Document ID: SEC-2020-0932-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Nasdaq PHLX, LLC
Posted Date: 2020-06-16T04:00Z

[Federal Register Volume 85, Number 116 (Tuesday, June 16, 2020)]
[Notices]
[Pages 36456-36458]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-12895]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-89040; File No. SR-Phlx-2020-27]

Self-Regulatory Organizations; Nasdaq PHLX LLC; Notice of Filing 
and Immediate Effectiveness of Proposed Rule Change To Amend Phlx 
Options 5, Section 4

June 10, 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 May 28, 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 Options 5, Section 4, 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.

[[Page 36457]]

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

1. Purpose
    In 2019, Phlx filed a rule proposal to define the term ``Public 
Customer'' within Rule 1000(b)(56) to provide, ``Public Customer shall 
mean a person or entity that is not a broker or dealer in securities 
and is not a professional as defined within Phlx Rule 1000(b)(14).'' 
\3\ This defined term was later relocated to Options 1, Section 
1(b)(46).\4\ Within the Defined Term Rule Change, the Exchange replaced 
the term ``customer'' in various rules to either the defined term 
``Public Customer'' or both the defined terms ``Public Customer'' and 
``Professional.'' \5\
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    \3\ See Securities Exchange Act Release No. 86959 (September 13, 
2019), 84 FR 49362 (September 19, 2019) (SR-Phlx-2019-33) (``Defined 
Term Rule Change'').
    \4\ See Securities Exchange Act Release No. 88213 (February 14, 
2020), 85 FR 9859 (February 20, 2020) (SR-Phlx-2020-03) (``Phlx 
Rulebook Relocation Rule Change'').
    \5\ The term ``Professional'' is defined within Options 1, 
Section 1(b)(45) as ``The term ``professional'' means any person or 
entity that (i) is not a broker or dealer in securities, and (ii) 
places more than 390 orders in listed options per day on average 
during a calendar month for its own beneficial account(s). Member 
organizations must indicate whether orders are for Professionals.''
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    While converting various terms within the Phlx Rules, the Exchange 
inadvertently failed to revise Phlx Options 5, Section 4(a)(iii)(C). 
This particular reference was not contained within the Defined Term 
Rule Change. The Exchange should have added ``and Professional'' to 
Options 5, Section 4(a)(iii)(C) within the Defined Term Rule Change. 
Both Public Customers and Professional SRCH Orders may route. The 
Exchange has permitted market participants to route both Public 
Customer and Professional SRCH Orders for some time. During the Opening 
Process, Phlx only permits Public Customer and Professional orders to 
route.\6\ The Exchange noted within the Defined Term Rule Change that, 
``the Exchange is not amending any provision of the rules, rather the 
Exchange is making clear where a Public Customer order is intended and 
where the term Professional is intended to avoid confusion.'' \7\
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    \6\ See Options 3, Section 8(k)(C)(6) and Options 5, Section 
4(a)(iii)(B)(1).
    \7\ See note 3 above.
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    The Exchange proposes to add the words ``and Professional'' within 
Phlx Options 5, Section 4(a)(iii)(C) to make clear that Professional 
SRCH Orders may route, in addition to Public Customer SRCH Orders to 
conform the rule text with the functionality of the System.
    Finally, the Exchange proposes to correct a typo within Options 5, 
Section 4(a)(iii)(B)(9) to change the word ``designed'' to 
``designated.''
2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act,\8\ in general, and furthers the objectives of Section 
6(b)(5) of the Act,\9\ 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. 
The Exchange's proposal to correct Options 5, Section 4(a)(iii)(C) to 
add the words ``and Professional'' to make clear that Public Customer 
and Professional SRCH Orders may route is consistent with the Act. 
Today, the System permits both Public Customer and Professional SRCH 
Orders to route. Also, the Exchange believes that it is not unfairly 
discriminatory to limit the routing of SRCH Orders to Public Customers 
and Professionals. The Exchange has traditionally routed non-broker-
dealer orders because the Exchange believes those market participants 
do not have the same capabilities as broker-dealers in terms of an 
ability to route to other options markets. Broker-dealers typically 
have memberships at other exchanges, unlike non-broker-dealers.
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    \8\ 15 U.S.C. 78f(b).
    \9\ 15 U.S.C. 78f(b)(5).
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    Previously, Phlx did not define the term ``public customer.'' The 
addition of the term ``Public Customer'' in the Rulebook, excluded 
professionals, which are separately defined. The Exchange's proposal 
will correct its error and make clear that Professional SRCH Orders may 
route. For purposes of the Order Protection and Locked and Crossed 
Markets Plan, a ``customer'' is defined as an individual or 
organization that is not a Broker/Dealer.\10\ This would include a 
Professional. Phlx routes Public Customer and Professional SRCH Orders 
that are not automatically executed because there is a displayed bid or 
offer on another exchange trading the same options contract that is 
better than the best bid or offer on the Exchange. The Exchange 
believes that ensuring that ``customer'' orders, as that term is 
defined within Options 5, Section 1(f), are routed subject to the 
customer's routing instructions, is consistent with the Exchange Act 
and provides for the protection of these market participants to ensure 
that they are executed at the best bid or offer.
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    \10\ See Phlx Options 5, Section 1(f). The term ``customer'' as 
utilized within Options 5, Section 1(f) is equivalent to the 
combination of Phlx's defined terms Public Customer and 
Professional.
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    The Exchange noted in the Defined Term Rule Change that, ``The 
Exchange desires to make clear where a customer order means a Public 
Customer order or both a Public Customer and a Professional order. By 
distinguishing the use of these terms, market participants will better 
understand Exchange Rules.'' \11\ The Exchange has permitted market 
participants to route both Public Customer and Professional SRCH Orders 
for some time. During the Opening Process, Phlx only permits Public 
Customer and Professional orders to route.\12\ The Exchange noted 
within the Defined Term Rule Change that, ``the Exchange is not 
amending any provision of the rules, rather the Exchange is making 
clear where a Public Customer order is intended and where the term 
Professional is intended to avoid confusion.'' \13\
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    \11\ See note 3 above.
    \12\ See note 5 above.
    \13\ See note 3 above.
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    Finally, the Exchange's proposal to correct a typo within Options 
5, Section 4(a)(iii)(B)(9) to change the word ``designed'' to 
``designated'' is non-substantive and will clarify the Rule.

