Document ID: SEC-2016-2295-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: NASDAQ PHLX LLC
Posted Date: 2016-12-27T05:00Z

[Federal Register Volume 81, Number 248 (Tuesday, December 27, 2016)]
[Notices]
[Pages 95206-95210]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-31106]

-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-79614; File No. SR-Phlx-2016-121]

Self-Regulatory Organizations; NASDAQ PHLX LLC; Notice of Filing 
and Immediate Effectiveness of Proposed Rule Change To Amend Rule 3317 
(Compliance With Regulation NMS Plan To Implement a Tick Size Pilot)

December 20, 2016.
    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 13, 2016, 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.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------

I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to amend Rule 3317 (Compliance with 
Regulation NMS Plan to Implement a Tick Size Pilot) relating to the 
handling to certain Order Types in Test Group Three Pilot Securities in 
connection with the Regulation NMS Plan to Implement a Tick Size Pilot 
Program (``Plan'' or ``Pilot'').\3\ Relatedly, the Exchange also 
proposes to delete Commentary .14, which addresses the current handling 
of those Order Types. Finally, Phlx proposes to add language to Rule 
3317(d)(1) to clarify the treatment of orders in a Test Group Three 
Security entered through the RASH or FIX protocols.
---------------------------------------------------------------------------

    \3\ See Securities Exchange Act Release No. 74892 (May 6, 2015), 
80 FR 27513 (May 13, 2015) (``Approval Order'').
---------------------------------------------------------------------------

    The text of the proposed rule change is available on the Exchange's 
Web site 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
    On September 7, 2016, the Exchange filed with the Securities and 
Exchange Commission (``SEC'' or ``Commission'') a proposed rule change 
(``Proposal'') to adopt paragraph (d) and Commentary .12 to Exchange 
Rule 3317 to describe changes to system functionality necessary to 
implement the Plan. The Exchange also proposed amendments to Rule 
3317(a) and (c) to clarify how the Trade-at exception may be satisfied. 
The SEC published the Proposal in the Federal Register for notice and

[[Page 95207]]

comment on September 20, 2016.\4\ Phlx subsequently filed three Partial 
Amendments to clarify aspects of the Proposal. The Commission approved 
the Proposal, as amended, on October 7, 2016.\5\
---------------------------------------------------------------------------

    \4\ See Securities Exchange Act Release No. 78835 (September 14, 
2016), 81 FR 64552 (September 20, 2016) (SR-Phlx-2016-92).
    \5\ See Securities Exchange Act Release No. 79074 (October 7, 
2016) (SR-Phlx-2016-92).
---------------------------------------------------------------------------

    In SR-Phlx-2016-92, Phlx had initially proposed a re-pricing 
functionality for Price to Comply Orders, Non-Displayed Orders, and 
Post-Only Orders entered through the OUCH and FLITE protocols in Test 
Group Three Pilot Securities.\6\ Phlx subsequently determined that it 
would not offer this re-pricing functionality for Price to Comply 
Orders, Non-Displayed Orders, and Post-Only Orders entered through the 
OUCH and FLITE protocols in Group Three Pilot Securities. As part of 
Partial Amendment No. 2 to SR-Phlx-2016-92, Phlx proposed to delete the 
relevant language from Rule 3317 related to this re-pricing 
functionality.
---------------------------------------------------------------------------

    \6\ As originally proposed, Rule 3317(d)(2) stated that Price to 
Comply Orders in a Test Group Three Pilot Security will be adjusted 
repeatedly in accordance with changes to the NBBO until such time as 
the Price to Comply Order is able to be ranked and displayed at its 
original entered limit price. Rule 3317(d)(3) stated that, if market 
conditions allow, a Non-Displayed Order in a Test Group Three Pilot 
Security will be adjusted repeatedly in accordance with changes to 
the NBBO up (down) to the Order's limit price. Rule 3317(d)(4) 
stated that, if market conditions allow, the Post-Only Order in a 
Test Group Three Pilot Security will be adjusted repeatedly in 
accordance with changes to the NBBO or the best price on the Phlx 
Book, as applicable until such time as the Post-Only Order is able 
to be ranked and displayed at its original entered limit price.
---------------------------------------------------------------------------

