Document ID: SEC-2019-1978-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Nasdaq PHLX LLC
Posted Date: 2019-12-30T05:00Z

[Federal Register Volume 84, Number 249 (Monday, December 30, 2019)]
[Notices]
[Pages 72017-72023]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-28022]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-87811; File No. SR-Phlx-2019-56]

Self-Regulatory Organizations; Nasdaq PHLX LLC; Notice of Filing 
and Immediate Effectiveness of Proposed Rule Change To Amend Rules 
1000, 1014, 1034, 1068, 1080, 1087, 1090, and 1093

December 20, 2019.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that 
on December 19, 2019, Nasdaq PHLX LLC (``Phlx'' or ``Exchange'') filed 
with the Securities and Exchange Commission (``Commission'') the 
proposed rule change as described in Items I and II below, which Items 
have been prepared by the Exchange. The Commission is publishing this 
notice to solicit comments on the proposed rule change from interested 
persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to amend Rule 1000, ``Applicability, 
Definitions and References,'' Rule 1014, ``Obligations of Market 
Makers,'' Rule 1034, ``Minimum Increments,'' Rule 1068, ``Directed 
Orders,'' Rule 1080, ``Electronic Acceptance of Quotes and

[[Page 72018]]

Orders,'' Rule 1087, ``Price Improvement XL (``PIXL''),'' Rule 1090, 
``Mass Cancellation of Trading Interest,'' and Rule 1093 titled ``Away 
Markets and Order Routing.
    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 Rule 1000, ``Applicability, 
Definitions and References,'' Rule 1014, ``Obligations of Market 
Makers,'' Rule 1034, ``Minimum Increments,'' Rule 1068, ``Directed 
Orders,'' Rule 1080, ``Electronic Acceptance of Quotes and Orders,'' 
Rule 1087, ``Price Improvement XL (``PIXL''),'' Rule 1090, ``Mass 
Cancellation of Trading Interest,'' and Rule 1093 titled ``Away Markets 
and Order Routing.'' Each rule change will be discussed below.
Applicability, Definitions and References
    The Exchange proposes to define a ``bid'' and an ``offer'' within 
Phlx Rule 1000(b). The Exchange proposes to state the term ``bid'' 
means a quote or limit order to buy one or more options contracts 
within Rule 1000(b)(62). The Exchange proposes to state, the term 
``offer'' means a quote or limit order to sell one or more options 
contracts within Rule 1000(b)(63). The Exchange believes that the 
addition of these definitions will bring greater transparency to the 
Exchange's Rules.
Minimum Increments
    The Exchange proposes to amend Rule 1034 regarding minimum 
increments. The Exchange proposes to reorganize and update the rule. 
The Exchange proposes to create a Commentary section to Rule 1034 and 
relocate all exceptions to Rule 1034(a) in the Commentary. The Exchange 
would amend Rule 1034(a) to state, except as provided in the Commentary 
and then also amend the words ``quoting'' to ``trading'' and eliminate 
the word ``decimals.'' The Exchange notes that executions are 
considered when determining the minimum price variations of options 
which have prices at $3.00 or higher or are priced under $3.00. The 
word ``quoting'' is not as precise as word ``trading.'' The Exchange 
utilizes executions to enforce minimum increments submitted by the 
member. While the word ``quoting'' is not incorrect, the Exchange 
believes ``trading'' is more understandable and is similarly utilized 
by Nasdaq ISE, LLC (``ISE''), Nasdaq GEMX, LLC (``GEMX'') and Nasdaq 
MRX, LLC (``MRX'') at Options 3, Section 3 of those Rulebooks. 
Similarly, the Exchange is removing the word ``decimals'' and similar 
to ISE, GEMX and MRX at Options 3, Section 3, stating ``at a price'' 
because the Exchange believes this language makes clear the intent. 
These changes do not result in a System change, rather they represent 
the Exchange's current System operation.
    The Exchange proposes to renumber current Rule 1034(a)(i)(A) as 
Rule 1034(a)(1), without change. The Exchange proposes to renumber 
current Rule 1034(a)(i)(C) as Rule 1034(a)(2) and change the words 
``Phlx XL II system'' to simply the defined term ``System.'' The 
Exchange proposes to renumber current Rule 1034(a)(v) as Rule 
1034(a)(3) and remove the text ``However'' and instead add language to 
