RSQT and 
Remote Lead Market

[[Page 25501]]

Maker in a particular security. If an RSQT is a Remote Lead Market 
Maker in a particular security, the Remote Lead Marker Maker must make 
a market as a Remote Lead Market Maker and may not make a market as an 
RSQT in that particular security.'' This rule text, which the Exchange 
believes is clear and precise, is taken from the Order which approved 
this rule text.\3\ This amendment is a non-substantive rule change 
which is merely intended to bring greater clarity to the obligation of 
an RSQT who is also the Remote Lead Market Maker in a particular 
security.
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    \3\ See Securities Exchange Act Release No. 63717 (January 14, 
2011), 76 FR 4141at 4143 (January 24, 2011) (SR-Phlx-2010-145) 
(``Order Granting Accelerated Approval to a Proposed Rule Change, as 
Modified by Amendment No. 1 Thereto, Relating to the Establishment 
of Remote Specialists'').
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Assistant Lead Market Maker
    The Exchange proposes to amend rule text within Options 2, Section 
3, Allocation Application, Allocation, Reallocation, Transfer and 
Voluntary Resignation; Options 2, Section 11, Lead Market Maker 
Appointments; Options 8, Section 11, Floor Market Maker and Lead Market 
Maker Appointment; Options 8, Section 25, Floor Allocation; and Options 
8, Section 39, Option Minor Rule Violations and Order and Decorum 
Regulations at E-2, Allocation, Time Stamping, Matching and Access to 
Matched Trades to replace the term ``assistant'' with ``back-up.'' This 
amendment is non-substantive. The Exchange believes that the word 
``back-up'' is a more precise term that emphasizes that the Market 
Maker must be able to take on all the duties of the Lead Market Maker. 
No obligations are being amended with respect to this role.
Routing
    Phlx previously filed a rule proposal \4\ to amend this Options 5, 
Section 4, ``Order Routing,'' which was previously numbered Rule 
1093.\5\ At this time, the Exchange proposes to remove two sentences 
within Options 5, Section 4 for FIND and SRCH Orders. These sentences 
were inadvertently not removed in the Prior Rule Change.
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    \4\ See Securities Exchange Act Release No. 87811 (December 20, 
2019), 84 FR 72017 (December 30, 2019) (SR-Phlx-2019-56) (``Prior 
Rule Change'').
    \5\ Phlx has recently renumbered its rules in connection with a 
Rulebook relocation to a new Rulebook shell. See SR-Phlx-2020-03.
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FIND Orders
    The Exchange proposes to delete a sentence within FIND Orders at 
Options 5, Section 4(a)(iii)(B)(5) which states, ``If during the Route 
Timer, the ABBO moves and crosses the FIND Order, any new interest 
arrives opposite the FIND Order that is marketable against the FIND 
Order will trade at the FIND Order price.'' This sentence is incorrect 
in that it contradicts a sentence at the end of Options 5, Section 
4(a)(iii)(B)(5) which states, ``If during the Route Timer any new 
interest arrives opposite the FIND Order that is marketable against the 
FIND Order such interest will trade against the FIND Order at the ABBO 
price unless the ABBO is improved to a price which crosses the FIND 
Order's already displayed price, in which case the incoming order will 
execute at the previous ABBO price as the away market crossed a 
displayed price.'' The current last sentence within Options 5, Section 
4(a)(iii)(B)(5) accurately describes the scenario for new interest 
arriving opposite the FIND Order that is marketable against the FIND 
Order.

By way of example, assume a PHLX BBO: 1 x 1.25 and a CBOE BBO: 1.05 
x 1.15.

If a FIND Order was entered to Buy 1 @1.20
FIND Order to buy is exposed on Phlx market data feeds @1.15 (then 
ABBO) and displayed on OPRA at 1.14
Route Timer begins
During Route Timer a Limit Order to sell 1 @1.15 arrives
CBOE adjusts its BBO to 1.05 x 1.10
The Route Timer ends and the Find Order will trade with the sell 
Limit Order at 1.15 in this example.