    In that amendment, Phlx noted that this change would only impact 
the treatment of Price to Comply Orders, Non-Displayed Orders, and 
Post-Only orders that are submitted through the OUCH and FLITE 
protocols in Test Group Three Pilot Securities, as these types of 
Orders that are currently submitted to Phlx through the RASH or FIX 
protocols are already subject to this re-pricing functionality and will 
remain subject to this functionality under the Pilot.
    In the Amendment, Phlx further noted that its systems are currently 
programmed so that Price to Comply Orders, Non-Displayed Orders and 
Post-Only Orders entered through the OUCH and FLITE protocols in Test 
Group Three Pilot Securities may be adjusted repeatedly to reflect 
changes to the NBBO and/or the best price on the Phlx book. Phlx stated 
that it was re-programming its systems to remove this functionality for 
Price to Comply Orders, Non-Displayed Orders and Post-Only Orders 
entered through the OUCH and FLITE protocols in Test Group Three Pilot 
Securities. In the Amendment, Phlx stated that it anticipated that this 
re-programming shall be completed no later than November 30, 2016. If 
it appeared that this functionality would remain operational by October 
17, 2016, Phlx indicated that it would file a proposed rule change with 
the SEC and will provide notice to market participants sufficiently in 
advance of that date to provide effective notice. The rule change and 
the notice to market participants would describe the current operation 
of the Phlx systems in this regard, and the timing related to the re-
programming.
    On October 17, 2016, Phlx filed a proposal to extend the date by 
which it would complete the re-programing of its systems to eliminate 
the re-pricing functionality in Test Group Three Pilot Securities for 
Price to Comply Orders, Price to Display Orders, Non-Displayed Orders, 
and Post-Only Orders that are entered through the OUCH or FLITE 
protocols.\7\ In that proposal, Phlx stated that it anticipated that 
this re-programming shall be complete on or before October 31, 2016.\8\ 
As Phlx continued to re-program its systems to eliminate the re-pricing 
functionality in Test Group Three Pilot Securities for Price to Comply 
Orders, Price to Display Orders, Non-Displayed Orders, and Post-Only 
Orders that are entered through the OUCH or FLITE protocols, it 
extended the date by which the re-programming shall be complete to the 
current date of December 12, 2016.\9\
---------------------------------------------------------------------------

    \7\ See Securities Exchange Act Release No. 79156 (October 25, 
2016) (SR-Phlx-2016-106).
     Subsequent to the approval of SR-Phlx-2016-92, Phlx become 
aware that this re-pricing functionality also applies to Price to 
Display Orders that are entered through the OUCH and FLITE protocols 
in Test Group Three Securities, and amended Commentary .14 to 
indicate that Price to Display Orders will be treated in the same 
manner as Price to Comply Orders under the re-pricing functionality. 
Id.
    \8\ Id.
    \9\ See Securities Exchange Release Nos. 79261 (November 8, 
2016), 81 FR 80134 (November 15, 2016) (SR-Phlx-2016-110) (extending 
current re-pricing functionality to November 14, 2016); 79407 
(November 28, 2016), 81 FR 87089 (December 2, 2016) (SR-Phlx-2016-
114) (extending current re-pricing functionality to December 12, 
2016).
---------------------------------------------------------------------------