exclude paragraph (a) similar to ISE, GEMX and MRX Rules at Options 3, 
Section 3. The Exchange proposes to relocate current Rule 1034(a)(i)(b) 
as Commentary .01 and add the title ``Penny Pilot Program'' before the 
rule text. The Exchange proposes to relocate current Rules 1034(a)(ii), 
(iii), and (iv) as Commentary .02, .03 and .04, respectively.
    The Exchange believes that these rule changes will bring greater 
clarity to the Rule.
Directed Orders
    The Exchange proposes to remove rule text within Rule 1068(a)(i)(A) 
with respect to Directed Orders. The current rule text provides, ``The 
term ``Directed Order'' means any order (other than a stop or stop-
limit order as defined in Options 8, Section 32) to buy or sell which 
has been directed to a particular Specialist, RSQT, or SQT by an Order 
Flow Provider, as defined below. To qualify as a Directed Order, an 
order must be delivered to the Exchange via the System.'' The Exchange 
proposes to remove the limitation for a stop or stop-limit order. The 
System will allow any order to be considered a Directed Order. Today, 
Nasdaq ISE, LLC permits all order types to be Preferenced.\3\
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    \3\ See Nasdaq ISE, LLC Rules at Options 2, Section 10.
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Price Improvement XL (``PIXL'')
    The Exchange proposes to amend Rule 1087 to make clear at the 
beginning of the Rule which provisions apply to Public Customer-to-
Public Customer Cross Orders. Today, Phlx Rule 1087(a) \4\ and (f) \5\ 
permit Public Customer-to-Public Customer Cross Orders to be entered 
into PIXL. Today Public Customer-to-Public Customer Cross Orders may 
only be entered into PIXL. This new sentence makes clear which 
provisions govern Public Customer-to-Public Customer Cross Orders. The 
Exchange proposes to capitalize the term ``Public Customer-to-Public 
Customer Cross Orders'' within Rules 1014(e) and Rule 1080(e) to 
conform to the proposed defined term.
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    \4\ Phlx Rule 1087(a) provides, ``Auction Eligibility 
Requirements. All options traded on the Exchange are eligible for 
PIXL. A member (the ``Initiating Member'') may initiate an Auction 
provided all of the following are met:'' . . . Pursuant to Rule 
1087(f), the Exchange will allow a Public Customer-to-Public 
Customer PIXL Order to trade on either the bid or offer, if the NBBO 
is $0.01 wide, provided (1) the execution price is equal to or 
within the NBBO, (2) there is no resting Public Customer at the 
execution price, and (3) $0.01 is the Minimum Price Variation (MPV) 
of the option. The Exchange will continue to reject a PIXL Order to 
buy (sell) if the NBBO is only $0.01 wide and the Agency order is 
stopped on the bid (offer) if there is a resting order on the bid 
(offer).''
    \5\ Phlx Rule 1087(f) provides, ``In lieu of the procedures in 
paragraphs (a)-(b) above, an Initiating Member may enter a PIXL 
Order for the account of a Public Customer paired with an order for 
the account of a Public Customer and such paired orders will be 
automatically executed without a PIXL Auction, provided there is not 
currently an Auction in progress in the same series or same 
strategy, in which case the orders will be rejected. The execution 
price for such a PIXL Order (except if it is a Complex Order) must 
be expressed in the quoting increment applicable to the affected 
series. Such an execution may not trade through the better of the 
NBBO or Reference BBO or at the same price as any resting Public 
Customer order. The execution price for such a Complex Order PIXL 
may be in .01 increments and may not trade at a price equal to or 
through the cPBBO or at the same price as a resting Public Customer 
Complex Order.''
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Mass Cancellation of Trading Interest
    The Exchange proposes to adopt a new Rule 1090 titled ``Mass 
Cancellation of Trading Interest.'' The Nasdaq Options Market LLC 
(``NOM'') and Nasdaq BX, Inc. (``BX'') Rules at Chapter VII, Section 11 
permit Participants on those markets to contact market operations and 
manually request

