Document ID: SEC-2019-1827-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Nasdaq PHLX LLC
Posted Date: 2019-12-06T05:00Z

[Federal Register Volume 84, Number 235 (Friday, December 6, 2019)]
[Notices]
[Pages 66951-66953]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-26307]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-87643; File No. SR-Phlx-2019-50]

Self-Regulatory Organizations; Nasdaq PHLX LLC; Notice of Filing 
and Immediate Effectiveness of Proposed Rule Change To Amend Phlx Rule 
507

December 2, 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 November 18, 2019, Nasdaq PHLX LLC (``Phlx'' or ``Exchange'') filed 
with the Securities and Exchange Commission (``SEC'' or ``Commission'') 
the proposed rule change as described in Items I and II below, which 
Items have been prepared by the Exchange. The Commission is publishing 
this notice to solicit comments on the proposed rule change from 
interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to amend Phlx Rule 507, titled ``Application 
for Approval as an SQT, RSQT, or RSQTO and Assignment in Options.''
    The text of the proposed rule change is available on the Exchange's 
website at http://nasdaqphlx.cchwallstreet.com/, at the principal 
office of the Exchange, and at the Commission's Public Reference Room.

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

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

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

1. Purpose
    The Exchange proposes to amend Phlx Rule 507, titled ``Application 
for Approval as an SQT, RSQT, or RSQTO and Assignment in Options.'' 
Specifically, the Exchange proposes to delete Commentaries .02 (Maximum 
Number of Quoters (``MNQ'') in Equity Options), .03 (Increasing the MNQ 
in Exceptional Circumstances), and .04 (Announcing Regarding, or 
Changes to MNQs) to Rule 507. The term ``MNQ'' refers to the maximum 
number of participants that may be assigned in a particular equity 
option at any one time. The MNQ level for options trading on the 
Exchange is 30 for all equity options listed for trading on the 
Exchange.'' The Exchange believes that its proposal will promote 
liquidity on Phlx.
Background
    In 2006, the Exchange filed an amendment to Phlx Rule 507 to enable 
the Exchange to manage its quotation traffic and bandwidth capacity by 
limiting the number of streaming quote market participants that may be 
assigned to a particular option at a given point in time.\3\ 
Specifically, the rule change established: (i) A maximum number of 
quoters (``MNQ'') equity options based on each option's monthly trading 
volume; (ii) a process for recalculating the MNQ based upon changes in 
an option's monthly trading volume; (iii) an increase to the MNQ due to 
exceptional circumstances; (iv) the process by which the Exchange will 
notify market participants of changes to the MNQ; and (v) additional 
criteria relating to the process by which the Exchange will assign 
Streaming Quote Traders (``SQTs'') \4\ and/or Remote Streaming Quote 
Trader (``RSQT'') \5\ applicants in options in the event that there are 
more applicants for assignment in a particular option than there are 
positions.\6\ The Exchange's filing also noted the manner in which the 
MNQ would be recalculated within the first five days of each month 
based on the previous month's trading volume (``new MNQ'') as well as 
the process by which the Exchange will administer a decrease in the 
previous month's MNQ.\7\ The rule change also permitted the Exchange to 
increase the MNQ in exceptional circumstances.\8\
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    \3\ See Securities Exchange Act Release No. 55114 (January 17, 
2007), 72 FR 3185 (January 24, 2007) (SR-Phlx-2006-81) (Order 
Granting Approval to Proposed Rule Change Relating to the 
Establishment of a Maximum Number of Quoting Participants Permitted 
in a Particular Option on the Exchange).
    \4\ A ``Streaming Quote Trader'' or ``SQT'' is an Registered 
Options Trader who has received permission from the Exchange to 
generate and submit option quotations electronically in options to 
which such SQT is assigned. An SQT may only submit such quotations 
while such SQT is physically present on the trading floor of the 
Exchange. An SQT may only submit quotes in classes of options in 
which the SQT is assigned. See Phlx Rule 1000(b)(59).
    \5\ A ``Remote Streaming Quote Trader'' or ``RSQT'' is an 
Registered Options Trader that is a member affiliated with an Remote 
Streaming Quote Trader Organization with no physical trading floor 
presence who has received permission from the Exchange to generate 
and submit option quotations electronically in options to which such 
RSQT has been assigned. A qualified RSQT may function as a Remote 
Specialist upon Exchange approval. An RSQT is also known as a Remote 
Market Maker (``RMM'') pursuant to Rule 501. A Remote Streaming 
Quote Organization (``RSQTO'') or Remote Market Maker Organization 
(``RMO'') are Exchange member organizations that have qualified 
pursuant to Rule 507. See Phlx Rule 1000(b)(60).
    \6\ See note 3 above.
    \7\ See note 3 above.
    \8\ See note 3 above.
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    Since the adoption of this provision the Exchange has amended Phlx 
Rule 507 \9\ to provide additional liquidity in equity options on the 
Exchange by increasing the MNQ in all equity options. Currently, the 
MNQ level is set to 30 for all equity options listed for trading on the 
Exchange.
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    \9\ See Securities Exchange Act Release Nos. 56261 (August 15, 
2007), 72 FR 47112 (August 22, 2007) (SR-Phlx-2007-51); 58906 
(November 6, 2008), 73 FR 67239 (November 13, 2008) (SR-Phlx-2008-
76); 60688 (September 18, 2009), 74 FR 49058 (September 25, 2009) 
(SR-Phlx-2009-82); 65373 (September 21, 2011), 76 FR 59764 
(September 27, 2011) (SR-Phlx-2011-127) (Notice of Filing and 
Immediate Effectiveness of Proposed Rule Change Relating to the 
Maximum Number of Quoters (``MNQ'') Permitted To Be Assigned in 
Equity Options).
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    The Chicago Board Options Exchange, Incorporated (``Cboe'') also 
had a similar limit that it imposed on its market making participants 
within its former Rule 8.3A, which limited the number of market 
participants that could quote