    Phlx has now completed re-programming its systems to eliminate the 
re-pricing functionality in Test Group Three Pilot Securities for Price 
to Comply Orders, Price to Display Orders, Non-Displayed Orders, and 
Post-Only Orders that are entered through the OUCH or FLITE protocols. 
However, as a result of removing the re-pricing functionality, there 
are instances, due to the different functionality of the OUCH and FLITE 
protocols in comparison to the other applicable Phlx protocols, where 
the behavior of certain Order Types entered through the OUCH and FLITE 
protocols in Test Group Three Pilot Securities will differ from the 
behavior of those Order Types as set forth in Rule 3317; specifically, 
the behavior of Price to Comply Orders, Non-Displayed Orders, and Post-
Only Orders entered through the OUCH and FLITE protocols when the Order 
locks or crosses a Protected Quotation. Phlx is therefore amending Rule 
3317 to clarify these differences. Although the changes made to Price 
to Comply Orders, Non-Displayed Orders, and Post-Only Orders entered 
through OUCH and FLITE reflect the different functionality of the OUCH 
and FLITE protocols in comparison with the other Phlx protocols, the 
proposed changes treat Price to Comply Orders, Non-Displayed Orders and 
Post-Only Orders entered through OUCH and FLITE protocols in Test Group 
Three Securities as consistently as possible with such orders entered 
through OUCH and FLITE in Control Group Securities, and Test Group One 
and Test Group Two Securities. These changes will adjust Price to 
Comply Orders, Non-Displayed Orders, and Post-Only Orders entered 
through OUCH and FLITE when the Order has been ranked at a midpoint of 
the NBBO that then becomes impermissible due to changes in the NBBO.
Price To Comply Orders
    Currently, Rule 3317(d)(2) states that a Price to Comply Order in a 
Test Group Pilot Security will operate as described in Rule 3301A(b)(1) 
except as provided under this paragraph. If a Price to Comply Order for 
a Test Group Three Pilot Security is partially executed upon entry and 
the remainder would lock a Protected Quotation of another market 
center, the unexecuted portion of the Order will be cancelled. If the 
Order is not executable against any previously posted orders on the 
Exchange Book, and the limit price of a buy (sell) Price to Comply 
Order in a Test Group Three Pilot Security would lock or cross a 
Protected Quotation of another market center, the Order will display at 
one minimum price increment below (above) the Protected Quotation, and 
the Order will be ranked on the Exchange Book at the current midpoint 
of NBBO.
    Phlx proposes to augment this provision to clarify the behavior of 
Price to Comply Orders entered through the OUCH or FLITE protocols in 
Test Group Three Pilot Securities that lock or cross a Protected 
Quotation. Specifically, a

[[Page 95208]]

Price to Comply Order in a Test Group Three Pilot Security entered 
through OUCH or FLITE may be adjusted in the following manner after 
initial entry and posting to the Phlx Book.
    If entered at a price that locked a Protected Quotation, and if the 
NBBO changes such that its price will no longer lock a Protected 
Quotation, the Price to Comply Order will be adjusted to rank and 
display at its original entered limit price.\10\
---------------------------------------------------------------------------

    \10\ Phlx notes that a Price to Comply Order will always be 
adjusted in this scenario, regardless of its port setting.
---------------------------------------------------------------------------

    If entered at a price that crossed a Protected Quotation, and if 
the NBBO changes such that it can be ranked at the price of the 
Protected Quotation it crossed, the Price to Comply Order, based on the 
participant's choice, may either be (i) cancelled or (ii) adjusted to 
rank at the price of the Protected Quotation it crossed upon entry with 
its displayed price remaining unchanged.
    If, after being posted on the Phlx Book, the non-displayed price of 
a Price to Comply Order becomes locked or crossed by a Protected 
Quotation due to a change in the NBBO, or if the Price to Comply Order 
is at an impermissible price under Regulation NMS or the Plan and it 
cannot otherwise be adjusted as above, the Price to Comply Order will 
be cancelled.\11\
---------------------------------------------------------------------------

    \11\ For example, if the National Best Bid is $10.00 and the 
National Best Offer is $10.10, and a Price to Comply Order to buy at 
$10.15 is entered, the Price to Comply Order will be displayed at 
$10.05 and ranked at $10.075. If the National Best Offer then 
changes to $10.15, the Price to Comply Order will be adjusted to 
rank at $10.10, and will remain displayed at $10.05. If the National 
Best Offer subsequently changes to $10.10, the Price to Comply Order 
will be cancelled.
    Phlx notes that a Price to Comply Order, Non-Displayed Order, or 
Post-Only Order entered through OUCH or FLITE in either a Control 
Group Security, a Test Group One Pilot Security or a Test Group Two 
Pilot Security would only cancel if the resting order is crossed 
(not locked) by a Protected Quotation due to a change in the NBBO.
---------------------------------------------------------------------------