[[Page 72019]]

cancellation of interest. The Exchange proposes to adopt a rule which 
also permits members to contact market operations and request the 
Exchange to manually cancel interest. The proposed new rule would 
state, ``A member may cancel any bids, offers, and orders in any series 
of options by requesting Phlx Market Operations \6\ staff to effect 
such cancellation as per the instructions of the Member.'' This new 
rule reflects the Exchange's current practice of allowing members to 
contact Phlx Market Operations and request the Exchange to cancel any 
bid, offer or order in any series of options. The Exchange would cancel 
such bid, offer or order pursuant to the member's instruction. The 
Exchange desires to memorialize the availability of this service.
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    \6\ The request to Market Operations is a manual request which 
is made telephonically.
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Routing
    The Exchange filed a proposal to amend Rule 1093 \7\ as ``Away 
Markets and Order Routing'' in April 2019.\8\ At this time the Exchange 
proposes further amendment to this rule to mirror changes that were 
proposed to NOM's Rule at Chapter VI, Section 11.\9\ The changes 
proposed herein are not changes to the System, rather the Exchange 
proposes to add other scenarios that may be possible during Routing and 
make the current rule text more clear to provide market participants 
with clear expectations regarding orders that are marked ``DNR'' and 
orders that route.
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    \7\ The Exchange notes that the amendments to Rule 1093 reflect 
the current operation of the System. The purpose of the amendment is 
to align the rule to the specific operation of the routing 
functionality on Phlx.
    \8\ See Securities Exchange Act Release No. 85655 (April 16, 
2019), 77 FR 16709 (April 22, 2019) (SR-Phlx-2019-06).
    \9\ See Securities Exchange Act Release No. 87030 (September 19, 
2019), 84 FR 50495 (September 25, 2019) (SR-NASDAQ-2019-077).
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    Currently, Rule 1093(a) states, ``When checking the Order Book, the 
System will seek to execute at the price at which it would send the 
order to an away market.'' The Exchange proposes to remove this 
sentence because the price at which the order would route in explained 
in greater detail within Rule 1093(a)(iii). Also, this sentence is 
confusing because the price at which an order would execute is 
dependent on the scenario within which an order would route. Removing 
this sentence will remove any confusion related to the price at which 
the order would route.
    The Exchange proposes to amend rule text within Rule 
1093(a)(iii)(A) related to DNR Orders. Today, current rule text 
provides, ``Any incoming order interacting with such a resting DNR 
order will execute at the ABBO price, unless the ABBO is improved to a 
price which crosses the DNR's displayed price, in which case the 
incoming order will execute at the previous ABBO price.'' The Exchange 
proposes to amend this language to: (1) Clarify the current scenario to 
more accurately capture the order of events; and (2) add another 
scenario that is not contemplated by the current rule text.
    The Exchange proposes to clarify the current rule text to provide, 
``Any incoming order interacting with such a resting DNR Order will 
execute at the ABBO price, unless (1) the ABBO is improved to a price 
which crosses the DNR 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 . . .''. This proposed new text 
intends to make clear that if the Exchange's System is executing an 
incoming order against a resting DNR Order which is displayed, it would 
not consider an updated ABBO which crossed the displayed DNR Order. The 
System would not take into account the away market order or quote which 
crossed the DNR Order's displayed price. The Exchange is not trading-
through an away market in this scenario, rather an away market is 
crossing Phlx's displayed market and therefore that market has the 
obligation not to trade-through Phlx's displayed price. A similar 
change is being made to the last sentence of Rule 1093(a)(iii)(B)(5) 
for FIND Orders and the last sentence Rule 1093(a)(iii)(C)(6) for SRCH 
Orders. By way of example, consider the following sequence of events in 
the System:

9:45:00:00:00--MIAX Quote 0.95 x 1.20
9:45:00:00:10--OPRA updates MIAX BBO 0.95 x 1.20
9:45:00:00:20--Phlx Local BBO Quote 1.00 x 1.15
9:45:00:00:30--OPRA disseminates PHLX BBO updates: 1.10 x 1.15
9:45:00:00:35: CBOE Quote 1.00 x 1.12
9:45:00:00:45--OPRA disseminates CBOE BBO 1.00 x 1.12
9:45:00:00:50--DNR Order: Buy 5 @ 1.15 (exposes @ ABBO of 1.12, 
displays 1 MPV from ABBO @ 1.11)
9:45:00:00:51--OPRA disseminates PHLX BBO updates: 1.11 x 1.15 (1.11 
being the DNR Order displaying 1 MPV from ABBO)
9:45:00:00:60--MIAX Quote updates to 1.00 x 1.10 (1.10 crosses the 
displayed DNR Order price, violating locked/crossed market rules; 
henceforth, we need not protect this price)
9:45:00:00:65--OPRA disseminates MIAX BBO 1.00 x 1.10
9:45:00:00:75--Phlx Market Maker Order to Sell 5 @ 1.09
9:45:00:00:76--Market Maker Order immediately executes against DNR 
Order 5 contracts @ 1.12 (1.12 being the `previous' ABBO price 
disseminated by CBOE before the receipt of the DNR Order that was 
subsequently and illegally crossed by MIAX's 2nd quote)
9:45:00:00:77--OPRA disseminates PHLX BBO updates: 1.10 x 1.15 (reverts 
back to BBO set by Phlx Local Quote since the DNR Order has executed)