[[Page 66952]]

electronically on Cboe.\10\ Cboe recently filed a non-controversial 
rule change to update defined terms in its Rules, delete obsolete and 
redundant language, and make other non-substantive changes.\11\ Within 
that rule change Cboe eliminated its CQL limit.\12\
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    \10\ Cboe established class quoting limits (``CQL'') for each 
class traded on Cboe's system. A CQL is the maximum number of 
quoters that may quote electronically in a given product and Rule 
8.3A.
    \11\ See Securities Exchange Act Release No. 85657 (April 16, 
2019), 84 FR 16701 (April 22, 2019) (SR-Cboe-2019-017).
    \12\ Id.
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    After careful analysis, the Exchange no longer desires to limit the 
number of quoters on Phlx. The Exchange believes that allowing 
additional market making firms to be assigned to quote in options 
series would foster competition. With this proposal there would be no 
limit on the amount of SQTs and RSQTs that would be permitted to submit 
quotations into Phlx. The Exchange believes that allowing any SQT or 
RSQT that is eligible pursuant to Rule 507 to submit quotations would 
increase the available liquidity on Phlx. Similar to Cboe, Phlx 
represents that it has capacity to handle any additional quoters due to 
the elimination of the MNQ. Phlx monitors System capacity in other 
ways, making a MNQ no longer necessary.\13\
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    \13\ Regulation SCI requires the Exchange to establish written 
policies and procedures reasonably designed to ensure that its 
System has levels of capacity, integrity, resiliency, availability, 
and security adequate to maintain its operational capability and 
promote the maintenance of fair and orderly markets, and that it 
operates in a manner that complies with the Exchange Act. See 17 CFR 
242.1001.
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    In conjunction with the elimination of Commentary .02 to Rule 507, 
the Exchange proposes to eliminate Commentaries .03 and .04 of Phlx 
Rule 507 as these provisions, which relate to increasing the MNQ and 
announcing the changes to the MNQ, would be rendered irrelevant with 
the removal of the limit. The Exchange also proposes to amend Rule 
507(b)(iii) to remove rule text which references a limitation on the 
number of positions available while retaining the criteria in Rule 
507(b)(iii) for consideration of new applicants.
    The Exchange notes that this proposal would be immediately 
effective. The Exchange would issue an Options Trader Alert to members 
noting that the Exchange is removing the limitation on the maximum 
number of quoters. SQTs and RSQTs would be able to apply to make 
markets in any options series. All new applicants for trading 
privileges will be subject to the process for assignment described in 
Rule 507. The Exchange considers all applicants for assignment in 
options using the objective criteria set forth in Exchange Rule 507(b). 
The objective criteria are used by the Exchange in determining the most 
beneficial assignment of options for the Exchange and the public.
2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act,\14\ in general, and furthers the objectives of Section 
6(b)(5) of the Act,\15\ 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's elimination of the MNQ 
limitation will support the addition of depth and liquidity to Phlx.
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    \14\ 15 U.S.C. 78f(b).
    \15\ 15 U.S.C. 78f(b)(5).
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    Allowing additional market making firms to be assigned to quote in 
options series would foster competition. Removing the MNQ limitation 
for all equity options traded on the Exchange, is pro-competitive, 
because it adds depth and liquidity to the Exchange's markets by 
permitting additional participants to compete on the Exchange. With 
this proposal there would be no limit on the amount of SQTs and RSQTs 
that would be permitted to submit quotations into Phlx. The Exchange 
believes that allowing any SQT or RSQT that is eligible pursuant to 
Rule 507 to submit quotations would increase the available liquidity on 
Phlx. Finally, Phlx represents that it has capacity to handle any 
additional quoters due to the elimination of the MNQ. Phlx monitors 
System capacity in other ways, making a MNQ no longer necessary.\16\