Non-Displayed Orders
    Currently, Rule 3317(d)(3) states that a Non-Displayed Order in a 
Test Group Pilot Security will operate as described in Rule 3301A(b)(3) 
except as provided under this paragraph. A resting Non-Displayed Order 
in a Test Group Three Pilot security cannot execute at the price of a 
Protected Quotation of another market center unless the incoming Order 
otherwise qualifies for an exception to the Trade-at prohibition 
provided under Rule 3317(c)(3)(D). If the limit price of a buy (sell) 
Non-Displayed Order in a Test Group Three Pilot Security would lock or 
cross a Protected Quotation of another market center, the Order will be 
ranked on the Exchange Book at either one minimum price increment below 
(above) the National Best Offer (National Best Bid) or at the midpoint 
of the NBBO, whichever is higher (lower). For a Non-Displayed Order in 
a Test Group Three Pilot Security entered through RASH or FIX, if after 
being posted to the Exchange Book, the NBBO changes so that the Non-
Displayed Order would no longer be executable at its posted price due 
to the requirements of Regulation NMS or the Plan, the Non-Displayed 
Order will be repriced to a price that is at either one minimum price 
increment below (above) the National Best Offer (National Best Bid) or 
at the midpoint of the NBBO, whichever is higher (lower) and will 
receive a new timestamp. For a Non-Displayed Order in a Test Group 
Three Pilot Security entered through OUCH or FLITE, if after such a 
Non-Displayed Order is posted to the Exchange Book, the NBBO changes so 
that the Non-Displayed Order would no longer be executable at its 
posted price due to the requirements of Regulation NMS or the Plan, the 
Non-Displayed Order will be cancelled back to the Participant.
    Phlx proposes to amend this provision to clarify the behavior of 
Non-Displayed Orders entered through the OUCH or FLITE protocols in 
Test Group Three Pilot Securities that lock or cross a Protected 
Quotation. Specifically, a Non-Displayed Order in a Test Group Three 
Pilot Security entered through OUCH or FLITE may be adjusted in the 
following manner after initial entry and posting to the Phlx Book.
    If entered at a price that locked a Protected Quotation, and if the 
NBBO changes such that its price would no longer lock a Protected 
Quotation, the Non-Displayed Order will be adjusted to rank at its 
original entered limit price.\12\
---------------------------------------------------------------------------

    \12\ Phlx notes that a Non-Displayed Order will always be 
adjusted in this scenario, regardless of its port setting.
---------------------------------------------------------------------------

    If entered at a price that crossed a Protected Quotation, and if 
the NBBO changes such that it can be ranked at the price of the 
Protected Quotation it crossed, the Order, based on the Participant's 
choice, may either be (i) cancelled or (ii) adjusted to rank at the 
price of the Protected Quotation it crossed.\13\
---------------------------------------------------------------------------

    \13\ For example, if the National Best Bid is $10.00 and the 
National Best Offer is $10.10, and a Non-Displayed Order to buy at 
$10.15 is entered, the Non-Displayed Order will be ranked at $10.05. 
If the National Best Offer then changes to $10.15, the Non-Displayed 
Order may either be adjusted to rank at $10.10, or may be cancelled 
back to the Participant.
---------------------------------------------------------------------------

    If entered at a price that locked or crossed a Protected Quotation, 
and if the NBBO changes such that it cannot be ranked at the price of 
the Protected Quotation it locked or crossed but can be ranked closer 
to its original limit price, the Non-Displayed Order will be adjusted 
to the new midpoint of the NBBO.\14\
---------------------------------------------------------------------------

    \14\ For example, if the National Best Bid is $10.00 and the 
National Best Offer is $10.10, and a Non-Displayed Order to buy at 
$10.10 is entered, the Non-Displayed Order will be ranked at $10.05. 
If the National Best Bid then changes to $10.05, the price of the 
Non-Displayed Order will be adjusted to $10.075.
    Phlx notes that a Non-Displayed Order entered through OUCH or 
FLITE in either a Control Group Security, a Test Group One Pilot 
Security or a Test Group Two Pilot Security would be ranked at the 
locking price upon entry.
---------------------------------------------------------------------------

