Document ID: SEC-2018-1804-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Nasdaq PHLX, LLC
Posted Date: 2018-11-26T05:00Z

[Federal Register Volume 83, Number 227 (Monday, November 26, 2018)]
[Notices]
[Pages 60512-60514]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2018-25597]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-84620; File No. SR-Phlx-2018-71]

Self-Regulatory Organizations; Nasdaq PHLX LLC; Notice of Filing 
and Immediate Effectiveness of Proposed Rule Change To Add Definitions 
to Rule 1000 and Amend Risk Protections

November 19, 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 November 6, 2018, Nasdaq PHLX LLC (``Phlx'' or ``Exchange'') filed 
with the Securities and Exchange Commission (``SEC'' or ``Commission'') 
the proposed rule change as described in Items I and II below, which 
Items have been prepared by the Exchange. The Commission is publishing 
this notice to solicit comments on the proposed rule change from 
interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to add definitions to Rule 1000, titled 
``Applicability, Definitions and References,'' amend Rule 1090, titled 
``Clerks'' and amend Rule 1099, titled, ``Risk Protections.''
    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 purpose of this rule change is to adopt certain definitions 
within Rule 1000(b), amend Rule 1090, titled ``Clerks'' and amend Rule 
1099, titled, ``Risk Protections.'' Each change is described in more 
detail below.
Definitions
    The Exchange proposes to amend Rule 1000(b) to add three new 
definitions into its Rulebook. These definitions are utilized in 
technical documents issued by the Exchange and will provide an ease of 
reference for understanding these terms. Specifically, Rule 1000(b)(51) 
would define an account number as a number assigned to a member 
organization. Member organizations may have more than one account 
number. Rule 1000(b)(52) would define a badge as an account number, 
which may contain letters and/or numbers, assigned to Specialists and 
Registered Options Traders. A Specialist or Registered Options Trader 
account may be associated with multiple badges. Finally, Rule 
1000(b)(53) would define a mnemonic as an acronym comprised of letters 
and/or numbers assigned to member organizations. A member organization 
account may be associated with multiple mnemonics.
Risk Protections
Order Price Protection
    The Exchange proposes to amend Rule 1099(a)(1) relating to the 
Order Price Protection or ``OPP.'' The Exchange proposes to remove the 
example within Rule 1099(a)(1)(B)(i) which states, '' For example, if 
the Reference BBO on the offer side is $1.10, an order to buy options 
for more than $1.65 would be rejected. Similarly, if the Reference BBO 
on the bid side is $1.10, an order to sell options for less than $0.55 
will be rejected.'' The Exchange also proposes to remove the example 
within Rule 1099(a)(1)(B)(ii) which states, ``For example, if the 
Reference BBO on the offer side is $1.00, an order to buy options for 
more than $2.00 would be rejected. However, if the Reference BBO of the 
bid side of an incoming order to sell is less than or equal to $1.00, 
the OPP limits set forth above will result in all incoming sell orders 
being accepted regardless of their limit. To illustrate, if the 
Reference BBO on the bid side is equal to $1.00, the OPP limits provide 
protection such that all orders to sell with a limit less than $0.00 
would be rejected.'' The Exchange notes that while the examples remain 
accurate, the Exchange proposes to remove the text to conform the rule 
text to other risk protections. The Exchange does not believe it is 
necessary to have these examples within the rule text.
Market Order Spread Protection
    The Exchange proposes to add language to the Market Order Spread 
Protection Rule in 1099(a)(2). First, Phlx proposes to add the word 
``trading'' before the word ``halt'' within Rule in 1099(a)(2) for 
consistency. In the OPP rule, text halts are referred to as ``trading 
halts.'' This will avoid confusion as to the use of this term. Second, 
at the time Phlx filed to amend Market Order Spread Protection on Phlx, 
it noted in that rule change that this mandatory risk protection 
protects Market Orders \3\ from being executed in very wide markets.\4\ 
Specifically, it noted within footnote 11 that the Exchange may 
establish differences other than the referenced threshold for one or 
more series or classes of options.\5\ At this time, the Exchange 
proposes to memorialize this capability within Rule 1099(a)(2) by 
stating, ``The Exchange may establish different thresholds for one or 
more series or classes of options.'' The Exchange believes that adding 
this provision to the rule will provide an easy reference as to the 
Exchange's capability to establish different thresholds per options 
series or class.
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    \3\ Market Orders are orders to buy or sell at the best price 
available at the time of execution.
    \4\ Securities Exchange Act Release No. 83141 (May 1, 2018), 83 
FR 20123 (May 7, 2018) (SR-Phlx-2018-32).
    \5\ Id.
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Anti-Internalization
    The Exchange proposes to replace the word ``Exchange badge'' with 
``market participant identifier'' to more specifically describe this 
functionality.