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    \16\ See note 13 above.
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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. The Exchange's proposal does 
not impose a burden on intra-market competition because removing the 
MNQ limitation for all equity options traded on the Exchange, is pro-
competitive, because it adds depth and liquidity to the Exchange's 
markets by permitting additional participants to compete on the 
Exchange. The Exchange's proposal does not impose a burden on inter-
market competition because there would be no limit on the amount of 
SQTs and RSQTs that would be permitted to submit quotations into Phlx. 
The Exchange believes that allowing any SQT or RSQT that is eligible 
pursuant to Rule 507 to submit quotations would increase the available 
liquidity on Phlx to the benefit of all market participants. Phlx 
represents that it has capacity to handle any additional quoters due to 
the elimination of the MNQ. Phlx monitors System capacity in other 
ways, making a MNQ no longer necessary.\17\
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    \17\ See note 13 above.
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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 \18\ and Rule 19b-
4(f)(6) thereunder.\19\
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    \18\ 15 U.S.C. 78s(b)(3)(A).
    \19\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)(iii) 
requires a self-regulatory organization to give the Commission 
written notice of its intent to file the proposed rule change, along 
with a brief description and text of the proposed rule change, at 
least five business days prior to the date of filing of the proposed 
rule change, or such shorter time as designated by the Commission. 
The Exchange has satisfied this requirement.
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    A proposed rule change filed pursuant to Rule 19b-4(f)(6) under the 
Act \20\ normally does not become operative for 30 days after the date 
of its filing. However, Rule 19b-4(f)(6)(iii) \21\ permits the 
Commission to designate a shorter time if such action is consistent 
with the protection of investors and the public interest. The Exchange 
has requested that the Commission waive the 30-day operative delay so 
that the Exchange may immediately eliminate the maximum number of 
quoting participants that may apply to all options listed for trading 
on the Exchange. According to the Exchange, the proposed rule change 
will promote liquidity on the Exchange. For these reasons, the 
Commission believes that waiver of the 30-day operative delay is 
consistent with the protection of investors and the public interest. 
Accordingly, the Commission hereby waives the operative delay and

[[Page 66953]]

designates the proposed rule change operative upon filing.\22\
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    \20\ 17 CFR 240.19b-4(f)(6).
    \21\ 17 CFR 240.19b-4(f)(6)(iii).
    \22\ For purposes only of waiving the 30-day operative delay, 
the Commission also has considered the proposed rule's impact on 
efficiency, competition, and capital formation. See 15 U.S.C. 
78c(f).
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    At any time within 60 days of the filing of the proposed rule 
change, the Commission summarily may temporarily suspend such rule 
change if it appears to the Commission that such action is necessary or 
appropriate in the public interest, for the protection of investors, or 
otherwise in furtherance of the purposes of the Act. If the Commission 
takes such action, the Commission shall institute proceedings to 
determine whether the proposed rule change should be approved or 
disapproved.

IV. Solicitation of Comments

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

Electronic Comments

     Use the Commission's internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to rule-comments@sec.gov. Please include 
File Number SR-Phlx-2019-50 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-2019-50. 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-2019-50, and should be submitted on 
or before December 27, 2019.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\23\
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    \23\ 17 CFR 200.30-3(a)(12).
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Jill M. Peterson,
Assistant Secretary.
[FR Doc. 2019-26307 Filed 12-5-19; 8:45 am]
 BILLING CODE 8011-01-P