    If, after being posted on the Phlx Book, the Non-Displayed Order 
becomes locked or crossed by a Protected Quotation due to a change in 
the NBBO, or if the Non-Displayed Order is at an impermissible price 
under Regulation NMS or the Plan and it cannot otherwise be adjusted as 
above, the Non-Displayed Order will be cancelled.\15\
---------------------------------------------------------------------------

    \15\ For example, if the National Best Bid is $10.00 and the 
National Best Offer is $10.10, and a Non-Displayed Order to buy at 
$10.10 is entered, the Non-Displayed Order will be ranked at $10.05. 
If the National Best Offer then changes to $10.05, the Non-Displayed 
Order will be cancelled back to the Participant.
---------------------------------------------------------------------------

Post-Only Orders
    Currently, Rule 3317(d)(4) states that a Post-Only Order in a Test 
Group Pilot Security will operate as described in Rule 3301A(b)(4) 
except as provided under this paragraph. For orders that are not 
attributable, if the limit price of a buy (sell) Post-Only Order in a 
Test Group Three Pilot Security would lock or cross a Protected 
Quotation of another market center, the Order will display at one 
minimum price increment below (above) the Protected Quotation, and the 
Order will be ranked on the Exchange Book at the current midpoint of 
the NBBO.
    Phlx proposes to augment this provision to clarify the behavior of 
Post-Only Orders entered through the OUCH or FLITE protocols in Test 
Group Three Pilot Securities that lock or cross a Protected Quotation. 
Specifically, a Non-Attributable Post-Only Order in a Test Group Three 
Pilot Security entered through OUCH or FLITE may be adjusted in the 
following manner after initial entry and posting to the Phlx Book.
    If entered at a price that locked a Protected Quotation, and if the 
NBBO changes such that its price will no longer lock a Protected 
Quotation, the Post-Only Order will be adjusted to rank

[[Page 95209]]

and display at its original entered limit price.\16\
---------------------------------------------------------------------------

    \16\ Phlx notes that a Post-Only Order will always be adjusted 
in this scenario, regardless of its port setting.
---------------------------------------------------------------------------

    If entered at a price that crossed a Protected Quotation, and if 
the NBBO changes such that it can be ranked at the price of the 
Protected Quotation it crossed, the Post-Only Order, based on the 
Participant's choice, may either be (i) cancelled or (ii) adjusted to 
rank at the price of the Protected Quotation it crossed upon entry with 
its displayed price remaining unchanged.
    If, after being posted on the Phlx Book, the non-displayed price of 
a resting Post-Only Order becomes locked or crossed by a Protected 
Quotation due to a change in the NBBO, or if the Post-Only Order is at 
an impermissible price under Regulation NMS or the Plan and it cannot 
otherwise be adjusted as above, the Post-Only Order will be cancelled.
Commentary .14
    In removing the current re-pricing functionality, Commentary .014 
[sic], which addresses the behavior of current treatment of Price to 
Comply Orders, Price to Display Orders, Non-Displayed Orders, and Post-
Only Orders that are entered through the OUCH or FLITE protocols in 
Test Group Three Pilot Securities, is no longer necessary.\17\ The 
Exchange therefore proposes to delete this Commentary from the Rule.
---------------------------------------------------------------------------