    The Exchange also proposes to add a new scenario to the above-
referenced sentence to state, ``or (2) the ABBO is improved to a price 
which locks the DNR Order's displayed price, in which case the incoming 
order will execute at the DNR Order's displayed price.'' The Exchange 
is adding the scenario where the ABBO is improved to a price which 
locks the DNR Order's displayed price. In this added scenario, the 
incoming order will execute at the DNR Order's displayed price. The 
Exchange notes that this scenario is not contained in the current rule 
text. Adding this scenario is consistent with the Act because it will 
bring greater transparency to the routing rule and inform members about 
this potential outcome if a member elects to mark their order as 
``DNR.''
    The Exchange also proposes to amend the next sentence within Rule 
1093(a)(iii)(A) which currently provides, ``Should the best away market 
change its price to an inferior price level, the DNR Order will 
automatically re-price from its one minimum price variation inferior to 
the original away best bid/offer price to one minimum trading increment 
away from the new away best bid/offer price or its original limit 
price, and expose such orders at the ABBO to participants only if the 
re-priced order locks or crosses the ABBO. Once priced at its original 
limit price, it will remain at that price until executed or 
cancelled.'' The Exchange proposes to amend this rule text to provide, 
``Should the best away market move to an inferior price level, the DNR 
Order will automatically re-price from its one MPV inferior to the 
original ABBO and display one MPV away from the new ABBO or its 
original limit price, and expose such orders at the new ABBO only if 
the re-priced order locks or crosses the new ABBO.'' The Exchange is 
amending the current rule text to replace the phrase ``change its 
price'' with ``move'' and use the defined term ``MPV.'' The Exchange is 
further amending this sentence to expand on the re-pricing. In this 
scenario, the

[[Page 72020]]