The incorrect sentence provides that if the ABBO moves and crosses the 
FIND Order, any new interest that arrives opposite the FIND Order, 
which is marketable against the FIND Order, will trade at the FIND 
Order Price. This is incorrect because the new interest would trade 
against the FIND Order at the ABBO price, unless the ABBO is improved 
to a price which crosses the FIND Order's already displayed price, in 
which case the incoming order will execute at the previous ABBO price 
as the away market crossed a displayed price. The current sentence is 
incorrect because the FIND Order will not trade at the FIND Order price 
as noted in the first quoted sentence, rather it would execute at the 
previous ABBO price because the away market crossed a displayed price. 
The Exchange would display the order one MPV inferior to the away 
market offer, at 1.14. The FIND Order would execute at 1.15 which was 
the previous ABBO bid, as the away market crossed the displayed price 
of 1.14. Today, the System does not execute this trade at the FIND 
Order price as incorrectly noted. The Exchange would not trade-through 
the ABBO in this circumstance, Phlx would be bound by the Cboe's price 
in the above example. This specific rule text does not properly reflect 
the System operation. The rule text which provides that if the away 
market crossed Phlx's already displayed price the FIND Order will 
execute at the previous ABBO price, reflects the current System 
handling.
    The Exchange proposes to correct the rule text by deleting the 
contradictory sentence. The remaining rule text will properly reflects 
the current System handling. Further, the Exchange proposes to relocate 
the correct sentence within Options 5, Section 4(a)(iii)(B)(5) to the 
same location as the deleted text to improve the flow of information 
presented within Options 5, Section 4(a)(iii)(B)(5).
SRCH Orders
    The Exchange proposes a similar correction to the SRCH Orders rule 
text. The Exchange proposes to similarly remove rule a contradictory 
sentence within current Options 5, Section 4(a)(iii)(C)(4) which 
provides, ``If during the Route Timer, the ABBO moves and crosses the 
SRCH Order, any new interest arrives opposite the SRCH Order that is 
marketable against the SRCH Order will trade at the SRCH Order price.'' 
Also, the Exchange proposes to replicate the last sentence of Options 
5, Section 4(a)(iii)(C)(6), which contains the accurate scenario for 
new interest arriving opposite the SRCH Order that is marketable 
against the SRCH Order, to the same location as the deleted text within 
Options 5, Section 4(a)(iii)(C)(4) to improve the flow of information 
presented within that paragraph. The Exchange proposes to retain the 
exact sentence within Options 5, Section 4(a)(iii)(C)(6) because it 
applies equally to the scenarios described within Options 5, Section 
4(a)(iii)(C)(6).
2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act,\6\ in general, and furthers the objectives of Section 
6(b)(5) of the Act,\7\ in particular, in that it is designed to promote 
just and equitable principles of trade and to protect investors and the 
public interest.
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    \6\ 15 U.S.C. 78f(b).
    \7\ 15 U.S.C. 78f(b)(5).
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Remote Specialist
    The Exchange's proposal to amend Options 2, Section 4, Obligations 
of Market Maker, to replace rule text currently within Options 2, 
Section 4(b)(2) with more precise rule text is consistent with the Act. 
The proposed new rule text is taken from the order approving the rule 
and more clearly explains the obligation of an RSQT who

[[Page 25502]]

is also the Remote Lead Market Maker in a particular security. This 
rule change is non-substantive and will benefit market participants by 
bringing greater clarity to the rule text.
Assistant Lead Market Maker
    The Exchange's proposal to amend rule text within Options 2, 
Section 3, Allocation Application, Allocation, Reallocation, Transfer 
and Voluntary Resignation; Options 2, Section 11, Lead Market Maker 
Appointments; Options 8, Section 11, Floor Market Maker and Lead Market 
Maker Appointment; Options 8, Section 25, Floor Allocation; and Options 
8, Section 39, Option Minor Rule Violations and Order and Decorum 
Regulations at E-2, Allocation, Time Stamping, Matching and Access to 
Matched Trades, to replace the term ``assistant'' with ``back-up'' is 
consistent with the Act. This amendment is non-substantive. The 
Exchange believes that the word ``back-up'' is a more precise term that 
emphasizes that the Market Maker must be able to take on all the duties 
of the Lead Market Maker and will benefit market participants by 
bringing greater clarity to the rule text. No obligations are being 
amended with respect to this role.
Routing
    With respect to the amendments to the Order Routing Rule, the 
Exchange's removal of two contradictory sentences is consistent with 
the Act because this will bring clarity and transparency to the rule. 
Further, relocating the correct rule text within the FIND and adding 
the correct rule text within SRCH rule language are non-substantive 
amendments which will improve the flow of information.