    \17\ Under Commentary .14, the current treatment of Price to 
Comply Orders, Price to Display Orders, Non-Displayed Orders, and 
Post-Only Orders that are entered through the OUCH or FLITE 
protocols in Test Group Three securities is as follows:
    Until December 12, 2016, the treatment of Price to Comply 
Orders, Price to Display Orders, Non-Displayed Orders, and Post-Only 
Orders that are entered through the OUCH or FLITE protocols in Test 
Group Three securities shall be as follows:
    Following entry, and if market conditions allow, a Price to 
Comply Order in a Test Group Three Pilot Security will be adjusted 
repeatedly in accordance with changes to the NBBO until such time as 
the Price to Comply Order is able to be ranked and displayed at its 
original entered limit price.
    Following entry, and if market conditions allow, a Price to 
Display Order in a Test Group Three Pilot Security will be adjusted 
repeatedly in accordance with changes to the NBBO until such time as 
the Price to Display Order is able to be ranked and displayed at its 
original entered limit price.
    Following entry, and if market conditions allow, a Non-Displayed 
Order in a Test Group Three Pilot Security will be adjusted 
repeatedly in accordance with changes to the NBBO up (down) to the 
Order's limit price.
    Following entry, and if market conditions allow, the Post-Only 
Order in a Test Group Three Pilot Security will be adjusted 
repeatedly in accordance with changes to the NBBO or the best price 
on the Exchange Book, as applicable until such time as the Post-Only 
Order is able to be ranked and displayed at its original entered 
limit price.
---------------------------------------------------------------------------

    Finally, Phlx proposes to add language to Rule 3317(d)(1) to 
clarify the treatment of orders in a Test Group Three Security entered 
through the RASH or FIX protocols. Specifically, subject to the 
provisions set forth in the remainder of Rule 3317(d), if the entered 
limit price of an Order in a Test Group Three Pilot Security, entered 
through RASH or FIX, locked or crossed a Protected Quotation and the 
NBBO changes so that the Order can be ranked closer to its original 
entered limit price, the price of the Order will be adjusted repeatedly 
in accordance with changes to the NBBO. Phlx is proposing to make this 
change to clarify the current treatment of orders in Test Group Three 
Pilot Securities entered through RASH or FIX.
2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act,\18\ in general, and furthers the objectives of Section 
6(b)(5) of the Act,\19\ 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.
---------------------------------------------------------------------------

    \18\ 15 U.S.C. 78f(b).
    \19\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

    The Exchange believes that the proposed rule change is consistent 
with the Act because it clarifies the changes the Exchange is making to 
the handling of certain Order Types necessary to implement the 
requirements of the Plan on its System and, in the case of the changes 
of Rule 3317(d)(1), to clarify the current treatment of orders in Test 
Group Three Pilot Securities entered through RASH or FIX.
    As a result of removing the current re-pricing functionality that 
applies to certain Order Types in Test Group Three Securities entered 
through the OUCH and FLITE protocols, and due to the different 
functionality of the OUCH and FLITE protocols in comparison to the 
other applicable Phlx protocols, these Order Types will behave 
differently than is currently set forth in Rule 3317 when entered 
through the OUCH or FLITE protocols in certain instances. As noted 
above, these changes will adjust Price to Comply Orders, Non-Displayed 
Orders, and Post-Only Orders entered through OUCH and FLITE when the 
Order has been ranked at a midpoint of the NBBO that then becomes 
impermissible due to changes in the NBBO. These changes also will 
adjust Price to Comply Orders, Non-Displayed Orders, and Post-Only 
Orders entered through OUCH and FLITE in scenarios where the subsequent 
movement of the NBBO implicates the Trade-at prohibition with respect 
to the resting order.
    By clarifying the behavior of certain Order Types in Test Group 
Three Pilot Securities entered through the OUCH or FLITE protocols, the 
proposal will help allow market participants to continue to trade NMS 
Stocks, within quoting and trading requirements that are in compliance 
with the Plan, with certainty on how certain orders and trading 
interests would be treated. This, in turn, will help encourage market 
participants to continue to provide liquidity in the marketplace.
    More generally, Phlx also notes that the Plan, which was approved 
by the Commission pursuant to an order issued by the Commission in 
reliance on Section 11A of the Act,\20\ provides the Exchange authority 
to establish, maintain, and enforce written policies and procedures 
that are reasonably designed to comply with applicable quoting and 
trading requirements specified in the Plan. The Exchange believes that 
the proposed rule change is consistent with the authority granted to it 
by the Plan to establish specifications and procedures for the 
implementation and operation of the Plan that are consistent with the 
provisions of the Plan. Likewise, the Exchange believes that the 
proposed rule change provides interpretations of the Plan that are 
consistent with the Act, in general, and furthers the objectives of the 
Act, in particular.
---------------------------------------------------------------------------

    \20\ 15 U.S.C. 78k-1.
---------------------------------------------------------------------------

    Finally, Phlx believes that the proposal is consistent with the Act 
because the proposed functionality will more closely align the handling 
of Price to Comply Orders, Non-Displayed Orders, and Post-Only Orders 
that are entered through the OUCH or FLITE protocols for Test Group 
Three Pilot Securities with the handling of such Orders entered through 
the OUCH or FLITE protocols for Control Group, Test Group One and Test 
Group Two Securities than the current functionality in place for these 
Orders.