Exchange has already re-priced the DNR Order and is re-pricing the DNR 
Order again because the best away market moved to an inferior price 
level. In this situation, the DNR Order will automatically re-price 
from its one MPV inferior to the original ABBO and display one MPV away 
from the new ABBO price or its original limit price. The DNR Order will 
also expose such orders at the new ABBO, only if the re-priced order 
locks or crosses the new ABBO. Once booked at its original limit price, 
it will remain at that price until executed or cancelled. The Exchange 
believes that this language provides more context to the manner in 
which a DNR Order will be handled by the Exchange's System. The 
Exchange believes that this additional rule text is consistent with the 
Act as the DNR Order is exposed at the re-priced price if the Order 
locked or crossed the ABBO. Additionally, orders marked ``DNR'' would 
book at their original limit price and remain on the Order Book. 
Providing this additional transparency will assist members in 
determining if they want their orders routed.
    As noted above, these changes to the DNR Orders represent current 
System functionality. The Exchange also proposes to capitalize the term 
``Order'' within Rule 1093(a)(iii)(A).
    With respect to FIND Orders within Rule 1093(a)(iii)(B) as well as 
SRCH Orders within Rule 1093(a)(iii)(C) the Exchange proposes to add a 
scenario that is not currently contemplated within the Rule. 
Specifically, the Exchange proposes to add a scenario that provides, if 
during the Route Timer, the ABBO markets move such that the FIND Order 
or SRCH Order is no longer marketable against the ABBO it provides the 
various scenarios that may occur. The FIND Order or SRCH Order may: (i) 
Trade at the next PBBO price (or prices) if the FIND Order SRCH Order 
price is locking or crossing that price (or prices), and/or (ii) be 
entered into the Order Book at its limit price if not locking or 
crossing the PBBO. A FIND Order or SRCH Order will be included in the 
displayed PBBO at its limit price, unless the FIND Order or SRCH Order 
locks or crosses the ABBO, in which case it will be entered into the 
Order Book at the ABBO price and displayed one MPV inferior to the 
ABBO. Further, the Exchange proposes a scenario where there exists a 
locked ABBO when the FIND Order or SRCH Order is entered onto the Order 
Book, the FIND Order or SRCH Order will be entered into the Order Book 
at the ABBO price and displayed one MPV inferior to the ABBO. If during 
the Route Timer any new interest arrives opposite the FIND Order or 
SRCH Order that is marketable against the FIND Order or SRCH Order such 
interest will trade against the FIND Order or SRCH Order at the ABBO 
price unless the ABBO is improved to a price which crosses the FIND 
Order's or SRCH Order's displayed price, in which case the incoming 
order will execute at the previous ABBO price as the away market 
crossed a displayed price. The above example for a DNR Order is 
applicable to the FIND Order and SRCH Order as well.
    The Exchange offers the following example when there exists a 
locked ABBO at the time the FIND Order or SRCH Order is entered into 
the Order Book to demonstrate the manner in which Phlx posts and 
displays a FIND Order or SRCH Order. In this example, assume Away 
Market A has displayed its market at 1.00 x 1.20. Subsequent to Away 
Market A displaying it market, Away Market B displays its market at .80 
x 1.00. The option series is now locked at 1.00. Next, assume Phlx 
receives a FIND Order or SRCH Order at $2.00 to buy. In this example, 
Phlx would post the FIND Order or SRCH Order into the Phlx Order Book 
at $1.00 to buy and display the FIND Order at $0.95 to avoid locking 
the market in this option series.
    The addition of this language to the FIND Order and SRCH Order rule 
text represents current System functionality. This scenario is not 
currently described within the current routing rule with respect to 
either a FIND Order or a SRCH Order that is not marketable after a 
Route Timer has commenced. The Exchange's rule seeks to provide members 
with the specific handling of a routable order in various scenarios 
during intra-day trading. The Exchange believes that the addition of 
this scenario is consistent with the Act. The FIND Order or SRCH Order, 
once it is not marketable against the ABBO, will trade at the next PBBO 
if the order is locked or crossed. The FIND Order or SRCH Order would 
book at its limit price, provided it is not locking or crossing the 
PBBO. The Exchange's rule must account for trade-through and will 
consider potential executions for the order consistent with routing 
instructions. The proposed rule text describes scenarios where it will 
be displayed at one MPV inferior to the ABBO or display at the locked 
ABBO price, as described in the above example. This rule text also is 
intended to demonstrate that if the ABBO is improved to a price which 
crosses the FIND Order's displayed price, the incoming order will 
execute at the previous ABBO price. The Exchange believes that this 
rule text will bring greater clarity to the Exchange's Rules.
Other Amendment
    The Exchange also proposes to amend Rule 1096, Entry and Display of 
Orders, to correct the citation of Rule 1099 to Rule 1070.
2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act,\10\ in general, and furthers the objectives of Section 
6(b)(5) of the Act,\11\ in particular, in that it is designed to 
promote just and equitable principles of trade and to protect investors 
and the public interest because the Exchange is adding more detail to 
its routing rule to provide market participants with greater 
transparency. The Exchange believes the added scenarios will provide 
more context to routing in general and for the specific routing 
strategies for the benefit of investors and the public interest. The 
Exchange continues to offer various choices to its market participants 
with respect to routing.
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    \10\ 15 U.S.C. 78f(b).
    \11\ 15 U.S.C. 78f(b)(5).
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Applicability, Definitions and References
    The Exchange's proposal to define a ``bid'' and an ``offer'' within 
Phlx Rule 1000(b) is consistent with the Act as these terms will bring 
greater transparency to the Exchange's Rules.
Minimum Increments
    The Exchange's proposal to amend Rule 1034 to reorganize and update 
the rule is consistent with the Act because the change to the rule text 
as well as reorganized format should make clear the standards for 
minimum increments. The amendment to Rule 1034(a) to replace the word 
``quoting'' to ``trading'' will make the rule text more precise as 
executions are considered for enforcement of minimum increments. 
Removing the word ``decimals'' and discussing price is also more 
precise rule text. The Exchange also notes that the proposed rule text 
conforms the wording to similar wording within Nasdaq ISE, LLC, Nasdaq 
GEMX, LLC and Nasdaq MRX, LLC Options 3, Section 3. These changes do 
not result in a System change, rather they represent the Exchange's 
current System operation. The remainder of the amendments to reorganize 
and renumber the Rule are non-substantive. The Exchange believes that 
these amendments will bring greater clarity to the Rule.