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.
Remote Specialist
    The Exchange's proposal to amend Options 2, Section 4, Obligations 
of Market Maker'' to replace rule text currently within Options 2, 
Section 4(b)(2) with more precise rule text does not impose an undue 
burden on competition. This non-substantive amendment more clearly 
explains the obligation of an RSQT who is also the Remote Lead Market 
Maker in a particular security.
Assistant Lead Market Maker
    The Exchange's proposal to amend rule text within Options 2, 
Section 3, Allocation Application, Allocation, Reallocation, Transfer 
and Voluntary Resignation; Options 2, Section 11, Lead Market Maker 
Appointments; Options 8, Section 11, Floor Market Maker and Lead Market 
Maker Appointment; Options 8, Section 25, Floor Allocation; and Options 
8, Section 39, Option Minor Rule Violations and Order and Decorum 
Regulations at E-2, Allocation, Time Stamping, Matching and Access to 
Matched Trades, to replace the term ``assistant'' with ``back-up'' does 
not impose an undue burden on competition. This non-substantive 
amendment will bring greater clarity to the rule text. No obligations 
are being amended with respect to this role.
Routing
    The Exchange believes that deleting the two contradictory sentences 
will bring greater clarity to the rule. Further, relocating the correct 
rule text within the FIND and adding the correct rule text within the 
SRCH language is a non-substantive amendment which will improve the 
flow of information.

2. 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 \8\ and 
subparagraph (f)(6) of Rule 19b-4 thereunder.\9\
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    \8\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \9\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6) 
requires the Exchange 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) \10\ normally 
does not become operative prior to 30 days after the date of the 
filing. However, pursuant to Rule 19b-4(f)(6)(iii),\11\ the Commission 
may designate a shorter time if such action is consistent with the 
protection of investors and the public interest. The Exchange requests 
that the Commission waive the 30-day operative delay so that it may 
immediately remove incorrect and contradictory sentences in Phlx 
Options 5, Section 4, to bring greater clarity and transparency to the 
Phlx routing rules. The Commission believes that waiving the 30-day 
operative delay is consistent with the protection of investors and the 
public interest. Accordingly, the Commission waives the 30-day 
operative delay and designates the proposed rule change operative upon 
filing.\12\
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    \10\ 17 CFR 240.19b-4(f)(6).
    \11\ 17 CFR 240.19b-4(f)(6)(iii).
    \12\ For purposes only of waiving the 30-day operative delay, 
the Commission has considered the proposed rule's impact on 
efficiency, competition, and capital formation. See 15 U.S.C. 
78c(f).
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    At any time within 60 days of the filing of the proposed rule 
change, the Commission summarily may temporarily suspend such rule 
change if it appears to the Commission that such action is necessary or 
appropriate in the public interest, for the protection of investors, or 
otherwise in furtherance of the purposes of the Act. If the Commission 
takes such action, the Commission shall institute proceedings to 
determine whether the proposed rule should be approved or disapproved.

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether the proposed rule 
change is consistent with the Act. Comments may be submitted by any of 
the following methods:

Electronic Comments

     Use the Commission's internet comment form (http://www.sec.gov/rules/sro.shtml.); or
     Send an email to rule-comments@sec.gov. Please include 
File Number SR-Phlx-2020-21 on the subject line.

Paper Comments

     Send paper comments in triplicate to Secretary, Securities 
and Exchange Commission, 100 F Street NE, Washington, DC 20549-1090.

All submissions should refer to File Number SR-Phlx-2020-21. 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/

[[Page 25503]]

rules/sro.shtml ). Copies of the submission, all subsequent amendments, 
all written statements with respect to the proposed rule change that 
are filed with the Commission, and all written communications relating 
to the proposed rule change between the Commission and any person, 
other than those that may be withheld from the public in accordance 
with the provisions of 5 U.S.C. 552, will be available for website 
viewing and printing in the Commission's Public Reference Room, 100 F 
Street NE, Washington, DC 20549, on official business days between the 
hours of 10:00 a.m. and 3:00 p.m. Copies of the filing also will be 
available for inspection and copying at the principal office of the 
Exchange. All comments received will be posted without change. Persons 
submitting comments are cautioned that we do not redact or edit 
personal identifying information from comment submissions. You should 
submit only information that you wish to make available publicly. All 
submissions should refer to File Number SR-Phlx-2020-21 and should be 
submitted on or before May 22, 2020.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\13\
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    \13\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-09249 Filed 4-30-20; 8:45 am]
BILLING CODE 8011-01-P