[[Page 60513]]

Also the Exchange is adding ``. . . quotes and orders entered on the 
opposite side of the market by the same Specialist or Registered 
Options Trader using the same identifier'' and is again replacing 
``badge'' with ``identifier.'' The Exchange is identifying Specialists 
and Registered Options Traders in the System and preventing quotes and 
orders from the same Specialists or Registered Options Traders from 
executing. Finally the Exchange proposes to add the word ``order'' 
after complex in the last sentence of the Anti-Internalization 
paragraph for clarity.
Clerks
    In order to avoid any confusion because the Exchange defined the 
term ``badge,'' the Exchange proposes to amend Rule 1090, which applies 
to Clerks on the Exchange's trading floor. This use of the word badge 
was meant to indicate a physical identifier that is worn on the trading 
floor to identify members. Therefore, the Exchange is replacing the 
term ``badge'' with ``identification'' in Rule 1090.
Automated Removal of Quotes
    Finally, the Exchange proposes to amend the title of Rule 
1099(c)(2) from ``Automated Removal of Quotes'' to ``Quotation 
Adjustments'' to conform the title across Nasdaq markets.
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 by bringing greater transparency to its rules. 
Amendments to remove examples from the OPP rule text and add 
``trading'' before the word ``halt'' within the Market Order Spread 
Protection rule text will bring conformity to Rule 1090. The Exchange's 
proposal to add definitions to Rule 1000(b) will bring greater clarity 
to the Anti-Internalization functionality and to the Rulebook. The 
Exchange's proposal to amend Rule 1090 to clarify its identification 
requirements for Clerks will also provide more clarity to that rule.
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    \6\ 15 U.S.C. 78f(b).
    \7\ 15 U.S.C. 78f(b)(5).
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    The Exchange's proposal to memorialize the ability of the Exchange 
to establish different Market Order Spread Protection thresholds per 
options series or class will also bring greater clarity to the rule. 
Today, the Exchange has this ability, it is simply adding that text to 
the rule.
    Finally, the Exchange's proposal to amend the title of Rule 
1099(c)(2) from ``Automated Removal of Quotes'' to ``Quotation 
Adjustments'' should better describe the rule and conform the title to 
other Nasdaq affiliate markets.
    The proposals noted herein are consistent with the Act because they 
provide more detail and transparency to the Exchange's rules noted 
herein to the benefit of market participants.

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 Exchange believes that the 
proposed amendments do not impose an undue burden on competition 
because the definitions and amendments to conform the rule text will 
provide greater clarity as to the meaning of those terms. Memorializing 
the ability of the Exchange to establish different Market Order Spread 
Protection thresholds per options series or class will also bring 
greater clarity to the rule. Finally, the Exchange's proposal to amend 
the title of Rule 1099(c)(2) from ``Automated Removal of Quotes'' to 
``Quotation Adjustments'' is non-substantive.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants, or Others

    No written comments were either solicited or received.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    Because the foregoing proposed rule change does not: (i) 
Significantly affect the protection of investors or the public 
interest; (ii) impose any significant burden on competition; and (iii) 
become operative for 30 days from the date on which it was filed, or 
such shorter time as the Commission may designate, it has become 
effective pursuant to Section 19(b)(3)(A) of the Act \8\ and Rule 19b-
4(f)(6) thereunder.\9\
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    \8\ 15 U.S.C. 78s(b)(3)(A).
    \9\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)(iii) 
requires a self-regulatory organization to give the Commission 
written notice of its intent to file the proposed rule change, along 
with a brief description and text of the proposed rule change, at 
least five business days prior to the date of filing of the proposed 
rule change, or such shorter time as designated by the Commission. 
The Exchange has satisfied this requirement.
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    A proposed rule change filed pursuant to Rule 19b-4(f)(6) under the 
Act \10\ normally does not become operative for 30 days after the date 
of its filing. However, Rule 19b-4(f)(6)(iii) \11\ 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 may become operative upon filing. The 
Exchange believes that waiver of the operative delay would allow the 
Exchange to immediately update its rules to bring greater clarity and 
transparency to the Anti-Internalization functionality, identification 
requirements for Clerks, and the Exchange's risk protections. 
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.\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 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 the proposed rule 
change, the Commission summarily may temporarily suspend such rule 
change if it appears to the Commission that such action is necessary or 
appropriate in the public interest, for the protection of investors, or 
otherwise in furtherance of the purposes of the Act. If the Commission 
takes such action, the Commission shall institute proceedings to 
determine whether the proposed rule change should be approved or 
disapproved.

IV. Solicitation of Comments

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

Electronic Comments

     Use the Commission's internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to [email protected]. Please include 
File Number SR-Phlx-2018-71 on the subject line.

Paper Comments

     Send paper comments in triplicate to Secretary, Securities 
and Exchange

[[Page 60514]]

Commission, 100 F Street NE, Washington, DC 20549-1090.

All submissions should refer to File Number SR-Phlx-2018-71. 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-2018-71, and should be submitted on 
or before December 17, 2018.

    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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Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2018-25597 Filed 11-23-18; 8:45 am]
 BILLING CODE 8011-01-P