[[Page 72021]]

Directed Orders
    The Exchange's proposal to remove rule text within Rule 
1068(a)(i)(A) will make clear that, today, both stop and stop-limit 
orders can be directed to a particular Specialist, RSQT, or SQT by an 
Order Flow Provider. The rule text limitation is not accurate because 
the System permits a stop and stop-limit order to be directed. Removing 
the limitation and allowing all order types to be directed allows 
members greater flexibility in choosing how to submit their orders. The 
Exchange notes that this amendment is consistent with the Act because 
the Exchange is not limiting the use of the stop order as a Directed 
Order. Today, Nasdaq ISE, LLC permits all order types to be 
Preferenced.\12\
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    \12\ See Nasdaq ISE, LLC Options 2, Section 10.
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Price Improvement XL (``PIXL'')
    The Exchange's proposal to amend Rule 1087 to point out at the top 
of the Rule which provisions apply to Public Customer-to-Public 
Customer Cross Orders will make the Rule clear. Today, Phlx Rule 
1087(a) \13\ and (f) \14\ permit Public Customer-to-Public Customer 
Cross Orders to be entered into PIXL. This amendment is consistent with 
the Act because market participants will be more aware of which 
provisions govern Public Customer-to-Public Customer Cross Orders.
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    \13\ Phlx Rule 1087(a) provides, ``Auction Eligibility 
Requirements. All options traded on the Exchange are eligible for 
PIXL. A member (the ``Initiating Member'') may initiate an Auction 
provided all of the following are met:''. . . Pursuant to Rule 
1087(f), the Exchange will allow a Public Customer-to-Public 
Customer PIXL Order to trade on either the bid or offer, if the NBBO 
is $0.01 wide, provided (1) the execution price is equal to or 
within the NBBO, (2) there is no resting Public Customer at the 
execution price, and (3) $0.01 is the Minimum Price Variation (MPV) 
of the option. The Exchange will continue to reject a PIXL Order to 
buy (sell) if the NBBO is only $0.01 wide and the Agency order is 
stopped on the bid (offer) if there is a resting order on the bid 
(offer).''
    \14\ Phlx Rule 1087(f) provides, ``In lieu of the procedures in 
paragraphs (a)-(b) above, an Initiating Member may enter a PIXL 
Order for the account of a Public Customer paired with an order for 
the account of a Public Customer and such paired orders will be 
automatically executed without a PIXL Auction, provided there is not 
currently an Auction in progress in the same series or same 
strategy, in which case the orders will be rejected. The execution 
price for such a PIXL Order (except if it is a Complex Order) must 
be expressed in the quoting increment applicable to the affected 
series. Such an execution may not trade through the better of the 
NBBO or Reference BBO or at the same price as any resting Public 
Customer order. The execution price for such a Complex Order PIXL 
may be in .01 increments and may not trade at a price equal to or 
through the cPBBO or at the same price as a resting Public Customer 
Complex Order.''
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Mass Cancellation of Trading Interest
    The Exchange's proposal to memorialize the Mass Cancellation of 
Trading Interest rule within Options 3, Section 19 is consistent with 
the Act because permitting Members to contact Market Operations as a 
manual alternative to automated functionality which similarly allows 
Members to cancel interest provides Members experiencing their own 
system issues with a means to manage risk. Today, Members are able to 
cancel interest, in an automated fashion through protocols \15\ and the 
Kill Switch.\16\ This is a voluntary services offered to all members.
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    \15\ See Options 3 at Supplementary Material .03 to Section 7.
    \16\ See Rule 1073.