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 proposed changes are being 
made to establish, maintain, and enforce written policies and 
procedures that are reasonably designed to comply with the trading and 
quoting requirements specified in the Plan, of which other

[[Page 95210]]

equities exchanges are also Participants. Other competing national 
securities exchanges are subject to the same trading and quoting 
requirements specified in the Plan, and must take the same steps that 
the Exchange has to conform its existing rules to the requirements of 
the Plan. Therefore, the proposed changes would not impose any burden 
on competition, while providing certainty of treatment and execution of 
trading interests on the Exchange to market participants in NMS Stocks 
that are acting in compliance with the requirements specified in the 
Plan.

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 \21\ and 
subparagraph (f)(6) of Rule 19b-4 thereunder.\22\
---------------------------------------------------------------------------

    \21\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \22\ 17 CFR 240.19b-4(f)(6).
---------------------------------------------------------------------------

    A proposed rule change filed under Rule 19b-4(f)(6) \23\ normally 
does not become operative prior to 30 days after the date of the 
filing. However, pursuant to Rule 19b-4(f)(6)(iii),\24\ the Commission 
may designate a shorter time if such action is consistent with the 
protection of investors and the public interest. In this filing, the 
Exchange has asked that the Commission waive the requirement that the 
proposed rule change not become operative for 30 days after the date of 
the filing.
---------------------------------------------------------------------------

    \23\ Id.
    \24\ 17 CFR 240.19b-4(f)(6)(iii).
---------------------------------------------------------------------------

    The Exchange notes the proposed rule is intended to clarify the 
differences in the handling of certain orders entered into the system 
by different protocols. The Exchange notes that orders will be treated 
as consistently as possible across the Test Groups and the Control 
Group while complying with each grouping's varied quoting and trading 
requirements. Additionally, the Exchange proposed to remove Commentary 
.14 because it is no longer necessary.
    The Commission believes that waiving the 30-day operative delay is 
consistent with the protection of investors and the public interest 
because the proposal clarifies the Exchange's rules and provides 
transparency to members with regards to the handling of certain orders 
entered via OUCH and FLITE as well as RASH or FIX protocols for locked 
or crossed orders in Test Group Three Pilot Securities. The Commission 
notes that the Exchange proposed to remove the functionality described 
in Commentary .14 and make the necessary corresponding systems changes 
in Partial Amendment No. 2 to Phlx-2016-92, which the Commission 
approved.\25\ The Exchange notes that it was able to implement the 
systems changes and that they became fully operational on the December 
14, 2016. Therefore, the Commission hereby waives the 30-day operative 
delay and designates the proposed rule change to be operative on 
December 14, 2016.\26\
---------------------------------------------------------------------------

    \25\ See supra note 5
    \26\ For purposes only of waiving the operative delay for this 
proposal, the Commission has considered the proposed rule's impact 
on efficiency, competition, and capital formation. See 15 U.S.C. 
78c(f).
---------------------------------------------------------------------------

    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: (i) 
Necessary or appropriate in the public interest; (ii) for the 
protection of investors; or (iii) 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-2016-121 on the subject line.

Paper Comments

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

All submissions should refer to File Number SR-Phlx-2016-121. 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 Web site (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 Web site 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; the Commission does not edit 
personal identifying information from submissions. You should submit 
only information that you wish to make available publicly. All 
submissions should refer to File Number SR-Phlx-2016-121 and should be 
submitted on or before January 17, 2017.
---------------------------------------------------------------------------

    \27\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\27\
Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2016-31106 Filed 12-23-16; 8:45 am]
 BILLING CODE 8011-01-P