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's proposal to 
correct Options 5, Section 4(a)(iii)(C) to add the words ``and 
Professional'' to make clear that Public Customer and Professional SRCH 
Orders may route does not impose an undue burden on competition. Today, 
the System permits Public Customer and Professional SRCH Orders to 
route. During the Opening Process, Phlx only permits Public Customer 
and Professional orders to route.\14\ The Exchange does not believe 
that limiting the routing of SRCH Orders to Public Customers and 
Professionals imposes an undue burden on competition. The Exchange has 
traditionally routed non-broker-dealer orders because the Exchange 
believes those market participants do not have the same capabilities as 
broker-dealers in terms of an ability to route to other options 
markets. Broker-dealers typically have memberships at other exchanges, 
unlike non-broker-dealers.
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    \14\ Id.

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[[Page 36458]]

    The addition of the words ``and Professional'' will bring greater 
transparency to the Rulebook.
    The Exchange's proposal to correct a typo within Options 5, Section 
4(a)(iii)(B)(9) to change the word ``designed'' to ``designated'' 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)(iii) of the Act \15\ and 
subparagraph (f)(6) of Rule 19b-4 thereunder.\16\
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    \15\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \16\ 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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    A proposed rule change filed under Rule 19b-4(f)(6) \17\ normally 
does not become operative prior to 30 days after the date of the 
filing. However, pursuant to Rule 19b-4(f)(6)(iii),\18\ 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 correct an omission in its rules and specify that both 
Public Customer and Professional SRCH Orders may route. The Exchange 
believes that the proposed amendment will bring greater clarity to its 
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.\19\
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    \17\ 17 CFR 240.19b-4(f)(6).
    \18\ 17 CFR 240.19b-4(f)(6)(iii).
    \19\ 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-2020-27 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-2020-27. 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 (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-2020-27 and should be submitted on 
or before July 7, 2020.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\20\
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    \20\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-12895 Filed 6-15-20; 8:45 am]
BILLING CODE 8011-01-P