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    The Exchange notes that offering this service, which permits 
members to cancel interest, will not diminish a Registered Options 
Trader's obligation with respect to providing two-sided quotations and 
this rule is not inconsistent with other firm quote obligations of the 
Registered Options Trader. Upon the request of a member, Phlx Market 
Operations will manually input a mass cancellation message into the 
System consistent with the member's instruction to cancel trading 
interest. Once the mass cancellation message is entered into the System 
by Phlx Market Operations, the message will be accepted by the System 
in the order of receipt in the queue such that the interest that was 
already accepted into the System will be processed prior to the mass 
cancellation message. In addition, mass cancellation messages entered 
into the System by Phlx Market Operations are handled by the System 
through the same queuing mechanism that a quote or order message is 
handled by the System. The Exchange notes its processing of a mass 
cancellation message inputted by Phlx Market Operations and handled by 
the System is consistent with firm quote and order handling rules.
    As noted above, NOM and BX Rules at Chapter VII, Section 11 allow 
NOM and BX Participants to also contact market operations and request 
cancellations of interest. This new rule reflects the Exchange's 
current practice.
Routing
    The Exchange's proposal to remove the following sentence from Rule 
1093(a), ``When checking the Order Book, the System will seek to 
execute at the price at which it would send the order to an away 
market,'' is consistent with the Act because this sentence is vague. 
The price at which an order would execute is dependent on the scenario 
within which an order would route. Removing this sentence will remove 
any confusion related to the price at which the order would route. The 
proposed rule would also add additional detail about the scenarios 
under which an order would route away.
    The Exchange's proposal to amend the sentence within Rule 
1093(a)(iii)(A) related to DNR Orders which provides, ``Any incoming 
order interacting with such a resting DNR order will execute at the 
ABBO price, unless the ABBO is improved to a price which crosses the 
DNR's displayed price, in which case the incoming order will execute at 
the previous ABBO price,'' is consistent with the Act. The Exchange 
proposes to amend this rule text to clarify the current rule text and 
add another scenario that is not currently within the rule text. The 
Exchange proposes to state, ``Any incoming order interacting with such 
a resting DNR order will execute at the ABBO price, unless (1) prior to 
execution, while the incoming order is matched with the resting DNR 
Order, the ABBO is improved to a price which crosses the DNR's 
displayed price, in which case the incoming order will execute at the 
ABBO price which was available upon arrival of the incoming order which 
matched with the DNR Order; or (2) the ABBO is improved to a price 
which locks the DNR's displayed price, in which case the incoming order 
will execute at the DNR's displayed price.'' The System would not take 
into account the away market order or quote which crossed the DNR's 
displayed price. The Exchange is not trading-through an away market in 
this scenario, rather an away market is crossing Phlx's displayed 
market and therefore that market has the obligation not to trade-
through Phlx's displayed price.
    The Exchange is also adding a scenario where the ABBO is improved 
to a price which locks the DNR's displayed price. In this added 
scenario, the incoming order will execute at the DNR's displayed price. 
The Exchange notes that this scenario is not contained in the current 
rule text. Adding this scenario is consistent with the Act because it 
will bring greater transparency to the routing rule and inform members 
about this potential outcome if a member elects to mark their order as 
DNR. Additionally, amending a sentence \17\ within Rule

[[Page 72022]]

1093(a)(iii)(A) to provide, ``Should the best away market move to an 
inferior price level, the DNR Order will automatically re-price from 
its one MPV inferior to the original ABBO and display one MPV away from 
the new ABBO or its original limit price, and expose such orders at the 
new ABBO only if the re-priced order locks or crosses the new ABBO'' is 
consistent with the Act because the additional language expands on the 
current re-pricing that exists today. The Exchange believes that this 
language provides more context to the manner in which a DNR Order will 
be handled by the Exchange's System. The Exchange believes that this 
additional rule text is consistent with the Act as the DNR Order would 
re-price again from its one MPV inferior to the original ABBO because 
the best away market moved to an inferior price level. The DNR Order 
would display one MPV away from the new ABBO price or its original 
limit price. Also, the DNR Order would expose such orders at the new 
ABBO, only if the re-priced order locks or crosses the new ABBO. Once 
booked at its original limit price, it will remain on the Order Book at 
that price until executed or cancelled. Providing this additional 
transparency will assist members in determining if they want their 
orders routed.
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    \17\ The current sentence within Rule 1093(a)(iii)(A) states, 
``Should the best away market change its price to an inferior price 
level, the DNR Order will automatically re-price from its one 
minimum price variation inferior to the original away best bid/offer 
price to one minimum trading increment away from the new away best 
bid/offer price or its original limit price, and expose such orders 
at the ABBO to participants only if the re-priced order locks or 
crosses the ABBO.''
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    With respect to FIND Orders within Rule 1093(a)(iii)(B) as well as 
SRCH Orders within Rule 1093(a)(iii)(C) the amendments are consistent 
with the Act as they propose a scenario that is not currently within 
the Rules. The Exchange proposes to add a scenario that provides, if 
during the Route Timer, the ABBO markets move such that the FIND Order 
or SRCH Order is no longer marketable against the ABBO it provides the 
various scenarios that may occur. Also, if there exists a locked ABBO 
when the FIND Order or SRCH Order is entered onto the Order Book and if 
during the Route Timer any new interest arrives opposite the FIND Order 
or SRCH Order that is marketable against the FIND Order or SRCH Order. 
Scenarios are provided for each of these situations within the new rule 
text. The new text seeks to clearly provide a member with the specific 
handling of a routable order for various scenarios during intra-day 
trading. The Exchange believes that the addition of these scenarios is 
consistent with the Act as the order, which was marked routable as 
either a FIND Order or SRCH Order, once it is not marketable against 
the ABBO, will either trade at the next PBBO, if the order locks or 
crosses the FIND Order or SRCH Order, or it would be booked at its 
limit price, providing it is not locking or crossing the PBBO. The 
Exchange's rule must account for trade-through and will consider 
potential executions for an order consistent with routing instructions. 
The Exchange believes that this rule text will bring greater clarity to 
the Exchange's Rules.
    The amendments to Phlx Rule 1093 represent current System 
functionality. These rules are similar to current rule text on NOM at 
Chapter VI, Section 11.\18\
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    \18\ See Securities Exchange Act Release No. 87030 (September 
19, 2019), 84 FR 50495 (September 25, 2019) (SR-NASDAQ-2019-077).
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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.
Applicability, Definitions and References
    The Exchange's proposal to define a ``bid'' and an ``offer'' within 
Phlx Rule 1000(b) does not impose an undue burden on competition, 
rather these terms will bring greater transparency to the Exchange's 
Rules.
Minimum Increments
    The Exchange's proposal to amend Rule 1034 to reorganize and update 
the rule does not impose an undue burden on competition because all 
market participants are subject to Rule 1034. The language will 
properly reflect that the standard for submitting orders with minimum 
increments into the System. The remainder of the amendments to 
reorganize and renumber the Rule are non-substantive.
Directed Orders
    The Exchange's proposal to remove rule text within Rule 
1068(a)(i)(A) does not impose an undue burden on competition as Stop 
Order and Stop-Limit Orders may be Directed Orders similar to all other 
order types. Removing the limitation and allowing all order types to be 
directed allows members greater flexibility in choosing how to submit 
their orders.
Price Improvement XL (``PIXL'')
    The Exchange's proposal to amend Rule 1087 to point out at the top 
of the Rule which provisions apply to Public Customer-to-Public 
Customer Cross Orders does not impose an undue burden on competition. 
This rule change will make market participants more aware of which 
provisions govern Public Customer-to-Public Customer Cross Orders.
Mass Cancellation of Trading Interest
    The Exchange's proposal to memorialize the Mass Cancellation of 
Trading Interest rule within Rule 1090 does not impose an undue burden 
on competition because all members may utilize this service. This new 
rule reflects the Exchange's current practice.
Routing
    The Exchange believes that adding greater detail to its rules 
concerning routing of orders does not impose an undue burden on 
competition, rather it provides greater transparency as to the 
potential outcomes when utilizing different routing strategies. 
Further, the Exchange notes that market participants may elect not to 
route their orders. The Exchange continues to offer various options to 
its market participants with respect to routing.

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 \19\ and Rule 19b-
4(f)(6) thereunder.\20\
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    \19\ 15 U.S.C. 78s(b)(3)(A).
    \20\ 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 under Rule 19b-4(f)(6) \21\ normally 
does not become operative prior to 30 days after the date of the 
filing. However, Rule 19b-4(f)(6)(iii) \22\ 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 asked 
the

[[Page 72023]]

Commission to waive the 30-day operative delay so that the proposed 
rule change may become effective and operative immediately upon filing. 
The Commission believes that waiving the 30-day operative delay is 
consistent with the protection of investors and the public interest, as 
it will allow the Exchange to immediately provide members with greater 
information and transparency on mass cancellation procedures and order 
routing strategies available on the Exchange. For this reason, the 
Commission hereby waives the 30-day operative delay and designates the 
proposed rule change as operative upon filing.\23\
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    \21\ 17 CFR 240.19b-4(f)(6).
    \22\ 17 CFR 240.19b-4(f)(6)(iii).
    \23\ For purposes only of waiving the 30-day operative delay, 
the Commission has also 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 rule-comments@sec.gov. Please include 
File Number SR-Phlx-2019-56 on the subject line.

Paper Comments

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

All submissions should refer to File Number SR-Phlx-2019-56. 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-2019-56 and should be submitted on 
or before January 21, 2020.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\24\
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    \24\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2019-28022 Filed 12-27-19; 8:45 am]
BILLING CODE 8011-01-P